Does paying off a car loan early hurt credit?

Paying off your auto loan early may negatively impact your credit in the short term, but it could also help boost your score over time. Whether it’s a good or bad idea to pay off your loan ahead of time will depend on several factors, such as the amount of debt you have and any penalties you have to pay. Our expert finance team at Cochran Cars has summarized the main points you need to consider when paying off your auto loan early. Don’t hesitate to contact us today if you have any further questions or need help finding an auto loan.

Should I Pay Off My Auto Loan Early?

The answer to this question depends on your situation. However, paying off your auto loan early is generally not an effective way to improve your credit score. After you pay off your loan, you’ll lose a few points on your credit score. One reason for this is that your payment history will show a gap if you’re no longer making regular payments toward your loan.

While you may instinctively think that it’s better to pay back the debt as quickly as possible, credit rating agencies prefer if you prove that you can make regular payments over the agreed period of time.

Credit rating agencies also consider the mix of credit you have. This can consist of loans and credit cards. Rating agencies may decide that your credit mix has worsened if you only have credit card debt because you’ve paid off your auto loan early. This may result in a lower credit score. Moreover, you may have to pay an early termination fee if your lender charges one.

Even though paying off your loan early can reduce your credit score slightly, there are times when it may make sense to do so. For instance, if your total debt level is very high, reducing it by paying off your auto loan may help. However, it’s worth keeping in mind that if you have a lot of debt, it’s best to start by paying off high-interest debt. Credit cards typically have higher interest rates than auto loans, so you may want to start by paying down your credit card debt rather than paying off your auto loan early.

How Does My Auto Loan Affect My Credit Score?

Several factors are counted toward your credit score. These include your debt-to-income ratio, your payment history, and your credit types. Your debt-to-income ratio calculation is based on how much debt you carry compared to your annual income. For instance, if you have an annual income of $50,000 and $25,000 of debt, you’d have a debt-to-income ratio of 50%.

One of the most important things you should avoid is missing payments. This can result in your credit score dropping because the agencies will believe that you’re not a reliable borrower. If you make all your payments on time, they can remain on your payment history record for up to 10 years and help you secure future credit agreements.

Is It Easy To Get Approved for an Auto Loan in Youngstown?

The ease of getting approved for an auto loan varies depending on whom you ask. Some institutions, such as banks, tend to have stricter requirements about whom they give money to than other lenders, such as auto dealerships. Here at Cochran Cars, we’re proud to have an impressive record of helping our customers access competitive auto loans. That includes customers who don’t have good credit scores.

One advantage of arranging your financing at our dealership is that we work with a range of local and national lenders. This allows us to find a loan agreement tailored to your personal needs. We help customers who have been turned down by other lenders to get approved. Our in-house financing service allows us the flexibility to offer our services to borrowers with bad credit and those with higher credit scores.

Another benefit of using our in-house financing service is that you can pick out your perfect sedan, truck, or SUV, arrange your financing agreement, and get the keys during a single visit. This one-stop car-buying experience takes the hassle out of visiting numerous lenders to find the loan you’re looking for before you can turn your attention to the really fun part — choosing the vehicle you’d like to drive home in.

You can improve your chances of getting a good loan by making a down payment toward your vehicle purchase. If you’ve found it difficult to save a deposit to put towards your new vehicle, we may be able to help you with our trade-in program. By trading in your existing vehicle, you can earn thousands of dollars, which could help you get more favorable repayment terms on your loan.

How Do I Apply for Financing at Cochran Cars?

If you swing by our Youngstown dealership, our team of finance experts can walk you through the finance application process in person. Alternatively, if you’d rather get started from the comfort of your own home, why not complete our online application form with your personal information? Once we’ve received your details, we can get to work putting together your loan package before contacting you to discuss your options.

For those of you who are unsure about your budget or how much you want to borrow, our payment calculator is a very helpful tool. You can enter your desired loan amount and repayment term to see your monthly payments. After figuring out what you can realistically afford, you’ll have a clearer idea of whether to buy a new, pre-owned, or used vehicle and the trims and extra features you can consider.

As you can see, we have no shortage of services at our Youngstown dealership to help you get the auto loan you need. Don’t hesitate to contact our team if you have questions about the loan application process or want to know more about how auto financing works. One of our finance experts will be happy to talk to you by phone or in person and tell you about the process.

2014 Chevrolet Malibu by Tino Rossini licensed with CC BY 2.0