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Is it a good idea to pay off a car loan early?
How can I tell if I should pay off my car loan early or not? For the past four years, I’ve been living in an apartment and saving up money to buy a house. I want to qualify for a mortgage, but I’m worried the amount of debt I have will prevent me from getting approved. If I pay off my car loan, will that help increase my chances?
Phoebe Mah · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
It’s understandable why you are worried about your chances of getting approved for a
mortgage
. Rest assured that in this situation, it is a good idea to pay off a car loan early so you can lower your debt-to-income ratio.Debt-to-income ratio (DTI) is a percentage that represents how much of your monthly income goes toward paying off monthly debts. Typically, lenders will approve borrowers who have roughly 43% or less. But lenders prefer if the DTI is 31% or lower.
Paying off your car loan can help lower your DTI since it will be one less debt payment you’re obligated to make every month. Most importantly, having a lower DTI will increase your chances of getting approved for a home loan.
To lower your expenses even further and free up more money to put toward your home purchase, cut back on the cost of your car insurance with
Jerry
. A licensed broker, the Jerry app does all the hard work of finding cheap quotes from the top name-brand insurance companies and buying new car insurance.Jerry will even help you cancel your old policy. And to ensure you always have the lowest rate, Jerry will send you new quotes every time your policy comes up for renewal, so you’re always getting the coverage you want at the best price.
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- Gregory R.
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