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Annie | Does paying off a new 6 year 9% auto loan too early affect your credit rating? |
I do not like having an extra payment and would like to pay it off as fast as I can. The salesman informed me not to pay it off before the first year or it could affect my credit rating. Is this true or is he just trying to make sure they get paid enough interest. |
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David A
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Pay it off. If anything, your credit would go up. The only factor that I can see that this would possibly effect is the "age of your accounts" factor, which takes into account the average age of all of your accounts, but since you already opened the account, it's kind of too late to think about that anyway. I would say that your salesman is a bozo and pay it off if it makes you feel better. Any effect of paying this off is going to be minimal anyway (probably about 20 points at the absolute most) so I wouldn't worry about it. IF you have a 720 fico, 700 or 740 are still good and if you have a 600 score, 580 and 620 are still bad, so the effect on your credit is really not an important consideration in this case. |
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mom2ami
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The only possible affect paying a loan off early might produce would be an excellent or improved credit rating for yourself. Other than some lending institutions that impose penalties for early repayment because they want all of the high interest they charge, there should be no adverse affects for you. |
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Leasa
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There are some lenders that don't like to see the early repayment because it means less profit, but having the note paid in full, on time or early, will be good for your credit from most perspectives. Be very wary of early repayment penalties, though. |
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Bob
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It may affect your rating, but only in a positive way. I'm not sure about auto loans, but many home lenders have whats called a prepayment penalty. This is a penalty that the borrower must pay if the loan is paid off early. The lender what's that interest! Generally, prepayment penalties don't exceed 2% or 3% of the loan amount and rarely exceed 5%. Of course, this is for home loans. Check the fine print in your contract. |
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SPIFIMAN1
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Auto finance is what I do for a living and there is a lot of bad information here.
Car dealers do make whats called reserve and if they sell a warranty, gap insurance or life insurance they make huge profits off of these also but all of this is paid to them when the deal funds through whatever bank they sent you to and as long as the customer makes 3-6 payments depending on banks this money can not be taken back by the banks.
Now as far as your question goes it depends on how long you have been making payments, if you have made 12-18 payments then by all means go ahead and pay it off if you can, if not wait until you have made 12 at the very least. |
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ishouldbeworking!
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go ahead and pay it off!!!
often times in "indirect lending" (the dealer arranges financing for you) there is a "chargeback period" (this means if you pay it off before a certain time the dealer loses some revenue).
i'd pay at least 4 or five payments and then pay it off.
no matter what it will show as a paid off loan on your credit and won't hurt it.
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Sir J
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He's lying to you. Pay it off ASAP. This will improve your score by improving your debt ratio.
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cheesewithyourwhine?
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It won't necessarily "hurt" your credit to pay off your car quickly.
But, paying it off in less than a year will not show a consistent, long term payment history. I think that is what the salesman meant.
Let's say this is your first car, you financed $10,000, and you pay it off in 8 months. Next time you buy a car, you want a $20,000 car. Well, the bank will probably not want to loan you that much more money. This is because even though you paid your prior loan well, you only made 8 payments! This is not long enough a time frame for them to really know how well you perform on your obligations. Anyone can make the first 8 payments on time! What they want to see is if you can keep paying on time for 18 months, 28 months, or the whole 72 months that you agreed to! So they aren't going to want to DOUBLE the loan amount, because you haven't really proven that you can handle the $10,000 loan! The best they will offer you in this case is the same loan amount you had before, $10,000. Maybe even $11,000 or $12,000.
And yes, the dealer can make "reserve" (some of the money on the interest). But they only need you to make the first 3 payments to collect that money. It doesn't benefit the dealer for you to keep the loan any longer than that.
I think the salesperson was just trying to help you build your credit history the right way (imagine that, a car salesman trying to do right by a customer? Can't be!!). Paying off the loan early may get you a high credit SCORE, but your score is far less important than your actual credit HISTORY. The banks base their credit decisions on your credit HISTORY. They will only base the rates off your SCORE. So if you have a high score, and not enough history, you won't even get approved in some cases!!! |
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Chris Pascale
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Yes, positively. When I was a mortgage broker, here's what I would see:
- Open credit accounts in the past 7 years with balances
- amount of late payments
- the minimum you were obligated to pay monthly.
