How Do Car Loans Affect Your Credit Score?

How Do Car Loans Affect Your Credit Score?

We all know there’s good and bad debt. Mortgages are sometimes referred to as “good” debt, while credit cards tend to be referred to as “bad” debt because of the high interest rates and large amount of fees attached.

But where do car loans come in?

Some people argue that since auto loans are backed by the value of the car and the interest rate is very low, it makes good financial cents (ha!) to buy them. Others say it’s better to buy a used vehicle.

Whichever opinion you side with, car loans are still considered consumer debt, but they’re in a category all their own. Here’s how car loans affect your credit score:

A New Mix of Credit on Your Report

Your overall credit score is made up of several different sections, and about 10% of your credit score reflects the type of credit you’ve utilized. For instance, credit cards represent one type of credit usage, car loans make up another portion and mortgages round out the bunch.

The overall goal is to mix up your credit with different types of loans, so you can increase your credit history and subsequently your credit score.

Having a car loan on your report shows a new mix of credit, and can help improve your overall credit report. Additionally, if you make payments om time it shows you’re less of a risk to loan officers and banks.

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A Good Measurement of Responsible Credit Usage

For some people, the progression of using credit to build a solid history for making large purchases such as buying a home begins with an auto loan. Applying — and getting approved — for a credit card is a very simple process, but getting approved for a car loan is a bit more difficult. If your credit report shows evidence of on-time payments on your car loan, it will help increase your credit score.

Having a good history and no late payments shows you’re a responsible borrower and someone who could pay a future mortgage fairly easy. (Even one late payment can hurt your score)

If you have any problem paying your auto loan and your car gets repossessed, that will be an indication to banks that you will struggle to make larger payments for something like a mortgage, and it will make your credit score go down.

A car loan is often a step in the process for proving your credit worthiness, so make sure you’re ready to take on that responsibility before you make the leap.

Little Room for Underwater Car Loans

Much like the housing market, the automotive industry has been all over the place, and many people have been caught with cars that are worth less than the amount they owe on the loan.

Having a car loan that’s underwater, can reflect badly on your credit report. So it’s important to understand that taking out a car loan is risky if there’s any chance you won’t be able to pay, even in the event of an accident or other emergency.

I have some personal experience with this: I was almost forced into this situation when I got into a bad car accident that totalled 3 cars. A lady ran a stop sign and hit a car that hit me. And to make matters worse, she didn’t have insurance!

In situations like these, if you don’t have an emergency fund, or good car insurance coverage, you could be forced into a bad situation financially — and your credit report won’t easily forgive it.

Refinancing Your Car Loan is a Hard Inquiry

When you apply to refinance your car loan, it could potentially save you money by lowering your interest rate (though be sure to read the fine print on those offers of 0% interest).

But it’s important to know that refinancing does cause a hard inquiry on your credit report. A hard inquiry is when a financial institution or lender does a credit check to see whether or not you’d make a good candidate for the loan. Every hard inquiry will drop your score by a few points and remains on your credit report for two years.

If you do “loan shopping” and get quotes from a few different lenders in a short period of time (usually 30 days) the credit bureaus will often treat this as just one hard inquiry. But if you spend 6 months looking at refinancing options, that will likely result in several hard inquiries on your credit report. For this reason, it’s a good idea to limit any applications to the same 30-day period. Multiple hard inquires can significantly decrease your credit score over time and show that you might be desperate for credit.

How Car Loans Affect Your Credit

An auto loan can be used as a good tool for proving your credit worthiness, and your ability to pay back a larger debt. But it can backfire if you can’t make the payments or get stuck with an underwater car loan in the “new every two” cycle of buying new vehicles (if you need help getting out of debt, ReadyForZero can help).

Like with any other debt, it’s important to understand the risks involved before taking on that challenge, and to use it strategically towards building credit and a solid financial history.

Image credit: iMorpheus’ photostream

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  • Leigh Car Finance

    Online there are variety of car loans company but you get help from the broker then you will have a good deal.

  • Johan Fourie

    Totally agree with you,,,thanks for sharing it !

  • Pedro Torres

    What if you can pay off your car loan with a balance transfer of 0% interest rate and be able to continue doing the same payments you are doing to that bank? Will it look weird in the credit score? It is better to have a car loan that a credit card with a balance? ( I have done balance transfer in the past and I have been able to pay all of them). So I did the math and I save like $200 in interest rate for the whole period. But with this article now I think that if I am planning to buy a house within one year, I have to consider that a credit card deb is worst than a car loan deb from the banks point of view?.

