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Pay off car loan or refinance?

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Pay off car loan or refinance?

New to the forums. If this is in the wrong spot I'm sorry

My wife and I just recently received a fairly large windfall from a back pay situation at my wife's former employer. It's enough money to pay off our current vehicle loan. The current loan has a monthly payment of $600.

What worries me though is we are planning to begin tkbuild a new house in the next 9 months and I'm not sure if having the car loan paid off early would impact our credit adversely. Both of our scores are 750+ with a good mix of credit accounts. We refinanced the house and her student loans in the past couple of years so our average age of accounts is on the young side.

Would I be better off paying the loan completely or possibly paying down a chunk and refinancing the rest to keep an open account but lower our montly minimum?

Message 1 of 4
3 REPLIES 3
Established Contributor

Re: Pay off car loan or refinance?

This really depends on what your circumstances are. Here are a few questions:

Who is the lender?

Do you have GAP coverage?

What do you plan on doing with the money that makes more than your interest percentage?

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Message 2 of 4
Valued Contributor

Re: Pay off car loan or refinance?


@Ndnmike wrote:
New to the forums. If this is in the wrong spot I'm sorry

My wife and I just recently received a fairly large windfall from a back pay situation at my wife's former employer. It's enough money to pay off our current vehicle loan. The current loan has a monthly payment of $600.

What worries me though is we are planning to begin tkbuild a new house in the next 9 months and I'm not sure if having the car loan paid off early would impact our credit adversely. Both of our scores are 750+ with a good mix of credit accounts. We refinanced the house and her student loans in the past couple of years so our average age of accounts is on the young side.

Would I be better off paying the loan completely or possibly paying down a chunk and refinancing the rest to keep an open account but lower our montly minimum?


Hmmmm. If the car note is a decent rate, I think I'd just let it ride and hold on to the cash for now. In building a new house, who knows what might come up where extra cash on hand could be VERY helpful.  I feel like houses in general ALWAYS involve unexpected expenses somewhere.

 

Your scores are great. When it comes time to get the mortgage on the new house, if you find yourself a few points shy of the loan tier/rate you want (I think it's unlikely with your scores, but I think I saw someone once wanting a 760) then you can contemplate making moves with the $$ to boost your scores a few point.

 

If the car is your lowest utilization installment loan, it's actually helping your scores compared to the newly refinanced ones. You'd probably get more points by throwing extra money on those, but again, I think I'd sit tight for the moment.

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EQ/EX/TU: FICO 8's Sept 2019: 696/676/670, 25% utilization, INQ's: 0/0/1
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Message 3 of 4
Super Contributor

Re: Pay off car loan or refinance?


@SteelerNYC wrote:

@Ndnmike wrote:
New to the forums. If this is in the wrong spot I'm sorry

My wife and I just recently received a fairly large windfall from a back pay situation at my wife's former employer. It's enough money to pay off our current vehicle loan. The current loan has a monthly payment of $600.

What worries me though is we are planning to begin tkbuild a new house in the next 9 months and I'm not sure if having the car loan paid off early would impact our credit adversely. Both of our scores are 750+ with a good mix of credit accounts. We refinanced the house and her student loans in the past couple of years so our average age of accounts is on the young side.

Would I be better off paying the loan completely or possibly paying down a chunk and refinancing the rest to keep an open account but lower our montly minimum?


Hmmmm. If the car note is a decent rate, I think I'd just let it ride and hold on to the cash for now. In building a new house, who knows what might come up where extra cash on hand could be VERY helpful.  I feel like houses in general ALWAYS involve unexpected expenses somewhere.

 

Your scores are great. When it comes time to get the mortgage on the new house, if you find yourself a few points shy of the loan tier/rate you want (I think it's unlikely with your scores, but I think I saw someone once wanting a 760) then you can contemplate making moves with the $$ to boost your scores a few point.

 

If the car is your lowest utilization installment loan, it's actually helping your scores compared to the newly refinanced ones. You'd probably get more points by throwing extra money on those, but again, I think I'd sit tight for the moment.


Your mortgage scores, unlike your FICO 8 scores, are affected only slightly if at all by installment utilization percentage.

 

We would need much more information to evaluate what is the best move in terms of your mortgage scores:

 

-installment loans, original loan amounts, current loan amounts

-revolving accounts, limits, balances

-amount of 'windfall'

 


Total revolving limits 719k (592500 reporting) FICO 8 scores: EQ 735 TU 782 EX 746
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