Timing of current loan payoff for new loan score optimization

[BallBounces]

I have purchased and financed dozens of vehicles over the last 32 years.  I am not new to the process, but I have never been in the specific scenario I am in now, and would like some opinions from the brain trust.

• I will be buying a new vehicle in the next 3-8 months.   Financing a large chunk.
• This is a factory order, and unfortunately delivery date is highly variable and unknown.  Hence 3-8 months.
• I am carrying a loan on my current vehicle at a fair rate.  Loan is paid to about 40% of  original amount, but plenty of equity.
• 3 year old Mortgage at 96%.  CC UTL at 13% and may get that to 9% this month.  but no other score improvement possible.
• My AUTO FICO08 mid score is exactly 720 right now.  Given I am dirty scorecard, almost optimized on CC UTL, that mid score is tenuous and fragile.
• I COULD creatively pay off the current car loan now, at some personal pain.

So, what's the big deal?  Well, I have never had an OPEN auto loan while buying a vehicle.  Said another way, I have never traded in a vehicle that had an unpaid loan still attached to it.   I have onyl traded in one vehicle period, as I typically sell Private Party before purchasing as I find it maximizes my value.  This may not be true for every scenario.   Also, the variable purchase date camplicates things.  Lastly, wanting to not disrupt my Auto scores is a complication.

In my scenario, I see a few options: 

• Sell current car, pay off loan, take a potential hit to scores ASAP, costing me some % point on APR but potentially inceasing value of current car as PP over the next couple months vs trade-in.
• Painfully pay off loan asap to have flexibility on whether to trade in or sell as PP closer to close.
• Do nothing and trade in the current, financed vehicle with loan payments as scheduled.   Loses leverage but preserves auto scores(?).
• Painfully pay current loan down to sub 10% (if thats a real thing) to eek out some margin of safety on Auto scores.

So, there is, as we know, often a temporary and somewhat trivial payoff penalty to our scores when a current auto loan is closed/paid.  Since my score is in a bit of a tenuous spot, I want to ensure it does not dip as I finance the new car.

I know that was some rambling, and my point may not even be clear to the casual reader, but I am hoping some next level thinkers out there appreciates my scenario and will offer an opinion.

[GZG]

unless you specifically know that your auto lender will be using a specific FICO score or a FICO Auto score, and that you need to hit a minimum FICO score to get a meaningfully lower interest rate, just do what you think will benefit you the most financially. 

given the mortgage, (not considering FICO Auto scores specifically) there's not going to be enough of a FICO benefit to outweigh any FICO penalty to do anything financially painful that will be worthwhile IMO and that refinancing at a later date will offer you far more benefit than any FICO minmaxing now, IMO

what are the individual CC utilizations, perhaps there's some room to optimize there? 

if you do know you need to hit a specific FICO score or a specific FICO auto score, that's a different conversation 

[BallBounces]

Good points, G.

You have talked me off a ledge, to a degree.

I do know 720 can be a clip level, but am only making an educated assumption that AUTO 08s will be the main driver.   (Nopn auto enhanced scores are all higher in any case).

Not much room to move on CC UTL, and won't be huge on my scorecard right now.

Short term, I think no action is the best action.

[DebbsSeattle]

