Are there negative impacts to paying off a loan early with BMW Financial?

[csczero]

I financed the m3 back in February 2016 and have made on time payments since. I'm looking to pay it off soon (roughly 6k left on the loan). Insurance rates went up like crazy this year so I was hoping to pay off the car to take it off comprehensive coverage. I heard that paying off a loan will have a negative impact on your credit score, is that true? It was a 3 year loan, and currently 9 months into the loan.

[Professor///M]

Originally Posted by csczero

I financed the m3 back in February 2016 and have made on time payments since. I'm looking to pay it off soon (roughly 6k left on the loan). Insurance rates went up like crazy this year so I was hoping to pay off the car to take it off comprehensive coverage. I heard that paying off a loan will have a negative impact on your credit score, is that true? It was a 3 year loan, and currently 9 months into the loan.

The only negative effect is having less money in your pocket.

[Vectors2final]

Not necessarily.


It all depends on the individual credit profile.


As someone that spent a lot of time overseas because of the military, I have sold plenty of cars leaving me with zero auto credit. None of those times impacted my credit in a negative manner.

[alex2364]

Paying a loan off early is never a bad idea but paying it off to remove comprehensive coverage on a $50k car is a terrible idea.

[AIRHEIR]

Originally Posted by alex2364

Paying a loan off early is never a bad idea but paying it off to remove comprehensive coverage on a $50k car is a terrible idea.

THIS

[Super Spartan]

Originally Posted by alex2364

Paying a loan off early is never a bad idea but paying it off to remove comprehensive coverage on a $50k car is a terrible idea.

+2

[///M4ster Yoda]

Originally Posted by Snappy Phoenix

+2

+3

[Jaymax85]

Originally Posted by AIRHEIR

THIS

Plus 1

[gatorfast]

Why would paying off a loan negatively impact your score? Credit scores are fickle in general so +\- 10pts here and there isn't a big deal. But simply paying a loan off should have no Ill effect.

[nujabes24]

Originally Posted by alex2364

Paying a loan off early is never a bad idea but paying it off to remove comprehensive coverage on a $50k car is a terrible idea.

+100
🤦🏾*♂️

[allinon72]

Originally Posted by gatorfast

Why would paying off a loan negatively impact your score? Credit scores are fickle in general so +\- 10pts here and there isn't a big deal. But simply paying a loan off should have no Ill effect.

Actually it's highly dependent on your credit profile. If the car loan is the only loan, for example, score will drop quite a bit. Most decreases would be temporary though.

[ASAP]

fyi, there are loans that are not simply interest loans, where you either can't pay it off early or there is a fee to pay off early... this is not one of those, should be no issue

[boss2k]

What has paying off loan got to do with comprehensive coverage and why the heck are u planning to take off comprehensive coverage on the car?

[boss2k]

Originally Posted by allinon72

Actually it's highly dependent on your credit profile. If the car loan is the only loan, for example, score will drop quite a bit. Most decreases would be temporary though.

I would rather have loan free life than worry about few points drop on credit score which actually does nothing , I understand you need to have a descent credit score for getting loans but beyond a point it does nothing

[FriedPiston]

Not necessarily negative impact, but the following variables will be impacted:

1. Number of on-time payments (loss opportunity to establish a solid history)
2. Average age of credit (this will likely go up once the loan is set to paid)
3. Credit mixture (it's ideal to have a good mix of auto, home, and credit card(s) in your profile)

People often say don't put all your eggs in one basket. In this case, you're putting a good chunk of money into a depreciating assett, which IMO, isn't the best financial decision.

If insurance rate is what's pushing you into paying the car off, then simply shop around for a better priced premium.

Best of luck either way!

[Gibson6594]

Am I missing where the rate your are paying on the loan is posted? Although with returns lately, it likely doesn't matter. Don't pay off the loan. Invest the money.

[allinon72]

Originally Posted by boss2k

I would rather have loan free life than worry about few points drop on credit score which actually does nothing , I understand you need to have a descent credit score for getting loans but beyond a point it does nothing

Agree 100%

[2000cs]

When I buy a car I almost always have financed it for the longest possible term, then paid it off about 6-12 months later. Paying off earlier does not help credit; paying off later uses debt capacity and cash flow (yes I know paying off means those funds are not available for investment). I’ve found this to be a good discipline in that it has forced me to have the money really before I buy.

I am altering this now because of some bad experiences. I want the manufacturer to have some skin in the game so I will finance only through the manufacturer’s finance company (BMW FS in this forum’s case) and keep the loan through the warranty period or lease for that term. That way if there is a serious problem, BMW and the dealer both have a bit more incentive to help, and BMW FS can waive payments during extended servicing.

Seems extreme, but having been burned once I want to be sure any manufacturer I buy from is aligned with my interests as much as I can.

This for new, used under warranty (from same brand dealer only) or CPO. Used from private party or off-brand dealer I would just pay cash.

[M3Fahrer]

The car is a depreciating asset.

If it drives, flies, floats or f***s, lease it. - Spencer/The Rock on Ballers

Leasing is a different story, and I personally finance mine, but I added that quote just for reference. Invest your money elsewhere and continue to make the monthly payments on the car.

[Clark_Kent]

Originally Posted by boss2k

What has paying off loan got to do with comprehensive coverage and why the heck are u planning to take off comprehensive coverage on the car?

Your state will require you to carry the state's minimum for liability; however, you're not required to carry full coverage on a vehicle if there's no lien holder. Reread the first post...he's interested in removing full coverage to save some money on the premiums. I believe it to be an ill advised move but different strokes for different folks.

[RobbyMack]

I'm just not understanding the situation. If you've got enough scratch to only have $6k remaining on a 3 year loan after making 9 payments I can't see how insurance costs would even factor into your financial picture. Also the physical damage piece (comprehensive/collision) is such a small piece of the cost. The liability piece is way more expensive.

[csczero]

Thanks everyone for their input, really appreciate it. My premium increased about 30% with no at fault accidents(one not at fault collision) or recent tickets(last one was 3 years ago).

My thing is the m3 is rarely driven, about 4000 miles a year at most. All my other 3 cars have liability that's why I was hoping to drop comprehensive on the m3. Even if it's a few hundred bucks, I just feel it's being wasted considering the car is rarely driven (relatively speaking compared to other cars). Just trying to save some money where I can.

Currently have liberty mutual and going to be shopping around to see any better rates. Cheapest I found was Geico, anyone have experience with them?