Should I Use Savings to Pay Off My Car Loan Early?
If you’ve got a car loan, you've most likely considered to completely pay it off the soonest. It can be tempting to use all your savings to pay off a car loan early, but it’s always important to be aware of the risks and benefits of this decision.
There’s no set answer to whether or not it's a good idea to pay off a car loan early. It’s really going to depend heavily on your personal circumstances as well as the type of car loan that you have and other factors.
If you need advice about car loans, Positive Lending Solutions can help.
The advantages of using savings to pay off a car loan early
It’s tough deciding whether it’ll be best for you to pay off your debts or to save up the money that you have. There are a few advantages to using savings to pay off a car loan early, not least that you’ll be free to start directing your money elsewhere.
Some of the advantages include:
- By ending the loan you will stop paying interest on the loan.
- You could improve your credit history by showing a loan paid in full.
- You’ll reduce your overall debts.
The disadvantages of using savings to pay off a car loan early
There are some disadvantages that you need to be aware of if you consider paying off a car loan early. Loan providers would prefer your loan to last the full term to ensure that they continue to be paid interest on the loan.
Some of the disadvantages of using your savings to pay off a car loan include:
- Early repayment fees. These will likely be in the terms and conditions of your loan and could be quite substantial. You’ll need to do some sums to figure out whether you’ll actually save money by paying off your loan early or if the exit fees will be so high that it would be better for you to complete the loan term.
- There could also be a lot of administration involved in paying back your loan early. It could be simpler to just keep making your monthly repayments until the loan term is completed.
Don’t panic if you feel trapped. There could be an alternative option that you may want to consider if you’re thinking of paying off a car loan early.
People thinking of using their savings to pay off a car loan early are generally unhappy with the car loan that they have and want a change. If this sounds like you, you could consider a car loan refinancing as a way to find a car loan that you’re happier with.
Here are some of the circumstances you could consider when refinancing your car loan:
- Your credit rating has improved
- You are unhappy with the rate of interest you received on your original car loan
- Car loan rates have dropped since you got your car loan
Figure out what works for you
Although a car loan refinancing could be a great alternative to using savings to pay off a car loan early and incurring early repayment fees, it may not be right for everyone.
You need to do your sums, budget realistically and seek expert help to figure out the best option. We have decades of experience helping people to find the best car loan options and can offer expert advice about the best decisions for you going forward.
Get expert advice from Positive Lending Solutions for help with car loan advice or refinancing.