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Pay-Off Auto Loan or just ride it out?
Posted by: Harbourmaster
Date: March 13, 2019 06:09PM
After a Bankruptcy and (subsequent divorce) in 1997 I have been a total non-user of credit, paying cash for everything as I go. We are presently trying to establish some credit and hence my question.

2 years ago in January we had to replace our primary family vehicle in a hurry, and got a loan through the dealer on a used Honda Odyssey at 12.9%. Last November I refinanced that loan with another lender at 5.9% and the balance is currently $13.400 with 48 months till payoff.

My wife recently received a substantial cash payout from her parents estate, (and will be receiving more as soon as all the property is sold) more than enough to comfortably pay off the balance of the van. My question is should we pay it off OR in the interest of building the credit rating do I put enough money into a separate checking account and set up automatic payments and Just leave it at that?

Another possibility would be to continue making the regular payments but make an additional payment every month to pay the loan off early and avoid paying so much interest. In this case does making the extra payments help my credit any??

At present I have only one one credit card (new, used to purchase an iPhone last month) with a $700 limit.

Any and all advice appreciated!

P.S. The bulk of the money will most likely be invested with Vanguard for now.



Aloha, Ken


“I have developed significant attachments to several members even though I wouldn't recognize them if I sat next to one on a park bench. I'm often tempted when in an airport to walk around, hollering "The Løpe", to see if anyone other than the Homeland Security people will acknowledge me. ” - The Løpe
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Re: Pay-Off Auto Loan or just ride it out?
Posted by: jdc
Date: March 13, 2019 06:29PM
Are you saying a BK from 20 years ago is still effecting your credit? it should have been off your report after 10, and have zero effect on your score now.

Have you checked credit karma to see what you score is (approx)

We BKed in 2011, still on my report, but my score is well over 700.



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Edited 999 time(s). Last edit at 12:08PM by jdc.
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Re: Pay-Off Auto Loan or just ride it out?
Posted by: Gareth
Date: March 13, 2019 06:30PM
Quote
Harbourmaster
OR in the interest of building the credit rating do I put enough money into a separate checking account and set up automatic payments and Just leave it at that?

Another possibility would be to continue making the regular payments but make an additional payment every month to pay the loan off early and avoid paying so much interest. In this case does making the extra payments help my credit any??

If you want to build credit, keep the loan. I wouldn't bother with making additional payments (or if you did, do it manually and note for it to be applied 100% to the principal, so they don't do something funky with it that's to your disadvantage).

That's one of the few "negative" on my otherwise excellent credit report, a lack of loan-installment accounts. And for some reason my current mortgage doesn't show up on my credit report.
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Re: Pay-Off Auto Loan or just ride it out?
Posted by: NewtonMP2100
Date: March 13, 2019 06:30PM
....you......auto.....know....



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Re: Pay-Off Auto Loan or just ride it out?
Posted by: Harbourmaster
Date: March 13, 2019 07:32PM
No The BK doesn't come up on any of the reports.. Up until I bought the car 2 years ago there was literally NOTHING to report. I knew that I was going to have to pay a higher interest rate on the car because of that.

My current FICO score according to CK is 625



Aloha, Ken


“I have developed significant attachments to several members even though I wouldn't recognize them if I sat next to one on a park bench. I'm often tempted when in an airport to walk around, hollering "The Løpe", to see if anyone other than the Homeland Security people will acknowledge me. ” - The Løpe
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Re: Pay-Off Auto Loan or just ride it out?
Posted by: space-time
Date: March 13, 2019 07:50PM
How about the wife, what is her credit score? if she has a good credit score, then have her open a credit card and add you as a user. It should improve your score.

this is what I did with my spouse, as soon as she came to US I added her on all my credit cards and she established credit very quickly. In fact I heard some people do this as a business, they put you on their credit cards (for a nice fee of course) so you can establish credit.
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Re: Pay-Off Auto Loan or just ride it out?
Posted by: wolfcry911
Date: March 13, 2019 08:06PM
You're willing to pay someone $1676 just to maybe increase your credit score!? I'd pay off any interest loan I'd had if I came into money - credit score be damned.
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Re: Pay-Off Auto Loan or just ride it out?
Posted by: Harbourmaster
Date: March 13, 2019 08:40PM
Wife is in same credit boat. We have been 100% cash for many years.