    • Hi Pedro, this is a hard question to answer because car loans are seen as secured debts and those loans are viewed as installment loans. This means they are viewed a little differently on your credit report than a credit card debt, which is considered an unsecured debt. Having a history of on-time payments for an installment loan could be a good thing for your credit score, but I’m not sure how much difference it would make in one year. I don’t think the balance transfer (to pay off the car loan) would hurt your score, but I can’t say for sure if your score would be lower or higher if you choose one option or the other.

    • someone_stole_my_username

      Your credit mix only accounts for 10% of your score. That being said, it will depend on the creditor. Some see debt as debt. Others, especially ones that can sell you their portfolio of services, will give more weight to a more varied mix.

  • David

    Nice article, thanks.

  • Nikki Smith Forshey

    i have a question .my husband and i were told a few months ago that our credit score wasnt high enough to qualify for a mortgage loan, but if we kept making payments on our new truck on time that our credit would go up after paying a years worth of payments. that year is coming up and i just need to know how long after the payment is made will it take our credit score to go up?

    • Hi Nikki, I don’t think it is a hard fast rule (i.e. your score goes up after exactly one year). In general, as you continue making on-time payments your score will continue to increase. If you’re ready to get a mortgage, you may want to apply again and see if you’re approved. Or you can use one of the online tools to see your credit score for free.

  • Joseph

    You are fined before you commit the crime! The gov does not require constututional due process by big business. Just pay every penny of that bill a week in advance and shut up!

  • Eric Medina

    My car payment is $259 a month If I increase my payment by at least $100 will it help my score rise?

    • Hi Eric, as long as you are paying the agreed upon amount every month, it will help your credit score. Paying $100 more per month does not necessarily help your credit score, but you can always do it in order to get out of debt faster. Hope that helps!

  • Karol Montoya

    I have paid 21 months of my car payment but I want to return it to the financial insitution, how bad will this affect my credit? And around how much ha these 21 payments helped it? If it has any.

    • Hi Karol, that depends on whether it is a lease or a purchase. If you purchased the car and are not able to continue making payments then that will hurt your credit because it will be marked as an account not paid in full on your credit report. However, if you work out an arrangement with the dealer or lender to return the car (known as a “voluntary repossession”) then you might be able to avoid some of that damage to your credit. You could even ask them to refrain from reporting it to the credit bureaus. Also, remember that even if your credit score takes a hit, you can still work to improve it in the future. Over time, it will bounce back.

  • Pablo Olvera

    Hi, so I’m debating on what steps to take to help my credit score and save a few bucks in the process. I have an auto loan and have been making payments for close to a year now. I have extra cash in my savings so I could pay off the loan now and not have to worry about paying any interest. Would that be a smart choice or should I keep making payments on it?

    • Hi Pablo, the auto loan definitely plays a role in determining your credit score. If you make all the payments on time as agreed in the contract it will look very good and have a positive impact on your credit score. In terms of paying it off early, I’m not sure how much that would change its impact. If anything, it might not have quite the same impact. But I’d recommend doing a little more research to find out for sure. Here’s one article that might be helpful:

  • Kris

    I have a question. My husband and I can no longer afford the car we purchased almost a year ago, if we returned the vehicle to the dealership, how bad out how much will or credit score drop? We’re very stressed on trying to come up with money to make the payment. Any advice please!

    • Hi Kris, I’m sorry to hear about this situation. It must be very frustrating. I can’t say exactly how much it would hurt your credit score because it depends in part on how the dealership/lender responds. I would suggest calling the lender and asking them about your options. They may be able to help find a solution that works for you and them.

    • Tj Martins

      Hey Kris, I was new to this country and co-signed for a friend. I lost my job shortly after (recession), and my friend decided not to make a single payment on the car. I got stressed over all that was going on and decided to declare the location of the car and had it repossesed. I thought it was the right thing to do. Six years later I am still regretting that decision. It placed me with $28000 in debt for a car that I never drove. After years of sacrifice, a judgement, and lots of payments, I finally sent the last check of $7000 to the credit union from which the money was borrowed. My FICO score is now 712. I never missed a single bill or was ever late on anything else since I move to this country. I wish that I had suffered and paid the car notes with my unemployment. As much as you can, make repossession a final decision. Trust me.

      • Hi TJ, wow, that sounds like a very frustrating experience. Sorry you had to go through that! But it’s impressive you were able to come through it so well – congrats on persevering! I was actually thinking this would make a very interesting “1st person” blog post. If you’re interested in discussing it, please reply to this message and I’ll follow up with you. Thanks!

