The process of buying your brand new car was perhaps a long and tedious one, from picking the brand and model to picking the right color. But now the focus is on your ability to pay off your loan. As a general rule, the faster you can pay off the loan, the better, because it will save you money in the long term.
Affordability
First of all, ask yourself if you can afford to pay off your car loan in its entirely. If you have, say, $15,000 left on your car loan and have $15,500 in your bank account, you need to consider if you can afford to live off $500 until your next payday. You must be able to handle having your finances depleted, at least for a short period of time.
Interest
Paying off the remainder of your loan will immediately mean that you no longer have to worry about interest payments. That's because you're outstanding balance will be zero. Having an outstanding balance accruing interest doesn't benefit you, only the lender. So eliminating your debt means you won't pay any extra unnecessary fees. That can save you hundreds of dollars per year, which can turn into thousands, depending on how long you keep the loan and its interest rate.
Debt
While some debt is not necessarily bad -- such as a student loan or mortgage -- having too much is not an ideal situation. Having too much debt can hurt your credit score and can hamper your ability to get a needed loan or get an optimal interest on your loan or mortgage. The amount you owe makes up 30 percent of your credit score, so the faster you can eliminate your debts, the better it is for your score.
Pay Larger Installments
If you have decided that you can afford to pay off your car loan entirely, but depleting your finances is too much of a risk, consider making a series of larger payments. Instead of paying $250 every month, pay $1,000 each month for however long it takes to eliminate the debt. Or make two large payments over two months to lessen the blow.
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