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Does it help to pay extra on a car loan?
I just landed a big promotion at my job and I’m looking to settle some of my debts with the extra cash. Getting rid of my car loan faster would take a big load off, but does it help to pay extra on a car loan?
Chloe Jenkins · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Congratulations on the big promotion! And kudos to you for using that extra cash to settle some debts! Paying extra on your
car loan
can be a great idea if you read the fine print of your loan agreement.Be careful, though. Some loan agreements include a
prepayment penalty
, which penalizes you for paying your loan off early and doesn’t end up saving you money.If your loan agreement does not mention a prepayment penalty, paying off your car loan early will help your financial situation.
You should know, however, paying extra on your loan is not as simple as sending more money every month–most of the time the lender considers that extra payment as an early payment for next month’s bill.
You will have to reach out to your lender and officially designate which funds will go where. Lenders can sometimes make this a tedious process; they don’t want you to pay off your loans early because they lose money on the interest you pay over the life of the loan.
If paying off your loan early seems like it might not be the best use of your extra cash, try refinancing your loan with the
Jerry
app. Refinancing your auto loan is a great way to lower your car payments. Finding the right lender can be stressful and time-consuming, but Jerry makes it simple. Just download the app and compare top lenders. On average, car owners pay $85 less every month by refinancing their auto loans.MORE: Does refinancing a car hurt your credit score?
View full answer
- Gregory R.
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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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