*Loan,banking and credit>>>auto loan

Auto loan pay-off , please help.......I owe $18,735 in auto loan for 60 months(5years term)?

I want to slice the principal amount owed by making a cash payment of $15000 in the first month of the loan, then i will re-finance the remaining $3,735 for the remaining duration of the loan term.......... Will this move affect my credit history negatively?

Before you make the $15k payment, read your loan agreement and call the finance company so that you get clear on the following points:

What is the prepayment penalty, if any? Will paying $15k early cause a penalty? Will refinancing the loan with the same lender cause a penalty? Will refinancing the loan with a different lender cause a penalty? How much will the prepayment penalty be? Any prepayment penalty should figure into your re-financing decision, along with the origination fee of the refinancing loan. Do NOT pay "interest payment insurance" on the new loan, if you choose that option. After you weigh these extra costs, it MIGHT be cheaper just to stay with your current loan.

Second, ask, what happens to your NEXT month's payment after you pay the $15k? That is: Do you get a number of months off until you have to make a standard size payment (<--- Don't choose this if you can help it)? Or, Do you pay the next month at the usual amount and then pay the loan off months early, and get a rebate of the originally projected amount of interest? (Better).

Third, a refinancing will cause a hard inquiry of your credit history. It will cost you somewhere between 0 and 10 FICO credit score points. If you shop around for the best refi interest rate, all such applications will cause a hard inquiry, BUT, in your favor, the Credit Reporting Agencies will consider them all one hard inquiry if these refi inquiries are all within a 30-day period of time. Hard inquiries are 10% of your FICO score. The inquiry will stay on your report for up to 2 years, but its negative effect will diminish over time. Source(s): Life experience and reading much expert advice online.
http://www.myfico.com/crediteducation/wh...
http://www.myfico.com/crediteducation/cr...

Making a bulk payment this early in the loan will probably not help or hurt your credit. Although it also depends on the rest of your report how much effect it could have. It takes at least 6 months of payments to have any major effect on your score, anything less it is still too new. It will be very hard to get a 3,735 dollar loan for 60 months. A lot of auto loans have minimum amounts for specific terms. You will probably get a 1 or 2 year loan at most.

It is probably better to not refinance the loan but keep your current one. Since you technically paid ahead of time you should not have to make the standard payment, but a reduced amount to balance out for the 60 months. You should call your finance company and ask what happens in that case.
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