  • Dee Julian

    I recently paid off an $18K auto loan early and got pre approved to buy another vehicle from the same financial institution at a much better interest rate. I purchased another vehicle for $28K with that new loan. Before I started all this my score was 810 based on my great credit history. While I still have no credit card debt I now have a much larger car loan debt. What do you think will happen to my score?

    • Hi Dee, your score might go down slightly but I don’t think it would affect it too much. However, I don’t know for sure – let us know how it goes!

  • someone_stole_my_username

    For everyone asking about returning a car to the dealership, you cant do that. You dont own the car, the finance company does.

    All the dealership will do is offer to buy it from you. If you owe 10k and the dealership offers you 6k, you still owe the finance company the remaining balance. Your payments will continue, the only difference is you no longer have a car. Your other option is to sell it privately. You’ll get more money than you would from a dealer, but i can almost guarantee, not enough to pay off your loan.

    The catch, is as soon as the finance company finds out you sold it, the entire remaining amount becomes immediately due. Not paying that remaining balance puts you in the same situation as a repossesion. Legally, in most states, the vehicle can be, and will be, repossed from the new owner. You have just placed yourself in a huge financial crisis. You now have a repossesion on your credit, you owe additional fees for the towing and whatnot., and you owe the buyer their money back. If you gave that money to the finance company, be ready to be sued because the finance company isnt giving it back.

    Because of this fact, many people end up trading the car in instead for something cheaper. They are then put severely underwater with a longer term loan in order to keep the payment cheap enough for them to afford. Having worked at a dealership, chase auto, and hsbc auto, I’ve seen it plenty of times. People trading in a 20k car for a 10k car and owing 16k out the door with a 72 month payment. All they did was go from a $400/mo to a $300/mo payment.

    Now, there are going to be people that say I’m wrong and they were able to turn their car into the dealership. That’s called surrendering the vehicle. It needs to be set up with the finance company before hand, and you dont have to drop it at a dealership. They will come pick it up. It’s no different from a repossesion because it is still a repossesion. No matter what you do, you will still take the hit to your credit and it will remain on your report for 7 years.

    If you cant afford your car payment reach out to your finance company. There are programs to get you back on track, refinance, or lower your payments whether its temporary or permanently. When you qualify for these programs will depend on the bank. Some are available immediately, others, not until you’ve been in default for a certain amount of time. Either way, it’s better than having a repossesion on your credit.

    • Wow, very insightful comment! Thanks so much. Would you be interested in turning this into a blog post to be published on our blog here? I think our readers would enjoy it, and I could work with you to expand it into a blog post. Let me know!

      • someone_stole_my_username

        I know it’s been quite some time since I posted this, but feel free to use the information if you’d like.

    • SJLouisFinancial

      I’m a Debt Management Counselor and everything you said is on the money, great info!

  • Eric TL

    Hi, I have a question. I got an auto loan from my credit union for 10k and bought a car. i made payments for about 6 months when i got into an accident that totalled the car (not my fault). Basically my insurance paid the loan off, and i was wondering how that will play on my credit. Will my score go up or down? Will i be able to be approved for more on the next go around since the debt was paid so quickly? Thanks

    • Hi Eric, that’s a very specific question that I unfortunately don’t have an answer to. I would imagine your score would not be much affected by this – but I could be wrong. Maybe come back and let us know once you find out!

  • David

    Been wondering about something. Do timely payments on a plain old signature loan from my bank carry as much weight on my credit report as a payments on a car loan? I drive a take-home company car, so I have no need for the added expense of a car payment. But, to give my credit a small boost, I’m considering just borrowing, say, $5000 from my bank. The loan proceeds will be deposited into my savings, then used to pay the loan back in a year or so. The interest will be paid out of my own pocket. Will this have as much of an impact as a car loan?

    • Hi David, there are many factors that affect your credit report and credit score, and not all of them have to do with your behavior. Some of them have to do with the type of loan you are applying for. For example, certain factors may be weighed more heavily if you’re applying for a home loan versus a car loan. Perhaps the important question here is: are you looking to improve your score for a specific reason? If so, that will determine your best course of action. (Also, take a look at this blog post: )

      • David

        Thank you for your reply. Allow me to clarify my original question:

        Let’s say that I decide to borrow $5K from my bank, for a used car. I could just take out a 36-month general purpose loan and make the payments until the loan is fully paid. But instead, what if I ask the bank for an auto loan for those same 36 months, then pay it as agreed. Will the fact that the loan is called an auto loan have more of a positive impact on my credit report than a general purpose loan? Or are both types of loans considered installment loans?

        I hope to be able to buy a home within a year or so. I already have three credit cards, and I keep my utilization down to 3% on all of them, and pay them in full each month. One of the reasons for taking out a loan is to have a mix of credit.

