What percentage do you have to pay for a prepayment penalty?

I want to pay off my car loan, but I'm afraid I might have a prepayment penalty. How much do these penalties typically cost?

Answer
Good question! On average, lenders charge between 2% and 4% of your remaining car loan balance as a prepayment penalty, so careful consideration is necessary to see if the prepayment penalty will cost you less than the interest you would pay anyway.
Typically, you can go online or within your lender’s website to find out how much interest you would pay in for the remainder of your loan. Compare this to your lender’s prepayment penalty, and this will let you know if the prepayment is the better approach.
You also may want to factor in car insurance. When you have a loan, lenders require full coverage auto insurance. If you pay off the loan, you can switch to other types of coverage to cut costs. As a result, your decision to pay off the loan early may save you money overall when factoring in insurance savings.
If you decide to pay off your loan and switch your insurance coverage, make sure to check out the Jerry app to easily get the best deal on the coverage you need. Sign up in minutes to compare rates from over 50 top insurance providers.
Eric Schad
Answered on Dec 13, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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