Win the Race Against Car Loan Interest Rates

Before you increase your monthly loan payment, however, make sure you won't incur prepayment penalties. The majority of auto loans are simple-interest loans that won't trigger a prepayment penalty -- provided your loan agreement doesn't specify otherwise. However, if you hold a pre-computed loan -- a type of loan generally reserved for subprime borrowers -- you are on the hook for the entire principal and interest amounts as outlined in the amortization schedule, regardless of whether you prepay.

One other thing to consider: Your money may be better spent paying off other debt first. If you are carrying a balance on your credit card with rates north of 20%, for example, prioritize paying down that debt.

Likewise, consider the advantages you might gain by prepaying your mortgage. Since mortgage interest is tax deductible, this move may or may not be more advantageous. Consult a mortgage prepayment calculator to make the more complex savings calculations involved in this scenario.