Paying off auto loan early

Shock_ · ‎02-20-2014

What are the benefits besides getting the title, and paying less interest?

My auto loan is from 09/2013. Will it make any difference FICO wise if I paid it off next April, or next September?

Is there any other benefit besides keeping the loan on your report longer (and paying more interest) to paying the loan off slowly?

bed · ‎02-20-2014

It woulldn't hurt to pay down your pricipal balance quite a bit, just make sure you have the loan long enough to have it reporting at least 12 months. An auto loan really isn't going to help your FICO score that much though. Personally, I'd shoot for getting it paid off after it's been reported for a year.

Remember0 · ‎02-20-2014

The only benefit I can think of to keeping it is to build auto history in case you need another (larger) loan down the road. What's the interest rate like?

Also I've heard of a crazy story where a guy with a auto loan PIF'ed in one month (he did it for a promo extra cash allowance), got a question during mortgage underwriting as to whether the car was repo'ed. As I remember it took a call to the lender by the underwriter to clear up because she wouldn't believe he paid it off in one month and thought it was a repo regardless of what he said (dumb underwriter)...I wouldn't worry too much about this though. Just save the payoff quote and a copy of your check as well as the PIF letter they send you.

EDIT: And bed comes up with the best idea. Pay down a significant part of it so you minimize interest, but leave enough for min. payments to get you out to 12 months ideally. If you pay it off earlier, seriously don't sweat it...you'll be fine either way. Congrats on being able to pay off a car note so soon.

Shock_ · ‎02-20-2014

@bed wrote:
It woulldn't hurt to pay down your pricipal balance quite a bit, just make sure you have the loan long enough to have it reporting at least 12 months. An auto loan really isn't going to help your FICO score that much though. Personally, I'd shoot for getting it paid off after it's been reported for a year.

My loan amount was 12,010. After 5 months, it sits at 6,997. It will be paid off before 72 months lol. But I'm wondering why it's better to have it reported for a year minimum? Fico score? AAOA?

Shock_ · ‎02-20-2014

@Remember0 wrote:
The only benefit I can think of to keeping it is to build auto history in case you need another (larger) loan down the road. What's the interest rate like?

Also I've heard of a crazy story where a guy with a auto loan PIF'ed in one month (he did it for a promo extra cash allowance), got a question during mortgage underwriting as to whether the car was repo'ed. As I remember it took a call to the lender by the underwriter to clear up because she wouldn't believe he paid it off in one month and thought it was a repo regardless of what he said (dumb underwriter)...I wouldn't worry too much about this though. Just save the payoff quote and a copy of your check as well as the PIF letter they send you.

EDIT: And bed comes up with the best idea. Pay down a significant part of it so you minimize interest, but leave enough for min. payments to get you out to 12 months ideally. If you pay it off earlier, seriously don't sweat it...you'll be fine either way. Congrats on being able to pay off a car note so soon.

Interest rate 5.99.

I definitely wont PIF in one month in the future after that story lol.

I am actually thinking of selling the car after it's paid off to get another one..

Shock_ · ‎02-20-2014

Also, I am asking because right now I have a 0% APR on my AMEX card and I'm thinking of paying it off with that. I can do it now if I wanted to, but wanted to maximize FICO benefit by perhaps leaving it open for a year.

Remember0 · ‎02-21-2014

Listen, no need to worry so much. You've had the loan for almost 6 months at this point. If you want to pay it off, go for it. The difference between waiting a year to PIF and PIF now is so little that there's virtually no difference...do either, and the end result will be the same. If you want a new car, you don't NEED to wait till 12 months to get one, you're fine.

sekada · ‎02-21-2014

What I can't figure out is -- I did this, paid off a loan almost 5 months early, but it made no difference to my score. Why isn't that considered a sign of strong financial health?

Shock_ · ‎02-21-2014

@sekada wrote:
What I can't figure out is -- I did this, paid off a loan almost 5 months early, but it made no difference to my score. Why isn't that considered a sign of strong financial health?

Not sure. But I figured a installment loan stating PAID IN FULL should make your score leapfrog a little bit.

Remember0 · ‎02-21-2014

Sorry guys, but FICO scoring and credit in general doesn't often follow sense.

Does paying off in 5 months show financial strength? Maybe to a manual underwriter, but I've never heard of that happening in real life. FICO has no such concept though...

Also having a loan PIF usually drops people's FICO a tad. Not a lot, but a tad. FICO likes to see a broad mix of credit open with low util (so it'll love when you are at $1k in principal on a 20k loan). Once that last 1k is paid off, most see a score drop (though due to the buckets, some people are obviously different).