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Payoff new auto loan early?

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DarkKnight_Credit
New Contributor

Payoff new auto loan early?

Hi everyone, I trade in my old 2015 Mazda 3 for the new 2023 Mazda CX-5 two weeks ago. I bought the car, mainly because they gave me a 3 month no payment deal. After I purchased the car, a week later, they said unfortunately that program ended after I bought the car. But Mazda financial services had a 45 day deal and they told me that they'll make the first purchase for me, which would be about 85 days before my payment. Or get a different loan that has 90 days (but interest rate is higher). I chose the former.

 

With that said, I currently have two auto loans. I have a BMW auto loan and an auto loan from Mazda financial services. Personally I don't want to pay $1200 per month with those cars, especially since I'm planning on buying a house next year. 

 

I understand that my score will decrease significantly when a new installment loan is on my credit. But I want to pay off the Mazda car after making two payments. So my question is, will my credit go back up after the installmant loan is paid off very early?

 

Thanks! 

My credit cards:




Starting Score 08/2021: 
Current Score: 
Message 1 of 6
5 REPLIES 5
fury1995
Valued Contributor

Re: Payoff new auto loan early?


@DarkKnight_Credit wrote:

Hi everyone, I trade in my old 2015 Mazda 3 for the new 2023 Mazda CX-5 two weeks ago. I bought the car, mainly because they gave me a 3 month no payment deal. After I purchased the car, a week later, they said unfortunately that program ended after I bought the car. But Mazda financial services had a 45 day deal and they told me that they'll make the first purchase for me, which would be about 85 days before my payment. Or get a different loan that has 90 days (but interest rate is higher). I chose the former.

 

With that said, I currently have two auto loans. I have a BMW auto loan and an auto loan from Mazda financial services. Personally I don't want to pay $1200 per month with those cars, especially since I'm planning on buying a house next year. 

 

I understand that my score will decrease significantly when a new installment loan is on my credit. But I want to pay off the Mazda car after making two payments. So my question is, will my credit go back up after the installmant loan is paid off very early?

 

Thanks! 


Has your score dropped? Normally, it will dip slightly after the inquiry and more significantly once the new account reports. After an installment is paid in full and reports closed, there may also be another dip. Usually, score increases occur with the account reporting and balance decreases. 

August 28, 2023 FICO 8

August 28, 2023 FICO BankCard 8

August 28, 2023 FICO Auto 8

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Message 2 of 6
DarkKnight_Credit
New Contributor

Re: Payoff new auto loan early?


@fury1995 wrote:


Has your score dropped? Normally, it will dip slightly after the inquiry and more significantly once the new account reports. After an installment is paid in full and reports closed, there may also be another dip. Usually, score increases occur with the account reporting and balance decreases. 


It hasn't dipped yet. I do remember one of my old car loans being shown as paid in full and my score increased when I refinanced (this was before my Capital One Auto loan showed up in the report). When Capital One Auto loan shown up in the report, the score decreased about 17 points. This was around the time I had a poor credit.

 

Would it be possible that my score increases if the Mazda financial services loan is paid nearly in full this year?

My credit cards:




Starting Score 08/2021: 
Current Score: 
Message 3 of 6
fury1995
Valued Contributor

Re: Payoff new auto loan early?

When you pay off the MAzda Financial account, it shouldn't make a dramatic difference sol ong as there is still the BMW reporting. If you payoff Mazda and there is no other installment reporting, the lack of an installment account reporting impacts your "credit mix" portion of your score.

 

I think you will see a larger impact from the new account reporting, then neaerly 100% balance reporting for the two months prior to the payoff of the account.You should see it bounce back, but not completely as the record of a new account will still be there, paid or not.

August 28, 2023 FICO 8

August 28, 2023 FICO BankCard 8

August 28, 2023 FICO Auto 8

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Message 4 of 6
DarkKnight_Credit
New Contributor

Re: Payoff new auto loan early?

Yeah, I strongly believe that there's going to be a huge impact when the new account reports. I'll be happy if it does bounces back after it's paid off, but if it's not completely, then that's fine. This helps a lot. 

 

Thanks!

My credit cards:




Starting Score 08/2021: 
Current Score: 
Message 5 of 6
FireMedic1
Community Leader
Mega Contributor

Re: Payoff new auto loan early?

@DarkKnight_CreditOnce the Mazda loan is paid in full. The util on the BMV will take over again as it did before the Mazda.

"I currently have two auto loans. I have a BMW auto loan and an auto loan from Mazda financial services." The hits for a new account and such will stay about the same but will fade in time.


Message 6 of 6
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