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Is it worth paying off a car loan early?
I just learned my year-end bonus will be larger than usual this year, and my wife and I thought it might be well spent paying off our car loan. However, is it worth paying off a car loan early?
Jack Walsh · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Congratulations on the extra-large bonus! I’m sure it’s well deserved.
Paying off your
car loan
early is typically worth it unless the money could be better used or you want to maintain your current credit score for an upcoming purchase.Some of the pros of paying off your car loan early are as follows:
- Owning your car outright with a free and clear title
- Saving money by not having to pay interest on the loan anymore
- Freeing up money for other expenses
- Avoiding anupside-down car loan
Some of the cons:
- Possibly having to pay aprepayment penalty
- A dip in your credit score, although typically temporary
- The money could be used more effectively, like to pay a loan with a higher interest rate
If you decide to pay off the loan early, you can also save money on your
car insurance
by dropping the full coverage
that is required when making payments, although it is smart to keep.While reviewing your car insurance policy, you should ensure you are getting the best rate and any discounts you may be eligible for by downloading
Jerry
.A licensed broker that offers end-to-end support, the Jerry app gathers affordable quotes, helps you switch plans, and will even help you cancel your old policy. And if you have any questions along the way, just text one of our agents through the app. They will always be there to assist you!
View full answer
- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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