Is it possible to pay off a car loan early?

I just celebrated my 30th birthday, and my parents offered to pay off my car loan as a gift. This is incredibly thoughtful of them, but I only have 11 payments left, and I’m not even sure how paying off the loan would work. Is it possible to pay off a car loan early?

Answer
That’s an incredibly kind gift from your parents, and yes, you can pay off your car loan early. But depending on your situation, it isn’t always the best idea.
Paying off your car loan early has many benefits, such as:
  • Having full ownership of your vehicle with a free and clear title
  • Having some additional disposable income each month by no longer having a monthly payment with interest
  • Improving your debt-to-income ratio
  • Avoiding an upside-down car loan
However, paying off your car loan early has drawbacks as well, such as:
  • Possibly having a prepayment penalty that could negate any benefit of paying off the loan early
  • Causing a temporary dip in your credit score
  • Not being the most effective use of money, especially if you have other debts with higher interest rates
If you decide having your parents pay off the loan may not be the best idea, you could ask them to reimburse you for monthly payments instead or just ask for the payoff balance in cash.
However, if you decide to take your parents up on their offer and pay off your car loan, you should let your car insurance company know so that they can adjust your rate.
To ensure you aren’t overpaying for your coverage, give Jerry a try. Jerry is an insurance comparison app that shops for low prices with over 50 insurance companies for free. You will get quotes in seconds, can make changes at any time, and if you ever have any questions, agents are just a text away! The average Jerry user saves $879 a year on car insurance.
Jack Walsh
Answered on Dec 08, 2021
Jack is an insurance specialist and writer living in Buffalo, New York. He has a BA from Union College and worked as an insurance agent with Jerry before joining our content team. He enjoys using data and research to break down complex subjects and convey a story. In his spare time, Jack enjoys cycling, cooking, and exploring Buffalo’s beautiful waterfront.
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