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Does paying my car loan early help my credit?
I just got some money from an old lawsuit and I want to use it to pay my loans off. Does paying off my car loan early help my credit in any way?
Matthew Macgugan · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Paying off loans can be a great thing! Despite what you may think, paying off your car loan will likely cause your credit score to drop a few points. While this drop is only temporary, it may cause your numbers to be lower than they should be for a while, potentially affecting lending opportunities in the near future.
Your
car loan
is a long-established account that you have hopefully kept in good standing, which lenders view favorably. When you close the loan, the average age of your credit history may drop, which can lower your score. The mix of use on your credit report may also change, meaning that you don’t have enough variation in the loans or credit card accounts you currently have open. This can be another contributing factor to a lower credit score.
Despite a slight, temporary decrease in your credit score, paying off a loan early can save you money. You can also save money on your car insurance when you pay off a loan. Lenders require your financed vehicle to have full coverage, but when you pay off the loan, you can choose your coverage.
To change your coverage or find lower rates, try using the number-one-rated car insurance app,
Jerry
. Jerry compares personalized quotes from over 50 of the nation’s leading providers, including Nationwide, Allstate, and Travelers, so you can get the coverage you need at a great price. The average Jerry driver saves $879 a year on car insurance!Congrats on finishing your loan!
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- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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