Planning to purchase a house in about 6 months
Purchased a Yukon a year ago and have $850/monthly payment for 7 years total
I would need to get that payment down to $400 so I'm considering to re finance the car
I can pay the car off as well if have to about $40k now (ideally not). Or I can pay $20k towards it as well
What would hurt my credit less at this point?
I'm hearing that paying you auto loan off hurts your credit. Should I pay 20k towards it and refinance with the same people (GMC) or go to a different place?
Credit is around 680 (between 670 and 696)
If your auto loan is your only installment account in your credit file, then yes, it can cost you some FICO points to close it/pay it off. FICO likes to see you have at least one installment account open. If, however, you have more than one installment account (auto loans, mortgages, student loans, personal loans, etc) then it wouldn't hurt your score to pay this one off. So that all depends on the credit mix in your file.
As for refinancing, the main question is, can you get a better interest rate than you have now? Most auto lenders will *not* refinance their own loans, so you will have to look at alternate lenders and what rates are available from them vs. the rate you have now. You have six years left on your note, which means you won't get any extension benefit from refinancing - that is, you already still have 6 years' worth of payments to work through, so getting a new 5 or 6 year loan to refinance it won't increase the length of time you'll be paying, and so won't lower your payments significantly unless you can really cut down your interest rate.
Plowing some cash into the principal is probably the best plan - 10K or 20K would greatly lower your principal balance and thereby lower the total amount you'd need to refinance, so it would yield much lower payments while not extending the length of time you will have to pay them.
If you are looking at jumping into the real estate market in 6 months, have you spoken with a good mortgage broker yet? They should be able to give you solid advice on what to do about lowering your DTI (which I assume is the goal in seeking to lower your vehicle payments) and what affect any new loan contract or using any cash reserves (potential down payment on a mortgage) may have on your standing, mortgage-wise.
This is our only installment account on the credit file.
Yes the goal is to lower DTI by refinancing and paying off half of the loan like a 20k. That should not hurt our flexibility to still place a 20% downpayment towards the house
You are saying that GMC Financials (or others) would not refinance their own loan.
In that case by refinancing with another entity will that hurt the credit on how the old loan will be displayed?
I expect, that with 20k paying off towards the loan, and the car being just 1 year old with 7 years pre paid insurance of
The refinancing lender will pay off the original loan's balance.
That old loan will then report as "closed/paid." This can take up to 60 days, depending on the speed at which your current (old) lender updates their reporting.
If there are any late pays or anything in there, they will remain on your report until their 7-year reporing life is over (reporting life for negative items is 7ish years). I don't think you have any personally, but others looking for this information might.
That "closed/paid" loan will live on your reports for up to ten years. (Reporitng life for old trade lines is up to ten years after closure.)
The new loan will report "open" and your monthly payment history will continue on the new loan.
The only dings you'll get - and itheyll be temporary - is (a) if the old loan takes a while to report closed/paid (since it'll look like you're carrying two large loans) and (b) that when the new loan first reports, it may have a negative effect by a few points for "high balance" reporting. That is becase you will not have yet made any payments to lower the new loan's balance below its starting balance. After you make a few payments on the new loan, the "high balance" scoring effect will go away and your score will return to normal, since by then the old loan will certainly show closed/paid. This effect can happen with any new installment account, not just a refi on a car note; it will be more noticeable in your file since you have very little installment history (you'll have one closed/paid and one open/high balance reporting).