Should you pay off your car loan early?
Last updated November 9, 2026
Extra payments on a car loan can save real money. Before you send them, a few checks can keep you from surprises.
What extra payments can save
Consider a $20,000 loan at 7% over 60 months. The payment is about $396 a month, and total interest is about $3,760. Here is what adding a fixed extra amount each month does:
| Extra each month | Paid off in about | Interest saved |
|---|---|---|
| $0 | 60 months | — |
| $50 | 53 months | $510 |
| $100 | 47 months | $890 |
| $200 | 38 months | $1,440 |
Five things to check first
- Prepayment penalty. Some lenders charge a fee for paying early. Look in your loan agreement or ask.
- Simple interest or precomputed. On a simple-interest loan, extra payments cut future interest. On a precomputed loan, paying early may save little. Ask your lender which type you have.
- Where the extra goes. Make sure extra money is applied to principal and not treated as an early payment on the next due date. Many lenders let you mark it.
- Your other debts. If a credit card charges 25% and the car loan charges 7%, the card is the better target.
- Your cushion. Extra money in a car loan cannot come back out. Keep some savings available first.
Insurance and credit
You may still need full coverage after the loan is paid, depending on your choices. Paying off an installment loan can change your credit mix and may move your score slightly, usually not by much. That alone is rarely a reason to keep paying interest.
Compare it with your other debts
Add the car loan and your other debts to the planner. It shows whether the car loan should get the extra money or sit behind a higher-rate debt.
Run your own numbers
Enter your balances, rates and payments to see which debt to pay first and when you could be debt-free.
Related guides
- Pay off student loans early or invest instead?
- Should you pay off your mortgage early?
- How to pay off debt faster
This article is for education only and is not financial, tax or legal advice. Examples use simplified monthly interest and assume on-time payments with no new borrowing.