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Can I pay off a car loan early?
I got my yearly bonus from work, and it's enough to pay off my car loan. Is it possible to pay off the rest of my car loan ahead of time?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Since you have the cash, just get a payoff statement for your car from your lender. This will include the final balance of the loan, plus any remaining interest you’re responsible for per the loan agreement.
Before you make this final payment, you should make sure that your lender doesn’t have any
penalties for prepayment
. In some cases, a prepayment penalty can drastically impact whether or not paying off the full balance is the right move.The average prepayment penalty is 2% of the outstanding loan balance. However, most lenders have done away with such fees. Be wary anyway and always ask so there aren’t any surprises.
Since you’re paying off your car, you also have another important decision regarding your car insurance. If your car is still relatively new, keeping
full coverage
may be a great idea. However, you can always reduce coverage to liability
if the car’s older to significantly reduce your monthly insurance bill.As a general rule, if your yearly car insurance payments are more than 10% of the value of the car, switching to just liability coverage might be the better move. If you decide to switch your car insurance, make sure to shop around for the best deal.
Download the
Jerry
app to find the best rates. A licensed broker that offers end-to-end support, the Jerry app gathers affordable quotes, helps you switch plans, and will even help you cancel your old policy.View full answer
- Gregory R.
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