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7 Ways On How To Pay Off Your Car Loan Early

There are plenty of ways out there on how to pay off your car loan early, and we are going to share with you some of them. This way, you’ll have an idea of how to be debt-free sooner than you can.

ways on how to pay off your car loan early

According to the United States Consumer Financial Protection Bureau, as of April 2019, there are 2.3 million auto loans that were originated, while $52.3 billion volume of new loans were recorded at the same time. Based on this data, the bureau found that there is a 3.6% increase in year-over-year originations, 2.1% in year-over-year inquiries, as well as a 1.9% decrease in year-over-year credit tightness.

Meanwhile, in data presented by Statista, it says that as of May 27, 2020, the car loan interest rates in the United States amounts to 4.35%. Furthermore, in the same report, it says that the “average amount of new car financing in the U.S. was 32,797 U.S. dollars at the end of the fourth quarter of 2019.”


If you come to think of it, based on the numbers, Americans love cars, and most of them, get an auto loan to be able to purchase their dream car.

If you have had an auto loan before, you probably know by now that financial institutions offer different terms and rates that are really pleasing to consumers.

But the thing is, some of us are not that fully aware of how car loans go. Just so you know, the common rule when it comes to an auto loan (or any type of loan for that matter) is that the longer you pay for a loan, the expensive the loan becomes. Meanwhile, the shorter the car loan is, the cheaper the car loan interest rates are or that the loan in itself is cheaper.

So, ideally, when you have an auto loan, it’s best to pay as soon as possible. That way, you get to save yourself a few bucks.

Having said that, we are going to share with you some ways on how to pay off your car loan early.

In particular, we are going to talk about the following:

  • What are the pros and cons of paying off an auto loan early?
  • What are the steps to paying off an auto loan early?
  • How to pay off your car loan early?
  • What to do if you have more than one car to pay off?


Before we talk about the process on how to pay off your car loan early, we thought it’s important also to share with you first the benefits as well as the downsides of paying off your car loan early.

As a consumer, you have to understand and be fully knowledgeable about this so you know your options, at the same time, you will be able to decide what will work for you best.

So, having said that, let’s take a look at the pros and cons of paying off a car loan early:


  • You get to eliminate debt sooner. Paying off your car loan early helps decrease your monthly expenses, which means you get to save money, at the same time, you get to focus on paying other debt you have faster as well.
  • You get to enjoy a reduced interest rate. Normally, the interest of a loan accumulates over the life span of a loan. Thus, paying off your car loan early will help reduce the total amount of interest you pay from your creditor. This also means you get to save money for yourself or for other things you need to pay off.
  • The lien of your car will be automatically removed. According to Investopedia, lien refers to a creditor’s legal right to “sell the collateral property of a debtor who fails to meet the obligations of paying off a loan.” Unlike personal loans, car loans are secured loans, which means the car automatically becomes the collateral. Should you fail to meet your financial obligations to the lender, the lender has all the right to take the car away from you. However, when you pay off the loan early, the lien is automatically removed and you will have all the rights to your car.
  • You get to have an improved debt-to-income ratio. A good debt-to-income ratio is vital particularly when buying a house. Mortgage companies usually look at it to help ensure that you can afford to pay off for the mortgage. By paying off your car loan early, it puts you in a better financial position and definitely helps improve your debt-to-income ratio.
  • It gives a positive impact on your credit score eventually. We all know how important it is to have a good credit score, right? So, if you want to improve rather than increase your credit score, we highly recommend paying off your car loan early.

In the video below by Brad Finn, he shares tips as well as benefits of paying off your car loan early. Just click the play button to watch the whole thing:


  • You may be charged for early payoff penalties. Unfortunately, some financial institutions or lenders charge an early payoff penalty, which means you are charged for paying off the loan early instead of its supposed maturity date or original payment schedule. That is why we highly recommend that before you even apply for a car loan, make sure to check with the lending company if they charge early payment penalties. If yes, consider checking out other lending companies.
  • There may be a need to refinance your car. Not all lending companies allow penalty-free early payoffs or partial payments towards a car loan or any loan for that matter. So, to be able to get terms that make paying off worthwhile, you may consider refinancing your car loan instead. Later on, we’ll talk more about refinancing your car loan.
  • The total loan balance may stay as it is. There are lending institutions that use pre-computed interest, which means all of the interest for the whole duration of the loan is tallied and applied to your account even before you make the first payment. In this particular kind of arrangement, lenders normally apply whatever extra payments to pay down the interest first. Thus, paying your loan off early may mean not saving money at all. Again, better check this with your lender to be sure.
  • There is a chance that your credit score may drop. Although we earlier mentioned that your credit score may improve when paying off the loan early, during the first few months, it actually may drop. But as we have said, it will eventually recover and may even improve your credit score.


As we have mentioned earlier, car loans are secured loans, which means your car automatically becomes the collateral should you fail to make on-time payments. Now, when paying off a car loan early, it involves more than just submitting your payment. You need to take certain steps to ensure that everything is properly documented and that all rights to your car are yours.

So, to help you with that, here’s a step-by-step guide on how to pay off your car loan early:

1. Make a call to your lender, and request a payoff balance. Do not forget to ask how long the payoff balance is valid. Usually, the interest accumulates daily on the loan. So, make sure to ask and take note of the validity period.

2. Pay for the exact payoff balance to the lending company. When paying off, you can either pay the balance in-person or pay it off via online transaction or online payment. Once payment is made, make sure to take note of the processing date. Also, double-check to ensure that you made the payment before the validity of the payoff balance provided by the lender expires. Meanwhile, if you are mailing the payment, make sure to verify the delivery date to ensure that it arrives before the payoff balance’s expiration date.

