Let’s say you happened to take out a loan in order to buy your vehicle. And let’s say you’ve realized that maybe you want to pay the remainder of the loan earlier than planned. Should you? Well, here we explore a few aspects of early payoff…because paying off your car loan early can lead to two things:
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A. Saving money on interest
B. Freeing up your budget for other priorities.
Ready? Here are a few financial strategies that can help you satisfy your vehicle loan before it’s due:
1. High-Yield Savings Account (HYSA)
A High-Yield Savings Account means a higher interest rate as compared to conventional savings accounts This allows your savings to grow faster while still affording easy access. This type of savings can ensure both safety and liquidity, making it perfect for short-term savings like a car payoff.
2. Consider a CD Ladder
Certificates of Deposit (CDs) provide fixed interest rates for set terms. By using a CD ladder, you can stagger maturity dates to make sure that funds are available when you need them… without plunking all your money into one CD.
3. Money Market Accounts
Similar to HYSAs, Money Market Accounts often come with really good interest rates and the convenience of check-writing, the flexibility of which is great if you need to access your funds.
4. Automate Your Savings
Setting up automatic transfers into your savings account guarantees consistent contributions toward your financial goal. And having an automated savings deposit helps prevent the temptation to overspend, thus helping keep you on track.
5. Budget for Extra Payments
Go over your current budget and see if maybe there are areas to reduce costs or ways to garner supplementary income. If either or both of those are possible, use these “extra” funds to make additional car payments. Even small amounts add up, significantly impacting the balance of your loan.
6. Evaluate Early Payoff Terms
While it may seem like a no-brainer for your lender to want their money back early, it’s a good idea to check with them first. Before sending in extra payments, review your loan agreement for prepayment penalties. Some lenders will actually charge fees for paying off loans early, which could negate the interest savings.
7. Regularly Revisit Your Strategy
Keep a lookout for fluctuating interest rates and consider adjusting your repayment strategy, because you never know when a better option will become available. Financial institutions have been known to change their rates and terms, so staying informed can impact your savings.
On a whole, paying off a vehicle loan early can be a wonderful thing for car buyers. The burden of something owed is lifted, and there can be a marked savings in interest payments. But it’s smart to go over the strategies and terms of repayment before going all in. See if early payoff is right for you. And if so, here you have a few key tips on how to make that happen!
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