Car Loan Payback Question

[gordita]

I bought a 2002 Honda CRV this valentine's day and have been making monthly loan payments...
Now, I have enough cash to pay this car loan TOMORROW.
but, I've been told that my credit rating will improve if i wait atleast a year to pay this loan off.
In the meantime, I can payoff the whole loan amount except maybe $100 and pay this $100 off after 2003 valentine's day...

This loan was at 7% APR

my credit rating in April 2002 was around 670....and I've been in this country for about 5 years..........

So, any ideas.........bcoz I'm so itching to pay the loan off and it'll be like a huge christmas gift for me..

Thanks

 

[StageLeft]

Bump for ya

 

[tontod]

If I was in your shoes, I'd just pay it off. If you can pay it off, its much better than paying interest till you pay it back.

 

[Lotheron]

Put the money in a savings/checking account, then set up automatic payments from the bank to the bank which financed your car loan. And Wala, you basically have it paid off and better credit rating

 

[vi edit]

Originally posted by: Slasher2k
Put the money in a savings/checking account, then set up automatic payments from the bank to the bank which financed your car loan. And Wala, you basically have it paid off and better credit rating

Not quite. There's this little thing called interest you have to worry about. The longer you wait, the more you pay.

 

[waggy]

well personally i would pay it off.

But if you want to improve your credit rateing then continue makeing payments. But i would rather save money myself but %7 aint to bad if it was around 15+ i would pay it off.

 

[tarheelmm]

Originally posted by: Slasher2k
Put the money in a savings/checking account, then set up automatic payments from the bank to the bank which financed your car loan. And Wala, you basically have it paid off and better credit rating

Add extra to pay off early. Say your payments are $400 a month. Just pay $550 a month. Pay it off sooner and still work on the credit.

 

[dirtboy]

Your credit rating will improve over time if you make payments on time and so forth. Just use credit cards and pay the balance off every month and your credit will slowly rise. Paying off the car will also help your score.

 

[gordita]

yeah....I want to be careful bcoz my next big purchase is going to be a house in the next 2-3 years and I want to make sure that I have a good rating for this.
After that, I don't care what happens to the ratings...........coz the car and the house are gonna be for keeps!

 

[Mutilator]

Originally posted by: vi_edit

Originally posted by: Slasher2k
Put the money in a savings/checking account, then set up automatic payments from the bank to the bank which financed your car loan. And Wala, you basically have it paid off and better credit rating

Not quite. There's this little thing called interest you have to worry about. The longer you wait, the more you pay.

Not really vi... since the interest is already calculated into each month's payment. Actually this would probably be a pretty good idea... that way the car is in a way paid off... but if an emergency comes up in the future you can also go into this savings account and provide yourself a small loan if you need to.

 

[BooneRebel]

Not quite. There's this little thing called interest you have to worry about. The longer you wait, the more you pay.

Not really vi... since the interest is already calculated into each month's payment. Actually this would probably be a pretty good idea... that way the car is in a way paid off... but if an emergency comes up in the future you can also go into this savings account and provide yourself a small loan if you need to.[/quote]You are correct in that the interest is calculated in the amount you pay, but the interest amount is figured by the life of the loan. If you pay off a loan today, the amount you pay is less than the amount of the payment book (36 payments of xxx.xx a month, or whatever). For example, a 30 year loan for a house at $120,000. With interest, you may end up paying $300K. But if you pay it off tomorrow, you're only concerned with the principal balance ($120K).

 

[Mutilator]

Originally posted by: BooneRebel

Not quite. There's this little thing called interest you have to worry about. The longer you wait, the more you pay.

Not really vi... since the interest is already calculated into each month's payment. Actually this would probably be a pretty good idea... that way the car is in a way paid off... but if an emergency comes up in the future you can also go into this savings account and provide yourself a small loan if you need to.

You are correct in that the interest is calculated in the amount you pay, but the interest amount is figured by the life of the loan. If you pay off a loan today, the amount you pay is less than the amount of the payment book (36 payments of xxx.xx a month, or whatever). For example, a 30 year loan for a house at $120,000. With interest, you may end up paying $300K. But if you pay it off tomorrow, you're only concerned with the principal balance ($120K).[/quote]

Yah I know... but he's trying to keep paying the montly payments so his credit rating goes up... so I was assuming he'd go ahead and pay all the monthly payments and not cut it short.
I wish I had the $$$ to pay off my car right now... I could use that extra $320/month.

 

[bsobel]

Now, I have enough cash to pay this car loan TOMORROW. but, I've been told that my credit rating will improve if i wait atleast a year to pay this loan off.

It may, but your FICO is calculated on a number of things including the amount of outstanding debt. Paying off the car will help lower the oustanding debt which could actually raise your rating. Now, is this the only credit agency tracking item you have (e.g. do you have any credit cards?). If you do, pay the loan off and then use your credit card for grociers/gas but PAY IT OFF MONTHLY. If you don't have a credit card, don't go and get one now (new credit hurts your score more than existing credit).

