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Question By
CoreyPB

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Pay off an Auto Loan as soon as possible or increase credit history?
I'm younger and only have a credit history length of about 2 years. I owe five figures on my vehicle but have the funds to completely pay it off. Should I continue to make payments to increase my credit history and increase my credit score, I have a 740, or would should I save on the interest and pay it off now? If you think I should pay it off now, how would that effect my score in the short term?

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It depends upon various factors.

Helpful to 1 out of 1 people

I am in similar situtation. I have some credit cards and an auto loan. I aim for better credit history rather saving few bucks. Hence I was also confused whether to pay off the loan or not. I did some research. There are many factors that one needs to think before paying off.


  1. Interest rate: if the interest rate is too much better pay it off. It will save money but probably won't help much on credit score growth.
  2. Length of loan: How you pay your loan installments is one of major factors that affects the credit score. So if the loan term is like 4-5 years, pay the installments atleast for 2-3 years then pay it off. In my case it was 2 year term so I dropped the idea to pay it off. It will hopefully show that I am responsible as i paid the installments for long time. I also like to throw an extra $30-70 on top of the installment every time.
  3. Future Plans: If you have plans for future to apply for morgage loan or other type of credit. Then it would be better to pay it off as it would drop your debt to income ratio and will get you a better rate for those credit applications.

This is all I found till now. will update my answer as soon as I have more info. stay tuned.

Thanks

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