To Refi or to Pay Off?

[SarahJo]

Hello all!  

This past Friday I went on a bit of a spree for HP's since several have aged over a year.  A part of the spree, and to put my higher credit scores to the test, I applied for refinancing through my local credit union and was approved for a 6.37% rate.  My current rate, and please don't laugh as I've come a looooooong way thanks to these boards, is 24%, yikes.  My payoff balance is just shy of $3000, never a late payment or anything neg like that.  

My question is, being that I do not have another current installment loan aside from federal student loans (house paid for), do I keep the refi going or do I just pay the sucker off?  I could comfortably pay it off but I'm gun shy about what it would do to my scores as this is my rebuild.  Also, if I do in fact pay off the car, should I open up a small installment loan using the HP that the refi from the CU has already used just to keep that sort of mix on the CRA's?  

Someone once upon a time on here said to take out a small loan and pay it down to a certain percentage to minimize usage and maximize mix...but wouldn't that rate be worth just keeping the loan to build history???  Any input appreciated!

[Anonymous]

Depending how long you have left paying on the account you may be simply paying principle at this point which is zero interest or very very low and you would be adding interest back in.

[SarahJo]

The payments would be lowered to 172 (18 months), down from 208 (just over 24 months i believe)...so it would be significant savings.  I suppose the main portion of my quesiton is what would be best for my credit score?

[Appleman]

So next month on your $3000 balance at 24% you will pay $60 in interest and the rest of the payment goes for principal.

Refinanced at the 6.37% you will pay $15.93 in interest. You just saved $44 the first month. Next month the saving will only be slightly less.

You still do not know what is going to happen with your score after the app spree. If you are in rebuilding you will likely take a big hit as new accounts report. If I were you, refinace the car loan and take the savings. If you have credit card debt, pay that down and insure your utilization stays low on the cards.

If you do not have credit card debt and have the $3,000 laying around, by all means pay off the auto. You can always do a shares secured loan later if you really need an installment account for your score.

[SarahJo]

Appleman  Thank you so much for your response!  I have 4% utilization by letting a small balance report on my Wayfair card (the only card I have at 0%).  All other cards are paid in full every month.  The refi loan hasn't yet been signed, so I suppose if I could ask the credit union to do a small loan instead if they could use the same HP?  I've had 2 pulls report and my score went up 2 points on Equ and Ex, go figure...the credit union would add another.  So maybe if I pay off the auto and do the small loan in the same breath all would be well in a couple months?  fingers crossed

[Anonymous]

Again interest is front loaded and refinancing is really only a good deal if you need to free up cash or the loan is the for the same term and not near payoff as again at the end you are paying for principle. If your near the last half of your contract you would be better off keeping your existing loan unless your hurting for money OR your payoff length doesn't change. You will get dinged in points for closing the account to open the new one (refinance) but will get some recovery.

[Anonymous]

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@SarahJo wrote:

Hello all!  

This past Friday I went on a bit of a spree for HP's since several have aged over a year.  A part of the spree, and to put my higher credit scores to the test, I applied for refinancing through my local credit union and was approved for a 6.37% rate.  My current rate, and please don't laugh as I've come a looooooong way thanks to these boards, is 24%, yikes.  My payoff balance is just shy of $3000, never a late payment or anything neg like that.  

My question is, being that I do not have another current installment loan aside from federal student loans (house paid for), do I keep the refi going or do I just pay the sucker off?  I could comfortably pay it off but I'm gun shy about what it would do to my scores as this is my rebuild.  Also, if I do in fact pay off the car, should I open up a small installment loan using the HP that the refi from the CU has already used just to keep that sort of mix on the CRA's?  

Someone once upon a time on here said to take out a small loan and pay it down to a certain percentage to minimize usage and maximize mix...but wouldn't that rate be worth just keeping the loan to build history???  Any input appreciated!

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If you have the 3 grand lying around, pay off the car and be done with it.

Your student loans will satisfy your installment mix of credit just fine.

[Anonymous]

Because the interest on a car loan is front loaded your generally paying very little interest in the last two years of the loan.  Simple way to see where you stand is go to a car loan calulator and enter your loan and take a look at the amortorization table and see what you have left in terms of interest.  Based on that you can decide it its best to pay off, refi or finish the existing loan.  If you have the cash I would probably just pay it off.  As stated above your student loans have your secured loan covered.  

[SarahJo]

Thank for all your replies :-)

I just wanted to update saying that I elected to pay off the auto loan, and thank you for mentioning the student loans satisfying the category that the auto is/was in.  It makes perfect sense!