Paying down installation loan

[Anonymous]

Hello all!

Does paying down an installation loan(not paying off) improve your credit?

I have a car with about 13k left to pay. I want to pay off 10k to improve my DTI, as I am in the process of getting a home. I understand that paying off an installation loan hurts your credit mix, but will paying down the amount to improve my DTI impact my credit positively or negatively?

Thank you!

[Anonymous]

How paying a car loan down will impact a mortgage application is very applicant specific.

Car loans currently have low interest rates.

If you have higher interest debt you would be better served paying that down first.

If you have no other debt... fantastic.

If you pay down the car loan how will that impact your liquidity in terms of down payment and months of mortgage payment saved?

As expensive as housing is, my guess is that you would be better off not putting cash towards the car loan principal.

Where the paying down principal could make sense is if you need to get under some specific threshold.

Mortgage underwriting works a bunch of grids: down payment in specific range, score in specific range, debt to income in specific range. Not intended to be exhaustive explanation.

Helping any one variable might not help at all if it does not move you to a range you need to be in, and could hurt if doing so puts you below a range needed for another variable.

[zerofire]

It will effect it positively or not at all.

When you say there are negative consequences that is because the auto loan was paid off. Paying off an auto loan also closes that account automatically and if there is no other installment loan on the report you end up hit with a credit mix penalty. You also lose the calculation on amount paid off from original value as the account is now closed. Since you are just paying it down and not off it will effect it positively. Just make sure you want to invest that money into the car. If you have GAP coverage then the payout from it will be significantly reduced in case of a crash. Also make sure the lender is willing to apply the payment to future due dates instead of moving the amount due up.

[Anonymous]

Thank you for your input! I have talked to the lender and they told me that upon paying down 10k, my next payment would be in November for the same amount I pay monthly.