        • Hi David, I wouldn’t assume that an auto loan would have a more positive impact than another type of loan. You are correct that having a mix of different credit accounts can help you (i.e. installment loans versus credit cards). Both the loans you mentioned would be considered installment loans, so it’s possible that they would affect your score similarly. Ultimately, it all depends on the specific scenario and on which credit score is ultimately pulled when you go to get your home loan. You might want to check out our credit score resource center: And let us know how the homebuying process goes for you!

  • david

    when i went to by a car all my loan inquiries were on same day,7 all together and they all counted against me

    • I’m sorry to hear that! They are only supposed to count as one inquiry all together. You should ask those lenders why they all counted separately and consider filing a complaint with the Consumer Financial Protection Bureau.

  • Nate

    I recently co-signed on a car for my friend. Between that day and the next, the dealer put 15 hard credit inquiries onto my report, dropping one of my scores 100pts. I’ve heard that hard inquiries over a 14-day period count as one but how long does it take for this to register? It’s been a month and Credit Karma says it’s updated but everything still looks the same as the day it happened. Are they just slow to update? When the inquiries combine, will the score shoot back up? Also, if they don’t combine to one, what’s the best way to contact the Consumer Financial Protection Bureau to have them removed?

    I appreciate the help. Sorry for the all the questions. Still new to this and I’m kinda freaking out about it.

    • Hi Nate, that’s definitely frustrating that they put 15 hard credit inquiries on your report. It certainly shouldn’t be that way for one loan. Have you talked to the dealer and asked them to fix it? That would be the first step. And then you can go the credit bureau(s) and the CFPB. The link for submitting a complaint to the CFPB is: Good luck, and let us know how it goes!

      • P.S. Nate, I think it would be great to write a blog post about your experience – if you’re interested can you please let me know? Thanks!

  • B rain

    If I turned a car in because I cannot make payments anymore and its upside down. How long does that affect your credit?

    • If your loan goes into default (or remains unpaid) then it will affect your credit. Usually a deragotry mark like this will stay on your credit report for about 7 years. To research this further, Google the term “derogatory credit mark.”

  • Mary Ann Balista-Jose

    My husband just lost his job and we are stuck with 2 car payments. We are thinking about having someone take over the car payment for one car. Would it look bad on our credit report if we do the loan transfer? How does that affect our credit score?

    • Hi Mary, if you sell the car and someone buys your car and pays off your loan, then it wouldn’t hurt your credit. However, if you simply make a private arrangement with another person to make your payments for you, then you are at risk of any mistakes or negligence by the other person. In that case, if they fail to make a payment it would hurt your credit because as far as the lender knows it is still your loan with your name on it. Let us know if you have further questions.

      • Mary Ann Balista-Jose

        Thank you Benjamin!

  • Bre

    Hi, I recently financed a new car and realized it lower my credit score. I believe it took off 15 or more points. I haven’t missed a payment or anything, its newer loan. I’m wondering why this happened.

    • Hi Bre, I can’t say for sure, but it may have been because of the credit check that the lender performed. If you research the term “credit check” you will find out more about this.

  • Tj Martins

    Very informative discussion.

  • zeet

    Hi. I purchased a vehicle last year and because my credit was low the interest rate was high. I have made timely payments for the past year and my credit has jumped up. I want to reduce my interest by refinancing. What should I do?

  • Espinoza Carlos

    How much does my credit score goes down if I let a dealer check my score, I was gonna get a use car out of a scion Toyota dealer ship but I didn’t after all?

  • Toy Boy Jenkins

    Hello Benjamin if you are still around. I have a question my car was stolen recovered two days later, was totaled. I had insurance and received a settlement check, but I am dealing with a financing company and the settlement amount is greater then the payoff, I haven’t payed on the car because I’m not paying on a car I don’t have, my credit score did drop, my question is when the finance company reactive the payoff amount and the account will be closed will my credit score go back up.?

    • Hi, sorry to hear about your car getting stolen (and totaled). That must be very frustrating! If I’m understanding correctly, you’re wondering if your credit score will go back up once the lender receives the money you sent them to pay off the loan? I think there’s a good chance it will. However, to be sure I’d recommend calling the lender and verifying that they will remove that mark from your credit report once the loan is paid in full.

      • Toy Boy Jenkins

        I did they said they wouldn’t have that information, but once it is paid in full it will be reported to my credit report as closed on the 15th so I hope so. thank you Benjamin it sucks but I will get another one hopefully they refinance me.

  • KEB2009

    how much weight is put in to a decision for a new loan when i have an existing car loan that will soon be paid off? i’d like to get approved prior to selling my car, but i don’t want the current loan to hinder getting a better rate for the new car.