Aloha, Ken


“I have developed significant attachments to several members even though I wouldn't recognize them if I sat next to one on a park bench. I'm often tempted when in an airport to walk around, hollering "The Løpe", to see if anyone other than the Homeland Security people will acknowledge me. ” - The Løpe
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Re: Pay-Off Auto Loan or just ride it out?
Posted by: RAMd®d
Date: March 13, 2019 09:38PM
It wil cost you money in the form of interest to build credit.

As that's what you want to do, I'd take some of the windfall and make a lump some to reduce the car note by half. Then continue to make payments. Showing you make payments on time, reliably is part of building good credit.

Paying of a revolving account is also part of that.

Use your one credit card for small regular purchases, and pay the balance each month. If your bank allows you to check your FICO for free, keep an eye on it to see if your score improves.

You can't build credit without using it. The key is to keep a tight rein on spending and payback.

Paying cash for everything is fine if you've got a big pool of it for emergencies. But most people don't, so having good credit is a good back up plan.




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Re: Pay-Off Auto Loan or just ride it out?
Posted by: SteveO
Date: March 13, 2019 09:52PM
>As that's what you want to do, I'd take some of the windfall and make a lump some to reduce the car note by half. Then continue to make payments. Showing you make payments on time, reliably is part of building good credit.

This.^ And see if you can get a lower rate than 5.99, check with a local credit union, they often have the best rates and perks like life insurance added on that automatically pays off the balance for you if the loan holder passes away (speaking from sad experience with my late wife).

And don't ever be late on the payments. I find it easiest to have monthly payments auto-debited from my bank account, that way I never forget. Also, if you happen to make a late payment, sometimes you can call the creditor and ask for one-time forgiveness on late fees and interest...those interest cycles suck. Before I had my stuff on auto-debit, I'd occasionally make a payment a day or even a week or two late out of sheer forgetfulness. The phone call took care of that, and any late fees and interest accrued. Paying off my balances in full every month also showed them I was a reliable customer.

Good luck.
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Re: Pay-Off Auto Loan or just ride it out?
Posted by: tenders
Date: March 13, 2019 09:53PM
I pay off auto loans in full when I decide to stop carrying collision coverage on the vehicle. The bank requires this coverage to keep the loan, and it's expensive and not necessary on vehicles at some point. Carrying it unnecessarily creates a very high implied interest rate.
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Re: Pay-Off Auto Loan or just ride it out?
Posted by: C(-)ris
Date: March 14, 2019 01:50AM
Quote
tenders
I pay off auto loans in full when I decide to stop carrying collision coverage on the vehicle. The bank requires this coverage to keep the loan, and it's expensive and not necessary on vehicles at some point. Carrying it unnecessarily creates a very high implied interest rate.

What is your dollar figure for what you are willing to risk in an accident? I usually drop collision when the car is worth less than $3k. But on a typical car with a loan, you would have a lot more value than $3k when your loan was over.



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Re: Pay-Off Auto Loan or just ride it out?
Posted by: NewtonMP2100
Date: March 14, 2019 06:26AM
.....well, I believe debt helps build credit [ if you pay on-time every month, that establishes credit ].........so you should hold on to the debt....

.....with regard to paying additional money make sure to check your agreement....i know with some mortgages, you are not allowed prepay more back......if you can, make sure you tell them that the payment goes to the original loan amount and not the interest.....

.....since you have a credit card, make sure to use it spend on groceries, etc [ charge whatever can be charged ] and make sure to pay on-time every month....that will help to establish better credit history......at some point ask them if they an increase the credit line and then continue to make payments on time.....eventually you will have established credit history again.....good luck....!



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I reject your reality and substitute my own!
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