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Valued Member
BridgetM
Posts: 31
Registered: ‎02-06-2009
0

Paying off car too soon?

How long is too short to keep an auto loan? I went out for 60-month loan at the end of February for just under $15k because I was waiting for some money to get freed up from elsewhere but couldn't wait until then to buy the car I wanted. Now, I should be able to pay back the entirety of the loan by the end of the summer.

 

My question: I've heard there's such a thing as keeping a loan for too short of time and having that ding your credit score. Is that true? If so, what's a decent period to let the loan run before completely paying it back. I've already checked with my bank and there's no early payment penalty on their end.

 

Thoughts anyone?

Moderator
MarineVietVet
Posts: 14,902
Registered: ‎07-14-2009
0

Re: Paying off car too soon?


BridgetM wrote:

How long is too short to keep an auto loan? I went out for 60-month loan at the end of February for just under $15k because I was waiting for some money to get freed up from elsewhere but couldn't wait until then to buy the car I wanted. Now, I should be able to pay back the entirety of the loan by the end of the summer.

 

My question: I've heard there's such a thing as keeping a loan for too short of time and having that ding your credit score. Is that true? If so, what's a decent period to let the loan run before completely paying it back. I've already checked with my bank and there's no early payment penalty on their end.

 

Thoughts anyone?


I am of the opinion that as long as you keep an emergency fund then paying off any debt as fast as possible should be your goal.

 

Being debt free should always be your #1 priority without consideration of a credit score.

 

Just my 2 cents.

 

 

 

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Established Contributor
JayRizzo
Posts: 582
Registered: ‎10-17-2010
0

Re: Paying off car too soon?

Now, THAT's the type of response that makes me proud to be a member of MyFico.  Many of our members have truly lost sight of the ultimate purpose... to become debt free and build savings.  Instead, I'm seeing more members addicted to applying for more, More, MORE with absolutely no goal but to acquire as much as they can get without thinking of the consequences of when the bottom falls out. 

 

Like the moderator said, don't focus too much on the score... have a much better goal in mind.

 

Good luck!

Valued Contributor
usmc58555
Posts: 1,668
Registered: ‎02-18-2009
0

Re: Paying off car too soon?

1- there is a certain amount of credit score changed in association with any car loan ie: the initial drop due to the inquiries to secure the loan, and the new age of the loan ompacting your score. Adding an installment loan effects you score as well. Closing (by PIF) your account quickly has no real impact on you score other then any change due to not having an open installment loan.  

There is no ATYPICAL credit score impact by paying a loan off early. the score change that will happen will happen at any time you pay the bill off.

 


JayRizzo wrote:

Now, THAT's the type of response that makes me proud to be a member of MyFico.  Many of our members have truly lost sight of the ultimate purpose... to become debt free and build savings.  Instead, I'm seeing more members addicted to applying for more, More, MORE with absolutely no goal but to acquire as much as they can get without thinking of the consequences of when the bottom falls out. 

 

Like the moderator said, don't focus too much on the score... have a much better goal in mind.

 

Good luck!


My favorites is when they get indignant when their $30,000 a year income will not get them a $25k limit and they get delined, or they get declined due to too much current credit and they act like their civil rights were violated with truncheons and hoses,

Signature line begins:
Credit is not a right, but a business transaction, one that takes into account risk, and charges accordingly based on that risk.
Your credit score is an aspect of your credit profile. Important? yes but just an aspect. Contributing/supplemental information determines the finer point of the deal. Ask any question, respect me not to get mad if the answer is not the affirmation you are looking for,
Moderator
MarineVietVet
Posts: 14,902
Registered: ‎07-14-2009
0

Re: Paying off car too soon?


usmc58555 wrote:

1- there is a certain amount of credit score changed in association with any car loan ie: the initial drop due to the inquiries to secure the loan, and the new age of the loan ompacting your score. Adding an installment loan effects you score as well. Closing (by PIF) your account quickly has no real impact on you score other then any change due to not having an open installment loan.  

There is no ATYPICAL credit score impact by paying a loan off early. the score change that will happen will happen at any time you pay the bill off.

 


Yes there could be some impact but closed installment accounts still are factored into the credit mix. 

 

While both closed and open accounts are included in the mix, this doesn't mean that a closed auto loan or mortgage will always be as beneficial to your score as an open one.  So, for example, you're typically going to be better off having some closed auto loan or mortgage than none. But having at least one open is better.

 

 

 

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Valued Member
BridgetM
Posts: 31
Registered: ‎02-06-2009
0

Re: Paying off car too soon?

Right now, I've got a solid 18 month surplus sitting in the bank within reach, so I'm not too worried about that. And, yes, I'm of the school that debt is a last resort. I could have paid cash for the car when I bought it, but my reserves would have dipped way below a level which with I'm comfortable.

 

As it is, when I close this out, I'll still have a mortgage as an open account. Would love to pay that off in a few years, too, but we'll see....

 

Thanks for your input.

Valued Contributor
usmc58555
Posts: 1,668
Registered: ‎02-18-2009
0

Re: Paying off car too soon?

If you have an 18 month supply of cash on hand, there is no credit score movement by paying a loan off that would drastically impact your ability to secure high value credit.

Signature line begins:
Credit is not a right, but a business transaction, one that takes into account risk, and charges accordingly based on that risk.
Your credit score is an aspect of your credit profile. Important? yes but just an aspect. Contributing/supplemental information determines the finer point of the deal. Ask any question, respect me not to get mad if the answer is not the affirmation you are looking for,

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