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Replacing old car and related financing

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NYC_Fella
Frequent Contributor

Replacing old car and related financing

I got rear-ended last week and my car is totaled. No injuries, thank goodness. Most, maybe even all, of the loss will be covered by the other party's insurance. Here's the status in round numbers:

 

Original car loan: $20,000

Current loan balance: $8,000 (i.e., 60% paid off which I believe helps my FICO scores)

 

Let's say I'm looking at a new car in the $30K range. I could easily put down $15K and have a $15K loan, of which obviously 0% would be paid off. Would this hurt my scores?

 

Would I be better off putting down $5K and getting a $25K loan initially, and then paying it down by $10K in the next couple of months so that the loan would be 40% paid off? I would be laying out the same $15K in cash but the loan would show a higher percentage paid off. Let's assume that there are no early payment penalties.

 

Thanks for any suggestions!

 


Message 1 of 9
8 REPLIES 8
SouthJamaica
Mega Contributor

Re: Replacing old car and related financing


@NYC_Fella wrote:

I got rear-ended last week and my car is totaled. No injuries, thank goodness. Most, maybe even all, of the loss will be covered by the other party's insurance. Here's the status in round numbers:

 

Original car loan: $20,000

Current loan balance: $8,000 (i.e., 60% paid off which I believe helps my FICO scores)

 

Let's say I'm looking at a new car in the $30K range. I could easily put down $15K and have a $15K loan, of which obviously 0% would be paid off. Would this hurt my scores?

 

Would I be better off putting down $5K and getting a $25K loan initially, and then paying it down by $10K in the next couple of months so that the loan would be 40% paid off? I would be laying out the same $15K in cash but the loan would show a higher percentage paid off. Let's assume that there are no early payment penalties.

 

Thanks for any suggestions!

 


Do you have other open loans?

 

If so, we would need to know what your other loan amounts and current balances are to advise as to the best way to proceed in terms of scoring.

 

If not, you probably won't see a big difference no matter what you do.  Your $8k balance didn't put you in the sweet spot. You would have had to get it below $2k to get a good scoring boost from that loan.  Likewise your new 30k loan probably won't hurt you much, since you weren't in the sweet spot before, but you're not going to get any good scoring benefit from it unless and until you take the balance down below 3k.


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 2 of 9
NYC_Fella
Frequent Contributor

Re: Replacing old car and related financing


@SouthJamaica wrote:

Do you have other open loans?

 

If so, we would need to know what your other loan amounts and current balances are to advise as to the best way to proceed in terms of scoring.

 

If not, you probably won't see a big difference no matter what you do.  Your $8k balance didn't put you in the sweet spot. You would have had to get it below $2k to get a good scoring boost from that loan.  Likewise your new 30k loan probably won't hurt you much, but you're not going to get any good scoring benefit from it unless and until you take the balance down below 3k.


Nope, no other loans. Just credit cards where I maintain AZEO and a 1%-2% overall utilization. Thanks for your input.


Message 3 of 9
SouthJamaica
Mega Contributor

Re: Replacing old car and related financing


@NYC_Fella wrote:

@SouthJamaica wrote:

Do you have other open loans?

 

If so, we would need to know what your other loan amounts and current balances are to advise as to the best way to proceed in terms of scoring.

 

If not, you probably won't see a big difference no matter what you do.  Your $8k balance didn't put you in the sweet spot. You would have had to get it below $2k to get a good scoring boost from that loan.  Likewise your new 30k loan probably won't hurt you much, but you're not going to get any good scoring benefit from it unless and until you take the balance down below 3k.


Nope, no other loans. Just credit cards where I maintain AZEO and a 1%-2% overall utilization. Thanks for your input.


OK so I wouldn't jump through hoops with it. Just make the down payment you feel like making, and pay it down the way you feel like paying it down.

 

My problem with trying to get FICO points from an auto loan is that from a scoring perspective you'd want to keep it open as long as possible with a tiny balance, but once I got down to a tiny balance my feeling was 'heck with FICO scores, I want to pay the loan off and get my clean title'.


