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If I refinance my loan short-term, does it affect me long-term?

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Swatch
Frequent Contributor

If I refinance my loan short-term, does it affect me long-term?

I am thinking of refinancing my car now, but paying it off when I can, hopefully about 6-8 months, but maybe 9-14 months. Would that have long-term effects on my credit because of how quickly I paid it? Since the account was only open for a short amount of time, I didn't know if that would affect some account age statistic. I don't want it to look bad to underwriters in the future.

 

I know that the new account would change my AAoA and AoYA and affect my score in those ways. My question is about whether it affects me in other ways after a year / after I've paid it off.

I do AZEO.
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2 REPLIES 2
cashorcharge
Community Leader
Super Contributor

Re: If I refinance my loan short-term, does it affect me long-term?

If this is your only Auto Loan and you don't/won't have another once this is paid off, you will see a score drop as the loan will report as paid.  If maintaining a higher score is the priority, I would suggest paying the loan down but keeping at least 20% debt owed and string it along.  Yes, this will cost you more in interest as you'll have the loan longer than you'd like but depending on your other credit score factors, paying this off and reporting close will cause a drop

Message 2 of 3
disdreamin
Valued Contributor

Re: If I refinance my loan short-term, does it affect me long-term?


@Swatch wrote:

I am thinking of refinancing my car now, but paying it off when I can, hopefully about 6-8 months, but maybe 9-14 months. Would that have long-term effects on my credit because of how quickly I paid it? Since the account was only open for a short amount of time, I didn't know if that would affect some account age statistic. I don't want it to look bad to underwriters in the future.

 

I know that the new account would change my AAoA and AoYA and affect my score in those ways. My question is about whether it affects me in other ways after a year / after I've paid it off.


Refinancing the car will cause you to show a new account, and an account with 100% owed, both of which I believe will lower your scores. If the difference in interest isn't huge, I would just continue to pay the loan, since I'd assume interest over the next 9-14 months won't be exorbitant. The length of time you paid on the loan doesn't much matter, what boosts some scores is the sweet spot of owing less than 10% of the original loan amount.

 

For me, though, this would be a finances over FICO situation where I'd be inclined to pay off the loan as quickly as possible despite the loss of points on my report, assuming interest was being charged on the loan.

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