This loan was at 7% APR

Ouch. Since you won't come close in a savings acounts (someome quoted 2.25%, and that was before taxes), you'll be paying about 5.5-6% a year to wait.

my credit rating in April 2002 was around 670....and I've been in this country for about 5 years..........

670 is pretty good, you'll likely want to work to get it above 700 before you buy the house (to get the best rates).

Good luck with whatever you decide,
Bill

 

[malbojah]

All I know is I paid off my car 20 months ahead of schedule and my insurance dropped by almost $500. I then proceeded to go back to the bank within a month and request another loan so I could buy my motorcycle

EDIT: but it figures that it would be slightly snowing today, and the local DPW was out putting down 17 inches of dirt on the roads for the six snowflakes that stuck to my windshield. :|

 

[Radiohead]

Wow, learned quite a bit from this thread.

 

[Scarpozzi]

Insurance cost is why I want to pay off my vehicle. I figure as soon as I pay it off, I can switch to Liability only and drive carefully. I hate paying high insurance rates because of my age, gender, and the fact that I don't own the vehicle yet. :|

 

[NutBucket]

Originally posted by: gordita
yeah....I want to be careful bcoz my next big purchase is going to be a house in the next 2-3 years and I want to make sure that I have a good rating for this.
After that, I don't care what happens to the ratings...........coz the car and the house are gonna be for keeps!

And buying a house sends your credit rating through the roof

 

[RossMAN]

Pay it off NOW.

670 is a good credit score, anything over 660 and you'd be a good canditate to get a $150,000 home loan (assuming you meet the other factors).

If you were to invest the money, in today's economy I highly doubt you'd earn a 7% return plus you'd have to pay taxes on your gains anyhow.

I vote for pay it off now. It would dramatically lower your overall DSR (debt service income ratio) which is a good thing.

 

[Tangerine]

Originally posted by: BooneRebel

Not quite. There's this little thing called interest you have to worry about. The longer you wait, the more you pay.

Not really vi... since the interest is already calculated into each month's payment. Actually this would probably be a pretty good idea... that way the car is in a way paid off... but if an emergency comes up in the future you can also go into this savings account and provide yourself a small loan if you need to.

You are correct in that the interest is calculated in the amount you pay, but the interest amount is figured by the life of the loan. If you pay off a loan today, the amount you pay is less than the amount of the payment book (36 payments of xxx.xx a month, or whatever). For example, a 30 year loan for a house at $120,000. With interest, you may end up paying $300K. But if you pay it off tomorrow, you're only concerned with the principal balance ($120K).[/quote]


This is exactly right, and furthermore, if you partially prepay your loan, using the above example of paying 550 a month instead of the regular payment of 400, about every third month you will be ahead one full payment. That interest (of the full months you have prepaid) will be refunded, or deducted from the balance if you call ahead for a payoff amount at the end of your loan. This is probably the easiest way to keep making payments, but save yourself some interest in the long run.

 

[gordita]

you guys are way cool.............I've learnt more about FICO scores and ratings from this thread than I ever imagined.
have a question or two more but will post that from home.

damn network problems never stop at work........

 

[Triumph]

This is a very good thread for me as well, since I am looking to purchase a used car. But it's still all very confusing, also I don't know what my credit score is.

Originally posted by: dirtboy
Your credit rating will improve over time if you make payments on time and so forth. Just use credit cards and pay the balance off every month and your credit will slowly rise. Paying off the car will also help your score.

This sounds like a good idea: use your credit card to pay the loan on time, getting you good credit for the loan. Then pay off your credit card in full, getting you good credit for your CC bills!

 

[RossMAN]

Originally posted by: Triumph
This is a very good thread for me as well, since I am looking to purchase a used car. But it's still all very confusing, also I don't know what my credit score is.

Originally posted by: dirtboy
Your credit rating will improve over time if you make payments on time and so forth. Just use credit cards and pay the balance off every month and your credit will slowly rise. Paying off the car will also help your score.

This sounds like a good idea: use your credit card to pay the loan on time, getting you good credit for the loan. Then pay off your credit card in full, getting you good credit for your CC bills!

If you don't mind paying $12.95 you can order EquiFax's Score Power which lets you instantly view your credit report online, shows your credit score and one feature I love is a "what if" sort of credit score calculator. You tell it "what if I pay down my debts 50%" then it estimates how much your credit score will increase, remember this is only an estimate but still the ability to run these "what if" scenario's is great! You can also view your credit history/score online for 30 days.

I use my cc to pay ALL my bills online except those bills you can't pay (car payment) ... I get a 25 day grace period, I am earning points/rebates on everything I purchase plus it's all in a nice concise statement at the end of the month.