Does paying off your car loan early help your credit?
The simple answer is no there is really no advantage to your credit score by paying off an installment loan, a car loan, early. Installment loans are contract that details the amount of money borrowed and the terms of the loan agreement, which is a monthly payment promise over a specific period of time. Auto loans are typically 24-72 mos. Lenders are primarily concerned to see if borrowers understand this [ad]concept and continue to pay their monthly payments on time, over the length of the contract. Therefore, you receive no “credit” for paying early. In fact, this demonstrates that you don’t understand the contract that you signed. You will be penalized for paying late or not paying at all.
Many automobile loans can have, like mortgages,compounded interest terms but are not typical. In this case paying off your auto loan early may save you some money in interest it will not affect your credit score. Read your loan documents carefully to see if this applies to your case. It is advisable to make your regularly scheduled car payment and save the money to apply toward something else. This is a much better use of funds. Most car loans are for set amounts of money and that will always be the payoff, no matter when you pay if off. If you have this ordinary type of auto loan, make the payments monthly, since this is what you agreed to do.
Applying for credit shortly after a major purchase can have an adverse affect. If you are denied credit due to the large amount of the new loan, this will lower your credit score.
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Yes, Grats on the free and clear title, too! On your credit report, it will show what the minimum payment is, and what you usually paid on it. That extra increases your score a great deal!
Now, though, just to caution you, if you go for a year or two without a car payment and then want to purchase another car, the lender may require a good down payment, because they want to see that you've been able to save the money that would have otherwise gone to a car payment. If you have that kind of money, it will show them that not only do you really want the car, but that you haven't been spending your money on crap (and will want to keep spending your money, even with a new car note to pay on).
To see it through their eyes, it's someone who had spent $300/mo on a car note for a few years, and then had no payments needed for a few years. Now they want to take up another loan with a $300 payment… but have they gotten comfortable with not having that extra payment? Are they still reliable for that note? Or are they going to be scraping the money together each month, hoping they will have enough?
Anyhow, that's the story… lol… i went on and on, sorry!