Buying a vehicle is a big investment, so turning to a loan to pay for a car is common. While financing your car purchase with an auto loan could transform your total cost into manageable monthly payments, it also means that you end up paying more overall, figuring in interest and fees, than you would if you’d paid for the car up front.
Also, the car loan is taking up space in your budget that could go toward credit cards, student loans, or other debt.
It may seem as if the solution is to pay off the loan in full as soon as possible. However, it’s a bit more complicated than that. Learn about the potential benefits and drawbacks of paying down your car loan early, plus 11 useful strategies for doing so.
Key Points
• Regularly paying more than the minimum due on your auto loan can significantly reduce the loan term and interest paid.
• Rounding up your monthly payment to the nearest $50 or $100 can help pay off the loan faster without a major financial strain.
• Refinancing to a lower interest rate can reduce monthly payments and the total interest paid, allowing you to pay off the loan faster.
• Apply unexpected financial gains, such as tax refunds or bonuses, to your car loan to accelerate repayment.
• Create a budget to manage expenses and allocate more funds toward the car loan, ensuring consistent and higher payments.
How Long Are Typical Car Loans?
Typical car loans range from 36 to 72 months, with 60 months being the most common term. Shorter loans generally have lower interest rates and higher monthly payments, while longer loans offer lower monthly payments but result in more interest paid over time. The choice of loan term depends on your financial situation and how quickly you want to pay off the car.
Recommended: Should I Get a 144-Month Auto Loan?
Can You Pay Your Car Off Early?
The biggest obstacle to paying off your entire car loan early is if you are stuck with early payment penalties from your lender. Check your loan agreement. You may be charged a certain percentage of your remaining balance if you pay your loan off early.
However, even if that’s the case, you can strategize and reduce your payments to get some significant financial benefit.
Pros and Cons of Paying Off a Car Loan Early
Weighing the advantages and disadvantages can be a helpful exercise for any major financial decision.
thumb_up
Pros:
• Improves debt-to-income ratio
• Avoids an upside-down auto loan
thumb_down
Cons:
• Possible prepayment penalties
• Can result in a temporary drop in credit score
Pros of Paying Off a Car Loan Early
There are a number of potential advantages to paying off your auto loan early.
• Paying less in interest over the life of the loan. For many, saving on interest payments is a major benefit of settling auto debt.
• Improving debt-to-income ratio. Getting out from under a car loan can lower your debt-to-income ratio — a metric lenders use to determine how much you can afford to borrow. That could be an asset if you’re looking to apply for a mortgage or other financing.
• Avoiding going upside down on your loan. If you have a high interest rate and lengthy repayment term, you could end up eventually owing more on the vehicle than it’s worth — a scenario known as an upside down auto loan. Paying your loan ahead of schedule could help you avoid this risk.
Cons of Paying Off a Car Loan Early
Depending on your situation and loan terms, there could be downsides to early repayment.
• Potential penalties. You could face a prepayment penalty for paying off your loan before its term. Be sure to check your loan contract or speak with the lender to see if you might be subject to such a fee. If so, you may want to compare the penalty fee with the overall savings of paying off the loan early so you can determine whether it’s worth it.
• May not be the best use of your funds. Prepaying may take up money that you could have used for paying off higher-interest debt first.
• Can impact your credit score. Paying off your loan could result in a temporary drop in your credit score since it reduces the diversity of your overall credit mix.
Learning how to pay off your car loan sooner will help you form your strategy.
Recommended: Settle a Charge Off Loan
Tips to Pay Off a Car Loan Early
1. Review Your Loan Terms
It may have been a while since you were shopping for car loans, so revisiting the terms and conditions is a useful first step as you’re assessing your options for fast repayment.
First, you’ll want to check if your auto lender prohibits early repayment entirely.
Next, keep an eye out for prepayment penalties, add-on expenses, and the car loan amortization schedule. The last is key to determining how extra payments will be allocated between the loan’s principal, interest, and fees.
Since interest builds on the remaining principal, putting extra money specifically toward the principal balance can reduce how much auto loan interest accrues.
Finally, you’ll also want to know the interest rate and loan length to calculate how much you’ll save by paying off the loan in advance.
2. Never Skip Payments
Missing an auto loan payment could lead to late fees and accrued interest on the principal, thus increasing the total cost in the long run.
To remedy the situation, some lenders may allow you to opt for a loan deferment. However, this extends your loan term, which slows down your efforts to pay off your car loan faster.
If you continue to skip payments, your credit score could take a hit and the lender may ultimately repossess the vehicle. Setting up automatic payments can help avoid these outcomes.
3. Round Up Your Car Loan Payment
Monthly car loan payments are often structured as flat-rate payments for the duration of the loan. Rather than simply paying this minimum monthly amount, rounding up could help you pay off the car loan faster. Depending on your budget, you could increase monthly payments to the next $50 or $100 mark.
