Pay off loan early or trade in

Anonymous · ‎07-25-2021

New to the forum l. I'm looking to buy a Tesla model 3 thinking of going wit NFCU. My fico 8 trans score which they told me they use is 690. My DTI is 38% if you don't include my wife mortgage (mortgage is in her name not mine) $82k income and the car is $42,000.

I owe about $6k on my current loan and my car is worth $8k got a cash offer from car max. Starting reading that paying off your loan early can hurt credit. Should I sell the car pay off what I owe and bank the rest or keep paying the loan (Model 3 backed up for 8-12 weeks) and then trade in when it's time to buy?

also do y'all think I will get approved? Got approved wit auto navigator for 4.5-7% on new cars

Anonymous · ‎07-25-2021

@Anonymous wrote:
New to the forum l. I'm looking to buy a Tesla model 3 thinking of going wit NFCU. My fico 8 trans score which they told me they use is 690. My DTI is 38% if you don't include my wife mortgage (mortgage is in her name not mine) $82k income and the car is $42,000.

I owe about $6k on my current loan and my car is worth $8k got a cash offer from car max. Starting reading that paying off your loan early can hurt credit. Should I sell the car pay off what I owe and bank the rest or keep paying the loan (Model 3 backed up for 8-12 weeks) and then trade in when it's time to buy?

also do y'all think I will get approved? Got approved wit auto navigator for 4.5-7% on new cars

Paying off a car loan will not hurt your credit. I have done this many times. It will increase your credit score once the loan shows as paid off.

The problem with selling it off and not trading it in is that you loose the sales tax allowance. If you trade the old car in and it is valued at $8K you will only have to pay sales tax on the differience. If you sell the car then buy a new one you will loose the sales tax credit on that $8K. Your score is ok for a prime rate new car loan depending on any late payments, charge offs and collection accounts. You may have a problem if you have a recent late payment on your existing car.

Thanks

Mark

Anonymous · ‎07-26-2021

Your DTI being already at 38% and looking to buy a car that's more than 50% of your income may get you declined from Navy. They're sensitive to DTI and that's pushing upper limit before the car is added. I'd call them and ask before apping for the loan. You may need to pay off some debt or look elsewhere.

Anonymous · ‎07-26-2021

Sorry I meant to say my DTI would be 38% with the estimated car payment. But that's good to know, the other option is I apply joint with my wife. She makes $150k but we then would have to include her car payment $667 mortgage $2064 insurance $200

disdreamin · ‎07-27-2021

@Anonymous wrote:
The problem with selling it off and not trading it in is that you loose the sales tax allowance. If you trade the old car in and it is valued at $8K you will only have to pay sales tax on the differience. If you sell the car then buy a new one you will loose the sales tax credit on that $8K. Your score is ok for a prime rate new car loan depending on any late payments, charge offs and collection accounts. You may have a problem if you have a recent late payment on your existing car.
Thanks
Mark

Not all states offer sales tax allowances for trades. Perhaps the OP mentioned their location and I missed it, but what you are saying is not universally applicable.

KatSoDak · ‎07-27-2021

I don't have a mortgage. When I paid off my car loan, my only trade line other than credit cards, I lost as much as 20 points FICO. My scores were over 800 before the payoff so the drop didn't affect approvals but I thought I'd mention it since you don't have a mortgage.

FICO 8: