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Does Paying Off A Car Loan Early Benefit You?

A lot of people will tell you that paying off a car loan early is nothing but smart. They will expound on the number of dollars you can save and how it will help your credit more than you could ever imagine. Well, is that really true, is the question of the day.

The answer is that it depends on the situation. Paying off a loan early will always lower the total amount of interest that you pay, but paying off the loan too quickly can actually hurt your credit score. If you pay off an auto loan in less than one year, your credit score will drop. If you have a second chance auto loan, paying off your loan in less than 18 months will not allow your credit score to benefit enough. You may need a second loan in order to raise your score sufficiently.

Paying off a loan early will always benefit your wallet. The conundrum occurs with your credit score. Most people wonder why, but it is purely profit based. If you pay off too early, a bank does not make enough profit and your credit score reflects that. The upside is that as long as you have made 18 payments you can usually pay off your car without repercussions.

 

About the Author

The author has many years of experience in automotive finance and insurance. However, each consumer's situation is unique. It is best to contact a finance specialist for further assistance.
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