I have a situation i wanted to know if anyone would know.

My wifes car was a 5 year loan. we are currently about 2 1/2 years into it, all previous payments paid on time.

I am put in a situation were i can potentially pay off the car within 9 months.

Wondering if the credit companies would rather see that i can see out a complete 5 year loan or if the 2 1/2 is fine and would like it if i paid it off.

basically would it be better for my credit if...

A. keep paying it normally for next 2 1/2 years.

B. pay it off as soon as possible.

C. If it doesn't matter either way, pay it off early to save myself the interest i'm paying.

Funny thing is that my wife had to have surgery back in March and since i had to start budgeting my money tighter with the additional bills to pay. Now that they are getting paid off i have a ton of extra money each month to go toward stuff like my cars. Funny how ocuring extra bills has made getting out of debt easyer then before.

 

First, make sure there isn't a pre-payment penalty for paying the loan off early (a little tip we learned from a loan officer). But if you can do it I think it looks just as good (if not better) to pay off the loan early and save all the interest money.
First and foremost, make sure you don't cut your self short.
Hpoe this helps

 

hmm, i have never heard of a pre payment penalty. I'll have to check, Thanks.

 

Chris, what is the interest rate you're paying on the loan?

 

the car is 7%

 

On my home equity loan, the loan pfficer told me that I can pay the balance to Zero, but not close it. Keep it that way untill the minimum term is up (3 years)...and I get no penalty....dont know how it works with auot loans or not......

...I'm doing to debt snowball too Chiris...I have about 2 year left till all I got is my home loan!

 

honestly this is the best thing that i could do for myself and family.

I have about 2 more months before i can put this plan in action but, it will leave me with having a ton more money each month, it'll feel like i got a promotion or large pay raise or somthing.

And my wife and I are turning 25 this year which means lower car insurance rates!

 

I'm catching you....I'm 21 and the wife is 23...(oh yeah).....I just got my lower rates for now....but better times are ahead!

 

heck, debt free and a house already at 21, you are rockin!

house will be my next find. This debt clearing is paveing the way.

 

well...debt free and a house at 23....I project to finish in two years ...'member?

 

I'm getting forgetful at my old age.


oh and you still rocK!

 

There is no benefit to your credit keeping the loan open and no negative to your credit paying it off early (auto loans usually don't have an early payoff penalty but check with you lender and even if there is it might be minimal compared to the interest you would pay keeping it open). If you pay it off early it will stay on your credit report for 10 years, so it will be a positive towards your credit score for years even though the loan is closed. The only effect paying it off early (or not) will have is on your debt to income ratio (the amount you owe over-all compared to your income, also called debt load). This ratio is a factor when lenders are deciding whether or not to lend you money and how much they are willing to lend you. It also affects your credit score if the ratio is too high.

The only benefit to not paying the loan off early is the bank makes 7% interest, which is money thrown in the street, money better spent someplace else. Actually if you're disciplined you can turn it around so you are the one making money off your monthly payment. Pay off the loan and then take a portion of the payment you would have been making and invest it in a 401K, Roth IRA, mutual find, stock, whatever. You are young and even taking 1/4 or 1/8 of the payment and investing it will reap boatloads between now and your retirement. Also, if you pay it off early you will get more out of the car when you sell it because you paid less for it in the first place.

If you choose to not pay it off, if anything you might want to consider refinancing the loan. 7% is not exactly a low interest rate these days and you may be able to find a lower rate.

If you are concerned about having ongoing activity on your credit report showing you pay your bills on time, use a credit card to buy groceries, gas, or something you have to buy anyway and pay off the card in full every month.

Hope this helped

 

appreciate the advice lynda!

you really went above and beyond my question!

 

Yeah sorry about that, I should stop drinking coffee

The whole credit report etc topic strikes a nerve with me anyway, it's such a useless game

 

If I were in your situation, I'd pay off the loan. That 7% is better off in your pocket than the loan company's.

You got good advice from Danny and Lynda.

Good luck with whatever decision you make.

 

i think i will definatly try to pay it off faster.

I really have to be careful here though.


I have habit of over stretching myself to do things like this and then i have no extra money for expenses i didn't consider.

 

...like food....me too.