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Looking to refinance my car loan

New Contributor

Looking to refinance my car loan

Hello! 

 

I purchased a 2013 Nissan Altima from Carmax last November.  My credit wasnt the greatest and my interest rate was 10.85%.  I've now cleaned up my credit and my current scores are  EQ 703  TU 741  EX 700 ..   I'm looking for some advise on how to go about a refinance on my car and also how this will effect my TL with Carmax as I have 10 months of paid on time reporting.   If I refinance, is this going to hurt my AAOA and UTI?


 

Thanks for all the help! 

 

 

Start: 7/25/16 EQ: 605 TU: 597 EX: 611
Current: EQ: 703 TU: 741 EX: 700


Message 1 of 8
7 REPLIES
Established Contributor

Re: Looking to refinance my car loan

I would refinance and not worry about your AAoA and UTI.

 

The "paid off" trade line will continue to report for 10 years after it is closed out. Your new account will be a small impact on your AAoA, but the drag on your score won't last that long and over time will actually help it (you'll have two auto trade lines aging for years). 

 

UTI isn't as significant on the installment side, and it'll correct as you pay down the new loan anyhow. You've worked hard to get your credit to where it is. Don't pay more interest because you're worried about hurting something that's only temporary anyway. You should be able to refi and save a substantial amount. I would look into a credit union - specifically DCU.

Message 2 of 8
Frequent Contributor

Re: Looking to refinance my car loan

Installment loans like these do not affect your utilization.  

Refinancing a high-interest loan to reduce interest expenses is never a bad idea for long-term financial health.

 

What a new auto loan may do - although this is not necessarily the case in all situations - is cause a slight ding of a few points for having a high-balance installment account (that is, an installment account which still has most/all of its original amount due - since you will not have made any payments, of course).  This is temporary, and once you make the first 6 months of paymetns and/or make an additional principal payment, that ding will disappear.  Many (healthy) credit files will never even see this ding in the first place, since it is not one of the major FICO factors.

 

Considering you are now in prime territory for under-5% (possibly even under-2% depending on the rest of your file and your DTI) refi rates, your interest burden will be cut in half or even smaller by a refi.  This could amount to a couple of grand or more in interest savings over the term of the loan.

 

Even if you temporarily lose several points in the immediate aftermath, I'd think that fact of actual money saved over the next few years by reducing interest would far outweigh the loss.

 

Message 3 of 8
Established Contributor

Re: Looking to refinance my car loan

There is a UTI for installments but it doesn't affect your score like revolving credit does. 2 separate categories of utilization.

 

Revelate collected a lot of data points in this very long thread

 

The impact, however, is minimal. UTI is also temporary. Don't get caught up in that worrying about installment UTI when you're paying high interest on an installment loan. Do yourself a favor and give yourself a raise by refinancing that high interest loan. 

Message 4 of 8
New Contributor

Re: Looking to refinance my car loan


Swampthing wrote:

I would refinance and not worry about your AAoA and UTI.

 

The "paid off" trade line will continue to report for 10 years after it is closed out. Your new account will be a small impact on your AAoA, but the drag on your score won't last that long and over time will actually help it (you'll have two auto trade lines aging for years). 

 

UTI isn't as significant on the installment side, and it'll correct as you pay down the new loan anyhow. You've worked hard to get your credit to where it is. Don't pay more interest because you're worried about hurting something that's only temporary anyway. You should be able to refi and save a substantial amount. I would look into a credit union - specifically DCU.


Great news!!  I took your advice and applied for membership with DCU.  I was instant approved and also pre approved for the 30,000.00 auto loan and 5,000 Platinum Visa.  I'm uploading my 10 day pay off docs right now for CarMax.  DCU gave me the 1.74%  APR !!!  8.75% on the CC !!!   thanks soo much for all the info guys

Start: 7/25/16 EQ: 605 TU: 597 EX: 611
Current: EQ: 703 TU: 741 EX: 700


Message 5 of 8
New Contributor

Re: Looking to refinance my car loan

Congrats on the refi. I am also looking to refi a new loan. Did DCU hp or sp you once they accepted you as a member? And am I understanding correctly once you opened the checking account they used the hp/sp to make you an offer for a credit card and refi?

Message 6 of 8
Established Contributor

Re: Looking to refinance my car loan

Congratulations! I knew you'd probably save a bundle!

 

They HP. 

Message 7 of 8
Established Contributor

Re: Looking to refinance my car loan

Congrats!

Goal: 700's by 11/1/2015 (all baddies will be gone)



Message 8 of 8