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 Paying off personal loan early - credit score impa
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Regular Contributor

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Posted - 27 March 2021 :  08:58:42  Show Profile  Reply with Quote
Hi all,

I am 18 months into a 60 month personal loan obtained to purchase a car in late 2019. I have now traded the car in and am looking to pay off the personal loan. The loan carried quite a hefty interest charge but I accepted this as a consequence of my credit history. If I paid off the personal loan early, Iíd be saving roughly £1000 in interest charges however Iíve been advised this is likely to impact my credit score. I regularly monitor this on Experian and have managed to build it up and will be looking to obtain a mortgage in the not too distant future.

I was under the initial impression that having less debt would strengthen my ability to access credit and better rates however Iíve been told otherwise.

My question is, is this worth doing? Or should I hold it out and stick to the terms of the initial loan period?

Thanks in advance for your help.

Best regards,


TDA (Debt Adviser)
Trust Deed Expert

13705 Posts

Posted - 28 March 2021 :  12:28:16  Show Profile  Reply with Quote
Hi pinlessg.

I think it's important to remember that your credit score isn't really a very useful "thing". Credit reference agencies are estimating how a lender might judge your credit status, but in reality actual lenders don't use this score and will all have different ways of assessing people who are applying for credit.

From a real-world perspective, someone who has been able to repay a loan early would appear to be a more profitable credit risk than someone who hasn't? Certainly to a mainstream lender I'd have thought, but perhaps not to a sub-prime credit card provider that makes their profits from people who keep a running balance on their card rather than clearing it each month.

It's also worth remembering that the fewer commitments you have the more a mortgage lender may assess that you can afford to borrow.

The real key point here is saving that £1,000 though isn't it? Why give a firm £1,000 of your hard-earned cash when you could hold onto it?

Qualified Debt Adviser & Forum Administrator - Ask me anything about Trust Deeds    
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Regular Contributor

16 Posts

Posted - 12 April 2021 :  12:29:02  Show Profile  Reply with Quote

Thatís great thanks very much. I didnít take into account how many other factors theyíd consider when assessing borrowing potential. Yes, the £1000 made a big difference to it and no point in seeing that go to waste.

Thanks again,


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