Car loans typically carry interest rates between 5% and 15% depending on credit score and when the loan was originated. That range matters — a 7% car loan is a very different decision than a 14% car loan when thinking about payoff priority.
The Payoff Priority Framework
Before making extra car payments, make sure: all credit card and high-interest personal loan debt is gone (or at a materially lower rate than your car loan), you have a small emergency fund, and you're capturing any employer retirement match. Once those are addressed, extra car payments are a solid move if your rate is above 6-7%.
The Math on Early Payoff
On a $20,000 car loan at 8% APR over 60 months: standard payments result in roughly $4,300 in total interest. Adding $200/month to each payment reduces total interest to approximately $2,100 and cuts the loan term by about 18 months. Meaningful, but compare it against the opportunity cost of that $200 going elsewhere.
Check for Prepayment Penalties
Some car loans include prepayment penalties — fees for paying off the loan early. Always check your loan agreement before making large extra payments. Most modern auto loans do not have these, but older loans and some credit union products do.
The Gap Insurance Consideration
If your car is worth less than you owe (common for new cars in the first 2-3 years), having gap insurance makes sense. As you pay the loan down faster than the car depreciates, you reach "positive equity" sooner — which eliminates the financial exposure gap insurance covers and may allow you to drop that coverage, saving money.
The Bottom Line
Car loans above 8% deserve active payoff attention after high-interest debt is cleared. Car loans below 6% are lower priority than retirement contributions and emergency savings. The 6-8% range is genuinely judgment-call territory based on your other financial goals.