Paying off car loan early?

[Imhotrodcrazy]

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@smallfry wrote:

Why lose points at all? I have paid off all but 7 dollars of a 25K auto loan. My next and last payment is due 5/2013. How much interest am I paying? 

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I couldn't do that.   Owing that last $7 would drive me insane.  Besides, I would want that pink slip. 

[Anonymous]

OP,

I would strongly recommend opening at least one bank/national cc.

That will pop your score up and give you a history that will be most attractive when you app for a mortgage.

Not havng one right now is hurting your FICO score and will be an issue when you're mortgage hunting.  Our mortgage lender - who is FICO savvy - made sure we had one (you only need one) reporting.  It doesn't matter so much how long it is open (ours was less than a year old, and we had a few open only a month).   But I would definitely get that baby in the oven.

I'm also with those who recommend paying off the auto loan - your monthly payments greatly impact how much mortgage you'll be approved for. 

Plus, I'm just wired that way.  We had no installments with balances and it did not impact our FICO score (some estimate paying off all installments will not have a FICO impact until six months after the balances report zero) and it was a non-issue for our mortgage.

Hope that helps. 

You know it's a great feeling driving a car that's paid off!  But I would definitely get a bank/national credit card/revolving account up and running.

[Anonymous]

Thanks for all the replies everybody, sorry I forgot to mention a few things.  I do have several credit cards two of which I've had for nearly a decade, one of which I just opened because of the cashback rewards (which I know hurts my credit score a tiny bit I think).  Anyway, I've never ever carried a balance on any credit card, and I've never had a debt either.  This is the second car loan I've ever had, my first was always paid on time and then paid off completely a year or so early.  The last time I checked my credit scores, I think they were around 790 - 800 I can't remember exactly what each one was though.  So yeah, I guess what I mainly was trying to weigh out is the potential "hit" my score could theoretically take if I were to pay off the loan entirely, and how long that hit would affect me?

[smallfry]

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@Anonymous wrote:

Thanks for all the replies everybody, sorry I forgot to mention a few things.  I do have several credit cards two of which I've had for nearly a decade, one of which I just opened because of the cashback rewards (which I know hurts my credit score a tiny bit I think).  Anyway, I've never ever carried a balance on any credit card, and I've never had a debt either.  This is the second car loan I've ever had, my first was always paid on time and then paid off completely a year or so early.  The last time I checked my credit scores, I think they were around 790 - 800 I can't remember exactly what each one was though.  So yeah, I guess what I mainly was trying to weigh out is the potential "hit" my score could theoretically take if I were to pay off the loan entirely, and how long that hit would affect me?

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800 FICO scores? It doesn't matter how you handle the car loan.

[Anonymous]

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@Imhotrodcrazy wrote:

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@smallfry wrote:

Why lose points at all? I have paid off all but 7 dollars of a 25K auto loan. My next and last payment is due 5/2013. How much interest am I paying? 

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I couldn't do that.   Owing that last $7 would drive me insane.  Besides, I would want that pink slip. 

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I did that once upon a time.  Owed $8K on a car.  Had a chance to pay it all off.  Loan company told me there was a penalty for early payment.  I said, fine, paid it all off but a dollar.  Owed them a dollar for 3 years.  I'm hoping that dollar made their accounts not balance every month for the entire time.

[Imhotrodcrazy]

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@Anonymous wrote:

 Loan company told me there was a penalty for early payment.   

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I would never sign, or accept,  a contract with a pre-payment penalty.   I don't need to buy anything that bad. 

[Anonymous]

I don't think this is a FICO score issue.  It comes down to where your money will work for you the best.  You didn't mention the auto interest rate, so I will assume it is not outtrageous.  The $13,000 may be more productive for you to put down on your home purchase.  Even at today's rates of <5%,  $10,000 down over 30 years will add up to a lot of interest savings.  Also if this money pushes you below 80% financing you will save thousands on not paying PMI. 

If you already have enough cash to put 20% down on a home not including this $13,000, it is probably not a big deal.  The other consideration is the debt to income ratio.  If you are close to the allowable ratio (used to be 25%-35%), paying off the car will increase the amount of mortgage you can get approved for.   Bottom line - it depends on many other factors than increasing your score.

[MarineVietVet]

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@smallfry wrote:

If you are concerned about saving money/showing less debt why not pay the car down to a minimal amount yet still keep it open? Closing your only installment will likely hurt your credit scores. What are they currently?

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Out of curiousity I called my CU to see if I could pay in advance all but the last payment on my truck loan and their policy is only to allow 3 months advanced payment so I couldn't do that even if i wanted to. But it's a pretty good strategy.

From a BK years ago to:
9/09 EX pulled by lender 802
3/10 EQ- 800
6/10 TU -772

You can do the same thing with hard work

Credit Scoring 101
Common Abbreviations
Frequently Requested Threads
Whats In Your FICO Score

[Anonymous]

Dear zdawg

I use to work for a lender. If you pay off your car now it may help your FICO score a little. However some lender guidelines require the have specific open accounts and the duration for example 24 months open installment account. What they want to know is that can you pay debts in a timely manner not how much money you have. They are looking at your credit report for repayment behavior.

So until you get your mortgage loan approve, my advice would be to hold off on paying off your car.

[Anonymous]

My advice is pay the minimum and save some money for closing costs and moving, banks do not like it when you have no debt AND no savings.  They rather you see you paying a debt on time (shows you can handle debt) and save.   What you don't want is alot of credit card debt,  pay that off if you have any.