Reply
Moderator Emeritus
Posts: 9,252
Registered: ‎03-19-2007
0

Re: Best Strategy for Paying Off an Installment Loan

I love this-
Too bad my auto is at zero %.

ilovepizza wrote:
Call and ask what happens if you pay off almost all of it except for lets say $1000. Ask if you have to make payments or if you can just wait until the balance drops to where you have to start making payments.

Example.
$10,000 loan with $200 monthly payments. (50 payments)
If you could pay $9000 now when would you have to make your next payment?
My car loan company said I didn't have to make another payment until the amount dropped to $1000 in this case. So each month I sent in $1 to report to that CRAs. They hated me. I stretched out my loan for years! I paid virtually no interest and got credit for long term payment history.


Valued Member
Posts: 33
Registered: ‎04-19-2007
0

Re: Best Strategy for Paying Off an Installment Loan

That was a good idea Pizza! I'll have to try that
Established Member
Posts: 10
Registered: ‎05-21-2007
0

Re: Best Strategy for Paying Off an Installment Loan

Wouldn't that mean that you're paying all the interest though? For example, if I make a triple payment and they tell me that I'm able to skip the next two months because of it, that doesn't do me much good if it's like I'm paying the coming months in advance.
 
Or were all the extra payments going towards the principal AND you were given time before your next payment was due?
Regular Contributor
Posts: 126
Registered: ‎05-12-2007
0

Re: Best Strategy for Paying Off an Installment Loan

In my opinion, the interest you pay isn't the issue, it's having that nice (and hopefully long) installment loan with a constant payment history that is the biggest benefit to help raise your FICO score.  I made the mistake last month of selling my car and paying off my auto loan, and now my credit reports and scores are hurting, they claim, for lack of any "installment loans."  Go figure...
 
I would take the longest installment loan possible and don't worry about the payments or interest.  It is the good payment history you should be after, which will help increase your scores, thereby allowing you to get btter interest rates on much bigger loans, like your next mortgage or refinance.
Epic Contributor
Posts: 21,266
Registered: ‎03-19-2007
0

Re: Best Strategy for Paying Off an Installment Loan

Unfortunately, sad but true.  Paying off an installment loan may help in the %util of debt category, but reduces your score in the credit mix category.  Having, or deleting, an installment loan can mean a 20 pt swing in credit rating, depending upon the lenght of the loan.  If increasing FICO is the goal, dont pay it off.  Keep it to shoiw credit mix and payment history. If, however,  saving $ is the goal, pay it off now.  Ironic, but true.
Epic Contributor
Posts: 21,266
Registered: ‎03-19-2007
0

Re: Best Strategy for Paying Off an Installment Loan

You must know what game you are playing in.  If the game is to quickly reduce debt and interest payments, then dont track FICO. Having installment debt helps FICO, but costs you interest.  If the game is to increase FICO, keep the installment loan, and pay the interest price.  But FICO score chasing is usually the focus of those seeking new credit, and not improving current status.  Chase FICO, get the score up, and then use that to secure new credit... the result is gaming FICO, and increasing debt.  Take your poison.
Moderator Emeritus
Posts: 16,383
Registered: ‎03-12-2007
0

Re: Best Strategy for Paying Off an Installment Loan



RobertEG wrote:
You must know what game you are playing in.  If the game is to quickly reduce debt and interest payments, then dont track FICO. Having installment debt helps FICO, but costs you interest.  If the game is to increase FICO, keep the installment loan, and pay the interest price.  But FICO score chasing is usually the focus of those seeking new credit, and not improving current status.  Chase FICO, get the score up, and then use that to secure new credit... the result is gaming FICO, and increasing debt.  Take your poison.


Util% of debt on installments has a minimal affect on scores. Rather someone has high or low installment balances is moot, it's all about paying on time. I do agree with your post though.
Credit Profile -
FICO 08 Scores (03-26-2015): EQ 814, EX 817, TU 822
All three scores were 850. Lost points for not having an open installment TL. So, BE WARNED!!!!!
Credit History: 26 years ~ AAoA: 13 years ~ Util: 1% ~ Inqs: EX 1, EQ 1

Credit Cards: Amex BCP ~ Amex Clear ~ Amex Platinum ~ Barclay Ring Mastercard ~ Chase Freedom Visa ~ CITI Dividend Platinum World Mastercard ~ FIA Fidelity Investment Platinum Visa ~ First Hawaiian Bank Gold Visa
Highlighted
Epic Contributor
Posts: 21,266
Registered: ‎03-19-2007
0

Re: Best Strategy for Paying Off an Installment Loan

Thanks, fused.  That is my experience, particulary if the installment loan is ageing... since interest is much reduced, and the benefit of haviing that installment loan in the credit mix is a FICO plus.  I have an installment loan that I could pay off tomorrow, but only make  normal payments to keep it in the active  mix.  But, again, only because I will be seeking new credit within the next few months, and need the FICO boost.  Its a twisted web we weave!
Advertiser Disclosure: The listings that appear on myFICO are from companies from which myFICO receives compensation, which may impact how and where products appear on myFICO (including, for example, the order in which they appear). myFICO does not review or include all companies or all available products.
† Credit cards for FICO Score ranges: The score ranges are guidelines based on actual applicant approvals and having a FICO Score in a particular range does not guarantee you will be approved for credit cards recommended in that range.

Copyright ©2001-2015 Fair Isaac Corporation. All rights reserved.   | Terms of Use | Privacy Policy | Sitemap

IMPORTANT INFORMATION: All FICO® Score products made available on myFICO.com include a FICO® Score 8, along with additional FICO® Score versions. Your lender or insurer may use a different FICO® Score than the versions you receive from myFICO, or another type of credit score altogether. Learn more

FICO, myFICO, Score Watch, The score lenders use, and The Score That Matters are trademarks or registered trademarks of Fair Isaac Corporation. Equifax Credit Report is a trademark of Equifax, Inc. and its affiliated companies. Many factors affect your FICO Score and the interest rates you may receive. Fair Isaac is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. Fair Isaac does not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating. FTC's website on credit.