Rachel Cruze: 3 Reasons To Pay Off Your Car Early
Written by
Deborah Sabinus
Edited by
Levi Leidy
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Like any other loan, a car loan chips away at your income and ends up costing you more in the long run with the interest added on. Of course, not everyone can buy a car without a loan, but owning your dream car is no reason to go into debt. That’s why you need to prioritize paying off your car loan early, according to financial expert Rachel Cruze.
Besides owning your car outright, with the freedom to sell or trade it in, there are other reasons to pay off your car early. Here are Cruze’s top three reasons to pay off that debt quickly, plus some useful advice.
You’ll Save Money on Interest
The diminishing value of your car does not affect the interest you pay on it. Every day a car adds mileage, its value reduces, but your interest remains the same and for many more months. That’s a hard bargain as a car owner because you’re not earning money from the car. But, if you pay off your car early, you’d be saving on the months or years of interest you would have paid otherwise.Â
It’s true that eliminating a line of credit such as a car loan may lower your credit score in the short term. But, you’ll pay less on the loan overall if you pay it off early. Making smart money choices should be your primary concern when it comes to loans, and good credit scores can always be built in other ways.
You’ll Get Out of Debt Faster
When you succeed in paying off your car, it helps bring you out of debt quicker. This is because paying off your car loan means you have one less debt to tackle and your journey to being debt-free becomes closer (assuming you have other debts). One less debt can free up more funds to channel to other debts — and after you’re totally debt-free you can save more for retirement, investments and other financial goals. Â
You’ll Have Paid-For Cars for Life
Like every other habit, saving money can be addictive. Once you’ve managed to pay off your car early, chances are you won’t want to acquire more car debt. With the extra money you won’t be spending on a car payment, you can save up the cash to use to pay upfront for your next car. This way, you don’t incur any more loans and can enjoy a life free from car payments.
Keep in Mind
If you’re trying to be financially free, don’t be in a rush to acquire newer models of cars or luxury cars. If your car works just fine, consider putting your funds into more important needs in your life or other long-term goals. Upgrading your car every chance you get might be thrilling but it’s one that can set you back financially for years. So consider this while paying off your car. It’s a great confidence-builder when you’re free of financial burdens, but it’s also important to maintain self-discipline and not spend funds on unnecessary things.
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