Should I pay off my auto loan?

[Anonymous]

Long story short, my car got totaled so I had to go get a new one. I really liked the car at the dealership and decided to get it right then, considering it was a pretty good deal. I wanted to pay cash, but I didn't have my checkbook with me, and I didn't know if the car would still be there by the time I got back in a couple of days, so I decided to get a loan. Apart from trashing my credit because the dealership and Chase both decided to triple pull my credit (Chase might have been a double pull IDK the emails for the credit bureau pulls were flying thick and fast), now I have a loan that I don't need at all. My question is: Do I pay off the loan immediately or do I pay some installments to build a little loan history, considering I have no loan history on my credit?

[Anonymous]

If you can afford to pay the vehicle off then do it. There is no point in paying interest if you don't have to. Why give the bank extra money you don't need to ? And I see your saying to put some loan history on your credit but you don't wanna try to "buy" a better credit history. Paying interest unnecessarily is buying a better credit history. Don't do that. If you can pay cash, pay cash.

[calyx]

For me, it would come down to numbers.

If the percentage is low enough, and you don't mind the $$ spent in interest (and your credit score concerns you), I would pay it down to <8.9% and then make "regular" payments until it was gone - this is what I'm doing with a loan I have at 3.25%... *for me*, it's a very small amount of money to have an extra 10 months of bonus FICO points, you should crunch the numbers and see if it's worth it for you.

You might want to also check if you have an early pay-off penalty on that auto loan, too.  

[AI_JMV]

What they said ^^ Pay it down to below 8.9% owed. Your score will take a huge leap up.  I just did that to optimize my mortgage scores, and it gave me a 13 pt. boost. 

[Anonymous]

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@AI_JMV wrote:

What they said ^^ Pay it down to below 8.9% owed. Your score will take a huge leap up.  I just did that to optimize my mortgage scores, and it gave me a 13 pt. boost. 

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Isn't that going to be a temporary boost though? Wouldn't it go down again as soon as I pay it off, whenever that is?

[Anonymous]

Debt is NEVER a good thing. Keeping your DTI low is more important than anything a 'predictive' scoring model would say otherwise. Paid own or payoff debt when the opportunity arise; credit score impact will be minimal in the longrun. Avoid getting caught up with credit scoring and watch the amount of debt you carry.
If you will be shopping for a home or car, DTI matters more than anything else. Of course, how you handle paying your bills historically is important, but watch your debt load.
PAY IT OFF WHEN YOU CAN.

[Kree]

Consider keeping the loan and get gap coverage.  This way if your car is totaled, you will not lose money due to the deminised value of the car. Additionally putting that money into various investment platforms could earn you more than the interest on the car anyways.

Ignore both of these points if the APR is above 5+%, as a guarranteed 5% investment (IE paying off this loan) is generally considered a great investment, and the higher the APR the more sound paying it off would be.

Math for point A. (actual numbers will vary based upon specific situation and APR paid on loan, plus interest earned on savings)

Scenario A keep the loan with GAP.

10,000 in bank,  10,000 in car debt.  8,000 in car value.  Insurance and gap insurance pays off debt. you have 10,000 in bank.

Scenario B keep the loan without GAP.

10,000 in bank, 10,000 in car debt. 8,000 in car value. Insurance pays 8,000  remaining is paid out of pocket, you have 8,000 in bank.

Scenario C  pay in cash.

0 in bank,  0 in car debt.  8,000 in car value.  Insurance pays you 8,000. You have 8,000 in bank.

EDIT: Changed tone of introductory sentence to reflect an option versus direct advice. While I stand by any math presented in this post, the actual considerations over savings,debt,investments, and risk are highely nuanced and often personal. This post does not address the potential Risks involved in maintaining debt.