cancel
Showing results for 
Search instead for 
Did you mean: 

Personal loan to pay off high APR car loan - credit score impact?

Highlighted
New Contributor

Personal loan to pay off high APR car loan - credit score impact?

Hi,

 

I have a high-interest car loan (because I got it whenI had zero credit history) and am considering getting a small loan to pay the car loan off, lower utilization on a couple credit cards and help with some unexpected expenses. I was, however, wondering how this could impact my credit score, which is ranging between 710-720 last time I checked.

 

Lowering utilization of CCs should positively impact the score.

 

paying off the car loan: decrease in average credit age - this should have a negative impact.

 

The car loan is not the oldest credit; the car loan is about 1.5 years, my oldest CC is coming up at 2 in November. I have another CC that is coming up at 1 in November. The personal loan would probably additioanlly greatly decrease the average age, resulting in a drop, right?

 

Any other penalties for closing a loan?

 

What about the personal loan?

Inquery - negative impact

high debt ratio - negative impact? 

 

Am I missing something? 

 

I've read about high drop after paying off loans and am trying to anticipate the impact, since I'm slowly building my credit score and just recently made it above 700.

 

Thank you

 

Message 1 of 5
4 REPLIES 4
Highlighted
Regular Contributor

Re: Personal loan to pay off high APR car loan - credit score impact?

I don't know what your balance on your car loan is or what the interest is but refinancing the loan might be a good option. I also bought a car when I had no credit score and had a very high interest rate. After about a year I got some issues on my credit taken care of and was able to refinance through DCU who cut my interest rate quite a bit.

Message 2 of 5
Highlighted
Valued Contributor

Re: Personal loan to pay off high APR car loan - credit score impact?

You're typically going to get a better rate on a secured (car) loan than an unsecured (personal) loan. As the poster above recommends, I'd look into a simple refinance of the car first. Perhaps you can get the payment down enough to throw extra $$ at your credit cards and knock them out quickly.

 

I am generally not a fan of personal loans to pay off credit cards. 9 times out of 10 they don't solve anything and the CC debt happens right over again. Then you have CC debt AND a personal loan. 

Ch 7 Discharge May 2015
Discover/Target/NFCU CLOC/NFCU More Rewards Amex/NFCU Platinum/PenFed Power Cash Rewards/PenFed Pathfinder Visa/Citi Costco Visa/CapitalOne SavorOne/Apple Card - $132,100 total revolving
5% down Conventional Mortgage @ 3.25%
Message 3 of 5
Highlighted
Super Contributor

Re: Personal loan to pay off high APR car loan - credit score impact?


@Ankaa wrote:

Hi,

 

I have a high-interest car loan (because I got it whenI had zero credit history) and am considering getting a small loan to pay the car loan off, lower utilization on a couple credit cards and help with some unexpected expenses. I was, however, wondering how this could impact my credit score, which is ranging between 710-720 last time I checked.

 

Lowering utilization of CCs should positively impact the score.

 

paying off the car loan: decrease in average credit age - this should have a negative impact.

 

The car loan is not the oldest credit; the car loan is about 1.5 years, my oldest CC is coming up at 2 in November. I have another CC that is coming up at 1 in November. The personal loan would probably additioanlly greatly decrease the average age, resulting in a drop, right?

 

Any other penalties for closing a loan?

 

What about the personal loan?

Inquery - negative impact

high debt ratio - negative impact? 

 

Am I missing something? 

 

I've read about high drop after paying off loans and am trying to anticipate the impact, since I'm slowly building my credit score and just recently made it above 700.

 

Thank you

 


From a FICO score perspective the best thing you can do with the car loan is pay it down to 9% of the original amount, but not pay it down to zero.

 

 


Total revolving limits 653000 (575000 reporting)

Message 4 of 5
Highlighted
New Contributor

Re: Personal loan to pay off high APR car loan - credit score impact?

Thank you for your replies (and my apologies for getting back to you so late). Yes, a simple care refinancing would help with the car - but not with everything else. We had some unexpected expenses while at the same time my husband losing his job (so he's between jobs, currently) and we are struggeling to make ends meet. If my calculations are correct, the monthly payment for the loan would be the same or less (but not much less, hence not much left to throw anywhere - we're talking maybe $50 difference, even with refinancing), but it would help with with one-time upcoming expenses and lowering the overall utilzation on the CCs (one is used to finance a computer purchase, so once that's done, it's done - no new util on that card).

 

Believe, I don't like the idea of taking out more debt. Not at all. As you maybe can read from my words, I'm evaluating it very harshly and all options. I certainly don't wanna just jump onto it and take the loan - or I would've already done that Smiley Wink


@SouthJamaica wrote:

 


From a FICO score perspective the best thing you can do with the car loan is pay it down to 9% of the original amount, but not pay it down to zero.

 

 


But at some point it has to go to zero...??? 

 

Message 5 of 5
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.