Will paying off a loan harm my credit rating?

JaneBloggs

I have a loan on my car and this is the only loan I have. No student loans, no credit cards, nothing. It is for about 5 years and paying it off in installments will cost me about £1000 in interest. My Experian credit report has me down as Excellent on all the areas it checks for, apart from one where I'm rated as good (I'm not on the electoral roll as I'm not a UK or EU national).

My finacee and I are trying to save up for our first property deposit and I know that when it comes to it the banks will be looking at our credit ratings. I know what banks look for when they look at credit ratings: (I've read the Credit score page) and I know that paying off loans early can count against you. The loan will stand for another 4 years or so, and we think that we will have saved up a deposit in 2 years or so. Should I pay off the car loan early and risk my credit report counting against me, or leave it and pay the £1000 interest so the banks will think they can get more money out of me?

Thanks

DCFC79

Check your contract for an early repayment fee.

JaneBloggs

DCFC79 wrote: »

Check your contract for an early repayment fee.

There is an early repayment fee, but nothing massive and it's a hit I can take.

What I really want to know is since banks are looking for people they can make money off, will my paying off this loan early count against me when I apply for a mortgage?

jason1231972

JaneBloggs wrote: »

I know that paying off loans early can count against you.

Only in the sense that some lenders may become miffed (particularly the lender you're paying off right now) that they haven't made as much money out of you as intended. But that's about it. Very unlikely to be a problem in most lenders' eyes, and quite unlikely (all else being well) to get you rejected for a mortgage!

If it saves you money, and you can afford to take the hit, it's the most sensible option. If you want to keep active on the credit front in the meantime, get a credit card, do your monthly spending, and pay it off in full every month.

redpete

I would think the extra £1000 towards a deposit would make much more difference than any negative affect on the credit score.

rich_the_moneysaver

The `excellent` credit score is not a score which the lenders see :-(

Paying off a loan early would be a sensible thing to do- it means you are reducing your debt figure- something all the lenders are currently looking for...