    • That’s an interesting question. I don’t think the current loan would hurt your credit score, but it’s possible that paying off the loan would help increase your score a little bit. You might want to do more research at our Credit Score Resource Center:

  • Yulia

    Hello 🙂 I have a question. I’ve bought the car from carmax 1 year and 2 months ago. Paid every payment on time. Got in the accident 2 weeks ago, not my fault. My insurance company count the car in total. They’ve paid the amount, that I owe to carmax. So my debt for the car is paid in full. How do this situation will effect my credit score? It will go up or down, and for how many points? 🙂 thank you:)

    • Hi Yulia, it’s very difficult to know exactly what impact this will have on your credit score. Over the long run, paying off debt accounts is usually good for your score. However, since this was an installment loan and it was paid early, there may be some negative aspect to that. However, I couldn’t say for sure. Best of luck, no matter what happens!

      • Yulia

        Thank you so much for your information 🙂

  • Dan

    If a dealer pays off your car and you get a new loan for a new car does your credit score go up? Since one loan is payed off?

    • Hi Dan, that’s a good question. It might help your score, but you will also have a brand new loan on your report, so it is hard to say with certainty what would happen to your score. It will depend on a lot of factors! However, in the long run if you make on-time payments and continue paying off the loans, that will help your score.

  • missy lee

    my friend has a lexus and can no longer afford the payments,if he turn it in will it be counted against him as far as credit?

    • Hi Missy, yes, if he stops making payments it will be counted as an unpaid account on his credit report, which will reduce his credit score. Even if he turns in the car, the lender will still expect him to pay the outstanding balance on the loan (minus the value of the car). I hope that answers your question!

  • nondimwit

    Right now I could pay for a car outright but I would like to increase my credit score. If I buy a 15,000 car and put 14,000 dollars down on it, making it a 1,000 dollar loan that I pay off over 12 months, will this still be counted as an official car loan and increase my score?

    • Yes, I believe so. Since it’s a loan for a car, it should still be counted just like other car loans. However, since I have never done this before, I can’t say for sure. I would recommend doing a little more research before making any decisions on this.

      • nondimwit

        Thank you.

    • Shrubsrock

      Most lenders won’t finance less than 20% of the purchase price. Some require a minimum amount financed instead of a percent. No bigs in your case, just put down the max they allow, put the rest in a savings account that allows a few withdraws a month, automatic payments for the duration and BOOM! Awesome credit.

      Also, try to find out when the brand’s finance guy is there. With a large down payment the actual financial liaison can work out financing through the brand’s bank. This will mean a way better interest rate (think GMAC at 5% over usurious Chase at 19%). I don’t know why it matters if the person is physically there, but it saved my mom like 12% APR when she had $10k down. They just like you better and are more likely to take a chance on no credit. Might as well save the bucks where you can. 🙂

      • nondimwit

        Thanks for the answer this all makes sense except the part about the brand’s finance guy – are you saying if I am looking at buying an Infiniti G35 then I should wait until a rep from Infiniti shows up?

  • anubis1806

    Question for Benjamin feldman ..I recently buy a car thru a financial loan …The car is mess up …so the dealer offer me to give me a refund on my down payment …If i accept this , do I’ll have problems purchasing other vehicle right away from other place ? …thanks for ur answer ….

    • Hi there, I’m not sure I can answer this question without knowing the details of the situation. For example, did the lender cancel your loan? Or just return the down payment? If you still have a loan in your name for the vehicle, then that will affect your ability to apply for financing elsewhere.

      • anubis1806

        Thanks for answering so quick and the dealer is going to take care of canceling my purchased with the financing place and the dealer in self offer me to give me my full down payment , because there was way too many problems with the vehicle , so I just need to know if I apply on the same day after they cancel my loan or whatever , I be able to apply for other loan elsewhere ? …thanks again …

        • Hi, yeah, if the loan is being canceled entirely then I don’t see why it should hurt your credit. But it will depend on the individual lender. Good luck to you!

          • anubis1806

            Thank u very much …u was very helpful ….

          • You’re very welcome!

  • Mystee

    We had to sell our truck in order to purchase our new home, we are set to close on the new house in two weeks, can I go ahead and purchase a new car? How soon will it show on my credit?? Or should I just wait two more weeks till we close on our house before buying a new vehicle ??

    • Genuinekenn

      Definitely wait until you close. For any reason (god forbid) something may come up and push back your closing date. If you’re already purchased a new car, that new debt may show up and inadvertently affect your loan. Wait the two weeks. Be safe, not sorry. The day you close, go the the car lot.

