Should I pay off my car loan early? How does it affect my credit score?
I got a raise recently and realized I could pay off my car loan. I want to, I'm not sure how it will impact my credit score?
Congratulations on the raise! I get the desire to pay your car loan off early. It makes sense logically; however, sometimes credit does not respond logically.
If you are hoping to apply for any loan in the near future, paying off your car loan early can sometimes negatively affect your credit. But that’s not guaranteed.
For example, let’s say you want to buy a house. A lender will look at your credit score when you apply for a mortgage, but they’ll also look at your debt to income ratio. The small dip in your score might not be that big of a deal, but keeping your car loan could have a greater impact on your debt-to-income ratio.
This all depends on your personal financial situaiton, which you know best.
Before you pay off your car loan early, take a moment to think about any upcoming significant expenses that might use your credit score. If don’t anticipate any big purchases, then go for it and pay off your loan.
If you want to look at other ways to save money, you should revaluate your car insurance.
You can do this easily with the Jerry app. Jerry compares personalized quotes from up to 50 top insurance companies, including Nationwide, Allstate, and Travelers, and Jerry takes care of the rest. No long forms. No calling around. No hard work. Just savings. The average Jerry user saves $879 a year on car insurance.
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