Do you save money if you pay off car loan early?

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asked Jun 16, 2018 in Buying & Selling by K8TG (250 points)
Do you save money if you pay off car loan early?

1 Answer

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answered Jun 16, 2018 by Judy (36,670 points)

Paying off a car loan early will not save you any money because you'll still be paying the full interest you agreed to when you took out the car loan. 

So whether you make payments on the car loan each month for the full term of the loan or you pay it off earlier by making extra payments you'll still be paying the same amount for the car loan and will not save any money.

Also some car loans will actually penalize you with a prepayment penalty for paying off the car loan too early.

The car finance company wants you to pay them payments so they'll earn the interest because that's how they make their money.

Also paying off your car loan early could ding your credit score because it will raise your Utilization Ratio which is the amount of revolving credit you're currently using divided by the total amount of revolving credit you have available.

It's better to keep the car loan for the full term and continue to make payments to show on your credit report that you make on time payments and are good and responsible with credit which can also help boost your credit score. 

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