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Does paying off a car loan hurt your credit score?
I want to pay off my car loan as quickly as possible. However, I’m not sure what impact this will have on my credit score. Does paying off a car loan early or on time hurt your credit score?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Paying off your
car loan
is an exciting milestone in your financial life! If you want to pay off your car loan, either on time or early, it will have a small impact on your credit score. But don’t stress; it’s only temporary.When you pay off your car loan, it’s the same idea as paying off any other loan or closing a credit card. The account no longer exists. As a result, your current credit history and your credit utilization ratio go down. Both of these have minor impacts on your credit.
Depending on your credit profile, expect paying off your car loan to lower your score somewhere between 10 and 30 points. But again, this is only temporary. If you get another car loan, you can build your credit score back up. The same goes for other types of credit accounts.
The good news is that the dip in your credit score is effectively offset by a lack of a monthly payment. You have more disposable income each month to do whatever you see fit. And if you want to save even more money, you’re also allowed to switch your car insurance, as your lender can no longer require full coverage car insurance. The best way to save even more cash on insurance is with the Jerry app.
As a licensed broker,
Jerry
helps you find and compare quotes from over 50 top providers in minutes. When you find a better rate, Jerry can help you buy your new coverage and even cancel your old policy!View full answer
- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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