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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?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“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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- Gregory R.
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