Should I pay extra on my car loan?

I got a raise at my job and can afford to chip away a little more on my car loan. Is it smart to make extra car loan payments?

Answer
Congratulations on the raise! You can pay extra on your car loan, but before doing so, you should carefully consider your finances and look over your loan agreement.
Your finances: Your car loan may seem like a daunting debt that’s hanging over your head, so it makes sense to want to tackle it. However, the interest rate on car loans is usually pretty low.
Before paying extra on your car, ensure you don’t have higher-interest debt you should get rid of first. Also, consider whether you might be better off padding your savings account or emergency fund instead.
The loan agreement: I know it’s boring, but read the fine print. Sometimes lenders will put sneaky phrasing into their loan agreements to prevent you from getting out of your loan early.
These are called prepayment penalties. If the loan paperwork seems difficult to understand, call your lender to ask questions about making extra payments and potential associated fees.
If you don’t get the answer you want from your lender, know that you can still make changes to your car loan by refinancing. You may qualify for better rates that can save you hundreds of dollars in the long run.
The Jerry app gives you the most accurate loan options without the hassle of speaking with individual lenders yourself. Using information from your current loan and credit, users are given a list of lenders to compare competitive quotes quickly and easily.
Lauren Smith
Answered on Nov 19, 2021
Lauren has written for World Nomads, the Matador Network, Korvia Consulting, and once upon a time Three Fates Games. She graduated from Columbia College of Chicago with a BFA in Creative Writing. After graduating, she moved overseas and lived in South Korea where she spent her free time traveling and going on road trips with friends. She misses the rest stop potatoes and is trying to figure out how to recreate them at home. She's now based outside of Chicago and when she's not writing she spends her free time reading, playing video games, and exploring whenever she can.
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