# Should I pay off my car loan early?

It often makes sense if your loan uses simple interest, has no prepayment penalty, and you already have emergency savings and no higher-interest debt such as credit cards. ProfitDrawer's car loan guide shows that on a $25,000 loan at 7% APR for 60 months, an extra $100 a month saves $939 in interest and ends the loan 11 months early. If a card charges a much higher rate, paying the card first usually saves more.

**Check these first:**

1. **Prepayment penalty.** The CFPB notes some lenders charge one, and some states ban them for certain loans. Read your contract or ask your lender.
2. **Interest type.** On a simple interest loan, extra principal cuts future interest. On a precomputed interest loan, the CFPB says extra payments do not reduce the interest owed, though you may get a refund of some unearned interest if you pay off early.
3. **Where extra money goes.** Ask how to mark payments as principal only, then confirm on your statement that the principal dropped.

**Paying extra is a good fit when most of these are true:**

- You have some emergency savings.
- You have no higher-interest debt.
- There is no prepayment penalty and the loan uses simple interest.
- You are on track with the retirement savings you want.

**It may wait if** your car loan rate is low and you carry a credit card balance, or if one surprise bill would push you onto a card.

Run your own loan in the free loan payoff calculator. General information, not financial advice.

- Source: [How to Pay Off a Car Loan Faster (ProfitDrawer guide)](https://profitdrawer.com/guides/how-to-pay-off-a-car-loan-faster.html)
- Updated: 2026-10-29
- Published: 2026-10-29
- Category: Personal budgeting
- Canonical: https://profitdrawer.com/answers/should-i-pay-off-my-car-loan-early.html
- Publisher: ProfitDrawer (https://profitdrawer.com)