Card balances affect auto refi?

[Anonymous]

I need to refinance my auto loan to lower my payments and remove my ex. My credit is better since we got the loan last year in that most of my collections are gone except 3, but my balances on my credit cards are kinda high. I mean if the balances are gonna make a big difference in approval I can wait a few more months til I can pay them down more, but the sooner I can refinance the better. Will the balances hurt me if I apply now?

[jason0618]

Yeah theylll hurt, but your score now and the book value of your car are more important.

[Anonymous]

I'd agree that payment history and value of the collateral (car) vs. what you need to pay off the original lender (payoff balance on the original loan) is more important.

If by "kinda high" you mean your cards are getting close to maxed out, know that you will not see any FICO benefit unti you get each and every one of them below 30%, so depending on what you owe on each one, that may take a while.  Optimal FICO scoring will come once all but one are at 0 balance, which will take even longer, but your next-best bump in scoring requires you to get them all below 30% across the board.

You may find it better, if you have a little extra cash each month, to try and push down the principal on the car itself.  This would reduce the amount you need to refinance, since it'll lower the amount needed to pay off the original loan.  At one year into a loan, you're mostly still paying off interest and haven't made much dent in your principal yet.  Putting $1000 or whatever against the principal could help you refinance on better terms and help lower the payments.  And resist the temptation to "buy back" your equity, if indeed you have any, because that will just increase the refi loan amount (and payment) again.

Assuming a FICO in the 640+ range, you should land in single-digit (under 10%) refi interest.  For under-3% financing like you will see advertised all over the place, you will need to be over about 680.  Even paying down all of your cards might not give you 50 FICO points; those 3 collections still sitting on your report probably have a lot to do with your current scoring and if they aren't removed, the points they've eaten remain gone.

[surferchris]

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@Anonymous wrote:

I'd agree that payment history and value of the collateral (car) vs. what you need to pay off the original lender (payoff balance on the original loan) is more important.

If by "kinda high" you mean your cards are getting close to maxed out, know that you will not see any FICO benefit unti you get each and every one of them below 30%, so depending on what you owe on each one, that may take a while.  Optimal FICO scoring will come once all but one are at 0 balance, which will take even longer, but your next-best bump in scoring requires you to get them all below 30% across the board.

You may find it better, if you have a little extra cash each month, to try and push down the principal on the car itself.  This would reduce the amount you need to refinance, since it'll lower the amount needed to pay off the original loan.  At one year into a loan, you're mostly still paying off interest and haven't made much dent in your principal yet.  Putting $1000 or whatever against the principal could help you refinance on better terms and help lower the payments.  And resist the temptation to "buy back" your equity, if indeed you have any, because that will just increase the refi loan amount (and payment) again.

Assuming a FICO in the 640+ range, you should land in single-digit (under 10%) refi interest.  For under-3% financing like you will see advertised all over the place, you will need to be over about 680.  Even paying down all of your cards might not give you 50 FICO points; those 3 collections still sitting on your report probably have a lot to do with your current scoring and if they aren't removed, the points they've eaten remain gone.

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Good advice.

[surferchris]

Since you have time (you don't need to refinance today), you can do a little test - it's what most people here do.  Right before the statement closing date of one of your cards, pay the balance down to less than 10% (preferably 2 or 3%).  Then wait a few days until the new lowered balance reports.  Then you will know how this affects your score (based upon the fact that you still have 3 collections left).  If it looks like you will be bumped up enough into a higher score, that yields a low enough interest rate, and thus a lowered payment, then you should move forward with taking the additional time to pay down the other balances.

If not enough change in score, then don't worry about it and just refi now and take whatever you can get.  And instead work on the 3 collections.

Hope this helps.