Is it bad to pay off a car loan early?

I recently got a new, high-paying job and I want to use my bonus to pay off my car loan. I’ve heard people say that you shouldn’t do this, though. Is it bad to pay off a car loan early?

Answer
Congratulations on the new job! Wanting to pay off your loan early is a very responsible way to spend your bonus in theory, but in practice, it may not be worth it.
It isn’t bad to pay your car loan off early, but you have to be careful and check your loan documents thoroughly. Many lenders put prepayment penalties in place to keep borrowers from paying off their loans early.
If you can’t find anything in your loan documents about a prepayment penalty, contact your lender and ask for confirmation. If there is no prepayment penalty, paying off your loan early is a great idea if you’re certain that you can handle it financially.
Getting rid of your car loan can be a huge relief financially, but why stop there? Most American drivers are overpaying on their car insurance by hundreds of dollars a year. You could be too!
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Chloe Jenkins
Answered on Nov 01, 2021
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