Pay off car loan before applying for mortgage?

Zilog

So my daughter and boyfriend are looking to buy their first house. My daughter has an outstanding car loan which she makes the payment to every month and never misses one. 

Will it affect her credit rating if she pays off the loan completely? as she has no other loans outstanding apart from paying off her credit card to zero every month.

I've heard credit rating can go down if a loan is paid off in full so the question is: Should she pay off the car loan before applying for the mortgage?

Thanks
Z

sherbert1964

Hi @Zilog, It shouldn't affect her credit history but will have a positive impact on their affordability as they wont have the monthly commitment, so should be be able to borrow more.

i am applying for mortgage myself at the moment and did just this

K_S

@zilog Is the car loan stopping her from borrowing the amount that she needs?

If yes, then paying off the loan prior to the applying for the mortgage may help increase what she can borrow. 

If no, then retaining it or paying it off it unlikely to make a difference either way.

Zilog said:

So my daughter and boyfriend are looking to buy their first house. My daughter has an outstanding car loan which she makes the payment to every month and never misses one. 

Will it affect her credit rating if she pays off the loan completely? as she has no other loans outstanding apart from paying off her credit card to zero every month.

I've heard credit rating can go down if a loan is paid off in full so the question is: Should she pay off the car loan before applying for the mortgage?

Thanks
Z

Zilog

Thank you both for your quick responses. I'm in the fortunate position to being able to afford to pay off her remaining loan of quite easily.

It sounds like that is what we should do, so she won't have that additional monthly commitment hopefully allowing her to have a slighly larger mortgage if required.