So if you pay this off it will show that you borrowed $12,000 (or whatever you're borrowing) for an auto loan. You had zero late payments and are obligated to pay nothing monthly.
The result is a higher credit score, and a higher amount of money you'll be able to borrow for a mortgage.
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aip_designer
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The terms for car loans or any loans for that matter are based on time lines and your agreement to follow the guidelines which in turn is how lenders get paid. To pay a loan off early is beneficial for you but not the lender, when other companies look at that they see that you are certainly able to pay off the loan so they would not lose money on you but they will not gain any either. To refinance or adjust your terms with the same lender is better in the long run. If you could afford to pay the loan almost immediately, you would have been better off putting that money down initially and having a smaller loan and more than likely a better percentage rate. |
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I love watching cars turn left
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The dealer sometimes get a "reserve" on the interest. The longer you take to pay the more they make.
Pay it off and save some money. |
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surferchick
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I've paid off several car loans early and all it did was improve my credit. Check the terms of the loan. Some loans have early payoff penalties and yes they are looking to collect interest. Actually making consistant ontime payments over a stretch of time can help improve your credit score. I don't think an early payoff will hurt you but not paying if off too soon can help. Check with both the credit bureau and the finace department. Don't trust the sales guy |
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rhsaunders
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If it affects your credit rating, it will be favorably. That is a high interest rate (although not outrageously so), so it would be well to pay it off as quickly as is convenient. |
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Ralfcoder
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They want your interest payment.
My credit union's website shows interest rates for used cars as low as 5.2% for up to 48 months, 5.25% for up to 60 months, and 6% up to 72 months. If the car is over $30K, it's as low as 6.75% for up to 84 months.
First - think about refinancing this loan. If you have decent credit, you could save up to a third of your interest payment. Then use the savings to pay down this loan, and pay it off ahead of time.
Second - NEVER EVER finance a car for 6 years, especially if it's a used car! If you can't pay it off in 3 years, you can't afford the car. Get a cheaper car, instead. You should never finance a used car for more than 2 years, or you run the risk of the car dying before it's paid off. And if that happens, you're on the hook for the payments even after the car has been towed off to the junkyard.
Third - don't lease a car unless you have money to throw away. While it's true that leasing is cheaper than buying because you only pay for the portion of the car you use, you're paying for the most expensive part. 95 times out of 100, you're better off buying the car, and driving it until the wheels fall off. |
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mister ed
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it will help your score!!! |
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Michele B
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Yes it will effect your credit rating. It will make it higher. That is the funniest thing I have ever heard. It shows that you are a worthy candidate for another loan. YOur car salesman is full of crap. I sold cars for 8 years and have never heard such BS. |
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aquadobie
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It won't technically hurt your credit rating or score but it can affect you from getting another loan in the future because when they pull your credit report to see how you paid previous loans they will see that you paid off early and could possibly say no because they see it as not getting as much interest out of you...been there done that
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Bullet Proof
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call the lender and make sure there is no prepayment penalty first. If there is this will probably cost you $$ to pay off early. If not then pay it off will not effect your scores only not making payments will effect them |
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Klint D
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i have to pull credit reports all the time. what i look for when i pull one is when it was paid and how long they have been paying.... paying on it for more than a year makes you look financially stable. stability is something a lot of creditors look for. i would double up on my notes but make sure the account was open at least 1 year. but thats just me |
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Christy H
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Depends if you have credit or not. If you don't have credit and this is first major purchase...you want to wait a year with making your monthly payments....you can even pay more than what your monthly installment if for....for instance...if you have the money to pay off your loan right now...instead of paying it off in one lump sum...split it equally over a 12 month period. what u r doing is establishing credit history which is 35% of your credit score. This will raise your credit rating. You want to pay a little bit of interest...it's good for your credit score. Also, if you have bad credit this will help your credit score also. And if you have a 6yr loan @ 9% interest chances are you have no credit or bad credit (that's really high...especially for this market).
