In addition to Swampthing's suggestion regarding a share secured loan I'd offer two other possible paths:
1) Refinance that loan down. There's zero reason to carry debt at 8% for FICO purposes, especially at auto loan size. CU's are still liberal with their 2% or lower offerings, which is basically historical inflation... not quite free money but close. Not sure on your scores but if you can hit 680 it shouldn't be a problem to do.
2) Do a lump sum regular payment to it but don't pay it off completely. Appears that a number of lenders are allowing the due date to be pushed way out into the future. 8% of $100 or even $10 remaining per year is way different from a cost perspective than that APR on some large balance since virtually all auto loans are simple interest (interest calculated off principal only). That being the case, you might get the best of everything, nearly paying it off thereby reducing the financial penalty, and also getting whatever benefits the longer line gets you. You won't get the full term but you'll get close which doesn't suck FICO wise. Worst case they mandate it as a principal payment and it winds up basically paying off the loan right now... and then you take Swamp's suggestion as a future avenue.
Anyway yes longer tradelines are better, no we don't know how long is optimal, but it's honestly not that important: finances > FICO always, and in this case an 8% auto loan should absolutely be addressed financially first and FICO-wise second.
@nycfico wrote:Agreed, the net/net is that I want to pay off the loan regardless of impact on credit score. BUT, there are other priorities as well (IRS tax lien of about $59k, some left over credit card chargeoffs that I am chipping away at).
So the question becomes weighing the pros and cons. If I take the $19k and put it towards the IRS debt and get it down to $40k, that's obviously a big step in the right direction on that, but my interest is higher on the car loan, and it wouldn't help my cash flow situation at all, nor would it have any impact on my FICO. Paying off the chargeoffs would be great just to finally be done with them, but they have no interest.
If I heard, for example, that getting to two years of flawless payments on a car loan (I have a couple of other old, closed car loans with similar perfect history), would for a while be a good impact on my sccore over and above having one with a 16 month history, then I might decide to let it ride another 8 months, get to that point, and then pay it off.
I guess this is a classic issue in rebuilding credit...there are no perfect options sometimes in terms of what to pay down first.
Actually I think you answered your own question specific to the IRS:
The penalties for the IRS on an old lien are generally <8%, and once you resolve a Federal IRS lien, you can get it airstruck; same applies if you sucessfully negotiate and make payments on an Installment Agreement. If you need to go through a mortgage process in the near / mid-term future, then the IRS lien has a lot of bite and likely should be prioritized.
If not, personally while absolutely I'd triple-check the penalty accrual rate, I'd address the auto loan. Note if rates materially rise, so will the IRS penalties, auto loan is fixed, but I'd still likely address the auto loan first, free up that additional cash flow, and then go deal with the IRS.
@nycfico wrote:
@Revelate wrote:
@nycfico wrote:Agreed, the net/net is that I want to pay off the loan regardless of impact on credit score. BUT, there are other priorities as well (IRS tax lien of about $59k, some left over credit card chargeoffs that I am chipping away at).
So the question becomes weighing the pros and cons. If I take the $19k and put it towards the IRS debt and get it down to $40k, that's obviously a big step in the right direction on that, but my interest is higher on the car loan, and it wouldn't help my cash flow situation at all, nor would it have any impact on my FICO. Paying off the chargeoffs would be great just to finally be done with them, but they have no interest.
If I heard, for example, that getting to two years of flawless payments on a car loan (I have a couple of other old, closed car loans with similar perfect history), would for a while be a good impact on my sccore over and above having one with a 16 month history, then I might decide to let it ride another 8 months, get to that point, and then pay it off.
I guess this is a classic issue in rebuilding credit...there are no perfect options sometimes in terms of what to pay down first.
Actually I think you answered your own question specific to the IRS:
The penalties for the IRS on an old lien are generally <8%, and once you resolve a Federal IRS lien, you can get it airstruck. If you need to go through a mortgage process in the near / mid-term future, then the IRS lien has a lot of bite and likely should be prioritized.
If not, personally while absolutely I'd triple-check the penalty accrual rate, I'd address the auto loan. Note if rates materially rise, so will the IRS penalties, auto loan is fixed, but I'd still likely address the auto loan first, free up that additional cash flow, and then go deal with the IRS.
Yeah, it feels counterintuitive at times to address the IRS last and focus on car loans and even credit cards, but my thinking is that I can improve a very stretched cash flow situation going one by one with other creditors, even charged off ones, and incrementally giving me a little more breathing room each month. I'm paying $1425 per month to the IRS, but that amount doesn't change by putting $19k towards it, while my car payment of $415 would go away, and along with it the higher interest rate.
My only pause is that I love seeing the growing green lines each month (it's been 3.5 years since the last serious baddie, with one 30 day hiccup in 2013 that is likely not a big deal), and having a long flawless history on the car helps, but probably not as much as I'm 'feeling'. Back to the original question, I was wondering if the two year mark was somehow a bigger impact than a 16 month one. (Taken to the extreme, if I was at 23 months and found out that the 24th month would represent a 10 or 15 point jump, then I would wait a month and then pay it.)
But, I think you're all confirming what I pretty much thought, which is whatever benefit the 24 month mark might bring is both unclear and also very likely not significant enough to effect my thinking right now.
As always, thanks.
Yup, in debt in my opinion and stretched cash flow, pay off the higher APR and free up some additional breathing room.
I would suggest taking option #2 that I offered, make the near complete payment to the auto loan as a regular payment, and see what the due date does. You might get lucky and it'll push out a couple of years even and you don't have to make additional payments during that time (freeing up the cash right now and getting some marginal FICO benefits by extending those pretty green OK's until it's fully paid) or worst case if they simply reset the payment date, you basically get a good financial benefit out of it removing that $415 payment anyway which I'd suggest is the lion's share if not the total of what you actually need.
Look into the Installment Agreement requirements if you have a negotiated payment plan already, might be able to get the lien off your reports which is worth looking into for a whole lot of good reasons. I know the IRS has multiple ways to get into a payment plan some more consumer friendly than others so not sure what path you took but it's worth a shot.