If I pay my car loan off will my credit drop?

Question

I've been thinking lately about paying my car off. I owe less than 6k. The payment each month does not really hurt me and I was going to just keep it for on time payments to help my credit and my interest rate is around 2% so it's not like I'm paying a lot in interest.

I'd like to purchase a new vehicle soon and I may trade this one in (have not fully decided)

But I also would not want my credit to drop from paying it off and then once again on my new loan. But if i continue to pay the loan, I'll be paying for another year and a half.

Answer 1

Paying off the car loan can actually have a positive influence on your credit score.

One of the things they look at is 'closed accounts' and your score generally increases with closed accounts becuase it proves you able to pay back your loans.

Its also more likely that you would be approved for a loan/get better interest rate as you would be using less of your credit and would not have 2 car loans at once.

You just have to make sure that there are no charges with paying it back early as a lot of loan providers have a fee for early payback