For example, borrowing $20,000 at a 4% interest rate for 72 months would yield a monthly payment of $313. This is $2,536 in interest over the life of the loan. Rounding up each monthly payment to $350 would pay the loan off eight months earlier and save $304 in interest.
Escalating payments up to $400 would shorten the loan by 15 months and achieve $559 in savings.
4. Snowball Your Debt Payments
The debt snowball method is a useful way to tackle outstanding debt by focusing on the lowest hanging fruit.
Put simply, this strategy involves making minimum payments on all your debt while allocating any leftover funds to the smallest balance. Once that debt is repaid, you move on to the next lowest balance.
If you’re able to pay the minimum balance on your other outstanding debt and put any leftover funds toward paying extra on your auto loan, this may help you pay it off faster. But bear in mind that in your overall financial strategy, it can make sense to focus on paying down your highest-interest loans first.
Recommended: What Is Vehicle Registration?
5. Pay Your Loan Twice a Month
If you get paid biweekly, aligning your car loan payments with your paycheck schedule can help you pay off your car loan faster.
With this approach, you make biweekly payments that should each equal half the amount due each month. This adds up to 26 payments over the course of the year, meaning you’ve actually made the equivalent of 13 monthly payments in the year rather than 12.
Biweekly payments could also reduce how much car loan interest accrues over the life of the loan.
Recommended: Average Car Loan Interest Rate by Credit Score
6. Make Windfall Payments
Another way to pay your car loan off faster is to plan in advance for how you’ll spend unexpected extra money, known as windfalls, that you receive in the future. For instance, you could allocate all or a portion of these funds to a lump sum payment on your auto loan.
Some possible examples of windfall payments are a bonus check, tax refund, or inheritance. The average tax refund in 2025 was $3,116, according to the IRS. For most auto loans, this sum could cover several monthly payments.
7. Cancel Unnecessary Auto Services and Warranties
When you purchase a vehicle, it’s not uncommon for your dealer to tack on service contracts and warranties.
Depending on the terms of these extras, it may be more cost-effective for you to pay for services, like oil changes or tire rotations, out of pocket.
If possible, canceling unnecessary service agreements and warranties could reduce how much you owe and help you pay off the loan sooner.
8. Reduce Other Extra Expenses
Consider examining your discretionary spending to find opportunities for additional savings that could be put toward a higher auto loan payment.
For instance, you could cancel underutilized subscriptions or prepare more meals at home.
Recommended: 33 Ways to Save Money
9. Earn Additional Income
Rather than dipping into savings or cutting expenses, you could try to make extra money with a side hustle. Some in-demand services include dog walking, pet sitting, and online tutoring.
If working extra hours isn’t feasible, you might sell excess belongings like clothes or furniture you don’t use. Instead of an old-fashioned yard sale, using apps like Poshmark, LetGo, or OfferUp can expand your pool of potential buyers.
You can also make some side-hustle cash with your car, whether it’s working for a rideshare app like Lyft or Uber or picking up groceries for Instacart.
10. Transfer the Loan
If you’re having trouble making the minimum payment each month, the other options may not adequately address how to pay off a car loan quickly.
A possible solution to your car debt could be getting someone else to take over your auto loan. Lenders willing to accommodate a transfer may adjust the contract terms for whomever receives the loan transfer.
It’s worth noting that this process requires making a title change for the vehicle.
11. Refinance Your Car Loan
Refinancing your car may let you set up smaller monthly payments over an extended term. However, keep in mind that by extending your loan term, you are likely to pay more in interest over the life of the loan.
You can also refinance your car to get a lower interest rate and shorten your loan term. This will mean higher monthly payments, but you’ll pay your car off quicker and pay less in interest overall.
And if you’re refinancing an auto loan with bad credit, you may still be able to get a new loan, though it can help to get a cosigner with better credit. Whatever makes the most sense for you, it’s essential to find a lender that will meet your needs.
Recommended: Pros & Cons of Car Refinancing
The Takeaway
Learning how to pay off a car loan faster takes research. Putting it into action requires work and discipline. These tips should make it easier to get to the goal for your budget. Whatever makes the most sense for you, it’s essential to find a lender that will meet your needs.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
FAQ
Is paying off a car loan faster always best?
Paying off a car loan faster can save you money on interest and may help build your credit score, but it may not always be the best option if it strains your budget or leaves you with insufficient funds for emergencies. Consider your financial situation and goals before accelerating payments.
Will your monthly car payments go down if you pay extra?
No, but there are other benefits. Paying on the principal reduces the loan balance faster, helps you pay down the loan sooner, and ultimately saves you money.
Does paying off a car completely build your credit score?
Paying off a car loan can positively impact your credit score by showing a history of timely payments and reducing your overall debt. However, the impact varies based on your credit history and other factors. It’s one of several ways to build credit.
Photo credit: iStock/AndreyPopov
SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
SOALR-Q325-020