Does paying off a new 6 year 9% auto loan too early affect your credit rating?

I do not like having an extra payment and would like to pay it off as fast as I can. The salesman informed me not to pay it off before the first year or it could affect my credit rating. Is this true or is he just trying to make sure they get paid enough interest.

Does paying off a new 6 year 9% auto loan too early affect your credit rating?
Pay it off. If anything, your credit would go up. The only factor that I can see that this would possibly effect is the "age of your accounts" factor, which takes into account the average age of all of your accounts, but since you already opened the account, it's kind of too late to think about that anyway. I would say that your salesman is a bozo and pay it off if it makes you feel better. Any effect of paying this off is going to be minimal anyway (probably about 20 points at the absolute most) so I wouldn't worry about it. IF you have a 720 fico, 700 or 740 are still good and if you have a 600 score, 580 and 620 are still bad, so the effect on your credit is really not an important consideration in this case.
Reply:Yes, positively. When I was a mortgage broker, here's what I would see:





- Open credit accounts in the past 7 years with balances


- amount of late payments


- the minimum you were obligated to pay monthly.





So if you pay this off it will show that you borrowed $12,000 (or whatever you're borrowing) for an auto loan. You had zero late payments and are obligated to pay nothing monthly.





The result is a higher credit score, and a higher amount of money you'll be able to borrow for a mortgage.






Reply:The terms for car loans or any loans for that matter are based on time lines and your agreement to follow the guidelines which in turn is how lenders get paid. To pay a loan off early is beneficial for you but not the lender, when other companies look at that they see that you are certainly able to pay off the loan so they would not lose money on you but they will not gain any either. To refinance or adjust your terms with the same lender is better in the long run. If you could afford to pay the loan almost immediately, you would have been better off putting that money down initially and having a smaller loan and more than likely a better percentage rate.
Reply:Auto finance is what I do for a living and there is a lot of bad information here.





Car dealers do make whats called reserve and if they sell a warranty, gap insurance or life insurance they make huge profits off of these also but all of this is paid to them when the deal funds through whatever bank they sent you to and as long as the customer makes 3-6 payments depending on banks this money can not be taken back by the banks.





Now as far as your question goes it depends on how long you have been making payments, if you have made 12-18 payments then by all means go ahead and pay it off if you can, if not wait until you have made 12 at the very least.
Reply:It may affect your rating, but only in a positive way. I'm not sure about auto loans, but many home lenders have whats called a prepayment penalty. This is a penalty that the borrower must pay if the loan is paid off early. The lender what's that interest! Generally, prepayment penalties don't exceed 2% or 3% of the loan amount and rarely exceed 5%. Of course, this is for home loans. Check the fine print in your contract.
Reply:They want your interest payment.





My credit union's website shows interest rates for used cars as low as 5.2% for up to 48 months, 5.25% for up to 60 months, and 6% up to 72 months. If the car is over $30K, it's as low as 6.75% for up to 84 months.





First - think about refinancing this loan. If you have decent credit, you could save up to a third of your interest payment. Then use the savings to pay down this loan, and pay it off ahead of time.





Second - NEVER EVER finance a car for 6 years, especially if it's a used car! If you can't pay it off in 3 years, you can't afford the car. Get a cheaper car, instead. You should never finance a used car for more than 2 years, or you run the risk of the car dying before it's paid off. And if that happens, you're on the hook for the payments even after the car has been towed off to the junkyard.





Third - don't lease a car unless you have money to throw away. While it's true that leasing is cheaper than buying because you only pay for the portion of the car you use, you're paying for the most expensive part. 95 times out of 100, you're better off buying the car, and driving it until the wheels fall off.
Reply:It would affect your credit rating, in a good way! Creditors are weird, it's hard to definitely figure out the best way to raise your credit. Some banks prefer you making payments as some would prefer you to pay them off as quickly as possible. I'd say go for the gold and pay it off as quickly as possible. It's the safest way and really shouldn't hurt your credit score. The salesperson probably wanted to help the bank by getting the 9% interest.
Reply:Could just be wanting the interest. Good for you for wanting to pay it off. Call the lender directly. They will tell you. 6 years at 9% sounds very very steep. I would pay that off very quickly! It shouldn't affect your credit. Maybe if you paid it off in 2 weeks or something it might. In my opinion, if you paid it off after 6 months that would benefit your credit score. Call them. They will tell you. Don't ask the salesman, they don't know.
Reply:The only affect it will have on your credit is positive. The salesman knows that in most cases the first year or two of a loan are pretty much almost all interest. So if you can pay it off sooner more power to you. 9% ouch you will save a lot of money on interest the sooner it can be paid off make sure there is no prepayment penalties. Good Luck
Reply:Depends if you have credit or not. If you don't have credit and this is first major purchase...you want to wait a year with making your monthly payments....you can even pay more than what your monthly installment if for....for instance...if you have the money to pay off your loan right now...instead of paying it off in one lump sum...split it equally over a 12 month period. what u r doing is establishing credit history which is 35% of your credit score. This will raise your credit rating. You want to pay a little bit of interest...it's good for your credit score. Also, if you have bad credit this will help your credit score also. And if you have a 6yr loan @ 9% interest chances are you have no credit or bad credit (that's really high...especially for this market).





