I have the capability of paying off my car loan of around $15,000 by end of June next year, however this loan started this month.

I have heard loans/accounts kept open for more than a year are on your credit report for 7 years as opposed to 2 if it is paid off within a year. Is this true?

Should I pay off my loan as soon as possible or wait for next September before paying it off? Will my credit be better if I wait for the first year to finish before paying off the loan?

4 Answers 4


Generally, I would say that you should pay it off if you have the money available. Why pay interest if you have the money? That is, of course, if your money can earn you more than the interest you pay (which can happen if you got a very low APR for your car loan, but then you probably have excellent credit already and shouldn't care about the history of the loan on your report).

Re the 7 years vs 2 years - to the best of my knowledge its not true, it will stay 7 years even if its closed during the first year.

  • The 7 years vs 2 if paid off quickly rule is not true. I have loans paid off faster than 2 years that have stayed on my credit report longer than 2 years.
    – Alex B
    Oct 18, 2011 at 17:59

Pay it off. You are never penalized for paying a loan off early.

Most credit records stay on your reports for 7 years, with the exception of certain negative ones, which stick around for 10.


Is it really worth the interest you'd pay over a year for a relatively minor and temporary bump to your credit score? I mean, you just bought a car so I'm assuming you probably aren't looking for another loan in the near future.

  • 1
    I think the OP is saying he could wait until july to pay it off after 12 months rather than paying it off in June and doing it in 11. So the interest payment would be minimal.
    – user4127
    Oct 17, 2011 at 16:42
  • Thanks for the clarification. In that case I'd agree the interest difference would be minimal, but even if it is a few bucks, I wouldn't pay it for the same reasons stated above.
    – JohnFx
    Oct 17, 2011 at 19:40

If your payment schedule would have you pay the car off after 11 months then you might be best served by leaving a small final payment for July. The loan will appear on your credit for 7 years but the bump to your score will be reduced more after 2 years if you pay it off in less than 12 months. If you would have several payment left after you have the ability to pay it off then just pay it off. The reduction is not severe or worth the price of interest unless you have <1%.

Unused credit has an attrition factor. If you continue to use your credit in a healthy way (>0 <20% balance, no late payments, long term accounts) then you should not even realize much of a negative change.

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