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Member
megaton
Posts: 5
Registered: ‎07-31-2009

Pay off majority of auto loan?..

Long story short, I am trying to repair damaged credit so eventually I can purchase a home. 

 

I want to get an $8000 auto loan and then pay off $5-6k in the first 3-4 months.  My thinking is that I can accomplish a few things by doing this. 

 

1. I will have more than one type of credit.  As stands now I have only had revolving credit. 

 

2. I will add another open account that has no late payments.  It is my understanding that having at least 3 such accounts is good when trying to get a morgage. 

 

3. Making monthly payments made on time, over time. 

 

All of these should increase my FICO score. 

 

 

As I understand it I would end up with a super low payment after I pay off the chunk of the loan, but still get to keep it as an open account on my credit report.   Is this right or am I not understanding how this works?  Thanks for replies, new guy here.  I want to get my FICO score up into the 700s but have realized that its not something I can do overnight. 

 

 

Regular Contributor
Lyythine
Posts: 205
Registered: ‎03-05-2009

Re: Pay off majority of auto loan?..

That is incorrect...

 

If you get a loan for $8k and are FINANCING 8k, you will get a payment on that 8k that is not changed depending on how much you pay off.

 

So, for arguements sake,  lets say your payment would be $200/month initially on 8k.

 

1 month later, you pay off 5k of your loan, leaving 3k.

 

You will still pay the 200/month on the remaining balance, allowing you to pay it off early, but it will not  change monthly payment unless you refinance - but I find it hard to think that a financial institution would refinance for 2-3k..

 

Good Luck! 

Senior Contributor
txjohn
Posts: 4,214
Registered: ‎09-12-2008

Re: Pay off majority of auto loan?..


megaton wrote:

Long story short, I am trying to repair damaged credit so eventually I can purchase a home. 

 

I want to get an $8000 auto loan and then pay off $5-6k in the first 3-4 months.  My thinking is that I can accomplish a few things by doing this. 

 

1. I will have more than one type of credit.  As stands now I have only had revolving credit. 

 

2. I will add another open account that has no late payments.  It is my understanding that having at least 3 such accounts is good when trying to get a morgage. 

 

3. Making monthly payments made on time, over time. 

 

All of these should increase my FICO score. 

 

 

As I understand it I would end up with a super low payment after I pay off the chunk of the loan, but still get to keep it as an open account on my credit report.   Is this right or am I not understanding how this works?  Thanks for replies, new guy here.  I want to get my FICO score up into the 700s but have realized that its not something I can do overnight. 

 

 


 

+1 Lyythine.

 

Your strategy will provide additional credit as a reference.  It will avoid the cost of interest against the $5k you pay down.  It will not lower your auto payment unless you refinance the new loan with new starting loan balance.

 

 

 

 

Credit Scoring 101 - Tuscani   *  Guide to Common Abbreviations
Frequently Requested Threads * FICO High Achievers  *  FICO Score Estimator


09/03/2009 TU: 777, EQ: 776 ($8 balance on an account dropped me out of 780's)
03/28/2009 TU: 814, EQ: 810, EX: 781 (02/12/2009)
05/18/2005 TU: 563, EQ: 580, EX: 549
Member
megaton
Posts: 5
Registered: ‎07-31-2009

Re: Pay off majority of auto loan?..

Thanks for the replies. 

 

Unfortunately I was denied by every online auto loan place.  :smileysad:

 

My FICO scores are 593 577 594, but I have 3 CCs that went to collecitons all of which are paid off and have been for a year, as well as one other collection that is was just recently paid off.  My last late payment was in July of 08, and my two open accounts (CC and student loan) are in good standing.  Unfortunately I guess not enough time has passed since I messed up my credit to get a loan of any sort. 

 

I figure I will try the credit unions and maybe even the dealership but it looks like I may be out of luck until more time has passed? 

 

If I were to get financing through a dealership with an outragous interest rate, and pay off the loan within 6 months to avoid paying too much interest would it still improve my situation?  I am trying to get a morgage at the end of all this, and I have learned that its not only the FICO score that plays into a lenders decision, but also what is on your credit report that matter. 

 

 

Senior Contributor
txjohn
Posts: 4,214
Registered: ‎09-12-2008

Re: Pay off majority of auto loan?..

Yes, it would improve your credit to obtain a loan and then pay off early.

 

You could also look into a savings secured credit card with a credit union.

