Well it actually depends on your specific situation. Let’s take a look at one scenario. Say Ted has a good credit score and a low interest rate on his auto loan. With a high credit score already, it could be smarter for Ted to put his extra cash toward paying off higher interest debt like from credit cards or to save it for emergencies.
- First, because of his low interest rate, Ted won’t see a lot of extra savings by paying off his loan.
- Second, keeping a loan open could help maintain his good credit score. Here’s how. An auto loan is an installment loan with a number of scheduled payments over a certain period of time. Paying it off in full closes the account. While that closed account will still appear on Ted’s credit report for seven to ten years it won’t impact his credit score as much.
- Finally, potential lenders like to see a mix of credit types. If paying off his loan leaves Ted with only credit card debt outstanding, he might not look as favorable to potential lenders. So for someone like Ted, paying off an auto loan won’t necessarily result in a jump in your credit score. Because once you already have a high credit score, it becomes a lot harder to raise it. However in some situations, it’s better to pay off the debt.
How to Get an Auto Loan With No Credit?
- First thing you want to do, is pull your credit report, so you don’t have credit, while you’re pulling your credit report. You need to pull your credit report, so that you can make sure that everything on there, if anything is on there, is correct, so you can go to the annual credit report website. You get from all three of your credit bureaus, TransUnion, Experian, and Equifax, a free report from each and every one of them, once a year. It won’t include your score.
- You may have some additional fees, so check that out, while you’re looking, in the process, so make sure if you do have inaccuracies, to get those cleared up immediately, so that you can start looking for that new car, and then you want to shop around for that car, with your lending institutions, and anybody, maybe a bank that you’re already presently doing business with, that already knows that you can manage your money.
- You might have a better chance with them, as well as credit unions. Their interest rates are pretty good on car loans. This too will help you establish some credit by having an auto loan, so in the long run, it may be a good choice.