The jist is...pay it off in a year...if your loan is for $10,000...divide $10,000/12 which is 833.33/mo. I wouldn't really worry too much about adding in the interest...you'll take care of that with the inflated payment amt.
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D-W
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It would affect your credit rating, in a good way! Creditors are weird, it's hard to definitely figure out the best way to raise your credit. Some banks prefer you making payments as some would prefer you to pay them off as quickly as possible. I'd say go for the gold and pay it off as quickly as possible. It's the safest way and really shouldn't hurt your credit score. The salesperson probably wanted to help the bank by getting the 9% interest. |
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Tina T
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Yeah, it will definitely effect your credit rating if you pay it off early...but in a GOOD way!! Go ahead and pay it off...congratulations that you can afford to do that; sounds like the sneaky snake salesman doesn't need a few extra bucks in his pocket anyways!!! |
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doingthepanic
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The only way it will affect your credit rating is positively! You should absolutely pay it off as quickly as you can or want to. Good for you. |
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trkrdude
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Paying it off early can only help your credit.
Make sure there aren't any early pay off penalties in the contract.
Most times these only occur in large loans such as mortgage loans but check to make sure. |
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Fred F
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There is some stupid rule, rule of 85 or something , that lets car dealers charge more of the interest during the first months of a loan.
You will save some interest, but not as much as you think.
Paying off things never hurts your credit.
Not paying on time hurts. |
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Latin G
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it will affect his commision not your credit ratting.... I would wait 2 months then pay it off. |
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roderick_young
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Ignore the salesman. Have you ever known a car salesperson to put your interests ahead of their own? The fact that they don't want you to pay it off suggests to me that they lose, you win, by doing so.
Having less debt can only improve your credit rating, if you ask me. |
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Kari
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The only affect it will have on your credit is positive. The salesman knows that in most cases the first year or two of a loan are pretty much almost all interest. So if you can pay it off sooner more power to you. 9% ouch you will save a lot of money on interest the sooner it can be paid off make sure there is no prepayment penalties. Good Luck |
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M S
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Pay it off!! Why do you have 9% at 6 years? Is your credit that bad right now? The only catch may be if your loan company has a penalty for paying off too early. These were popular in the past but are not that common now-a-days. |
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skaizun
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The credit rating services have no idea how long the term of your loan is, nor even how much you have to pay. All they know (assuming it is reported to them, which, in this case, is likely), is that you have an outstanding debt. Period. Paying the debt off now or when it is contractually due makes no difference to them or your credit score, whereas paying it off late, will make a HUGE difference, because it will be reported as a late payment (BTW, one or two missed payments won't hurt, in the long run, provided that you pay the minimum due, with or without interest, late fees, etc, within the next payment period).
However, there might be a clause in your contract which states that you are responsible for paying an "early payment fee" for trying to pay the loan before the current final payment date (i.e., loaners/creditors are in the business to make money; if you opt out early, it will cost them; it is a fairly standard, if not unfair, clause, but its legality may depend on where you live, so, if this is in your contract, you might want to discuss it with an attorney).
You have to weigh all your options, and decide for yourself, but, don't EVER consider "credit rating" as a deciding factor in ANY financial transaction, as it simply isn't that important, providing that you pay at least the minimums on your loans and other debts in a timely fashion. The only things to consider when entering into any financial transaction are the following: Do I really need the object for which I'm getting the loan? Are the terms of the contract fair? Can I afford the object or loan in the long run, especially if I lose my job, etc?
Good luck!
P.S. How in the world did you get roped into a 9% auto loan, when the vast majority of new car dealerships used to scream about under 5% loans (even 0%!), until recently? Even used car dealers rarely go above 5%! Or, did you mean that the net over the life of the loan (in this case, 6 years) is 9% simple interest, in which case, that's something of a bargain, though, of course, not as good as 0%! |
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JJ
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paying the loan will help your credit score increase. so I would wait a little bit. unless your credit is established then in that case pay it off. |
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