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  1. #1
    Relic Horn
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    (Auto) loan help

    Hi,
    I am a credit scrub, I don't own anything besides my car which has been paid off forever.

    So I'm getting a new car and going to finance half of it to "build credit" but I only want the loan for a term of a year. The dealership only offers 2+ year loans but the dude said I could pay it off early with no penalty and that seemed to have a low interest rate (2-3%). When I check with my bank their APR (went from 4%+ for 1 yr to 3.something% for 2+) is higher the shorter of a term you get a loan for.

    So if there is no penalty on paying it off early and it wont look bad for my credit why would I not get a long term loan with a low APR and pay it off much sooner than the term was for? Why does this not seem like it makes sense if you have the money to put up multiple months payments at the same time?

  2. #2

    Sweaty Dick Punching Enthusiast

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    Quote Originally Posted by Fondue View Post
    Hi,
    I am a credit scrub, I don't own anything besides my car which has been paid off forever.

    So I'm getting a new car and going to finance half of it to "build credit" but I only want the loan for a term of a year. The dealership only offers 2+ year loans but the dude said I could pay it off early with no penalty and that seemed to have a low interest rate (2-3%). When I check with my bank their APR (went from 4%+ for 1 yr to 3.something% for 2+) is higher the shorter of a term you get a loan for.

    So if there is no penalty on paying it off early and it wont look bad for my credit why would I not get a long term loan with a low APR and pay it off much sooner than the term was for? Why does this not seem like it makes sense if you have the money to put up multiple months payments at the same time?
    The longer term has a lower APR, but the banks make more money on it. SHorter term has a higher APR so they can make some money still. Paying off early doesn't happen often in most cases, but if you can do it the only reason not to is if you are trying to build a credit score. Credit score will go up the longer you are actively paying a balance. While it will help some, closing out a loan early won't look as good to lenders as keeping an account open for longer. Mostly because it shows them they won't make as much money.

  3. #3
    The Optimistic Asshole
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    Primarily credit scores aren't affected and certainly won't lower and isn't going to affect you negatively if you pay it off early. If you can pay it off early, do so. You can keep a credit line open through other means that aren't near as costly. I'd suggest, assuming you're financially competent, opening a credit card or three and maintaining a utilization rate of less than 10%. That's a huge chunk of your score. And you have an added benefit of getting credit card perks such as flight miles and the like for what amounts to nothing if you pay off the balance before the cycle carries over.

  4. #4

    Sweaty Dick Punching Enthusiast

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    Go through a local credit union for your loan, because fuck banks and dealerships.

  5. #5

    Revolving accounts (aka credit cards, or home equity credit lines) are the only ones that really matter when it comes to how long the account is open for.

    Installment accounts (mortgage, student loans, car loans) benefit you as evidence of successfully paying back a loan. The amount of time it takes doesn't matter so much as the fact it's in your report and is being paid on time/paid off. It's actually better to have installment accounts paid off as opposed to dragging out the term (it's viewed as a liability so long as it's open).

    You're making a good move by making sure it shows up in your credit history, but beyond that there's no need to drag out the repayment by more than a year (as you planned).

  6. #6
    I Am, Who I Am.
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    Is there a reason youre getting a new car?
    Dont just get a car to get a car.

  7. #7
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    Quote Originally Posted by Fondue View Post
    Hi,
    I am a credit scrub, I don't own anything besides my car which has been paid off forever.

    So I'm getting a new car and going to finance half of it to "build credit" but I only want the loan for a term of a year. The dealership only offers 2+ year loans but the dude said I could pay it off early with no penalty and that seemed to have a low interest rate (2-3%). When I check with my bank their APR (went from 4%+ for 1 yr to 3.something% for 2+) is higher the shorter of a term you get a loan for.

    So if there is no penalty on paying it off early and it wont look bad for my credit why would I not get a long term loan with a low APR and pay it off much sooner than the term was for? Why does this not seem like it makes sense if you have the money to put up multiple months payments at the same time?
    Yes, you have the right of it. The banks offer a higher interest rate on the shorter loan because they want to make money. A longer term loan they can make more money even at a lower rate.

    So, to answer your question, from a credit building perspective: Get the longer term loan at the lower rate, pay off on the original schedule, costs you less overall and has the same effect.

    Just make sure whoever loans you the money doesn't have a penalty written into the language, which is a shitty but not uncommon tactic.

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