Can I Pay My Self Loan Off Early?

Hand holding a phone with the Self app on it

By Lauren Bringle, AFC®

If you’re wondering, “Can I pay my Self loan off early?” the short answer is yes. But there are a few things to consider first.

What happens if I pay Self off early?

While you can pay off your Self Credit Builder Account early, you don’t have to pay it off early to get your money back. If you need the money sooner than the end of your loan, you can cancel your account instead.

Here’s what happens if you do pay your Self loan off early:

  • After paying off your account, you’ll need to login here and follow the prompts to start your payout process. Otherwise, the money will be held until the original end date.
  • You’ll get the money you paid back, minus the interest you already paid on the loan and the nonrefundable administrative fee you paid to open the account. Learn more about your Self Credit Builder Account payout.
  • Your account will be reported as closed – paid as agreed – to the credit bureaus. Since we report to the credit bureaus the first week of each month, depending on when you pay off your account, when we report, and when the credit bureaus update your information, it could take anywhere from a few weeks to a few months to show up on your report.
Let’s look at an example:

Say you sign up for a Self loan with a 12 month term that ends in December, but you pay it off 6 months early. If you pay off the account in June, but don’t take the extra step to close it, your payout won’t start processing until the original 12 month end-date in December.[3]

That’s a long time to wait if you want your money sooner, so be sure to take action (or don’t) in a way that aligns with when you want your money back.

Learn how your Self payout options can impact when you get your money.

Why not to pay your Self loan off early

Sometimes it may make sense to pay off a loan early. Other times, it may get in the way of your financial goals.

At Self, we want to help you build your credit so you can build your dreams. Part of doing that means building positive credit habits that will serve you for years – if not decades – into the future.

Positive credit habits include things like making your payments on time, every time, over time, to prove to lenders that you’re a responsible borrower who pays back what you owe.[1] That’s one reason you should be wary of “quick fix” credit hacks that promise to deliver immediate results.

For example...

Some people believe that paying off your Self Credit Builder Account faster, or paying a higher dollar amount each month, helps you build credit faster. But that’s not necessarily true. Sometimes, paying off your Self account early could potentially hurt your credit.

Here are a few reasons you may not want to pay off your Credit Builder Account early:

1 - You shorten the average age of your credit accounts

Your length of credit history, which includes the average age of your credit accounts, is a major factor in your credit score. By paying off your Self loan early, you limit the length of credit history that gets added to your credit report.

For example:

I once saw someone open a Credit Builder Account, pay it off almost immediately, then open another Credit Builder Account right after. They did this multiple times in a row, hoping to increase the credit limit on their Self Visa® Credit Card faster.

Instead, their credit score went down.

Instead of having a one- or two-year loan on their credit report, they had multiple short-term loans of three months or less that shrank the length of their average credit account history.

2 - You no longer get credit reporting on that account

Since we only report account activity, once your Credit Builder Account is closed, we will no longer report monthly activity to the credit bureaus. Instead, we will report your account as closed, paid as agreed.

While fulfilling the terms of your loan agreement with Self adds positive history to your credit report, paying the full length of the loan adds more credit history than when you pay it off early.

Have the Self credit card but paying off your Credit Builder Account early? Don’t worry, as long as your card is open, we’ll continue to report your usage to the credit bureaus after your Credit Builder Account ends.

Learn more about how credit reporting works at Self.

3 - You limit the amount of payment history you can build with Self

Payment history is worth 35% of your FICO credit score, making it the biggest of the major factors that impact your credit.[2]

If you pay off your Self account at 3 months instead of 12 months, for example, you miss out on 9 months of payment history you could build through Self.

4 - You may miss other opportunities to build credit with Self

If you close your account too soon, you may miss your chance to become eligible for the Self Visa Credit Card, get credit limit increases on that card, or access unsecured credit from Self later.

A credit card could help you build more credit by diversifying the types of credit you use (10% of your credit score)[2] and through responsibly managing your credit utilization.

To become eligible for the Self credit card, you need to:

  • Have an open Credit Builder Account
  • Make 3 monthly payments on time
  • Have $100 or more in savings progress (not including interest)
  • Have your account in good standing
If you close your account before making 3 monthly payments or reaching the minimum required savings progress, you miss the opportunity to access Self’s secured credit builder card.

Bottom line

Before paying your Self loan off early, understand the impact that action could have on your credit and whether it’s aligned with the goals you’re building towards first.

Check your savings progress and credit score, track your eligibility towards the credit card and more in the Self app. Get the app or login now.

Notes

  1. Self: How to Build Credit Guide
  2. FICO: Credit Scores
  3. Sample products: A loan with a $25 month payment, 24 month term with a $9 admin fee at a 15.92% Annual Percentage Rate with a finance charge of $89; A loan with a $35 month payment, 24 month term with a $9 admin fee at a 15.97% Annual Percentage Rate with a finance charge of $125; A loan with a $48 month payment, 12 month term with a $9 admin fee at a 15.65% Annual Percentage Rate with a finance charge of $46; A loan with a $150 month payment, 12 month term with a $9 admin fee at a 15.91% Annual Percentage Rate with a finance charge of $146. Please refer to www.self.inc/pricing for the most recent pricing options.

About the author

Lauren Bringle is an Accredited Financial Counselor® with Self Financial – a financial technology company with a mission to increase economic inclusion by helping people build credit and savings. Connect with her on Linkedin or Twitter.

All Credit Builder Accounts made by Lead Bank, Member FDIC, Equal Housing Lender, Sunrise Banks, N.A., Member FDIC, Equal Housing Lender or Atlantic Capital Bank, N.A., Member FDIC, Equal Housing Lender. Subject to ID Verification. Individual borrowers must be a U.S. Citizen or permanent resident and at least 18 years old. Valid bank account and Social Security Number are required. All loans are subject to ID verification and consumer report review and approval. Results are not guaranteed. Improvement in your credit score is dependent on your specific situation and financial behavior. Failure to make monthly minimum payments by the payment due date each month may result in delinquent payment reporting to credit bureaus, which may negatively impact your credit score. This product will not remove negative credit history from your credit report. All loans subject to approval. All Certificates of Deposit (CDs) are deposited in Lead Bank, Member FDIC, Sunrise Banks, N.A., Member FDIC or Atlantic Capital Bank, N.A., Member FDIC. The Self Visa® Credit Card is issued by Lead Bank, Member FDIC, Equal Housing Lender.

self logo
Written on June 1, 2021
Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@self.inc.

Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

Take control of your credit today.

Please enter a valid email.