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Can I prepay my loan at any time without penalty?

Whether you can pay off your auto loan early without a penalty depends on your contract and on your state’s law. 

If the lender wants to charge you a penalty or fee to pay off the loan early, the contract has to contain a prepayment penalty clause. Review your Truth in Lending disclosures and the contract before you sign the agreement. These documents will tell you whether there is a penalty for paying early. You should also ask your lender, or the dealer if you are getting dealer-financing, if there is a prepayment penalty. If there is, you can negotiate to have the penalty removed from the contract or ask for a different loan.

Why it matters: If your loan has a high interest rate, you may later be able to refinance at a lower interest rate and payment. When you refinance, you prepay the original loan in full. Ask your bank, credit union, or other lender about interest rates.


When you receive your Truth in Lending Act disclosure, review it along with your contract before signing. Look for information about your loan amount, your interest rate, Annual Percentage Rate, payment amount and any prepayment penalties. If what is on paper doesn’t  match what the lender or dealer told you, ask for an explanation and new paperwork. Remember, many aspects of the loan are negotiable. Ask for a loan that does not have a prepayment penalty if that is important to you. If you don’t like the terms of a loan and the lender won’t negotiate, you can always shop around for a different lender with terms that better suit your needs.