A car loan is a great way to purchase the vehicle you desire but are unable to afford on your own. You get access to the car immediately, making payments over time to the lender that gave you the loan until the full cost has been covered. But what if you find yourself in a position to pay off the remaining loan balance? What should you do? Let’s explore car loan early repayment fees and how they should influence your decision making.
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What Are Car Loan Early Repayment Fees?
When you are accepted for a car loan and begin the process of paying it back, there are certain factors you agree to. While these all differ based on the individual loan, one of the most common are early repayment fees which come into effect if you decide to pay back the remaining loan balance before the end of your agreed term. These fees are designed to prevent the lender from losing money due to lost interest, as the sooner a loan is paid back, the less money they make on interest.
Early repayment fees can often be quite significant, typically making it wiser to simply continue paying back your loan at the agreed rate even if you can afford to pay out the remaining loan balance. If you’re interested in low or no early repayment fees on your loan, make sure your broker knows when you get in touch.
Is There Any Benefit to Paying Off a Car Loan Early?
That depends on the terms you agreed to with your lender. Paying off the remaining loan balance earlier than expected means you save money on interest payments. Aside from the potential financial benefit, paying off your loan early also means you own your car outright. However, the money you save might be wiped out by car loan early repayment fees. This makes it wise to always double check the terms and conditions of your contract before making any major decisions. If you are concerned about your contract, contact your broker at Fido Finance and we will be happy to go through every aspect with you to give you peace of mind.
What About the Negatives?
As mentioned, car loan early repayment fees are often a major deterrent to prevent you from paying off your remaining loan balance in advance. Each lender is different, so before you decide to pay off the loan early, comb through your contract to check for any mentions of early repayment fees and how much they are going to cost. Paying out the remaining loan balance may also cripple your budget and restrict your spending, as there is typically a reason why you applied for a loan rather than just making the full purchase at the start.
