What happens when you pay off a car loan early?

I looked at my finances recently and realized I can afford to pay off my car loan. I still have about six months of payments left to make. It seems like a good idea, but I know finances can be weird. Should you pay off a car loan early?

Answer
Congratulations, that must feel so exciting! However, you are correct in questioning what happens when you pay off a car loan early. There are pros and cons.
Pros include:
  • Owning your car
  • Saving on interest
  • A better debt-to-income ratio
  • That feeling of paying off a loan
Cons include:
  • A dip in your credit score (usually this is temporary)
  • Incurring prepayment penalties (check your loan agreement before paying it off to ensure it’s worth it)
Whenever there are changes in your car ownership journey, you should think about your car insurance. Changes like owning your car outright can give you a chance to rethink add-on coverages you may no longer need. Or it could just be a great time to look for savings.
You can save money on car insurance by using the Jerry app. We’ll compare quotes from the top 50+ insurers in minutes to help you find the best deals. And on average, our users save $879 a year.
Lauren Smith
Answered on Nov 18, 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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