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Can I prepay my loan at any time without penalty?

Your contract and state law will determine whether you can pay off your auto loan early.

Prepayment penalties on auto loans are generally used to discourage you from paying off your loan early as it reduces the amount of interest a lender collects on your loan. As a result, your lender may include a penalty or fee if you pay it off early. Some states, however, prohibit prepayment penalties for certain loans.

Checking for a prepayment penalty before you sign your contract

If you’re shopping for a car or auto loan, ask your lender or dealer if your contract has a prepayment penalty. You also want to review and double check your Truth in Lending (TILA) disclosures and the contract closely before signing it. If there is a prepayment penalty clause in your contract, you can negotiate to have it removed or ask for a different loan.

Checking for a prepayment penalty in an existing contract

If you already have an auto loan that you’d like to pay off early, check your contract to see whether it contains a prepayment penalty clause. You can also check your state law to see whether it’s prohibited.

Refinancing an auto loan with a prepayment penalty

If your loan has a high interest rate, you may later be able to refinance it to a lower interest rate and monthly payment.

When you refinance, however, you must prepay the original loan in full. You may incur a fee if you have a prepayment penalty in your current agreement.

Know what is negotiable

Did you know that you can negotiate the terms of your auto loan? Negotiating can save you hundreds or even thousands of dollars over the life of your loan.

Find out more about negotiating loan basics