Even if you pay off the balance, the account stays open.
And while paying off an installment loan early won’t hurt your credit, keeping it open for the loan’s full term and making all the payments on time is actually viewed positively by the scoring models and can help you credit score.
Why did my credit score drop when I paid off a loan?
Credit utilization is one reason your credit score could drop a little after you pay off your debt. Paying off an installment loan, like a car loan or student loan, can help your finances but might ding your score. That’s because it typically results in fewer accounts.
What happens if I pay a loan off early?
What happens when you pay a loan off early. A prepayment penalty varies by your loan, lender, and terms. Typically, it’s based on a percentage of the remaining loan balance or months’ worth of interest. Keep in mind that paying off a loan will close your account, which can cause a temporary dip in your credit score.
What happens to your credit when you pay off a loan?
The length of your credit history can decrease if you pay off an account that then closes, such as with a loan, which can have a slight negative impact your score. The amount of credit being used will get a huge positive bump when you pay off your debt.
Is it worth paying off car loan early?
Interest on a car loan can add up quickly. It is easy to save money by paying your loan off early. The amount of interest you pay every month does decrease a little bit because your balance is going down. Use an amortization calculator to determine your savings.