It’s always best to pay off a loan as soon as you can, isn’t it? Not necessarily. There are several reasons you may not want to pay off your loan early, including the effects on your credit score.
The obvious reason for early payoff is interest savings. By paying your loans off early (especially large ones), you can save substantial interest charges. Some loans discourage early loan repayment by charging penalty fees. Know the terms of your loan and include these fees in your calculations when deciding whether to repay a loan early.
When assessing early loan repayment, follow two trains of thought. How will this affect my credit score, and is early loan repayment the best use of my money?
Consider your credit score first. Five factors influence your score – on-time payments, amounts owed/credit utilization (the amount of your available credit that …