  • jean

    Hi Benjamin I currently have a 2008 Pontiac g6 gt, the car it’s on my name and my ex gf’s name’s, I have 1 year and half left to pay the car I don’t want the car at all. so my question is even if I finish paying my car off can I sell it or trade with her name on the title? if I return the car to the financial company will my and her credit go down a lot?

    • Hi Jean, that is an interesting question. To be honest, I don’t know the answer. I would imagine that if you make the payments you should be able to get the car in your name. However, what I’d recommend is researching the “transfer of car title” issue a little more and try to find a definitive answer before proceeding. Hope that helps!

    • Jocelyn Madrigal

      Does the title say (“John” AND “Jane”) or does it say (“John OR “Jane”)? If it says “or” then you can sell the vehicle. The or means that the vehicle belongs to either you or your ex, so you don’t need her approval to sell the vehicle. But if the title says and then you need her approval to sell the vehicle. That’s what I got told in July when I bought my vehicle from the dealership.

  • ivy

    I recently purchased a car by trading in my used car they said they would pay off my loan for that car. Does this affect my ceedit ?….I also have a bit of a problem when I purchased my new car ny aunt signed as a cosigner come to be she wasput down as the main buyer and not cosigner. What can I do to be responsible for the payments and help out my credit without affecting her in any way. Any info would be nice to know pslease thanks. Is it as jst easy calling the back and explaining the misunderstanding ? (Which I doubt 🙁 ]

    • Hi Ivy, if the dealer indeed paid off the loan for your old car in full, then that can only help your credit (it would be marked as paid in full).

      As for your new loan, if there was an error on the documentation then you should definitely try to get it corrected. However, keep in mind even if your aunt is a cosigner, your payment status will affect her credit. In other words, if you miss some payments it will hurt her credit. This is the tough part about cosigning a loan. Best of luck!

    • someone_stole_my_username

      Your credit wasn’t affected by the trade in. As for the signer/co-signer deal. It doesn’t matter to the finance company or your credit. You’re both equally responsible. The only reason it matters is for registering the car, showing ownership or using it as collateral. You both will always have a claim to the vehicle. If it really bothers you, you’ll have to refinance the loan and you have to qualify as the buyer. Doesn’t really make sense to take a hit on your credit to change the order of names on the registration. Now, in maybe a year, it makes sense to try to refinance for a lower rate and to possibly remove her totally.

  • Lucy

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  • Gigi Comeback Kidd Compton

    Hi. I did a voluntary repossession on my car. The finance company now has it. Before I let them pick it up, I was able to secure a new loan on a newer car. Can you tell me how this will affect my credit? For instance, will the new loan offset the repossession?

    • Hi, my understanding is that the new loan will have a separate impact on your credit. Which means the repossession will still have a negative impact – it will be shown as a loan that’s not been paid in full. It’s hard to tell exactly how much this would hurt your credit, but you can take a look at your credit reports here: Good luck!

  • kanwal

    I bought a used car for 15,500 through financing it with dealership. 2 months and 7 days later i “trade” it in with the same dealership for a newer model car. The trade in value was 11k. I bought a 29k car with $5333 down. What is happening here? What happened to the difference of almost 6K (including the tax admin fee and others) for the former car? I had paid 3K towards it as down payment and paid 800 for the 2 months towards the monthly car payment so basically, 3,800 was paid back towards the first loan at trade in of the same. What is happening here regarding my credit score? will it take a ding? Did they absorb the rest in the newer car loans?

    • Hi Kanwal, it sounds like you have two questions – the first is about the difference in price from what you paid the dealer and what they paid you (for the same car) and the second question is about your credit score. I’ll try to answer both.

      It sounds like you experienced the first rule of car dealerships: they will always find a way to make more money. When you bought your car from them, they made the price as high as they could. And when you sold your car to them (via trade in) they made the price as low as they could. That’s why you lost $6,000 in just two months ($15,500 minus $11,000, plus tax and fees). I would imagine the difference was rolled into your new car loan.

      To answer your second question, this should not hurt your credit score as long as you continue to make on-time payments. Generally, your credit score improves when you make on-time payments and is damaged when you are more than 30 days late on a payment.

      Hope that helps, and good luck!

    • someone_stole_my_username

      Ben nailed it. It’s depreciation, one of the reasons why used cars make more fiscal sense. The difference was rolled into your new loan.

      The dealerships, however aren’t always gonna try to screw you. My wife owns an ’03 Honda accord. When the gas prices shot through the roof, my wife took her car in for an oil change. The dealership couldn’t believe her 6 year old car only had 23,000 miles on it, in addition to it looking like it was fresh off the showroom floor. They offered her $17,000 on the spot for it because they were running out of accords to sell. She bought it for 19k, 6 years prior. It just depends on the market and demand.

