Auto Loan Early Payoff

[BuildingBetterCredit2020]

Just doing a little early planning and was curious about the opinions out there. I have the opportunity to payoff my 5-year auto loan (2019) early in the next 8 months, but I'm reticent about the potential score drop from doing so. I've read here and there that any score drop to be had would be negligible. FWIW, the interest on the loan is low to begin with not to mention a lot of it is front-loaded anyway so the savings would probably be negligible. But it would be nice to get rid of the loan and save up for another car, large purchase, or put in savings/investments. Any and all advice appreciated. 

[disdreamin]

I have always paid off my loans without considering the FICO consequence, even when the loan was a 0% auto loan. I just prefer to not owe money, although I don't go crazy paying off the 0% loans for obvious reasons.

If you are planning on applying for something where a better FICO score will net you a better interest rate, it might be worth considering stretching the loan out. Otherwise, I'd just pay it off and be done with it.

[pizzadude]

If this is your only open installment loan then it's likely you'll experience a small hit to your FICO scores when it reports as closed / paid.

I agree with the comments above, unless you're planning to apply for credit soon I'd go ahead and pay it off as your score will bounce back eventually. 

[SouthJamaica]

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@BuildingBetterCredit2020 wrote:

Just doing a little early planning and was curious about the opinions out there. I have the opportunity to payoff my 5-year auto loan (2019) early in the next 8 months, but I'm reticent about the potential score drop from doing so. I've read here and there that any score drop to be had would be negligible. FWIW, the interest on the loan is low to begin with not to mention a lot of it is front-loaded anyway so the savings would probably be negligible. But it would be nice to get rid of the loan and save up for another car, large purchase, or put in savings/investments. Any and all advice appreciated. 

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If it's your only open loan, and if the present balance is 9% or less of the original loan amount, you are currently in the 'sweet spot' of installment utilization, and will likely receive a serious point loss in your FICO 8's and 9's, and a small loss in one or more of your mortgage scores, when you pay it off.  Many of us have experienced 30+ point losses, far from "negligible".

But to my mind the value of getting a clean title takes center stage.