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How long to keep a car loan?

Contributor

How long to keep a car loan?

I have been rebuilding my credit for several years now . I finally have credit good enough to get a decent rate on a used car. I have the means to pay the car off quickly however I Don't think that helps my credit much. It will be a 60 month loan. How long should I keep the loan to continue building my credit? My goal is to be buying a house within 3 years.
I already have 2 credit cards I am gardening with and no other loans or outstanding debt.
Message 1 of 5
4 REPLIES
Frequent Contributor

Re: How long to keep a car loan?

My thought is to keep the car loan all the way through applying for a mortgage. At that point, you might suggest to the mortgage broker that you pay off the car loan in order to improve your disposable income. A car loan adds balance to your credit report in terms of the types of credit you are utilizing responsible. If you are paying responsibly, then I'd want that reporting as long as possible. Depending on the balance, another route would be to pay down some so your payments are smaller, but I definitely wouldn't pay it off altogether if your goal is a better score. My advice would be different if your primary goal is to save on interest costs.  In any case, keep up the great work!


Starting Score: TU 490 on 11/2012
Current Score:6/16/15:EQ 714, EX 704, TU 702 (all from myFICO)
New Goal Score: 740+ for all three
Message 2 of 5
Contributor

Re: How long to keep a car loan?

Thank you for the response.  That does make sense as I have never taken out any kind of loan before.  5 years is a long time, but I might pay 100 extra to shorten it by a year.   I could definitely use some depth on my credit report.  I don't think the interest will be much, it's just the fact that I have to pay so long on the car loan that bothers me. 

Owing money on anything drives me nuts, but that's just a pet peeve of mine. But if it helps my score then yes I will not pay it off quickly.  My ultimate goal is to get about 30k saved for a house.  I will have about 19k saved by years end.

Message 3 of 5
Regular Contributor

Re: How long to keep a car loan?

Less than 10 months on installment loans don't factor in DTI. I would pay it off if you have the money to do so because at that point you wouldn't be paying interest.


Starting Score: 565
Current Score: 721
Goal Score: 800


Take the myFICO Fitness Challenge
Message 4 of 5
Moderator Emeritus

Re: How long to keep a car loan?

Don't pay interest if you don't have to.

Starting Score: 504
July 2013 score:
EQ FICO 819, TU08 778, EX "806 lender pull 07/26/2013
Goal Score: All Scores 760+, Newest goal 800+
Take the myFICO Fitness Challenge

Current scores after adding $81K in CLs and 2 new cars since July 2013
EQ:809 TU 777 EX 790 Now it's just garden time!

June 2017 update: All scores over 820, just pure gardening now.
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