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When should I refinance my auto loan?

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Valued Member

When should I refinance my auto loan?

Hello all,


I'm in the second year on my credit rebuild, I started my rebuild in June 2018 with a FICO in the low 400's. 


I have student loans, a fraudlant medical bcollection and a cable company as baddies. I had to be extremely proactive, so I obtained the BOA Cash Back Secured Mastercard, the Capital One secured, the TD Banks secured, the Citi secured, all "after" being denied for the Discover secured and US Bank secured cards. I also started and completed a Self Lender loan and two credit builder laons from local credit unions and even with those baddes, my credit improved from in the 400's in June 2018 to the low 600's in January 2019.


I had every tradeline except a mortagage and an auto loan, and it was time to downsize from my 2015 Odyssey to somethng smaller, since my children are now teenagers and on january 17, 2019 I was approved for a 2019 Honda Civic.  


Now, even though, my scores were Experian 623, Tranunion 615 and Equifax 599, the dealership showed me a credit report pulled of 581, so I foolishly agreed to 9% interest with a trade in.


I have cash to pay it off, as I paid just under $5K for a $15K loan in less than two months, but was advise that if i just let it age, I can refinance in about six months to a year for better rate. Now, after I obtained this auto loan, I went to several banks/crdit unions in N. Florida, just to inquire what auto loan interest rate they would demand, if I walked through their door with a 581 FICO score(which is less than what all three bureaus reported in real time). Thet all stated that, "if you walked in and was approved for an auto loan with a 581 FICO score, you would pay anywhere from 9.99% to as high as 15.99%, telling me, even though 9% is high, I did well for my credit score."


Anyway, it's ten months later, I have not only paid on-time each month, I've paid an addition $5K to the priciple and I'm considering re-financing, when should I refinance my Ally auto loan, and with whom.


p.s. I still have each of my secured cards, Capital One increased my CL, but refuse to graduate or product change me, even though I've had 100% perfect payment history, on-time payments on my auto loan, paid off my Self lender loan, and two credit union secured loans and the utilization on each of my credit cards is 0% or less than 7% at worse.  However, I was laid off my job, but found another job with a better company, a week later and started a week after that, so i was unemployed for less than two weeks, but I make about $2,700 "LESS" annually than I did at my last place of employment. when I financed my car in January, will that hurt me?


I've experimented with PIF on my credit cards for eight months and then I experiemented with leaving a small balance on two cards and ironically my credit improved the best by allowing a small balance to post.





Message 1 of 6
New Contributor

Re: When should I refinance my auto loan?

If you have cash to pay off a 9 percent loan, just pay it off.

Message 2 of 6
Established Contributor

Re: When should I refinance my auto loan?

Hi OP and welcome to the forums. The 581 score you listed was probably an Auto-enhanced FICO score, so even though your other scores were higher, your lender used a different score (just like with mortgages). Where were you getting your scores from, and more importantly, where are your scores now? Typically you can find the best scores when you implement AZEO (all zero except one) and the one card balance should be 8.9% or less.

As for your income, what matters is your DTI (debt to income ratio). Divide your monthly debts (rent, loan payments, & CC min payments if you carry a balance) by your monthly income (take gross annual income & divide by 12). That percentage is what matters to lenders (ideally no more than 28%).

If your scores are better now and your DTI is good, you can easily refinance now. Are you a member of any credit unions? They typically have the best rates. I have DCU and they just lowered their rates again.

Message 3 of 6
Valued Member

Re: When should I refinance my auto loan?

Thanks for your informative reponse.


I obtained my credit score from Experian, Transunion and Equifax, I have yet to purchase all three scores from MyFico, but I'm considering it. I never use Credit Karma's scores for anything except pre-quals on their site.


I burned Navy Federal on a car loan back in '99/'00 and even thugh it's not on my credit report, they refuse to allow me to re-establish a relationship with them, as they would be my first choice. But, keep in mind, I actually spoke to a NFCU loan officer, who also stated that the 9% rate I obtained from Ally was better than even they could offer for my credit score.


At the beginning on my rebuild, I obtained a $500 secured loan from two different local credit unions and even though I paid it on time and paid it off, I made two mistakes:


1. Each loan agent gave me the option for a 12 month or 24 month repayment options, as they explained they don't go beyond 24 months for such a small amount. Sadly, after reading a ton of blogs/websites/communtiy boards and watching a ton of YouTube videos, I was under the impression that my rebuild shouldn't take more than six months to a year, so I decided on the 12 month pay back option. Which I later found out was the wrong thing to do, because FICO, credit card issuers and banks want to see a hstory and 12 months isn't long enough.


2. I paid both loans off a month early.


I said all that to say this, once I satisfied each of those loans, and after I had  made at least six car payments, I applied for two "unsecured" $500 loans and was denied, because of exactly what i stated above.


I understand that there shouldn't be any emotion in credit, but when you build on a positive relationship for just under a year, these local(regional) credit unions, should have at least given me the benefit of the doubt for such a small unsecured loan and because of that I haven't even attempted to apply for a refinance auto loan through them.


I've also paid more than $5K of a $15K loan, by making extra payments to the principle, something everybody stated I shouldn't do, but if I can't get out this high 9% rate with a refinance, then my only other option is to pay it off as fast as I can, as I felt I was given bad information when i was told, by numerous bank loan agents, "Make at least six on-time monthly payments and keep doing what you are doing with your credit cards and you should easily be able to refinance for a much lower rate."





Message 4 of 6
Valued Member

Re: When should I refinance my auto loan?

Once I exhaust all refinance options "without" racking up a bunch of "hard pulls," if i decide to pay my car off, i will bite the bullet and wait for the loan to age at least a year to a year and a half, just to see if at that point FICO's algorithm drastically improves my score, which might increase my chance for a refinance much better.


Keep in mind, prior to this auto loan, I have purchased four brand new cars cash, because that was before I cared about credit.


But, I don't want to pay it off too soon without milking as much credit improvement benefits as possible.

Message 5 of 6
Established Contributor

Re: When should I refinance my auto loan?

I suggest pulling a MYFICO 3B score report to see what you’re working with. It can really be a worthwhile investment, and give you an idea of what lenders are looking at and perhaps the reasoning behind their decisions. No one here can really comment or give suggestions without any actual details.

Message 6 of 6
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