Credit Question

[Sean Troy]

Does paying off a vehicle right after you purchase it hurt your credit? I heard it does but can't figure out why? Thanks, Sean

[Myk Rian]

Only in that you have no history of making payments on time.
We paid cash for our last one, but at this stage in our lives, we could care less what the banks think.

Paying it off early does get you ahead. You can get a better price on the vehicle, then screw the bank.

[Chuck Wintle]

i wouldn't think this will harm your credit rating. what does hurt it is late or non payment.

[Greg R Bradley]

When you finance a vehicle, you usually loose some points for several different reasons:
- Your score may be lowered due to the inquiries by the lenders. This can range from nothing to a few points.
- Your score is lowered due to the new credit.
- Your score may be lowered due to your Average Age of Credit being less due to the new loan. If you have lots of old credit, this may have no effect.

Your credit score will usually return to the original after 6-12 months of paying on the loan and then will usually continue to rise above that point. If you pay off the loan quickly, you may not get ahead and have a lower score than where you started. For the current scoring algorithms, it is generally considered that an Installment Loan will get you ahead if it is active for one year. If you had no recent Installment Loans, the credit mix will also tend to help your score.

Installment Credit has minimal effect on your scores so this is really getting picky in the big picture. Having no negatives and keeping down the amount of debt on Revolving Credit is far more important than Installment Credit. Avoiding interest is usually more important than a few points in a credit score.

If you want to pay off a vehicle and help your credit, you can pay a bunch toward the principal but leave enough debt that you continue to pay payments adding up to one year. The interest on the small remaining debt will be much lower because it is calculated on the remaining balance.

[Andrew Pitonyak]

The best I can guess is that if I loan you money, I want to earn money from you, not have you paying off your debts immediately after I spent time and money on paperwork and other related items. So, why would I loan you money if you will pay it back immediately?

Just a guess as to the reason.

[Pat Barry]

I agree 100% with Andrew. If it were me lending you the money then I would want to earn some interest from you to defer the costs that I incurred to get you your money.

[Sean Troy]

The best I can guess is that if I loan you money, I want to earn money from you, not have you paying off your debts immediately after I spent time and money on paperwork and other related items. So, why would I loan you money if you will pay it back immediately?

Just a guess as to the reason.

Lenders can't decide or have any input as to what you credit score is though.

[terry mccammon]

Last new car I purchased in the Fall of 2010, I finished "negotiating" and was taking out my checkbook to pay. I was offered an additional $1,000 off the purchase price if I would finance. I said sure, but lets be clear, I will be sending in a check for the full amount when I get the loan documents and payment schedule delivered at home. Showing just how screwed up our whole system is, the sales manager stated that they would all qualify for a variety of spiffs if I would finance, and they did not care what I did about paying it off. So, since a $1,000 is approximately 20 bottles of single malt, went for it. Paid off the note around 15 days later, paid less that $10 in interest and that was that. $1,000 in my hand trumps the credit scoring mechanism any day. Hyundai had the cost and trouble of establishing the note and earned nothing on that effort, gave away $1,000 and paid out spiffs to the sales team. Clear, careful thinking.

[Keith Outten]

Terry,

We recently did the same thing you did and I am pleased that for once in my life a bank lost money on a car we purchased
.

[Dan Hintz]

Last new car I purchased in the Fall of 2010, I finished "negotiating" and was taking out my checkbook to pay. I was offered an additional $1,000 off the purchase price if I would finance. I said sure, but lets be clear, I will be sending in a check for the full amount when I get the loan documents and payment schedule delivered at home. Showing just how screwed up our whole system is, the sales manager stated that they would all qualify for a variety of spiffs if I would finance, and they did not care what I did about paying it off. So, since a $1,000 is approximately 20 bottles of single malt, went for it. Paid off the note around 15 days later, paid less that $10 in interest and that was that. $1,000 in my hand trumps the credit scoring mechanism any day. Hyundai had the cost and trouble of establishing the note and earned nothing on that effort, gave away $1,000 and paid out spiffs to the sales team. Clear, careful thinking.

Did the same thing for my wife's Cube and my 370Z. I'm happy to get extra discounts for no work on my part and little more than a few dollars out of my pocket initially...

