TLDR: Only swap debt for interest rate difference. You won't see meaningful gain from scoring algo due to offsetting factors. The largest gain will come from lowering CC utilization if it is higher than 30%. Having a new loan with full balance will hurt your score.
The ONLY reason to swap debt is for interest rates or consolidation. If you can get a much lower rate and know it will take you a few years to pay off then taking out a large loan is a good thing. It is smart. If however you are just swapping to pay off one bit of debt and the interest rate difference is negligible then having a paid off car loan won't matter much if you have another loan that will be near full starting amount for quite some time. Having a paid off car loan is only beneficial if you potentially want to get another car and someone reviews your credit and sees you paid off the car loan. The scoring algorithms care about how much of a loan is outstanding.
Pros
Lower CC utilization
Potentially lower monthly payments
Cons
Still High interest (albeit lower than CC hopefully)
New inquiries
New account
No decrease in overall oustanding loan utilization (in fact it will be worse)
Here are some examples of when you should use this strategy:
1) $20,000 in student loans at 6% avg spread across 7 different loans consolidated to one private loan at 3.5%. This will save money and simplify the repayment process while sacrificing some of the federal loan protections.
2) Credit card with $10k max credit line currently has a balance of $8k and interest rate of 20%. Replace this with a private loan at 15%. This will save money and dramatically improve CC utilization which is a major ingredient in scoring algo
3) 5 year car loan for $20,000 obtained when credit was bad. Credit has improved over first 12 months of loan life so the debt is refinanced with new loan at much better interest rate saving borrower money each month and over the life of the loan while taking a slight hit to credit score initially.
