Pay auto loan early?

bcrawfo2May 18, 2006

Trying to improve credit (and needed loan to get a little nicer car). Loan term is 3 years, bad interest rate...just under a year into the loan, want to think about paying it off. If I pay off early will the loan stay on credit report for the full term as opened (and providing good payment benefit) or does it close (stop reporting) when I pay it off?

Trying to weigh the benefit vs cost of interest.

Thanks

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joyfulguy

Hi bcrawfo2,

What kind of rate are you paying?

Like somewhere around 12 - 15%?

Not up to 20%, I hope.

Do you have some funds that you can tap into in case of emergency?

Lacking such, could you borrow some funds temporarily from your bank/credit union? Are you sure? Even in case of layoff? At what rate?

What other destination do you have in mind for the money?

Fist thing in my mind when I read your post was ... "Pay off the &$%#)@ loan!".

I've been getting an offer about 3 times a year from a (foreign-owned) banking system ... They'll lend me up to $3,500. - maybe more if I call them right away! ...."

Yeah, right!

At what interest rate?

Well, about 30%, regular rate - could be adjusted. A bit.

I told them to quit sending them, as I have a fully secured line of credit at my financial institution that would charge me, if I called upon it (and I'm not using it at present) 4.25%, last time I asked, three or four months ago - probably slightly higher now.

I was a bit rude to him ... and he chastised me.

Imagine - a small loan outfit chastising a member of the public for being somewhat rude when discussing small loans and interest rates!? It's usually the other way around!

Hope you're having a reasonably happy week.

ole joyful

    Bookmark   May 18, 2006 at 1:43PM
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housenewbie

If you pay off the loan it should be reported to the credit agencies as paid off.

Make sure there's no pre-pay penalty.

Don't see any reason not to do it, unless it'll leave you w/o any cash at all.

    Bookmark   May 19, 2006 at 4:27PM
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bcrawfo2

The loan is about 17%. The total loan was about $3000, so the interest portion of the payment isn't that high. We (just about to get married) were hoping that the loan would help improve her credit (some mistakes in the past).
Trying to figure out if getting the loan and paying it off early is as good as getting the loan and let it go full term (with on-time payments).

Paying this off won't be a burden and won't put us at risk for an emergency...it's just not paying the interest vs trying to improve credit. Those are the variables.
Thanks

    Bookmark   May 20, 2006 at 7:01AM
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joyfulguy

bcrawfo2,

If you have some funds on hand for emergencies, I'm inclined to suggest that you pay off te loan - if there are no prepayment penalties.

In the light of your impending marriage - do you have all of the financial bases covered, there? Quite often there turn out to be some unexpected expenses in that game.

Good wishes to you and your loved one - I hope that you have many happy years together.

ole joyful

    Bookmark   May 20, 2006 at 7:40PM
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brickeyee

Wathx out for 'rule of 78s' loansm (in the accouting world also known as 'sum of the years digits'). These have signifiacnt penalties for paying off early because of the way interest on the remaining balance is computed.
If you can invest at a better rate do not pay off the loan.

    Bookmark   May 21, 2006 at 8:10PM
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haus_proud

I think your credit rating is determined by the amount of debt you are carrying versus your earnings, savings, etc. Whoever loans you money makes an assessment of your ability to repay the loan based on these variables. I do not think prepaying a loan will hurt you, and with less debt you may be eligible for a larger loan and/or a better interest rate.

    Bookmark   January 16, 2009 at 8:27PM
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