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"What happens when I pay off a car loan early? "
My boyfriend is recommending that I pay off my loan on my Toyota early. If I decide to follow his advice, what will happen?
Johnny Puckett · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“If your auto loan does not have a prepayment penalty, then you could save yourself some money in interest payments by paying off the loan early. However, if you have a precomputed interest loan, then you will not save any money by paying the loan off early because you will owe the prespecified interest amount regardless of when you pay the loan off.
Furthermore, paying off your car loan early can hurt your
credit score
. This is because closed accounts have less of an impact on your credit than open positive accounts. The good news is that if you don’t have any red flags in your credit history, this drop in your credit score should be temporary.
“View full answer
- Gregory R.
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