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Established Member
Posts: 10
Registered: ‎05-21-2007
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Best Strategy for Paying Off an Installment Loan

I just took out an installment loan of $13900 for a used vehicle. I thought I'd get your opinions on the best strategy to both pay this off quickly (saving on interest), yet also build my FICO/auto-FICO scores by having history. I have enough cash to pay off half the loan immediately. I can pay off the other half within two to three months if I wanted to. What do you guys think: How much does the length of an installment loan's history factor in to the FICO score? For example, one strategy I was considering was paying off the whole loan except for the last 12 payments. That way, I'm paying very little interest (it's a 5 year loan with small payments) and I still have a year of installment payment history. Would there be any benefit to an approach like this? Or should I just pay it off as quickly as I want to? Thanks in advance for your opinions.
Moderator Emeritus
Posts: 9,252
Registered: ‎03-19-2007
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Re: Best Strategy for Paying Off an Installment Loan

I say get a big chunk paid down on it than strech the payments out for the whole 4-5 years.

Conc wrote:
I just took out an installment loan of $13900 for a used vehicle. I thought I'd get your opinions on the best strategy to both pay this off quickly (saving on interest), yet also build my FICO/auto-FICO scores by having history. I have enough cash to pay off half the loan immediately. I can pay off the other half within two to three months if I wanted to. What do you guys think: How much does the length of an installment loan's history factor in to the FICO score? For example, one strategy I was considering was paying off the whole loan except for the last 12 payments. That way, I'm paying very little interest (it's a 5 year loan with small payments) and I still have a year of installment payment history. Would there be any benefit to an approach like this? Or should I just pay it off as quickly as I want to? Thanks in advance for your opinions.



Established Member
Posts: 10
Registered: ‎05-21-2007
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Re: Best Strategy for Paying Off an Installment Loan

[ Edited ]
Well I have fixed payments. This is an installment loan. If I prepay and pay off a large chunk of the loan, I'll still have the same monthly payments to make. There will just be fewer total payments left to pay the loan off. I can't pay down the loan and still have 5 years of payments left.


Message Edited by Conc on 06-25-2007 05:30 AM
Moderator Emeritus
Posts: 9,252
Registered: ‎03-19-2007
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Re: Best Strategy for Paying Off an Installment Loan

I'm sorry- I don't understand
 
If you have $ to pay it off in 6 months - why would you not have $ to pay 40% to 50% in the next 2-3 months and not have $ to make the monthly payments?
 
You could pay some down and have them re-age the account?
What is the APR on the account?
 
You may be able to tell the company to apply to future payments?

Conc wrote:
Well I have fixed payments. This is an installment loan. If I prepay and pay off a large chunk of the loan, I'll still have the same monthly payments to make. There will just be fewer total payments left to pay the loan off. I can't pay down the loan and still have 5 years of payments left.


Message Edited by Conc on 06-25-2007 05:30 AM


Frequent Contributor
Posts: 489
Registered: ‎05-23-2007
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Re: Best Strategy for Paying Off an Installment Loan

My Advice to you if you want to get the benefit of improving your FICO score and not pay all the interest is to make double payments each month. You want to show at least 24 months of payment history on the loan and if you make double payments on it you will pay off a 60 month loan is just over 2 years.
Established Member
Posts: 10
Registered: ‎05-21-2007
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Re: Best Strategy for Paying Off an Installment Loan

If I want 2 years of history, why not pay $7500 off the loan and then just make the regular payments for the next two years? If I do this, I end up paying $826 in interest. On the other hand, if I make double payments, I end up paying $1767 in interest, more than twice as much.
 
Senior Contributor
Posts: 4,831
Registered: ‎04-20-2007
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Re: Best Strategy for Paying Off an Installment Loan



Conc wrote:
If I want 2 years of history, why not pay $7500 off the loan and then just make the regular payments for the next two years? If I do this, I end up paying $826 in interest. On the other hand, if I make double payments, I end up paying $1767 in interest, more than twice as much.



This sounds reasonable.
Established Member
Posts: 54
Registered: ‎05-30-2007
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Re: Best Strategy for Paying Off an Installment Loan

Can I ask why you want/need a boost to your Fico score?  Are you planning a big(ger) purchase soon?  What are your current scores?
 
I'd rather be debt free then have a better FICO score, personally.
Moderator Emeritus
Posts: 16,375
Registered: ‎03-12-2007
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Re: Best Strategy for Paying Off an Installment Loan



Conc wrote:
I just took out an installment loan of $13900 for a used vehicle. I thought I'd get your opinions on the best strategy to both pay this off quickly (saving on interest), yet also build my FICO/auto-FICO scores by having history. I have enough cash to pay off half the loan immediately. I can pay off the other half within two to three months if I wanted to. What do you guys think: How much does the length of an installment loan's history factor in to the FICO score? For example, one strategy I was considering was paying off the whole loan except for the last 12 payments. That way, I'm paying very little interest (it's a 5 year loan with small payments) and I still have a year of installment payment history. Would there be any benefit to an approach like this? Or should I just pay it off as quickly as I want to? Thanks in advance for your opinions.


If you want to save money, then pay it off as quickly as possible.  On the other hand if you want to get the max FICO points pay it according to the terms of the loan.  For example if the loan is 36 months, then pay it for the full 36 months.
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

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Senior Contributor
Posts: 3,071
Registered: ‎05-17-2007
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Re: Best Strategy for Paying Off an Installment Loan

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.
If we never set higher goals we would never get as far.
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