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Hi there! Last time we started to answer the question:
Will paying off my auto loan increase my credit score?
We took a look at Ted's situation, who has a high credit score and a low-interest rate auto loan.
So paying off his loan early, might not be a good idea.
Now we're back, sharing a scenario when paying off your loan in advance, might be pretty smart.
Let's look at Sally.
She has a lower credit score, high interest rate, and a lot of other debt.
For Sally, paying off her auto loan early could benefit her credit health.
First off, one major benefit of paying her auto loan off early,
is it will save her money on interest.
As soon as Sally pays off her auto loan, the interest stops accruing,
which could save her thousands in extra finance charges.
By paying off her auto loan early,
Sally could put the cash she would have otherwise paid in interest
toward paying down her other debts faster.
And finally, reducing a large debt like Sally's auto loan could improve her overall credit health.
Keep in mind, though, that some lenders charge pre-payment penalties.
So be sure to check the fine print on your loan.
Sally might not see a major jump in her credit score immediately,
but over time, if she pays down her other debts and continues to use credit responsibly,
she'll likely see her score go up.
If you still have questions, check out Credit Karma's advice center.
See you next time!