Paying extra toward your auto loan principal reduces the total interest you pay over the life of the loan, since interest is calculated on your remaining balance each month. The earlier in the loan you make extra payments, the more interest you save, which is why prepaying in the first year or two tends to have a bigger impact than doing so near the end of the term. Before committing to extra payments, check your loan agreement for a prepayment penalty, since some lenders charge a fee for paying off a loan ahead of schedule. You can estimate your potential interest savings using our auto loan calculator by comparing your current term against a shorter one.
Whether prepayment makes sense also depends on your broader financial picture — if you’re carrying higher-interest debt elsewhere, like a credit card balance, paying that down first usually saves more money than prepaying a lower-interest auto loan. If your main goal is simply reducing your monthly obligation rather than the total interest, refinancing to a longer term might be a better fit than prepayment — see how to refinance your auto loan and save money for a full comparison of the two approaches.