Auto Loan - Pay Off or Not?

[Anonymous]

I took out a 5 year auto loan in '16.  I paid it down quickly to avoid finance charges (total interest would've been ~$1800 for the duration of the loan, so I saved around $1200). Last October, I made my final large payment and left a $50 balance so the loan could continue to report. In the meantime, I opened a new Alliant SSL which has been reporting @90% paid off for the past 3 months. I was fortunate to get it set up before Alliant ended the SSL program. 

Would I take a FICO hit by paying it off?  I know $50 is a minuscule amount,  but it would just feel better having that title in my hand ; ) 

[SouthJamaica]

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wrote:

@I took out a 5 year auto loan in '16.  I paid it down quickly to avoid finance charges (total interest would've been ~$1800 for the duration of the loan, so I saved around $1200). Last October, I made my final large payment and left a $50 balance so the loan could continue to report. In the meantime, I opened a new Alliant SSL which has been reporting @Anonymous% paid off for the past 3 months. I was fortunate to get it set up before Alliant ended the SSL program. 

Would I take a FICO hit by paying it off?  I know $50 is a minuscule amount,  but it would just feel better having that title in my hand ; ) 

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No you would not take a hit. I myself had the exact same situation a while back. As long as your SSL is at 8.9% you're good.

[Anonymous]

Great response by SJ.  The only thing you need to do (which SJ caught) is to lower your SS loan to under 8.99%.  (You mentioned that it was at 10%.)  So in theory I guess $44.99 would be ok, but I'd make it lower, so that you can still accumulate a little interest and still be under the 8.99% mark.

Paying off auto loans can have a huge advantage if you think you will strip down your insurance policy to something much cheaper than the full collision policy currently mandated by the bank.

If you don't plan on changing your insurance, then if it were me I'd consider how easy it might be to allow the loan to age to 25 months and then close it.  (The 25 month is only a few months away, right?)  Some people have speculated about whether there might be value (in manual reviews or even certain models) to show "seasoned" loans (loans which were kept open at least a couple years).  That's all highly conjectural, however, and if you will simply get a lot of pleasure from the payoff I would do that.

PS.  What bank are you using that is permitting you to pay the loan to $50 and still keep it open for the full term?  That's a nice feature.

[Anonymous]

I know Wells Fargo does that.  I have a WF auto loan currently that's got about $2k left on it and my next payment isn't due until April of 2019 or so due to me paying extra ever month.  In 2 weeks I'm just going to pay the thing off, as I have no reason to keep it open.  I may then be able to knock my insurance down $50-$70 or so per month due to a coverage reduction.  I'm looking forward to having one less account "with a balance."

[Thomas_Thumb]

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wrote:

@I took out a 5 year auto loan in '16.  I paid it down quickly to avoid finance charges (total interest would've been ~$1800 for the duration of the loan, so I saved around $1200). Last October, I made my final large payment and left a $50 balance so the loan could continue to report. In the meantime, I opened a new Alliant SSL which has been reporting @Anonymous% paid off for the past 3 months. I was fortunate to get it set up before Alliant ended the SSL program. 

Would I take a FICO hit by paying it off?  I know $50 is a minuscule amount,  but it would just feel better having that title in my hand ; ) 

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Pay off the Auto loan and get the title. No valve leaving the loan open.

[Anonymous]

Good info, SJ and CGID!

I meant to say the SSL was paid down more than 90% (remaining balance is @$44.00). The car loan was opened June '16 so the 25 month aging would be in around 5-6 more months. I don't plan to change the insurance limits, it's a luxury/sports coupe. I do get an 8% discount with Geico for being a Berkshire shareholder. (A single class B share will suffice, and they didn't even verify mine. The discount percentage varies from state to state). I've had 3 previous car leases opened within the past 8 years that all went the full 36 months. 

The loan is with BofA, they offered the best rate at the time (2.79%).  Last year when I was making triple monthly payments, the due dates kept getting pushed out further and futher eventually to year 2021. When I paid it down to $50, the 2021 due date is gone, the latest statement shows due date of 02/18/18 with $0 due. 

[Anonymous]

T_T & BBS, thanks for your insights! 

Now that I know it most likely won't cause a score hit, I am probably just going to do that. Peace of mind knowing there's one less balance out there as well as the gratification of having the title free and clear in hand. 

[Anonymous]

Late Update:

 For anyone wanting to pay off their loan early, I can't say if your score will drop but here's a solid data point showing mine didn't drop when I paid off a 60 month auto loan early (at the 2 year mark). I did open a small SSL loan 7 months prior, in order to keep at least one installment loan reporting. My TU-8 and EX-8 scores have remained perfect, knock on wood.