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Pay car loan off early or keep making on time payments that exceed the minimum amount?
I spent all the extra money I had in 2012 paying off all of my debt, it wasn't a lot (a little more than $5000), but I was finally debt free! Then in January of 2013 I was in a wreck that totaled my car (it was paid off), and I had to get a car loan. I was injured in the wreck and I'm (hopefully) getting some money within the next 4-6 months, I am confused as to what I should do to improve my credit score, I want to finance a house within the next 3-5 years and I need to know which route to go to improve my credit score.

Should I take the money that I get and put it all towards my auto loan? Not sure how much it's going to be but it could either pay it off or at least knock the amount down a good chunk. Or should I put the money in a separate bank account and set up automatic payments from that account to the loan to assure that the payments are made on time? If I did continuing payments should I pay more than the minimum balance?

I've been making my payments on time or early for the past 7 months and I pay $30-$75 more than the minimum balance every time.

My credit score (according to this site) has increased 90 points within the past year, but lately the increases are only 5-7 points every few months.

I know it's a hypothetical situation, but I'd greatly appreciate some advice!


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If the goal is....

Helpful to 7 out of 8 people

...improving your credit score for a later home purchase then I'd continue to pay the auto loan and, once the insurance payment comes through, pay an amount extra on it each month. The goal would be two fold: first, improve the ratio on the loan (good for the credit score) faster and second, reduce the effective interest rate on the loan as theextra amount will be applied to principal. How much extra you pay depends on the amount & term of the loan and the interest rate - and for that you need to work out the sweet spot for your particular situation. So you'd be showing a positive balance for a bank for a home loan later and you're reducing your effective cost on the car. Win-win for you. Not so much for the car loan lender, but them's the breaks for them. :)

I simply aim to get the effective interest rate below the rate of inflation because at that point you've basically borrowed the money for free.  :)   

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Helpful to 6 out of 6 people

What are you trying to accomplish?  To grow a credit score, as I understand it, paying on time over time to generate the interest for the lending is the way to go.  To avoid that interest, but not grow the score, pay it off.

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Pay & Buy

Helpful to 5 out of 6 people

Make your payments until you get your settlement comes in. 

Take your settlement check into the bank that holds the note, explain to a loan officer the situation.

Ask them for a new loan on another vehicle, pay them on the old loan and ask them if they can roll over any balance into the new loan.  Hey may even forgive part of the loan in Lewis of the interest they will earn. 

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**** auto correct! 

That was in lew of the interest, 

heck, ask them if they will credit the payments that you make while the vehicle is unusable. 

Doesn't hurt to ask. 

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As other's noted, I'd continue to make payments if you can afford the interest. Essentially, by doing this you are building a history of on-time payments which will reflect positively on your credit score. The algorithms will say, "look, this person can manage debt responsibly, so let's give them money."

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