  • Cari

    I have two years left on my 3-yr leased car. Always paid on time. If I sell back the car to the dealer
    and pay any remaining balances, how will this affect my credit rating? Also, would this still be considered “early termination” & subject me to any penalties? Thx.

    • Hi Cari, this shouldn’t hurt your credit in the long run since your account will be shown as paid in full. It’s possible there could be a very minor dip in your credit score if factors like “age of accounts” and “credit mix” are affected by selling the car back. However, I wouldn’t expect any major impact to your score.

      As for the early termination penalties, that’s not something I know the answer to. You’d have to ask your lender what they are in your case. Good luck!

      • Cari

        Thank you so much for your reply, Benjamin.

  • Felicia

    I know this was from a while ago, but hopefully someone might be able to answer my question. I just recently got a new car. Prior to getting accepted for my loan, I had literally zero credit history. The only reason the bank accepted my loan was because the loan manager (I think was his title) from the dealer told the bank that they work closely with that I was his cousin. I have paid three car payments (well ahead of the due date)so far. Do you think my credit has improved with just these three payments? I would like to improve my credit score as quick as I can and was hoping with these few car payments, I might be able to qualify for a low-limit credit card of some sort. My fiance and I will be looking into homes this summer, and I want my credit to be decent enough to have my name on the home as well as his. Unfortunately, I’m a little late jumping onto this credit train! Thanks for taking the time to read!

    • Hi Felicia, good question! I think your credit is probably improving a little bit already. I would recommend you go to and check your credit report to make sure payments are being reported as on time. Then, you can start looking into how to improve your credit score. I’ll post some links below to help you get started:

    • someone_stole_my_username

      Your score will jump up pretty quickly, but think of it as a hollow score. Back when I bought my first car, same situation as yours, I was offered an AMEX gold card at the age of 19 and only 9 mos of car payments on my credit. Back then the economy was booming and it was easy to get credit. Not so much now. All you have is the auto loan. With a credit file that thin, applying for most major credit cards will get you a decline letter citing lack of history. You can get store credit cards and gas cards for a quick boost, but the interest rates are outrageous. I recommend you get a Capital One secured Visa. Depending on your score and credit history, between $49-200 will give you a $200 credit limit. You’ll get 2 months to pay the down payment and you can send in additional amounts over time to raise the limit up to 3k. After about 10 or so months of good history, you will be basically guaranteed approval for a regular card like the Quicksilver One. Everyone else is just a shot in the dark unless youre a student.

  • Cody

    Its now December and in about march we will be ready to buy a house with our tax return as a down payment. Would buying a used truck that’s $15000 now ruin our chance in getting a house in a few months?

    • someone_stole_my_username

      It won’t ruin your chances, but creditors tend to look at additional debt, especially fairly new debt as possibly keeping you from making your payments to them over others if you get into a financial bind. Example: the mortgage is almost always the first bill to get paid while things like credit cards fall behind. However, you have to have a way to get to work in order to make money to pay those bills. Your car payment just took precedence over your mortgage, especially since a foreclosure could take about 6 months. You will pay your car payment whenever possible before your mortgage. That $300/mo payment means 300 less the mortgage company can potentially have applied to your mortgage. The computer might give you a thumbs up credit-score/report-wise, but the funder may put the brakes on it. As long as you can show the mortgage company you can pay all your bills for 6 months with no income, you should have no problem.

  • Leonor Enriquez

    Does a down payment go towards your total price of a car?

    If I buy a 16,000 car, and give 5,000 as a down payment, do I owe 11,000?

    • someone_stole_my_username

      Yes to the down payment going towards the price of the car, no to the total owed. You’re not factoring taxes, doc and license fees, or interest. In California, a 16k car comes out to about 17,500 after taxes and fees. Depending on the interest rate, if you put 5k down and pay it off within the first 30 days, your payoff balance would be between 12,500 and 13,000. If you take the full term to pay it, depending on your interest rate (0-24%), and length of your loan (24-80 mos.), your total owed would be between 12,500 and 25,000 respectively.

  • kioshi s

    I recently bought a car with a loan. the dealer told me if I wasn’t satisfied I could return it in 3days. I found same model with less miles cheaper then what I have at another dealership. if I return my car will it affect my credit?

  • Ted

    I have a question too Iam thinking about selling my car to carmax and they will give me around 18500 for my car and I will get a personal loan out to pay the difference which is around 6k so I don’t have to get the car reposed is this a good idea if I just can’t afford to keep paying for my crazy car payment ?

