Does it look better sell vehicle prior to financing

[Anonymous]

So I'm getting a new vehicle. My scores are iffy. I'm currently at a 690ish fico across all 3 main bureaus. My one downfall is I have a paid charge off from 2014. My history since charge off is thin. I've had a vehicle financed for 6 months started at $24,000 is now at $21000 payoff. I have another installment started november 2017 that started at $4800 that is now at $1100. 3 credit cards all almost 6 months old with 3% utilization. But all starter cards with low entry level amounts. I do have my oldest account (13 years) that shows as an installment account (but is actually revolving) shows a high balance of $2060 but reporting current balance at $100. I do have other loans older paid off before the CO all 100% on-time payments. The chargeoff was an auto loan that is recently paid. I get my new car at the end of October. So I have 2 months of my credit improving some.

Financial manager seems to think I will be able to get financed for the car because i make over $100k a year and have been at my job for almost 6 years. DTI is like 5%. Any input on this would be appreciated as well.

But to my main question: as far as my current vehicle. Would it look better if I sold the vehicle prior to financing and it show paid off? (Mostly because right now it is bringing my score down by being such a high balance in reference to the initial loan amount. Or would the hit of having it paid off be worse? Also worried about the bank seeing it as more risk adding a second car payment.

Trading it in wouldn't really be an option as the truck is worth about $17,000 on trade vs $22,000 selling. And my payoff is $21,000.

I know there is a lot of info here, but I wanted to be as thorough as possibly to get the most accurate input. Thank you in advance. I have spent countless hours reading so many posts on here and this community is freaking great!

[Anonymous]

Well, your aggregate installment loan utilization is pretty high right now.  If you were to close out your current vehicle loan AND pay down your other loan to under 8.9% utilization (which would BE your installment utilization then) you could see some decent score gains of (say) 15-20 points.  In order to accomplish that you'd want to pay your $1100 balance (23% utilization) down to $420 or so; such a move would cost you around $680.  If it's doable, I'd make that happen since it could definitely help your "on the cusp" type scores when it comes to securing the new loan at a [more] favorable rate.

[Anonymous]

Keep in mind that paying off a loan will lower your score as well. Though I'm not sure how it will be offset by paying down the $1100 loan down to $400 for that boost. If you're able to sell it within the time needed for what you need to pay off the current amount owed is another matter. 

DTI aside, I'm not sure it's in anyone's best interest to finance a new car only 6 months into an existing Auto Loan.

I don't know what the hurry is for a new car, but this type of behavior isn't going to help improve your scores. That CO is going to be there until 2024, so that will hold your scores down for a while. If you want to break 700 and beyond, I would think about this a little more.

The Salesman is driven by commission, so they'll say almost anything to get you into something. Being able to afford another Loan doesn't negate the higher APR associated with lower scores. Which adds up on high balances over the life of the loan.

That said, having this perticular loan paid off should look good to the lender. As it lowers DTI even more showing less obligations.

The problem is, can you sell it and have it report paid to the CRAs by the time you're ready to apply for the new Auto Loan? This process can take up to 60 days, at least from my experience.

[Anonymous]

I’m not sure paying off the loan would result in a score loss since he has another installment loan. However if so the way to negate that would be to pay 95% of the original balance so that it would bring down aggregate utilization without actually closing it and it would report on the normal cycle rather than taking longer possibly. Just thoughts.

But like BBS said you need to bring down your aggregate installment utilization under 8.9 and revolving aggregate utilization if possible.

[Anonymous]

I was actually wondering if it were possible to time it right to sell my truck for a couple hundred less than payoff right before it reports. Then send my check to pay it off completely just after. Too risky?

[Anonymous]

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@Anonymous wrote:

Keep in mind that paying off a loan will lower your score as well.

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That blanket statement can't be made for all cases.  Paying off a loan can have all 3 possible impacts to a Fico score:  No change, score gain, or score loss.  The biggest 2 factors at play to determine that is 1 - the presence or absence of another installment loan or loans and 2 - before/after aggregate installment loan utilization.

[Anonymous]

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@Anonymous wrote:
I was actually wondering if it were possible to time it right to sell my truck for a couple hundred less than payoff right before it reports. Then send my check to pay it off completely just after. Too risky?

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If you're talking trying to get the final reporting of the account to be a couple hundred bucks, know that it isn't necessary.  If you're looking to maximize score, your goal is to have installment loan utilization report at 8.9% or less.  I don't recall what your original balances were on the loans combined, but my guess is that a balance in the $1500-$2500 range would probably land you under 8.9%.  Of course any number under that (but greater than zero) would work as well, just saying that there's no benefit of a few hundred bucks being the number you're shooting for.

Again, with the presence of another open loan, the closure of the one loan would be your best bet along with a paydown to 8.9% or less of the balance of the remaining loan.  Both loans then report (one closed, other 8.9% or less) and your scores are maximized with respect to installment loan utilization.  In addition to that, you possess 1 less account with a balance, a factor that can also positively impact your score.  Then, from a non-scoring standpoint, under a future MR (for another loan) your profile simply "looks" better without the extra loan present from a DTI standpoint.

[randomguy1]

Take what the salesman says with a grain of salt.

Regardless of which option you take, if you pay off your loan or pay down balances, it might take awhile to reflect. 

[Anonymous]

Wasn't told anything from a salesman. I spoke to a finance manager.

[Anonymous]

Payments are typically reported monthly. Payoffs sometimes take longer to report.

But I definitely agree with BBS.