Paying off of your vehicle loan early does bring you some significant advantages, although it takes time to clear off the debt. With self discipline and assurance, it tends to be done gradually. Here are some reasons why you should pay off your car early.
The amount of interest that you’re paying to the bank every month will decrease from time to time when your loan balance is decreasing. Try to shorten your car loan period in order for you to save money. You may also use an amortization calculator to determine your savings.
2. Start saving for your next car.
Your vehicles will not keep you going forever for your entire life, therefore definitely you will need to make another car purchase in the future. Therefore, you need to clear off the current car loan and save at least a portion of the amount for a sizeable down payment when you’re ready with the new car purchase.
3. Reduce the debt-to-income ratio.
A good debt to income ratio, also known as a low debt to income ratio, is important for your financial health. It can make a big impact on your future purchases. Lenders for major purchases like home loans and auto loans will definitely calculate your debt to income ratio to determine if you are affordable for more debt. Therefore, paying off debt can lower your debt to income ratio and also help improve your credit score.
4. Financial independence
You will find yourself owing more than just the vehicle but also interest rate to the bank if you are not trying to speed up your pay off. Paying off your car loan will open up a lot of opportunities and possibilities for you and your family. You will no longer have to worry about paying off the monthly debt to the bank, having a debt record on your financial statement, and you can also explore more opportunities for other investments as well.
So, should you repay the loan immediately?
In most cases, yes. You will be able to save your interest amount in the long run. But if you can find an investment that has a chance of getting higher payouts, like the stock market, it might make sense to put your money in there instead of rushing to repay a loan that has pretty good terms. If you still have questions, press the button below to get a financial consultation with us.