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which would build credit better?

so we are going to be getting a second car loan, our minivan is dead. we will very shortly have the money to pay off the minivan and once we get our tax return we will have the down payment on the new loan. the question i need answered is, is it best to pay the minivan loan off in full, around four months left or is it better to continue making payment on the loan i have the money to do both.. i don't know which one would look best for our credit scores. getting a new loan and continue to make payment on the old loan as scheduled or to get the new loan and then pay off the mini van in full. any advice would be appreciated.

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mbaker331

Asked by mbaker331 at 7:21 AM on Jan. 27, 2011 in Money & Work

Level 3 (19 Credits)
Answers (8)
  • You'll need to consider your debt to income ratio. That can play a part in your credit score. While you may have the money to do both, it may look like you use all/or most of your credit line. I say pay off 1. then you save a little in interest and don't have the bigger debt amount.

    how_reb

    Answer by how_reb at 7:28 AM on Jan. 27, 2011

  • I would assume it is best to pay off the old loan first. That way you do not have two loans on your credit report. I believe that having an additional loan is a negative to anyone looking into your credit.
    elizabr

    Answer by elizabr at 7:29 AM on Jan. 27, 2011

  • After being in banking for over 10 years, I would agree with reb. The loan officer is going to look at your debt to income ratio. Banks and CU's look at this ratio to see if you can afford the loan. There is a d/i percentage that they must go by and if your debt to income exceeds that percentage then they may decline the additional loan. I would pay off the other loan first. Depending on how long you had the orginial loan , I wouldn't see it effecting your beacon score if you paid it off early.
    carolinagirl075

    Answer by carolinagirl075 at 7:44 AM on Jan. 27, 2011

  • I would say, if the minivan is dead, pay it off, then sell it, use that money as part of the down payment for a new one. You'll get the car paid off and have some extra $ for the new car.
    gumby11883

    Answer by gumby11883 at 7:44 AM on Jan. 27, 2011

  • we prequalify for a loan with the minivan on our credit and we will have the money down for the new loan by feb 1 its just a thought my husband had to let the payments run out. But paying it off early will save us interest i just don't want it hurting the work we have done to improve our credit.
    mbaker331

    Comment by mbaker331 (original poster) at 8:20 AM on Jan. 27, 2011

  • Pay off the loan...especially since you are getting a new loan! If you weren't getting a new loan I would say keep the old one going, but if you have the money to pay something off, that is always best. You never know what could happen in the future..and next thign you know you have two loans to pay! GL!!!
    MomOnTheRun11

    Answer by MomOnTheRun11 at 8:53 AM on Jan. 27, 2011

  • No matter what you do, it takes about three months for it to show up on your credit report, so keep that in mind.
    HotMama330

    Answer by HotMama330 at 12:01 PM on Jan. 27, 2011

  • You're not going to be able to sell the minivan (assuming you could anyway) if you owe money on it. It might be best to pay it off, get what you can for it, and then go to the bank to get a loan for a new to you car.

    Of course an even better option would be to just pay cash. Save what you would have paid in car payments for future repairs, and for when this car finally kicks the bucket.

    Good luck!
    Erica_Smerica

    Answer by Erica_Smerica at 4:55 PM on Jan. 27, 2011

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