3. Once payment is received and processed by the lender, request for a release of lien. This especially applies to those paying payoff balances online or via mail. Make sure to check if the payment has been received and processed. Once the lender makes a confirmation, immediately request for release of lien on your vehicle. Do not forget to request for a completed loan payoff letter as well.

4. Once the release of the lien of your car is received, take your car title, loan payoff letter, and release of lien to your local Department of Motor Vehicles. Then, request a new title that officially removes the lien to make sure all the rights to the car is yours already.

5. Make sure to keep copies of all the paperwork for your records, and for future reference. Even after you paid off the loan, it is important to keep copies of all your records. No one knows what you might encounter in the future, so, better be safe than sorry.


As we have mentioned earlier, there are plenty of ways on how you can pay off your car loan early.

If you do not have a lump sum to pay off your loan, here are some ways you can do to help expedite paying off your car loan:

Refinance Your Car Loan

Did your credit score improve since you bought that vehicle? If yes, then refinancing should not be a problem. Usually, if you had been paying all payments on-time for a year or two, most likely your credit score has already improved.

Now, when refinancing your car loan, make sure to opt refinancing at a lower rate. This is an effective way to pay off your car loan sooner than expected.

By lowering your interest rate, your monthly payments will be slightly reduced. Now, if you are able to pay more than the monthly payment, then, you are on your way to reducing your debt.

There are key points to remember though when refinancing a car loan. These are:

  • Knowing your interest rate
  • Finding a lower rate either at a bank, credit union, or online
  • Financing for a lower rate, at the same time, a shorter term

Keep in mind that you are trying to pay off the loan sooner. Thus, reducing your interest rate means you are going to pay less all in all. But, take note that it does not necessarily mean you are paying it off quickly if you opt for a long term loan.

When refinancing, make sure that it will be beneficial and not like an extra load you need to think of. Make sure that it will help lessen the load of paying the debt.

What are the benefits of refinancing?

To put it simply, refinancing can help lower your interest rate, which gives you an alternative way to save money over the course of your car loan.

Refinancing is also another way to get rid of bad customer service you get from your current lender.

Just remember though that if you opt for refinancing, most lenders will not refinance a car that’s over seven years old, which means, you should process refinancing as soon as you can or before your car turns seven years old.

Pay the Car Loan Bi-Weekly

Instead of paying once a month, consider taking your monthly car payment, and then divide it by two. Once done, make that payment amount every two weeks.

If you come to think of it, if you pay every two weeks, it means you make 50% of your payment 26 times as compared to a usual 12 payments annually. Essentially, it means paying an extra payment in its entirety per year.

Apart from that, one more benefit you get from paying on a bi-weekly basis is that you will pay less interest over the course of the car loan. When you pay every two weeks, your balance continuously decreases, which leads to a lessening the amount of interest charged against your remaining balance as opposed to paying once every month.

This step may not help you pay off your loan very quickly, but it is still good to get into the habit of paying your loan off regularly.

Use Your Tax Refunds, Bonuses, and Pay Raises

Instead of using your tax refunds, bonuses, and pay raises to shop or for other non-essential things, why not use them to help pay off your car loan early instead?

Whatever extra money you get in a month or in a year, make sure to put it directly towards your car loan. You will be surprised at how big a difference it can make. You will just realize you actually have enough money to pay off your car loan.

Get an Extra Job

Another way to help you pay off your car loan sooner is by getting an extra job.

There are so many online jobs out there that can add your monthly earnings, and would definitely help you gather the money you need to pay off your car loan earlier than scheduled.


Instead of paying the agreed amount between you and your lender, make round payments instead of up to the nearest $50 to help repay the loan faster.

For example, you loaned money amounting to $10,000 at a 10% interest for 60 months. Instead of paying $212.47 amount, make it $250 instead. By doing so, you will get to repay the car loan in just 47 months! Needless to say, having only paid $2,214.69 in interest instead of $2,748.23. You see, that’s over $500 money saved.

Always Pay On Time, Never Skip Payments

There are lenders that allow borrowers to skip payments once or twice a year. While this set up is so tempting, make sure to avoid such temptation. Why? It’s because skipping payments will actually lengthen the term of your loan and even cost you more interest! Thus, make sure to not skip making payments, and to always pay on time. Late payments may cost you a lot, and that means losing money that you could have used to pay off your car loan early.

Sell Items Online

Whether it be pre-loved or brand new items, it doesn’t matter. Selling online is another legit way of earning money to help you pay off your car loan early. It doesn’t have to be big. Remember that whatever amount you get, no matter how small or big your profit is, once you put them together with other funds you saved, that could help suffice the amount you need to pay off the loan sooner.


Many American households do have multiple cars and/or vehicles, and most of them are under car loans as well. So, what to then if you have more than one car loan that you want to pay off early?

The best way is to choose the car or vehicle you find really helpful and suitable for you or your family, and then focus on paying that off first — as soon as you can. Remember that it’s always easier to pay off another loan once you have already finished off or have eliminated one of your payments.

Another way is to focus on the car that offers the greatest financial savings for you and your family based on the terms of the loan.

For example, one vehicle comes with a 10% interest rate, while the other has a 6% interest rate. Between the two, choose to pay down the higher-interest debt first. That way, you get to free up more money to pay off the other car loan.


Getting car loans is inevitable – especially these days when commuting is a big risk health-wise. Contrary to what we believed in though, there are actually a lot of ways to help pay off a car loan earlier than scheduled – for as long you got the will and determination to do so.

How do you plan to pay off your car loan early?

As we said, there are plenty of ways on how to pay off your car loan early. You just need to pick one or two among the many ways to help you achieve your goal of becoming debt-free sooner.

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