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 4 of 9
disdreamin
Valued Contributor

Re: Replacing old car and related financing


@SouthJamaica wrote:

My problem with trying to get FICO points from an auto loan is that from a scoring perspective you'd want to keep it open as long as possible with a tiny balance, but once I got down to a tiny balance my feeling was 'heck with FICO scores, I want to pay the loan off and get my clean title'.


Yes, this ^^^

 

Right now my auto loan is at ~$2k owed and I am having a hard time not paying it off now-now-NOW. The darned thing is 0% and I know it's foolish, but the temptation to just make it gone is ridiculously high. It will be paid off by mid- December either way, but I've come real close to just hitting the "show my payoff amount" and making it go *poof*

 

OP, in this case I don't see much of an advantage either way you described with the new loan unless you're planning to app for a mortgage or something like that in the near future. It looks like (assuming you are in NY as your username suggests) your auto insurer should pay for the sales tax component of the actual value of your vehicle, so you're effectively getting the tax advantage on the full amount whether you choose to put it toward a new vehicle or not. Good luck with the new car shopping.

Message 5 of 9
SouthJamaica
Mega Contributor

Re: Replacing old car and related financing


@disdreamin wrote:

@SouthJamaica wrote:

My problem with trying to get FICO points from an auto loan is that from a scoring perspective you'd want to keep it open as long as possible with a tiny balance, but once I got down to a tiny balance my feeling was 'heck with FICO scores, I want to pay the loan off and get my clean title'.


Yes, this ^^^

 

Right now my auto loan is at ~$2k owed and I am having a hard time not paying it off now-now-NOW. The darned thing is 0% and I know it's foolish, but the temptation to just make it gone is ridiculously high. It will be paid off by mid- December either way, but I've come real close to just hitting the "show my payoff amount" and making it go *poof*

 

OP, in this case I don't see much of an advantage either way you described with the new loan unless you're planning to app for a mortgage or something like that in the near future. It looks like (assuming you are in NY as your username suggests) your auto insurer should pay for the sales tax component of the actual value of your vehicle, so you're effectively getting the tax advantage on the full amount whether you choose to put it toward a new vehicle or not. Good luck with the new car shopping.


Only thing: installment utilization has little or no effect on the mortgage scores.


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 6 of 9
disdreamin
Valued Contributor

Re: Replacing old car and related financing


@SouthJamaica wrote:


Only thing: installment utilization has little or no effect on the mortgage scores.


I wasn't thinking about FICO scores, I was thinking that higher loan payment amount might have an effect on qualifying for a mortgage if you are pushing the envelope. I doubt that's the position OP would be in, but one never knows.

Message 7 of 9
TheKid2
Frequent Contributor

Re: Replacing old car and related financing

Since FICO doesn't look at amounts and deals in utilization percentages, it won't matter whether you have a $100k loan or a $2k loan. You're going to be hit with a new account (if you're on a clean scorecard), your AAoA will take a hit (less on thick file), and you're going to have a "maxxed" loan. For a mature file this shouldn't be significant, but it will very likely be a net loss in points no matter how you slice it. The scores will recover as you pay the loan down and it ages.

 

So, you should take on the payment you're comfortable with. Finances over FICO!

 

JOINED 4/2020


FICO 8 = 582, 620, 589 / Mortgage = 633, 526, 581


CURRENT PEAK *Thanks to the MF Community!


FICO 8 = 715, 711, 720 / Mortgage = 688, 696, 681

Message 8 of 9
SouthJamaica
Mega Contributor

Re: Replacing old car and related financing


@disdreamin wrote:

@SouthJamaica wrote:


Only thing: installment utilization has little or no effect on the mortgage scores.


I wasn't thinking about FICO scores, I was thinking that higher loan payment amount might have an effect on qualifying for a mortgage if you are pushing the envelope. I doubt that's the position OP would be in, but one never knows.


Good point.


Total revolving limits 741200 (620700 reporting) FICO 8: EQ 701 TU 704 EX 685

Message 9 of 9
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