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Why should I pay off my car?

I was thinking about paying off my car because I received a big bonus. I thought about paying off my car, but I wasn’t sure if this would be a good idea in the long run. Should I pay off my car early?

Eric Schad · Updated on Nov 4, 2021

Reviewed by Shannon Martin, Licensed Insurance Agent.

Bonuses are a welcomed addition to your income!

Using your bonus to pay off your

can be a good idea. When you pay off your car loan early, you can reap numerous benefits, including:

Lowering your debt-to-income ratio

Having more money for other expenses

Having financial flexibility

Getting positive equity in your car

However, paying off your car loan early can also come with some drawbacks, such as:

Prepayment penalties

A hit to your credit score, as paying off your loan can lower your credit mix

If you decide to pay off your car loan, don’t forget about double-checking your insurance policy. Since you paid off the loan, you can choose to switch your coverage to a lower amount or maintain full coverage. To get the best rate for the coverage you choose, use the

app. Download Jerry and compare quotes from up to 50 insurers in just minutes.

More:

Should you get a 72-month car loan?

View full answer

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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.

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