How to Pay Off a Car Loan Early (2026 Guide)
To pay off a car loan early, make extra payments toward the principal each month. On a typical $28,000 car loan at 7% APR over 60 months, paying just $100 extra per month saves over $1,800 in interest and pays off the loan 14 months early. Check your loan agreement for prepayment penalties before starting — most modern auto loans have none.
Car loans are the third-largest consumer debt category, and they come with a unique problem: unlike a house, your car loses value every month. If your loan term is long enough, you can end up owing more than the car is worth — a situation called being 'underwater' or 'upside down'.
The average new car loan in 2026 is $28,000-35,000 at 7-8% APR for 60-72 months. Used car loans average $24,000 at 11-12% APR. Those rates make extra payments surprisingly impactful.
This guide focuses specifically on auto loans — the strategies, pitfalls, and opportunities that are unique to car debt.
See your exact payoff date right now
Car loans have a fixed term, so the deadline calculator lets you see exactly how much extra you need each month to pay it off by a target date — like before the warranty expires.
Step-by-step plan
Check your loan terms for prepayment penalties
Most modern car loans have no penalty for early payoff, but some lenders charge a fee. Check your contract or call your lender. If there is a penalty, calculate whether the interest savings still make it worthwhile.
Find your current payoff balance and rate
Your payoff balance may differ from your statement balance because of how interest accrues daily. Call your lender or check online for the exact payoff quote. Note your APR — if it's above 5%, extra payments will save you significant money.
Round up your payments
The easiest starting point: if your payment is $487, round up to $500. That extra $13/month barely feels different but saves hundreds in interest over the loan. Some lenders let you set this up as an automatic round-up.
Make one extra payment per year
If you're paid biweekly, you get 26 paychecks per year. Set aside half a car payment from each paycheck, and you'll make 13 monthly payments instead of 12 — one full extra payment without feeling the pinch.
Direct windfalls to the principal
Tax refunds, bonuses, or cash gifts can make a major dent. A single $1,000 extra payment early in a $28,000 loan at 7% saves about $400 in interest. Specify that extra payments go to principal, not toward future payments.
Consider refinancing if rates have dropped
If your credit score has improved since you bought the car, or if market rates have dropped, refinancing can lower your rate. Even a 2% reduction on a $25,000 balance saves about $1,500 over the remaining term.
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Tips for car loans
Don't extend your loan term when refinancing just to lower the monthly payment — you'll pay more interest overall. Refinance to a lower rate at the same or shorter term.
If you're underwater on your car loan (owe more than it's worth), focus on aggressive extra payments until you have positive equity. This protects you if the car is totalled or stolen.
Avoid the temptation to trade in a car with remaining loan balance for a new car. Rolling negative equity into a new loan is one of the most expensive financial mistakes people make.
If your car loan rate is below 4%, you may be better off investing extra money rather than prepaying. Use the interest rate as your guide.
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