"What happens when I pay off a car loan early? "
My boyfriend is recommending that I pay off my loan on my Toyota early. If I decide to follow his advice, what will happen?
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Answered on Apr 05, 2021
Johnny Puckett is a freelance writer and automotive expert. He has contributed content to a number of some of the largest online publications, aftermarket automotive manufacturers’ sites, and automotive informational sites. His experience in the automotive and information fields informs his writing at Jerry. His automotive interests bleed into his free time, where he enjoys modifying his favorite cars and woodworking.
“If your auto loan does not have a prepayment penalty, then you could save yourself some money in interest payments by paying off the loan early. However, if you have a precomputed interest loan, then you will not save any money by paying the loan off early because you will owe the prespecified interest amount regardless of when you pay the loan off.
Furthermore, paying off your car loan early can hurt your credit score. This is because closed accounts have less of an impact on your credit than open positive accounts. The good news is that if you don’t have any red flags in your credit history, this drop in your credit score should be temporary. “
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