[Andrew Pitonyak]

Last new car I purchased in the Fall of 2010, I finished "negotiating" and was taking out my checkbook to pay. I was offered an additional $1,000 off the purchase price if I would finance. I said sure, but lets be clear, I will be sending in a check for the full amount when I get the loan documents and payment schedule delivered at home. Showing just how screwed up our whole system is, the sales manager stated that they would all qualify for a variety of spiffs if I would finance, and they did not care what I did about paying it off. So, since a $1,000 is approximately 20 bottles of single malt, went for it. Paid off the note around 15 days later, paid less that $10 in interest and that was that. $1,000 in my hand trumps the credit scoring mechanism any day. Hyundai had the cost and trouble of establishing the note and earned nothing on that effort, gave away $1,000 and paid out spiffs to the sales team. Clear, careful thinking.

In Michigan, if you do this, your title will show that there is a lean on the car. Or at least it did for two people that used a loan to pay for their car, one of which paid it off within a month. One car was sold to someone in ohio, and the other was transferred to Ohio (same owner). There was difficulty titling the car in Ohio because the car title showed a lean.

My advice is that you pull your title and take a look at it. If it claims to have a lean on it, then obtain a new title now (while you do not have a bunch of stuff going on) that shows that there is no lean on the car. Obviously, state to state they will treat you differently, but here in Ohio, they are brutal about this. To make things worse, the individual stations seem to make up arbitrary rules about what they accept. I had paperwork from the state and one local office refused to accept it; they said that paperwork was invalid and I was not allowed to even have a copy of it -- and it was the state that gave it to me. It was very strange.

[Montgomery Scott]

In Michigan, if you do this, your title will show that there is a lean on the car. Or at least it did for two people that used a loan to pay for their car, one of which paid it off within a month. One car was sold to someone in ohio, and the other was transferred to Ohio (same owner). There was difficulty titling the car in Ohio because the car title showed a lean.

My advice is that you pull your title and take a look at it. If it claims to have a lean on it, then obtain a new title now (while you do not have a bunch of stuff going on) that shows that there is no lean on the car. Obviously, state to state they will treat you differently, but here in Ohio, they are brutal about this. To make things worse, the individual stations seem to make up arbitrary rules about what they accept. I had paperwork from the state and one local office refused to accept it; they said that paperwork was invalid and I was not allowed to even have a copy of it -- and it was the state that gave it to me. It was very strange.

lien not lean

[Andrew Pitonyak]

lien not lean

Is that why I keep falling over

[Jim Rimmer]

Last new car I purchased in the Fall of 2010, I finished "negotiating" and was taking out my checkbook to pay. I was offered an additional $1,000 off the purchase price if I would finance. I said sure, but lets be clear, I will be sending in a check for the full amount when I get the loan documents and payment schedule delivered at home. Showing just how screwed up our whole system is, the sales manager stated that they would all qualify for a variety of spiffs if I would finance, and they did not care what I did about paying it off. So, since a $1,000 is approximately 20 bottles of single malt, went for it. Paid off the note around 15 days later, paid less that $10 in interest and that was that. $1,000 in my hand trumps the credit scoring mechanism any day. Hyundai had the cost and trouble of establishing the note and earned nothing on that effort, gave away $1,000 and paid out spiffs to the sales team. Clear, careful thinking.

I did this when I bought my last pickup. Ford offered $1500 discount if I used Ford credit. i asked the dealer about early payoff and he asked that I wait 90 days, otherwise Ford comes back to the dealer to recoup the $1500. They had made me a really good deal and had been very nice so I waited. It only cost me a little in interest and I got an extra $1500 off. I didn't really care about my credit rating so apologies to the OP.

[Sean Troy]

I did this when I bought my last pickup. Ford offered $1500 discount if I used Ford credit. i asked the dealer about early payoff and he asked that I wait 90 days, otherwise Ford comes back to the dealer to recoup the $1500. They had made me a really good deal and had been very nice so I waited. It only cost me a little in interest and I got an extra $1500 off. I didn't really care about my credit rating so apologies to the OP.

The only reason I have any concern over credit rating is the better the credit rating, the better insurance rates you get. Other than that, Fico can take a long walk off a short pier.