Shiny car in front of house in the driveway.

How To Pay Off Your Car Loan Early

Hanna Kielar5-Minute Read
UPDATED: December 12, 2022


A car loan is one of the biggest financial responsibilities a person can commit to. And as monthly payments get larger, terms get longer, and APRs get higher, the debt from getting a new or used car can become a serious burden for many people. Luckily, there are several ways to pay off your car loan faster, and remove a large expense from your monthly budget.

Can You Pay Off A Car Loan Early?

First, let’s start by taking a look at your car loan.

While you’re probably already making payments toward your car, it’s important to know that a car payment is considered too high if it makes up more than 30% of your total income. Make sure to also factor fuel and maintenance expenses into this number, as a car payment won’t be your only vehicle expense. Generally speaking, try not to let your car payment exceed 15 – 20% of your total income.

After reviewing your car payment, determine your loan’s current balance and confirm whether you can pay off your car loan early without penalties. While most loans do allow early payoffs, some might impose extra penalties, which would ultimately cost you more money in the long run. Make sure to pay extra attention to penalties if you have bad credit or a high interest rate.

What Happens When You Pay Off A Car Loan Early?

If your car loan allows for an early payoff, you have the opportunity to save money on interest and improve your credit score.

Depending on your car loan’s interest rate, the longer the loan’s terms, the more interest you can rack up. So if you pay your loan off early before the term ends, you can actually save money by not having to pay as much interest. Now, instead of paying off your loan’s interest, you can have that money to spend on other purchases. To find out how much money you could save in interest, speak with your lender or utilize an auto loan calculator.

If you do choose to pay off the balance for your car loan, keeping the account open for the loan’s full term will show investors that you made your payments on time, which could potentially boost your credit score.

Paying Off A Car Loan Early

Now, let’s talk about how you can actually pay off your car loan. Here are some strategies that are sure to quickly cut down your car payment.


If your current auto loan came with high interest rates and other monthly fees, refinancing your loan could potentially give you better terms and a lower payment. You should be able to qualify for better loan terms as long as your credit score has increased since you applied for the loan. This is quite likely if you’ve been making your monthly payments in full and on time.

If you’re unable to qualify for a lower monthly payment or a sooner payoff date, financing might not be your best option. Your goal is to pay off the loan quickly, so you don’t want to lower your monthly payment and lengthen your term because in the long run, you’ll pay the same amount with increased interest.

Don’t Skip Payments

Auto loan payments can be costly, so I understand why it can be tempting to skip a payment or two if your lender gives you permission. But know that skipping payments will take you further away from your goal of an early payoff by lengthening the term of your loan and making you pay more in interest.

Make Biweekly Payments

If you’ve been meeting all your monthly payments without any trouble, consider taking it up a level and start making bi-weekly payments toward your loan. Instead of making a monthly payment, take what’s left of your car payment and divide it in half. This is what you will pay every two weeks. Now, your loan balance will continue to decrease and you will pay less interest on the remainder of the loan.

Make Payments On Your Extra Pay Periods

If you want to make additional payments but feel like you can’t commit to a biweekly payment, think about making additional payments on your extra pay periods. You might already use your extra paychecks to buy new clothes or treat yourself to a spa day, but consider giving them a new use and pay off your car loan debt. You will be able to make plenty of “fun” purchases without worry once your loan is paid off!

Round Your Payments Up

Another way to pay your loan off faster is by rounding your payments up. Instead of paying your monthly sum, consider rounding your payment up to the nearest $50. This strategy could potentially save you hundreds of dollars in interest.

Make One Large Payment Per Year

If you like the idea of rounding your payments up to the nearest $50, you might also like this strategy. With making one large payment per year, you are essentially rounding up one month’s payment. It doesn’t matter what time of the year or payment you choose, but consider adding an extra sum on top of what you already pay. For example, commit to paying an extra $500 per year. This is another great way to save big on interest.

Cancel Add-Ons

Sometimes car buyers can agree to include add-ons in their auto loans without realizing how much extra they cost. Common types of add-ons are GAP waivers, service contracts and warranties. If your car has been driving smoothly and doesn’t need these extra forms of protection, canceling them could decrease your loan payment.

Reduce Expenses

If you like the idea of lowering bills you already have, think about what extra expenses you could temporarily cut out from your life. Maybe you could ditch cable or your landline or another monthly payment. You could also cut down your dining out, entertainment or shopping budgets to free up some extra cash to pay your loan off. 

Snowball Your Debt Payments

Snowballing your debt can not only help your car loan payments, but other forms of debt you might have. First, take your lowest amount of debt or your highest-interest debt and gather up enough funds to pay it off. Next, take the amount of money you paid toward that debt and apply it to your next debt payment until it is paid off. Finally, take the full amount you paid and apply that to your next debt payment. Follow this pattern until your debt is gone.

Use Tax Refunds, Bonuses, Or Raises To Make Payments

Another easy way to pay off your car loan faster is by using your tax refunds, bonuses and pay raises to make extra payments. While you might not want to spend this extra money on your car loan, it will certainly benefit you in the long run when your auto loan is all paid off.

Earn Additional Income

If you’re struggling to find extra cash, you might consider other ways to earn additional income. Perhaps you can use a talent or hobby to make money, rent out a room in your house, or sell items online. No matter what side hustle you choose, you’ll be one step closer to an early auto loan payoff.

Should I Pay My Car Loan Off Early?

To recap what we’ve covered, you should try to pay your car loan off early if you have a high-interest auto loan and no opportunity to refinance. Even if you have a low interest rate, you can get out of debt faster if you pay off your car loan early.

Once you’ve paid off your loan, make sure to tell your car insurance company so you can remove the lien holder from your policy. You can contact them right after the loan is paid off, so you don’t need to wait until you have the title to make the call.

If you decide to pay your car loan off early, hopefully you have some good strategies that you’re ready to implement.

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Hanna Kielar

Hanna Kielar is a Section Editor for Rocket Auto℠, RocketHQ℠, and Rocket Loans® with a focus on personal finance, automotive, and personal loans. She has a B.A. in Professional Writing from Michigan State University.