 

 

Credit Scoring 101 - Tuscani   *  Guide to Common Abbreviations
Frequently Requested Threads * FICO High Achievers  *  FICO Score Estimator


09/03/2009 TU: 777, EQ: 776 ($8 balance on an account dropped me out of 780's)
03/28/2009 TU: 814, EQ: 810, EX: 781 (02/12/2009)
05/18/2005 TU: 563, EQ: 580, EX: 549
Member
megaton
Posts: 5
Registered: ‎07-31-2009

Re: Pay off majority of auto loan?..

I have an unsecured major credit card through HSBC, only a $300 limit right now.  I am hoping if I continue to pay on time and keep a low balance they will raise my credit limit which would in turn raise my credit score?
Frequent Contributor
bigtim
Posts: 359
Registered: ‎06-06-2009

Re: Pay off majority of auto loan?..


megaton wrote:

 

If I were to get financing through a dealership with an outragous interest rate, and pay off the loan within 6 months to avoid paying too much interest would it still improve my situation?  

 


NOT necessarilly. If it's a buy-here, pay-here program, they may not report to CRAs. I would check to see first. If they don't report, you could pay for 4 or 5 years, never miss a payment, and it will do ZERO for your credit rating.

 

Also, everything else being equal, the longer you pay on a loan, the better it improves your credit. Good luck.

---------------------------------------------------------------
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12/2013 - Chase Freedom (ICL 3,500 ACLI to 4,500 07/2014)
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Back to gardening for a year or two
Senior Contributor
txjohn
Posts: 4,214
Registered: ‎09-12-2008

Re: Pay off majority of auto loan?..

Yes, obviously if the lender does not report to the CRA's then it won't help your FICO or credit.

 

And while having a longer payment history helps, just having obtained the loan and made payments, even if for only 3 to 6 months will help at your stage.

 

 

Credit Scoring 101 - Tuscani   *  Guide to Common Abbreviations
Frequently Requested Threads * FICO High Achievers  *  FICO Score Estimator


09/03/2009 TU: 777, EQ: 776 ($8 balance on an account dropped me out of 780's)
03/28/2009 TU: 814, EQ: 810, EX: 781 (02/12/2009)
05/18/2005 TU: 563, EQ: 580, EX: 549
Frequent Contributor
bigtim
Posts: 359
Registered: ‎06-06-2009

Re: Pay off majority of auto loan?..


txjohn wrote:

Yes, obviously if the lender does not report to the CRA's then it won't help your FICO or credit.

 


Indeed. I brought this to the attention because I work at a dealership. People frequently come in shopping for a newer vehicle and I ask "How is your credit?". Some respond that it should be good, I just paid off this car from XYZ dealership, never missed a payment, etc... There are some dealerships in my area that offer BHPH programs, but DO NOT report to CRAs. Therefore, customers are majorly disappointed when they find that they have paid faithfully, thousands of dollars over several years only to find out that their credit rating did not benefit at all from this.

 

I thought it was important to note this to the OP (or anybody else in a similar situation) given their circumstances, especially considering the fact that they were willing to sign to a high interest loan in order to help build their credit rating.

 

So what would appear that I was stating the obvious, some consumers or inexperienced buyers forced into a sub-prime situation like this, simply aren't aware. A noteworthy caution...

---------------------------------------------------------------
Recent Cards:
12/2012 - Discover (ICL 3,375 CLI to 5,375 05/2014)
12/2013 - Chase Freedom (ICL 3,500 ACLI to 4,500 07/2014)
03/2012 - Gander Mountain MC (WFNNB) 7,000 CL
04/2012 - Ace Rewards Visa (US Bank) 12,000 CL
Back to gardening for a year or two
Senior Contributor
txjohn
Posts: 4,214
Registered: ‎09-12-2008

Re: Pay off majority of auto loan?..

Yep, good point and well taken.

 

You have experience in the industry which is relevant and vital to their goal :smileyhappy:

 

 

Credit Scoring 101 - Tuscani   *  Guide to Common Abbreviations
Frequently Requested Threads * FICO High Achievers  *  FICO Score Estimator


09/03/2009 TU: 777, EQ: 776 ($8 balance on an account dropped me out of 780's)
03/28/2009 TU: 814, EQ: 810, EX: 781 (02/12/2009)
05/18/2005 TU: 563, EQ: 580, EX: 549

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