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Auto Refinance Scheme?

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olehammer
Frequent Contributor

Auto Refinance Scheme?

I currently have an auto loan at 11%. $1,600 remaing on original ~$13,000. Loan will be paid off in June '16.

So here's the scheme, looking to maximize my credit score for home purchase in 2017. I won't be in the market for a new car after paying this guy off as I plan on holding this one for at least another 50k miles barring any catastrophic mechanical problems. The car books around $6,000 right now. Does anyone have experience refinancing for above the current loan balance? Basically like a cash out home refi. I'd like to get maybe a 3 year refi for $4,000, pay it ahead and down to less than 10% util with the extra cash. That way I'd still have an AL on my report, low util on an installment loan and a much lower interest rate through my credit union. That's what I call a win-win-win!

Am I over thinking this? Is it possible? Am I Stone cold brilliant? Lol! Appreciate in advance any thoughts.


Message 1 of 8
7 REPLIES 7
jeffm4688
Frequent Contributor

Re: Auto Refinance Scheme?

I don't see why it wouldn't be possible, but something to keep in mind if you're looking for a home is, even though the loan is paid down it's monthly payment will still factor into your DTI for a mortgage. 

FICO 12/2015 - EX 692 TU 685

FICO 10/2021 - EX 596 TU 605 EQ 600 - officially rebuilding.

What survived:
Amex HH - 1.5K | Amex Delta - 1K | Amex Bonvoy - 1.5K | Amex BRG - 3.5K | Amex BRG - 3.5K | Amex Business Cash- 2K | Amex Business Plus - 2K
Message 2 of 8
Anonymous
Not applicable

Re: Auto Refinance Scheme?

Yes, I think its possible to refi and get cash out of it, in some circumstances.

 

The car needs to be ten years old at most, and under certain mileage limits (not sure, maybe 100k) and it probably depends on the rules from each lender.

 

I dont think they care if the check goes to you or to another person, such as if you bought a car from a private buyer.

 

It was years ago, but I had a vintage sports car and my local CU did a refi at a lower rate about six months after I bought it used from a car dealer.  I refinanced it with them twice after that, about 18 months apart, so I could buy more parts and repairs.  They would just issue a check to me after each refi.

 

So if your credit supports it and it meets age and mileage, I think you'll be Ok.

 

HTH

 

 ETA: I miss that car a lot, but not the expense.  Had to sell it in 2008 when times were rough for us.  

    

Message 3 of 8
DeeBee78
Valued Contributor

Re: Auto Refinance Scheme?


@olehammer wrote:
I currently have an auto loan at 11%. $1,600 remaing on original ~$13,000. Loan will be paid off in June '16.

So here's the scheme, looking to maximize my credit score for home purchase in 2017. I won't be in the market for a new car after paying this guy off as I plan on holding this one for at least another 50k miles barring any catastrophic mechanical problems. The car books around $6,000 right now. Does anyone have experience refinancing for above the current loan balance? Basically like a cash out home refi. I'd like to get maybe a 3 year refi for $4,000, pay it ahead and down to less than 10% util with the extra cash. That way I'd still have an AL on my report, low util on an installment loan and a much lower interest rate through my credit union. That's what I call a win-win-win!

Am I over thinking this? Is it possible? Am I Stone cold brilliant? Lol! Appreciate in advance any thoughts.


There is absolutely no benefit to doing this. Your auto loan will continue to report for 10 years after closure, helping your mix of accounts. 

Message 4 of 8
olehammer
Frequent Contributor

Re: Auto Refinance Scheme?

Thanks for the perspective @DeeBee78. My thought around the scheme is that there is a clear drop in score documented when people make their final auto loan payment. Most people on the boards report around a 15 point drop in the short term after an auto loan stops reporting as open.

Message 5 of 8
DeeBee78
Valued Contributor

Re: Auto Refinance Scheme?


@olehammer wrote:
@Anonymous for the perspective @DeeBee78. My thought around the scheme is that there is a clear drop in score documented when people make their final auto loan payment. Most people on the boards report around a 15 point drop in the short term after an auto loan stops reporting as open.

It's true that a paid off installment loan (like a car loan) can lower your score when you pay it off, but that's mostly with the FICO08 scoring algorithm. Mortgages and car loans generally use FICO02, FICO05 and FICO04 scores. This is why it's a good idea to buy a 3 bureau report once in a while, so you can see your other FICO scores. 

Message 6 of 8
olehammer
Frequent Contributor

Re: Auto Refinance Scheme?

Thanks DB! Good to know there isn't as much impact to the mortgage scores Smiley Happy

Message 7 of 8
olehammer
Frequent Contributor

Re: Auto Refinance Scheme?

Update!

 

After weighing feedback from others and all considerations I'm just going to go ahead and pay off the loan. I'll back it up with a 5 year secured personal loan with Alliant.

 

The key factors were not having a car payment factored into DTI, potential car insurance reduction and less complexity in my life!


Message 8 of 8
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