Auto loan ending, possible action to prevent score drop?

[olehammer]

I currently have an auto loan at 11%. $1,600 remaing on original ~$13,000. Loan will be paid off in June '16.

So here's the scheme, looking to maximize my credit score for home purchase in 2017. I won't be in the market for a new car after paying this guy off as I plan on holding this one for at least another 50k miles barring any catastrophic mechanical problems. The car books around $6,000 right now. Does anyone have experience refinancing for above the current loan balance? Basically like a cash out home refi. I'd like to get maybe a 3 year refi for $4,000, pay it ahead and down to less than 10% util with the extra cash. That way I'd still have an AL on my report, low util on an installment loan and a much lower interest rate through my credit union. That's what I call a win-win-win!

Am I over thinking this? Is it possible? Am I Stone cold brilliant? Lol! Appreciate in advance any thoughts.

[Anonymous]

Well of course you are stone cold brilliant, OH, that goes without saying.  :-)

I can see you are weighing all the pros and cons of every option.  Here's a question that may help you.

*  Suppose there was no FICO score downside to having no open installment loan.  How much auto insurance would you get on this aging car of yours?  Once my five year auto loan was paid off, I dropped everything except liability.  It saved me a good chunk of money annually.  If you have an auto loan, however, the lender typically requires that you have full coverage: collision, the  whole nine yards.

An option I'd seriously consider if I were you is to get a four-year $500 share secure loan next year.  Everything you want to do with your car loan you can do with that.  An auto loan has a unique FICO advantage only to the Auto Enhanced model, and I don't think the Auto model gives you special points for having an open auto loan vs. a closed one.  I have two closed auto loans on my profile (and no open loans) and my FICO 8 Auto Enhanced score is incredibly high (872 vs. my 835 FICO 8 classic).  That's got to owe to the model liking my paid off auto loans (and to the fact that the model's range is a little higher).

Your idea was one I definitely considered myself, but I ultimately decided that the extra insurance cost of having an auto loan wasn't worth it.  When my student loan closes in a year or so I will get a Share Secure loan.

I am sure that you'll make whatever decision is right for you.

PS.  This auto loan you have now is your only open installment loan, right?

PPS.  I realize that one factor in play here is that your current loan is high interest.  But if I am doing the math right on that, it's not much given how little you owe and how quickly it will be paid off (six months from now).  50 or 60 bucks maybe?

[olehammer]

Thanks @creditguyindixie. Appreciate the additional thoughts on car insurance. I think you're right in terms of the money saving power of reducing insurance. My 6mo policy right now isn't too crazy ($390) but I'll have to price out the difference.

I do currently have a small secured loan but SDFCU isn't letting me pay more than 3 months ahead and it too will be close to term next year. I took it out as one of my first rebuilding steps before I knew about these forums so it's only a 2 year deal. Was planning on setting up a 5-year one with Alliant which is what got me thinking about refinancing my autoloan to keep it open.

The whole "scheme" was a ploy to make sure i had an open auto loan in my credit mix. However, if a personal loan is the equivalent of auto from a FICO 04 standpoint then I'm just going to work on paying this bad boy down.

[Anonymous]

The veterans here (Revelate, Jamie, moderators, etc.) may know more about whether the mortgage models like an open auto loan just as much as an open personal loan.  If there is an advantage I doubt it's worth the candle.  Maybe a point or two.

BTW, I am sure we have talked about this on another thread, but the big thing for you will be getting your derogs taken care of.  Are they all falling off by the time you think you'll buy?

[olehammer]

Unfortunately the baddies need a PFD to get rid of them any time soon. But I'm confident it'll get done as two are medical. The third is Sprint/DCI which will be tough but I'm determined.

[Anonymous]

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@Anonymous wrote:

The veterans here (Revelate, Jamie, moderators, etc.) may know more about whether the mortgage models like an open auto loan just as much as an open personal loan.  If there is an advantage I doubt it's worth the candle.  Maybe a point or two.

BTW, I am sure we have talked about this on another thread, but the big thing for you will be getting your derogs taken care of.  Are they all falling off by the time you think you'll buy?

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I don't want to speak for Revelate or Jamie, however I am pretty sure reading the utilization thread Revelate indicated that FICO didn't make a distiction between auto, personal, or even mortgage installment loans. Obviously mortgage would be open longer. Perhaps it may make a difference on the FICO auto score versions, but I don't think on the FICO8.

I agree with you, secured loan with Alliant or SDFCU $500, pay ahead, let it sit.

Pay car loan off. review insurance needs, perhaps reduce coverage if that works for the OP.

That would be my play in the same position.

[olehammer]

Update!

After weighing feedback from others and all considerations I'm just going to go ahead and pay off the loan. I'll back it up with a 5 year secured personal loan with Alliant.

The key factors were not having a car payment factored into DTI, potential car insurance reduction and less complexity in my life!