Ex Car biz family here...trading a car in (PIF or not) has a reduction of sales tax benefit in our State of Washington. Do you have sales tax benefit by trading? Would your trade in tax savings exceed the higher fsbo sales price realized? Car buyers trade cars in all the time. The fact that you owe money on the trade does not truly make a difference. The value of the car does not increase with a clear title. You really do not suffer any leverage loss by having amounts owed on the trade. As long as you know the FAIR trade in value (not the retail value) and are realistic in the price you are buying their car for (Don't ask retail on your trade and behind invoice on theirs) you can be done with numbers in 5 minutes. Most lenders like no more than one open auto loan per driver in your household...as in you & your spouse, little Jimmy and Suzy excluded. If your credit is strong enough, your current vehicle loan is low enough, you may be able to retain the current auto and loan and still qualify for the new loan. If your current auto is paid down to the point of <10 remaining payments, it may likely be a non-issue with most prime lenders. If your credit is weak or income muddied with non W2 or 1099 income or simply stretched with a high DTI, they will extend stipulations for your loan that could include proof of residence, income and current auto loan vehicle must trade. This varies from lender to lender. Your dealer does this day in and day out, consult with them now about how you may benefit or suffer by trading or retaining the car. Another factor is the desirability of your current car. Is it a 2015 base model Taurus with grandpa gold paint, driven by braille, dirty car fax and 97,000 miles - - - or - - -  is it a 1 owner 2020 BMW 750i cherry mint with 9,000 miles. How is the Loan to Value? Do you owe $4k on a $40k car or $40k on a $17k car?

In any case, I do not believe I would do anything yet except consult with my dealer in advance about my trade. I would rat hole any and all cash into my money market over the next 3-8 months so that I would be in the power position when the day comes to wash the transaction through to my strongest benefit on that day. Payoff the trade and fsbo or trade the auto and toss a larger down at it. 
Another thought while you wait for your new car to deliver:

I experienced many buyers paying cash, diabolically opposed to the holding a loan at all. I always recommended to them to evaluate the value of their money vs. the lenders. If they qualified for 0.9% but could make 1.0% or more in any other liquid, low/no risk investment...They still had the power to pay off that loan anytime they wanted, but could keep making more money in the meantime. Keep that in mind if you are very trusting of your own money management skills and discipline. It can allow you to preserve your 6 month+ emergency fund AND possibly make more money that the loan interest costs.

Cheers.

[DebbsSeattle]

I should also add...last car note PIF Jan 2024...10 point decrease in my score. I'd not pay my loan off before, I would preserve those 10 points until an approval is granted. You only need a 661+ score to get an auto loan with reasonable rate. Higher scores will achieve better rates...I know that is obvious. All lenders have different credit tiers (1/2/3...A/B/C...subprime, prime, super prime) and the qualifiers can change from time to time thus the value of letting dealers shop your loan. Most new car promo rates (0%, 0.9%, etc) kick in at 760-780 for "well qualified borrowers" like the ads state. Rebates and applicable cash promos are only effective on the doc date. Dealers are advised a little in advance of upcoming offers. When your car comes in, ask if there are any offers today that will not be there tomorrow...or...offers going into effect in the next few days that you will benefit from by signing up on Friday instead of Tuesday. Sometimes these extra kisses are only end of month or other very limited windows of time like over the weekend, so ask again on the day you show up to sign up. Know what your credit Union, favorite bank will extend you for rates, but have the dealer shop your rates too. Keep any and all credit inquiries to the same short window of time (only window shop rates now, wait until your car is in and you are ready to sign docs to authorize pulls). Since you have the ability to access your full 3B reports, you can have all that data available before they shop your loan and show them so they can strategically submit apps to they right audience of lenders. Even lenders can vary their tolerances of new loans within the month. If I shoot 102 top tier super-prime loans to lender A in the first 3 weeks of the month, they only allow a 2nd loan on super-prime, but you are only "prime", and I want them to allow you to keep your current auto loan car AND write you on the new car, I might just have the right relationship to get that done simply by saying "You owe me one, Buddy!" Or maybe they have taken all sub-prime this month and here you come with some good credit, they might just scoop you up without a second glance on an existing auto loan. There is a lot of help the dealer can contribute on finance. Ok. Done. Enjoy the new car.

[BallBounces]

That's a lot to read.  I confess I am not going to comb through it all.

Short answer. Yes, my state has a sales/use tax benefit for the value of a traded in vehicle reducing taxable burden on a new vehicle purchase.  I implied it in my OP.

Obviously that is one component of deciding whether to trade in, but not the thrust of the post.

As I mentioned, I typically do not trade in autos because the tax benefit is rarely overcome by the poor price relative to market for used vehicles. That may or may not be the case this time.