Can You Pay Your Auto Loan Off Early?

There are some people who get near the end of their auto loan and wonder if it is possible to pay off the loan before the end of its term. Well, the answer depends upon the type of auto loan that you have. If you have a simple interest auto loan then you won’t have to worry about it as you can simply call the bank, get your payoff figure and pay the loan in full. This is obviously the best case scenario.
 
If you have an auto loan that has an early prepayment penalty, then you have to look at how much that penalty is. If it is less than what you would pay in interest to keep the auto loan until the end of the term then you need to pay the fee and get out of the loan. But if it is more, it would behoove you to pay back the loan in payments so that you continue to pay less than you would otherwise.
 
But then there are “precomputed interest loan” which means that you pay all of the interest on the auto loan over the first few years and then pay off the principal at the end. This kind of a loan can make things a bit stickier. This means that you have not really been paying on the principal of the loan this whole time; you have been paying what they are charging you.
 
Best thing you can do is go talk to the bank that holds your auto loan. Explain the situation and that you want to pay back your debt. See what they have to say about the amount left on the auto loan and what kind of a loan you have. If they agree to let you pay back the auto loan in a way that will save you money, take the deal. However, make sure that you get a letter from them telling you that the auto loan has been paid in full and satisfactorily. This is the only thing that proves you have paid and that they won’t report the loan to a credit bureau and mess up your credit.

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