What happens if I pay extra on my car loan?
I want to put more money toward my car loan to pay it off early, but I’m not sure if I can. What happens when you pay extra on your car loan?
Eric Schad · Answered on Nov 09, 2021
Reviewed by Shannon Martin, Licensed Insurance Agent.
If you pay extra toward your car loan, the principal of the loan goes down more quickly. This translates into paying less interest overall in the long run and, as you said, paying off your loan early.
However, you need to make sure that your lender doesn’t charge any prepayment penalties. Prepayment penalties are fees levied by a lender to offset the loss in interest if you pay your loan off early. These fees can vary, but in most cases, the fees negate the advantages of paying extra toward your loan.
If your lender doesn’t have prepayment penalties, paying extra is a financially savvy move. Some ways to pay extra money toward your car include:
- Doubling up on your payments each month
- Rounding your monthly payments to the next $100
- Making several lump-sum payments throughout the year
- Making principal-only payments regularly
If you want even more money to pay toward your car loan each month, now is the time to review your car insurance and discover savings through comparison shopping.
As a licensed broker, the Jerry app can help you find and compare quotes from over 50 top providers in minutes. When you find a better rate, Jerry will help you switch your insurance and even cancel your old policy to streamline the process.
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