The jist is...pay it off in a year...if your loan is for $10,000...divide $10,000/12 which is 833.33/mo. I wouldn't really worry too much about adding in the interest...you'll take care of that with the inflated payment amt.






Reply:I've paid off several car loans early and all it did was improve my credit. Check the terms of the loan. Some loans have early payoff penalties and yes they are looking to collect interest. Actually making consistant ontime payments over a stretch of time can help improve your credit score. I don't think an early payoff will hurt you but not paying if off too soon can help. Check with both the credit bureau and the finace department. Don't trust the sales guy
Reply:go ahead and pay it off!!!


often times in "indirect lending" (the dealer arranges financing for you) there is a "chargeback period" (this means if you pay it off before a certain time the dealer loses some revenue).


i'd pay at least 4 or five payments and then pay it off.


no matter what it will show as a paid off loan on your credit and won't hurt it.



Reply:It won't technically hurt your credit rating or score but it can affect you from getting another loan in the future because when they pull your credit report to see how you paid previous loans they will see that you paid off early and could possibly say no because they see it as not getting as much interest out of you...been there done that



Reply:Ignore the salesman. Have you ever known a car salesperson to put your interests ahead of their own? The fact that they don't want you to pay it off suggests to me that they lose, you win, by doing so.





Having less debt can only improve your credit rating, if you ask me.
Reply:i have to pull credit reports all the time. what i look for when i pull one is when it was paid and how long they have been paying.... paying on it for more than a year makes you look financially stable. stability is something a lot of creditors look for. i would double up on my notes but make sure the account was open at least 1 year. but thats just me
Reply:There are some lenders that don't like to see the early repayment because it means less profit, but having the note paid in full, on time or early, will be good for your credit from most perspectives. Be very wary of early repayment penalties, though.
Reply:Yeah, it will definitely effect your credit rating if you pay it off early...but in a GOOD way!! Go ahead and pay it off...congratulations that you can afford to do that; sounds like the sneaky snake salesman doesn't need a few extra bucks in his pocket anyways!!!
Reply:There is some stupid rule, rule of 85 or something , that lets car dealers charge more of the interest during the first months of a loan.


You will save some interest, but not as much as you think.


Paying off things never hurts your credit.


Not paying on time hurts.
Reply:Yes it will effect your credit rating. It will make it higher. That is the funniest thing I have ever heard. It shows that you are a worthy candidate for another loan. YOur car salesman is full of crap. I sold cars for 8 years and have never heard such BS.
Reply:The only possible affect paying a loan off early might produce would be an excellent or improved credit rating for yourself. Other than some lending institutions that impose penalties for early repayment because they want all of the high interest they charge, there should be no adverse affects for you.
Reply:Pay it off!! Why do you have 9% at 6 years? Is your credit that bad right now? The only catch may be if your loan company has a penalty for paying off too early. These were popular in the past but are not that common now-a-days.
Reply:If it affects your credit rating, it will be favorably. That is a high interest rate (although not outrageously so), so it would be well to pay it off as quickly as is convenient.
Reply:Paying it off early can only help your credit.


Make sure there aren't any early pay off penalties in the contract.


Most times these only occur in large loans such as mortgage loans but check to make sure.
Reply:call the lender and make sure there is no prepayment penalty first. If there is this will probably cost you $$ to pay off early. If not then pay it off will not effect your scores only not making payments will effect them
Reply:The only way it will affect your credit rating is positively! You should absolutely pay it off as quickly as you can or want to. Good for you.
Reply:The dealer sometimes get a "reserve" on the interest. The longer you take to pay the more they make.





Pay it off and save some money.
Reply:paying the loan will help your credit score increase. so I would wait a little bit. unless your credit is established then in that case pay it off.
Reply:He's lying to you. Pay it off ASAP. This will improve your score by improving your debt ratio.






Reply:Most loans when payed off with 3~6 months are noted and can while not effecting your credit rating, the next time you go for a loan the lender will know you can pay it off early and might not offer you as good an interest rate as your credit score could get you. The main reason the sales person told you that it if the loan is through the manufacture, the manufacture will not make as much money over the term of the loan.
Reply:Could you invest money at 9% anywhere? They do want that interest.


but I question why you took a 6 year loan if you are in good financial shape. Borrow directly from a bank or credit union and pay it off at a lower rate as quickly as you want. Hint: never finance a car for more than 3 years or you will be "upside down" during part of that time


i.e. you will owe more on the car than its present cash value...


If you have the resources pay off a car as soon as you can.. like 6 months. But if you are just starting out it is good to finance a car..paying off the loan early will help establish your credit rating for the time in the future when you will want to buy a house or condo. And never ever become involved with a "sub prime" loan.
Reply:It looks as if you don't know how to use credit. You are better off to get a better loan and save $ on interest. That would look smart on your credit history and increase your credit burden responsibility.