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Is it possible to pay off a car loan before maturity?
I want to get rid of my car loan because I'm planning on buying a house in the near future. Can I pay the car loan off before maturity?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Yes, you can absolutely pay off your
car loan
before it reaches maturity! In many ways, it’s a smart move that can free up some extra cash and cut your debt.Just be aware of what paying off a car loan does to your credit score. When you finally pay off your loan, you change your total amount of credit and your credit mix, or your blend of installment loans and revolving credit.
Although you paid off the loan, the lack of extra debt and installment loans can lower your credit score temporarily. But don’t worry too much. The hit will be mild.
Make sure you don’t have any
prepayment penalties
in play, either, as these can cost you an extra charge of 2-4% of the value of the loan. If you’re planning on buying a house, you might even wait until after you close on the mortgage to pay off your car loan. By doing so, you’re ensuring you have enough for a home down payment, as well as keeping your credit score just a few points higher.
After you pay off your car loan, take a look at your car insurance policy. Because you’re not under a car loan, you can keep your current full-coverage plan or lower it to liability-only, depending on your needs. Use
Jerry
to compare rates from top insurers to find the best rates for your desired coverage level.View full answer
- Gregory R.
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