Is it a good idea to pay off my car loan early?

I've started saving some extra money since landing a new job with a higher salary. Should I use this money to pay off my car loan early?

Answer
“In theory, paying off your car loan early is a smart idea because it reduces the amount of interest you’ll pay over the life of the loan. However, in certain scenarios, paying off your car loan early will cause you to actually lose money.
If you have a zero percent interest loan, you aren’t paying any extra money. In this case, paying off the entire balance doesn’t really reward you. Even if you could pay off the loan, investing this money in something else that earns a return is a better approach than paying off the entire loan.
In general, the idea is to calculate whether paying off a loan will save you money. If you have a high interest rate, this is probably a great idea. But if you have a low interest rate, putting that money in a high-interest savings account, stocks, bonds, ETFs, mutual funds, or certificates of deposit may net you more money overall. “
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Eric Schad
Answered on Mar 25, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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