Monthly payments make up an important element of the auto loan. The amount of money that you will pay each month depends on a number of things; such as the money you put down, the value of the car, auto loan term, your current income and credit score, etc. Many a times people wish to repay their auto loan earlier than their term or wish to get the auto loan refinanced. Understanding the effect of paying your loan early vis-à-vis making timely payments can help you in making a well-informed decision.
Pay Early or Pay on Time: The Auto Loan Question
1. Are you interested in making Early Payments?
You know you are a financially adept individual when you think about paying your auto loan early rather than spending the money on frivolous things. The following pros and cons of prepayment will take you one step closer in making the right decision.
Pros: The reduction in the interest amount can help you save a great deal of money. Paying off your auto loan early gives you the financial freedom to use that money elsewhere. Secondly, if you are going to receive a large sum of money in the near future, it is wise to prepay your auto loan instead of spending it elsewhere. It will make your debt-free early and allow you to live a tension-free life.
Cons: Timely auto loan payments mean that you have planned your finances in an efficient way. If you repay your auto loan all at once, it may project that you are unable to manage your credit. Remember prepayment of your auto loan will not hurt your credit score, however, it will not improve the score either.
2. Do you believe Timely Payments are a Good Choice in the Long Run?
Small payments made every month can surely have a positive impact on your credit rating. The following pros and cons will help you clarify the advantages and disadvantages of timely payments.
Pros: Timely payments made every month are certain to keep your credit score in check. Many a times people may forget to make the payments on time. However, automatic bank payments can help you to keep your payments regular. A shorter loan term with timely payments will help you in obtaining lower interest rates and an overall cheaper auto loan deal in the future.
Cons: An automatic timely payment means that you will have to maintain a certain balance in your bank account, which may temporarily block your finances. A certain amount of your income gets allocated to the monthly payment. Compared to a prepayment strategy, timely monthly payments carry less financial freedom.
Your Auto Loan Payment Schedule: What is Best for you?
Income is an important element that decides which option you should choose between paying your auto loan early and making timely payments. If your monthly payment is manageable and your income supports the auto loan, you should opt for timely payments. However, if your income source is unstable and you require a car on an immediate basis, you should opt to make a prepayment of your entire auto loan. On the basis of your financial situation and circumstances, make the wiser choice.