What happens when you pay off your car loan?
I'm considering paying off my car loan. Is there anything I should know about it that isn't obvious?
While in theory paying off your car loan seems like a smart decision, it comes with a downside to your credit. So before you ask for your payoff letter and plop down some cash, make sure you’re making the right move overall.
The biggest drawback is the effect it has on your credit score. You can reasonably expect your credit score to drop around 20 to 30 points if you pay off your car loan and even more if you pay your car loan off early.
This will make your score drop because:
- Less credit mix than before
- Shorter length of credit
- Owing less money
- Removing the opportunity for future payments (if you paid off the loan early)
If you’re planning on making any huge purchases soon, you may want to hold off on paying your car loan.
When you pay off your car loan, you will also have to retitle the car without a lienholder on the title. You should also call your car insurance company and remove the lienholder from your account information. By doing so, any correspondence or settlements will go directly to you instead of your original lender.
Finally, you should consider what car insurance you need. You can always stick with full coverage (which your lender likely required) or you can switch to lower coverages to save some cash.
Either way, use the Jerry app to compare rates with more than 50 top providers, including Nationwide, Allstate, and Travelers, for free. The average Jerry driver saves $879 a year on car insurance!
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