Can You Pay Off Car Finance Early in Canada?

Posted : February 27, 2024
Can You Pay Off a Car Loan Early

Are you wondering if can you pay off car finance early? Here is your comprehensive guide.

Many lenders allow you to pay off your loan ahead of the actual time depending on how a lender operates. While some lenders allow you to pay early without charging any fees, other lenders charge some fees or penalties for early payment of car loans.

Early repayment can be the right option for many borrowers who seek peace of mind and financial freedom. Let us understand why you should consider paying off your auto loan ahead of schedule by exploring its key advantages.

Advantages of Paying Off Your Car Loan Early:

Savings on Interest Rates

Saving on interest rates is the biggest benefit you get when paying off car loan early in Canada. Over the time period of your loan, the interest on the auto loan increases due to the calculated interest amount for each month based on the loan balance.

Although you can save a lot of money by paying off your auto loan at any time, early payment of car loan will save you the most on interest rates and you will see the saved amount when you calculate the average auto loan rate in Canada. The savings from paying off vehicle loan early will be greater if your loan has a high interest rate.

Ownership Title Transferred to You

If you clear your car loan ahead of time, the title of your vehicle can be transferred to you sooner than the anticipated time. This could give you the freedom to sell, trade-in or modify your vehicle.

Improvement in Credit Score

Undoubtedly, your credit score is a primary indicator of your financial health. When you pay off a car loan early, your credit score gets impacted in a positive manner. With an improved credit score, you can unlock better-borrowing terms on loans in the future. Still, there are good loan providers who offer car loans with bad credit in Canada.

No Monthly Payments

You will experience a tremendous level of flexibility in managing your finances well. You can redirect monthly payments that you allocated towards auto loans to investment or savings.

Own Your Dream Car Today

Better Debt-to-Income Ratio

When approving a loan, debt-to-income ratio is something lenders look up to. Your DTI ratio can determine the amount of money you can borrow. Early repayment of your car loan will remove it from your debt-to-income ratio, improving it and raising your chances of being approved for a better loan. 

One Step Closer to Being Debt Free

Almost everyone shares the same financial goal of becoming debt-free. Your overall debt will decline, and your assets will increase if you pay off your car loan early. You can utilize the money you saved on interest after paying off your auto loan to help you pay down the remaining balance until you have no debt at all.

Key Factors to Consider Before You Decide to Pay Off Auto Loan Early

  1. Assess the rate of interest associated with your car loan. If it is higher, you can get substantial interest savings by paying off a car loan early.
  2. Make sure you evaluate your financial goals. Balancing your priorities is important.
  3. With enough funds, you can consider investment opportunities that might provide you with better returns than the rate of interest on your car loan.
  4. Check if you have any major expenses coming to make sure that early loan payment aligns well with your short-term or long-term financial roadmap.
  5. Make sure you check your car loan agreement for criteria related to early repayment.

Thinking “Can I pay off my car loan early?” Seek Expert Advice

There are many benefits of paying off your car loan early as long as you adhere to the strategic approach after taking into consideration various factors. Seek specialist guidance on what factors you need to take into consideration to determine if it is the right decision to paying off vehicle loan early.

Jack Fortin
Auto Finance Expert

Jack Fortin is one the leading car loan and auto finance experts in British Columbia, Canada. He loves to write and share car loan news and updates.

Related Blogs

Get Approved for a Car Loan Today!

JourneyApproved can make your dream come true. Apply for an auto loan today!