Honda Finance 101: Prepay Penalties (And How to Avoid Them)
Some people shudder at the thought of car financing. But at Gillman Honda San Benito, we do things a bit different. Our Honda finance is easy to understand, headache-free, and designed to get you a great price on a great car. Plus, we take the time to explain everything to you, such as the concept of prepay penalties.
What is a Prepay Penalty?
When you finance a used or new Honda car, you take out a loan that you pay back over time. The length of time can vary, but it's usually between 24 - 60 months. If you want to pay off the car before the deadline, you could be charged a prepayment penalty by your lender.
The reason for this is interest, which is included in each of your monthly payments. When you pay your loan off early, the lender is no longer able to collect interest. Some lenders try to recoup some of these "lost costs" by charging a prepay penalty.
How to Avoid Prepay Penalties
Here's a list, courtesy of our San Benito, TX Honda dealers, of the best ways to avoid prepay penalties:
Review the loan agreement before signing: Before you buy your next new car or used truck, take time to review the loan agreement. If there's mention of a prepay penalty, ask for the details before signing a contract.
Do the math: Depending on when you want to pay off the loan, the cost of the prepay penalty might be more than the interest you'd save by prepaying. If this is the case, you're better off staying the course.
Pay off a portion of the loan: Even if there's a penalty for paying off the entire loan, your lender might be ok with you paying off a portion of the loan. Doing so would bring you that much closer to the finish line.
Refinance the auto loan with a different lender: If you're working with an inflexible lender, consider refinancing with a different lender. You might be able to lower your monthly payments and avoid prepay penalties at the same time.
Let's Talk Honda Finance Today
Prepay penalties aren't part of every car loan, but it certainly helps to be aware of them and have a plan of action. Visit Gillman Honda San Benito today so you can learn more about Honda finance and check out our great selection of new and used vehicles.
