Is it a good idea to pay off a car loan early?
My husband and I were thinking of paying off our car loan early, we've been paying on it for about 8 or 9 months and have never missed a payment. Our interest rate is 9.9%, the payment is $540 a month with little over half of that going to the principal. With all the negative equity from previous car loans, it added close to ten grand on top of the price of the car. The pay off balance is 26,718, is it a good idea to just pay it off, will it hurt our credit to have it paid off? I really don't want a car payment anymore. Any thoughts?
with the bank I'm with, there's no penalties for paying it off early, when I called they were really trying to convince me it wasn't a great idea to just pay it off. they even said they would apply a $50 credit to my next payment, it made me second guess myself for a few minutes but we'll be paying close to $40,000 for a 20,000 car with the interest and negative equity. Doesn't seem like a great deal to me.
The car loan is our higher interest rate, we got rid of the credit cards last year.
Now, be aware that they'll discourage you from doing so. All the "extras" you're paying every month is what they want, so don't give in and pay it off. You'll save lots and also another stressful thing out of your life..! Nice, uh?
Also it is good for your credit. It will show you with outstanding credit. That's what creditors want, give the money to responsible and "credible" people. Do it and you'll be so amazed how many credit doors will be open to you and Just-For-You...
pay it offby ss - 6 years ago
Absolutely, you save money on the interest left on the loan.by pathfinder - 6 years ago
the sooner you pay it off the better. if anything it should help your credit.by Pierce s - 6 years ago
yes, refer to daveramsey.com
Source(s)by Diceman - 6 years ago
yes, just pay it off. thats good for your credit score!by Greenbay All the Way!!!!! - 6 years ago
First of all 9.9% is a very high interest rate for a car. Ouch!
Yes, you save a lot of money when you pay it off early (like in the first year or two). Once you get towards the end of your loan it really won't make a difference if you pay if off then. The savings aren't worth it.
If you have the money, you're going to save a lot of interest. Pay it off.
This will help you:
Paying off early is never a bad thing. Calculate the interest you paying and wasting if you carry the loan to term. You will definitely want to pay off the loan then!!!
Yes diffently a good idea - just watch out for early settlement penelties. It should help your credit rating not hurt it.by Stephen L - 6 years ago
i would pay it off too.i paid a car off 3 months after i got it and it went toward me for negitive but it wasnt hurting me when it came to credit. it is still on my credit today but it does say paid off.by rockyfella25 - 6 years ago
Yes,pay it off if you can. You are going to save the money in interest, and it won't hurt your credit. The fact that you have never missed a payment for 8-9 months WILL help your credit, however. So its a win-win situation.
Source(s)by jw33 - 6 years ago
It's always better to pay those off if you can. It would be tough to really get a better rate of return on investments. It can happen but highly unlikely. If this was a home and you had a 5% rate I would say keep making payments but at almost 10% I don't really see the benefit of making payments especially since it's a declining asset. Just pay it off and invest the extra cash you would have been paying on the loan.by Luke 6:37 - 6 years ago
Pay it off. You'll save a bundle and help your credit. There is almost no way you'll find an investment that will pay 9.9%.by gcason - 6 years ago
Paying off early can save you a lot of interest. The smartest thing is to pay off the highest interest debt first, then work you way down the list. If you have credit card debt, it is probably higher than 9.9%. It is often double that rate. Pay it off first then PAY OFF THE CREDIT CARDS EVERY MONTH and pay down the car loan.by G_U_C - 6 years ago
Auto finance is what I do for a living and I agree, pay it off.
But, you should not pay it off until you have made at least 12-payments, this is the first think lenders look for when someone applies for credit is either a home or vehicle loan paid at least 12-times.
Paying at least 12 -times also gives you the best score.
Source(s)by SPIFIMAN1 - 6 years ago
Pay it off. Just make sure when you apply extra payments note on the check. Payment amount and amount applied to principle separately. If not some scum bag banks will apply the extra payment toward interest. By paying it off early you are trying to avoid extra interest. Example write in memo line Payment 540 Principle 160 Total 700.by DCK2003 - 6 years ago
YES!!! And please do so to save yourself money on NOT paying more interest than you aleady have. 9.9% is a pretty high interest rate, and by paying it off early will also boost your credit score. So please do it if you have that much savings in the bank.by XoxoxoxoX - 6 years ago
Pay off the car. Then put the $540 a month in the bank. Save your money and you will not have to obsess with the fico score. The only thing its good for is borrowing money.by heybulldog - 6 years ago
It shouldn't hurt your credit... after all you have 8 - 9 months recorded of on time payments. My husband and I are in a similar situation. I used to have bad credit, and my husband's credit is fine.... but he is an immigrant and has a short US credit history, so we are trying to build his credit also. We could actually afford to pay cash for our car, but financed it for the creidt boost (and also to get a special rebate only available through financing). So we were advised to keep it open for at least 6 months. We paid most of it off the first month to minimize interest payments. We currently have $500 still owing, we don't have to pay anyhting until 2011... but we are going to pay it off in a few months.
Check with your finance company. If you want to keep te account open a little longer, then see if you can make a huge payment. We live in PA and state law says they cannot penalize you for prepayments. Some states may be different.