Like a turbocharged sports car, our financial priorities are constantly shifting. It’s not unusual that you may have valued a low monthly payment at the time of your car purchase, but now you want to see those loan payments in the rearview mirror. Maybe you came into some extra cash or simply realized the longer your loan term, the more interest you’ll pay. Fortunately, figuring out how to pay off your car loan faster doesn’t have to be complicated.

So, put on your blinker, and let’s get out of the slow lane as we explore the pros and cons of paying off your car loan early. We’ve got some tips on bringing your balance down faster, including why your local credit union might be the best place to get the process rolling.

Can I pay off a car loan early? 

It is almost always possible to pay off a car loan early. However, just because you can do so doesn’t necessarily mean it’s the best move for your financial situation.

Before you decide whether it’s a good idea to pay off your car loan early, take a close look at your loan details. The factors to consider are similar to refinancing a car loan. Look at: 

• Current balance. If you still have a substantial balance on your loan, it’s worth looking into how to pay off a car loan faster. But if the loan is near the end of its term, it may not be worth the effort.

• Interest rate. The higher your interest rate, the more you will pay for the vehicle over the long run, perhaps even beyond its value.

• Term length. Some loan providers will go as long as 96 months, while others are as short as 24 months. As with balance, the longer your loan term, the more it might make sense to speed up payments.

• Payment stipulations. You’ll want to know if your loan has an early repayment fee.

You can input these numbers into an auto loan calculator (such as this one) to determine roughly how much you could save by shaving off payments. Then, weigh those potential savings against any lender fees or fluctuations in your credit score that could result from the early payment. 

Reasons to pay off faster

Paying off your car loan early might be in your best financial interests if: 

• You have a high-interest rate. If you acquired your auto loan with a variable or high-interest rate, you could be paying thousands extra in interest on top of your loan principal. Repaying these types of loans quickly can significantly reduce the amount of interest you pay. 

• You want to own the car. When you pay off your car loan, you gain ownership of an asset instead of being indebted to a lender. No one can repossess your vehicle, and it is easier to resell the car if you own it free and clear.

• You want to save money. Paying off your loan ahead of schedule frees up cash in your monthly budget for other expenses and financial goals. It can also reduce the amount of interest you pay over the life of the loan. 

• You want to lower your debt-to-income ratio. If you intend to make another large purchase, such as a home or property, the lower your DTI ratio, the more likely you will get a better interest rate on another type of loan.

Reasons not to pay off faster

Early loan payoffs sound enticing, but are they always the best financial decision? Here are some red flags that indicate paying off your car loan early may not be the best choice.

• Your lender charges prepayment penalties. Some lenders charge prepayment penalties to compensate for the interest revenue they lose when you pay off your loan early. These fees could offset any savings you might gain.

• You can’t afford extra payments. If making extra car payments puts you in a financial bind, it’s not worth stretching your budget or borrowing even more money to make ends meet. Only pay extra toward your loan if it won’t add undue stress.

• You have other higher-interest debt. Car loan interest rates are usually lower than those for credit cards, student loans, mortgages, and other forms of personal debt. Paying off those higher-interest loans first can save you more in the long run.

How to pay off your car loan faster

If you determine that paying off your car loan early makes good financial sense, you have several options for speeding up the process (without getting a ticket). Here are some of the most popular strategies for doing so.

1. Make extra payments

If you go the extra payment route, ensure any additional payments go toward the principal — the original amount of money you borrowed from the lender — rather than the loan interest. By reducing the principal balance, you’ll reduce the amount of interest you pay overall. 

These tactics can help you repay your loan faster:

• Pay biweekly instead of monthly. Rather than making monthly payments, halve that amount and pay every two weeks instead. Since there are 52 weeks in the year, you’ll be making 26 half-payments, totaling 13 full monthly payments instead of 12. You’ll repay your loan a little sooner and save some money in interest, too.

• Round up each payment. Simply rounding up your monthly payment to the nearest $50 increment can add up over time without seriously impacting your budget. For example, if your scheduled loan payment is $307 per month and you pay $350, you’ll pay an extra $516 a year — more than an additional month’s payment.

• Make an extra payment each year. If you can't commit to larger monthly payments, at least plan to make one additional payment during the year. Throwing a few hundred dollars toward your car loan can help you achieve financial freedom faster.

• Put bonus cash toward your loan. Any time you receive a pay raise, tax refund, or extra cash from your side hustle, consider putting those excess funds toward your loan instead of splurging.

2. Don't skip payments

When cash is tight, you might be tempted to skip a loan payment. Even though many lenders allow this, don’t do it. Skipping payments moves you further away from your goal by lengthening the term of your loan and accruing even more interest.

3. Cancel add-on expenses

Car dealerships typically add extra coverage like warranties, gap insurance, and service contracts to your auto loan. You don’t always need these add-ons, so review them closely and cancel the ones you won’t use.

4. Refinance your loan

If your current auto loan includes high interest rates or other fees, refinancing could lower your payments and improve your terms. If you’ve been making your payments on time, your credit score may have increased since you took out the loan, which can give you more favorable options than when you signed your lease.

Just remember not to follow a shortcut that doesn’t take you to your goal. If you want to pay off your car loan faster, avoid a new refinancing agreement that promises lower monthly payments but extends your loan's length. 

In the process, be sure to check the car loan rates at your local credit union. Credit union car loan rates are often at least a couple of percentage points lower, on average, than rates offered by banks. Even a point or two can save you thousands over the life of a loan.

Further resources on paying off your car loan early

Looking for more information to help you make smart car loan decisions? Check out these resources:

• Make a comparison. The National Credit Union Administration offers a current comparison of average car loan rates at credit unions versus banks.

• Know the possibilities. A handy online car loan calculator can help you calculate your potential savings.

• Read up on tips. Consumer Reports has plenty of information about how to get the best car loan.

Then, if you’re still wondering how to pay off a car loan faster, or whether you even should, turn to your local credit union for help. Like a diligent passenger who will check your blind spots, credit unions offer personalized service and other benefits you won’t find anywhere else. 

Did you know?

Many credit unions offer lower interest rates than traditional banks or online lenders, with more flexible underwriting that makes it easy to secure affordable car loans. Unlike large for-profit banks that answer to shareholders, credit unions are not-for-profit institutions owned by members, so they exist to help you reach your financial goals.