Why Pay Off Your Car Loan Early?

With vehicle prices and interest rates higher than they’ve been in decades, the "standard" 72-month car loan is becoming a significant financial burden for many families. By making even small extra payments, you can "hack" the amortization schedule and save thousands in interest. This Auto Loan Early Payoff Calculator shows you exactly how much your extra efforts are worth.

The Math of Accelerated Repayment

Car loans are usually simple interest loans, but they are amortized, meaning your monthly payment is weighted toward interest at the beginning of the loan.

• Principal vs Interest: When you make your standard monthly payment, a portion goes to the bank for profit (interest) and the rest reduces your debt (principal).
• The Extra Payment Secret: 100% of any extra payment you make goes directly toward the Principal balance. This means you owe less money next month, which in turn means the interest charged next month is calculated on a lower amount.

3 Tips for Early Auto Loan Payoff

1. Check for Prepayment Penalties: Most standard auto loans (especially from major banks) do not have prepayment penalties, but "buy-here-pay-here" lots sometimes do. Always check your contract.
2. Round Up Your Payment: If your monthly payment is $462, try paying $500. It's a small mental shift that leads to huge long-term savings.
3. Refinance if Rates Drop: Use our Salary Calculator to see if your updated monthly income allows you to refinance into a shorter 36-month term with a lower APR.