- Paying off a car loan early can save on interest and improve cash flow, but some loans charge early exit or extra repayment fees.
- Strategies to repay early include increasing repayment frequency and making additional or lump-sum payments when possible.
If you want to pay off your car loan as fast as you can without being financially penalised, you should look for a car loan with no early exit fees, as well as similar fees like extra repayment fees and redraw fees.
Can you pay off a car loan early?
Yes, most car loans allow early repayment, either through regular extra payments or a one-off lump sum. Paying early can reduce interest costs and free up monthly cash flow, but some lenders may charge fees for early payoff or limit how much you can prepay.
What is an early exit fee?
Making extra repayments on your car loan so you can pay it off earlier will reduce the overall cost of the loan. But there are some car loans on the market that charge an early exit fee if you pay off your car loan before the loan term has ended, or if you refinanced to another lender.
Early exit fees (also known as early repayment fees) are usually more common in fixed car loans. Variable car loans generally don’t charge an early exit fee and allow extra repayments, which is good if you want to pay off your loan sooner, but fixed car loans are more common.
Most lenders charge early exit fees because paying off a car loan early comes at a cost to them. They will have budgeted for your loan to be paid out over a certain number of years, which means they would have earned significantly more in interest over the agreed loan term.
What do car loan exit fees cost?
A large number of car loans don’t charge exit fees, so there are quite a few on the market that’ll charge you $0 if you pay them off early. The average early exit fee sits around the $150-$200 mark.
Early exit fees on car loans are generally lower than exit fees on home loans because they’re usually priced into the interest rate, but they can still be quite costly.
Pros and cons of paying off your car loan early
After a home, your car is probably the second biggest purchase you’ll ever make, so it can be smart to pay it off as soon as you can.
Paying off your car loan early can reduce the overall amount of interest you pay, saving you money. But depending on your loan, you may be penalised for doing so. If you’re in a financial position where you can afford to pay off your car loan early, make sure you find out what, if any, exit fees apply.
Pros
Save on total interest costs
Paying off your car loan early shortens the window in which interest can accumulate. If you're stuck with a high interest rate, even small extra repayments can end up saving you a fortune in the long run.
Improve your monthly cash flow
Without that monthly bill hanging over your head, you have more breathing room to cover your day-to-day costs, beef up your emergency fund, or put that cash toward other financial goals.
Strengthen your overall financial profile
Wiping out your car debt looks great to lenders because it lowers your debt-to-income ratio. When you aren't tied down by a monthly car payment, you’re in a much stronger position to get approved for a house or a personal loan with much better interest rates.
Gain full ownership sooner
Since the bank no longer has a stake in the car, you’re free to sell it or trade it in whenever you want without jumping through hoops. It’s 100% your asset to manage.
Cons
- Early exit fees can outweigh interest savings
Some lenders charge you for settling up ahead of time, which can end up eating away at the money you were trying to save on interest in the first place.
- Cash-flow trade-offs
Dumping all your extra cash into your car might seem smart, but it can backfire if it leaves your emergency fund empty. You also have to consider if that money could do more work elsewhere, like paying off a high-interest credit card or growing in an investment.
Car loan fees to watch before paying early
Car loan extra repayment fees
The vast majority of car loans allow customers to make extra repayments. Only a few don’t, while a good number also let you make a one lump sum repayment as well. Depending on the loan, you may be charged a fee for making extra repayments, but $0 for this is more common. Check with your lender if they charge one.
Car loan redraw fees
A redraw facility on a car loan lets you withdraw any of the extra funds you’ve paid ahead of schedule should you need them. This is essentially the same as a home loan redraw facility, and redrawing these funds can negate the interest benefits of extra repayments.
Many lenders also have minimum and maximum redraw limits, which can be as low as $1-$50 and as high as $30,000.
Savings.com.au’s two cents
Paying off your car loan early can help you save money if there’s no early exit fee, and even if there is a fee, you can still save more in interest costs. But be mindful that zero early withdrawal fees aren’t the only features car loans have to offer that could save you money.
Always compare car loans and take other factors into consideration, including the interest and comparison rates, other fees and features such as a redraw facility which could be more suitable for your needs.
How to repay your car loan early
Increase your repayment frequency
One of the easiest ways to pay off your car loan early is to change the frequency of your repayments. Because there are 12 months in a year but 26 fortnights and 52 weeks, making fortnightly or weekly repayments can help you make an extra month of repayments without even realising.
Because interest is calculated daily, increasing the frequency of your repayments can lower the amount of interest you owe.
Make additional or lump sum repayments when you can
If you come into additional cash such as your tax refund, you should consider putting this money into your car loan repayments. Making additional repayments can also help you in the future if you miss a repayment.
Car loans with no early exit fees
The table below features some of the lowest rate car loans that don’t charge early exit fees
| Lender | Car Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Interest Type | Vehicle Type | Maximum Vehicle Age | Ongoing Fee | Upfront Fee | Total Repayment | Early Repayment | Instant Approval | Online Application | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 7.07% p.a. | $579 | Variable | New | $8 | $400 | $34,749 |
| Promoted | Disclosure | |||||||||
5.67% p.a. | 6.10% p.a. | $575 | Fixed | New | $0 | $0 | $34,524 | ||||||||||||
6.79% p.a. | 8.20% p.a. | $591 | Fixed | New, Used | $15 | $250 | $35,464 | ||||||||||||
8.19% p.a. | 8.82% p.a. | $611 | Fixed | New, Used | $9.9 | $249 | $36,661 | ||||||||||||
7.99% p.a. | 8.99% p.a. | $608 | Fixed | New, Used | $9 | $265 | $36,489 | ||||||||||||
10.99% p.a. | 11.25% p.a. | $652 | Fixed | New, Used | $0 | $175 | $39,127 | ||||||||||||
6.49% p.a. | 6.63% p.a. | $587 | Fixed | New, Used | $0 | $0 | $35,211 | ||||||||||||
5.99% p.a. | 6.26% p.a. | $580 | Fixed | New | $0 | $195 | $34,791 | ||||||||||||
8.19% p.a. | 8.36% p.a. | $611 | Fixed | New, Used | $0 | $120 | $36,661 | ||||||||||||
6.99% p.a. | 8.12% p.a. | $594 | Fixed | New | $8 | $400 | $35,634 |
| Promoted | Disclosure |