  • Kristen

    Does it make a difference on you’re credit report when getting an auto loan through a credit union vs getting an auto loan through a dealership? I was told by a friend that getting an auto loan through a credit union does not help your credit score whatsoever.

  • monique

    Okay iam stressing out i bought a 2012 car just a few months ago 8 to be exact i gave a big down payment well just last month I was involved in an accident the vehicle that hit me ran the stop sign cops showed up i got the report and so did my insurance . It clearly stated it was his fault .My insurance is paying off my car to the finance place and they will give me the difference from the amount i owed. My question is does my down payment count towards the amount i owe? Will i be getting any of it back?

    • monique

      Oooh and adding to this my car was deemed a total loss and im stuck with no car now

  • Zach Chadwick

    I’m so excited! I recently got a 2014 Chevy Sonic, with my uncle as a Co-signer. My credit score wasn’t so good. Haha. 8 days after my birthday I got it. Anyways, the finance manager at the Chevrolet dealership said that it’s good to have credit from a variety of sources like your bank, and auto loans, or any other credit company. He said that if I pay my credit card on time, lower the utilization, and pay my car payment each month on time, that my credit should go up between 30-40 points each month alone because I have nothing else going against me. I’m so excited to see my credit score going up!

    • Jasmine

      Did your credit score go up?

  • Lucy Bik

    I co signed a used car loan for my son to help him with his credit. He had a personal loan with the same credit union that I knew about but did not know was going to be attached to the car loan as collateral. I got a phone call from a repo guy last night stating that he defaulted on the personal loan and they were looking for the car. I went today and tried to pay off the personal loan with no info as they can not tell me the amount (I do know it is under 3,000). I had to also pay a repo fee of $450. If I pay off the personal loan and the auto loan, can I have them remove this from my credit report? YES- I am now in possession of the auto. I am stupid but not THAT stupid. Thanks in advance!

  • Ra Ra C

    Quick question. My credit score was 524. I bought a used car in hopes to bring up my credit score. I don’t qualify for a regular credit card so I was thinking of using my next paycheck to get a secured c.c. and using that to pay my monthly car note. My thinking behind this is that I will double dip my on time payments with two different types of debt. Does this make sense to anyone else?

  • trixietimez

    I disagree… It WILL hurt your credit score when you buy a new car, if your lender scatters your loan app to several different lenders at once. Just bought a car, and got at least 8 letters from lenders they’d shopped that day. AND… my credit report now shows negative information about “too many inquiries” Nothing else had changed, oh and my score dropped from 705 to 688 because of it. It’s a myth that the credit bureaus treat it like one inquiry.

    Anyone else tired of their entire life being dictated by faceless corporations that SELL your personal credit information, yet you are not privy to how they compile it? They’ve now created insurance, medical, and renter, products that further marginalize people. I miss the old days…


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  • Lori Davis Dawson

    How much would a voluntary repossession hurt your credit score? How many points are we talking?

  • Jason Taylor

    I have finished paying for truck. Have late charges left. Can finance Co keep reporting late charges to credit bureau?

  • piapiabee

    Not sure how to phrase this as a Google search so I’m asking here. I jumped the gun a bit on an upcoming car purchase. I was approved for the loan but am waitlisted indefinitely for the car. If I run out the 60-day time limit on the loan offer, how will another loan application affect my credit? What if I apply for a larger amount the second time?

  • Lisa Langston

    I bought a car and have about $10,000 left to pay on it. The car is in my name only. I was thinking about selling the car to my husband to get the loan off of my credit report in hopes of increasing my credit score (my husband has a different last name, but we live in the same home). I’ve had the car for about 3years and have made on time payments (only about 4 late payments that occurred in the 1st year). Will selling my car to my husband to essentially have it reflected on my credit report that I no longer have the car debt, increase my credit score?

  • Thomas Nguyen

    Question I have a car loan balance of 23k over 5 years. If I decided to one day put 15k of my money towards the loan,would that affect my credit score at all? Also would I be able to refinance for 8k over 5 years?

  • Lets be honest for a moment, the credit industry is corrupt, if you apply for credit your score drops, if you open a new line your score drops, when your score drops banks charge you higher interest rates, your penalized at a higher rate than you are rewarded for paying your bills on time, that is corruption and it really should stop. The real problem is we have a congress that will not take steps to protect consumers because they receive large cash donations to their election campaigns, that is dishonest but it happens everywhere you look in Washington.

  • Jennifer

    My car was totaled and the insurance company paid off my auto loan. It was a 5 year loan paid off in about 3 years, I have no missed/late payments. How long do I have to wait until it shows up on my credit as closed and increase my score?

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