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      11-14-2012, 06:41 PM   #1
Crypty
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Paying off a loan too quickly?

I financed a large portion of my car when I was fresh out of college and had a well paying job but little cash on hand. It's a 27k 5 year loan at 4.69%. I've been making the minimum payment for 7 months and now I have enough cash on hand to comfortably pay off the balance in full which should save me something like $2000 in interest..

Is paying a loan off all at once like this bad for one's credit? Would it be wiser to make several less huge payments to complete it? Establishing good credit matters to me since my credit history is so short.

Thanks!
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      11-14-2012, 07:06 PM   #2
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won't hurt you at all if you pay it off

but it's always nice to have cash on hand, though the interest is a little high

i would personally pay off half, then make larger payments; just to leave some extra cash on hand.
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      11-14-2012, 07:07 PM   #3
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why dont you just catch up on the payments?

the rate isnt too bad, but if it were me id rather hold on to the principal and continue to make regular payments.
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      11-14-2012, 07:34 PM   #4
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you don't need credit when you have cash. if you want to keep the car, pay it off. otherwise play for another few years and sell. the rate isn't too good either.

i would pay it off. only reason against is if you want to buy a house. otherwise you'll probably end up spending it on something else lol

Last edited by amanda hor$t; 11-14-2012 at 07:42 PM.
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      11-14-2012, 10:00 PM   #5
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pay it off. I've been buying cars 0% down and typically paying them off quickly since I graduated from college in 2003. I pay off credit cards in full. I have student loans (1.625% interest) and a mortgage (4.0%) and my credit is still 800 something. 4.69% isn't so great and > inflation so I'd pay it off. Cash in the pocket tend to burn holes.
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      11-14-2012, 10:09 PM   #6
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Its not bad, but some banks/loan companies do have a fine if you pay it off in less than a year or something, make sure to read the fine print
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      11-14-2012, 11:12 PM   #7
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Most financial advisers I have talked to advised against paying off loans too quickly. The idea is that by paying off the loan too quick the company who loaned you the money doesnt make as much back from missing interest so it can negatively effect your score. Bank people make your credit score.... Same reason they say to keep a small ammount ($100 or so) on your credit cards so you dont gain much interest, but it still looks good that you make payments. Making larger than minimum payments is good as it shows you are not financially irresponsible. Having cash on hand is nice, but without credit you may not be able to buy things in the future that you dont have the cash for (house, emergency situations, ect.)
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      11-14-2012, 11:35 PM   #8
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What other types of credit do you have out? If you have fixed payments (e.g. student loans) aside from your car loan, I think you're okay w/ paying it off. That said, that's a lot of cash to drop at once and the total you save by doing so won't offset it for a long time.
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      11-14-2012, 11:38 PM   #9
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I wouldn't want to be $2000 poorer just like that.

If you're really looking to establish credit, quadruple the payment and pay it off in another year. At that point you'd have the loan for 2 years, giving you some credit history, and you'll save a good chunk of that interest.
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      11-15-2012, 01:05 AM   #10
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It will factor into a lower Average Age of Accounts, but if you have established credit lines, it won't be a major issue. It will temporarily ding your score for 6-12 months, given it's still a fairly new account.

Not a major issue, however, if you have other well-established tradelines (credit cards, other loans, etc). And $2k is a better deal than a slight ding for a short while.
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      11-15-2012, 10:59 AM   #11
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Pay it off; it's a great relief to get rid of any debt
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      11-15-2012, 12:03 PM   #12
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Quote:
Originally Posted by grieverr View Post
I wouldn't want to be $2000 poorer just like that.

If you're really looking to establish credit, quadruple the payment and pay it off in another year. At that point you'd have the loan for 2 years, giving you some credit history, and you'll save a good chunk of that interest.
I'd do this ^


But only because you have a short credit history.
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      11-15-2012, 01:14 PM   #13
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At that rate I would pay if off. However, if you want to refinance to a lower rate (penfed currently offering 1.49%) then it makes more sense to keep paying it down as interest will be minimal.
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      11-15-2012, 01:53 PM   #14
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pay it off.... cost of carry is not worth keeping it
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