I have 14 months left on my auto loan ($20k, 60 month installment, no lates). With my current mid-600 score I can refi my auto loan. It will lower my payment, but if I continue to pay the same amount I'm paying now, I'll happen to pay it off in 13 months so I'll save one month's worth overall. My question is what will the impact be on my score in 13 months with a second auto loan ($5k) showing 13 months of payments?
Once again, FICO is an indicator of relative credit risk - not credit worthiness. On the surface, the economics are sound, but FICO is going to more than likely ding you. Remember that each time you open a new line of credit, FICO takes into consideration the total number of trade lines (open and closed) and compares this to some weighted national average. If you have fewer accounts than the statistical model then you would see an increase, more accounts and you may well see a slight (or significant) decrease. Try thinking about this more in terms of risk - which carries more risk, a person who pays off a 60-month installment loan without a hitch, or a person who pays 48 of the 60-months and then refinances? The economics and cost savings would seem obvious to both you and me, but not to the FICO scoring model. I think that unless you can realize greater than a 10% savings in interest over the next 12-months, then refinancing is not going to make much of a difference in terms of score. Besides, unless you are planning on hanging on to the car for another year or more after it is paid off, then refinancing may well have a negative imnpact when it comes time to buy something else at the end of the refinanced loan! Michael
If I refi'ed my car I would pay it off in 13 months, thereby having two auto tradelines. One that is paid off in 46 months, and another paid off in 13 months. I am interesting in long-term FICO score growth (i.e. 13 months from now), not near-term which I am sure will take a ding for the first 6 months with a new auto loan. I understand your point about relative risk, but a person will not be looking at the majority of credit issues and analyzing each tradeline, but rather will rely on the FICO score, so I am asking what will result in a higher FICO score 13 months from now, all other things being equal. Also, for all they know, my two tradelines could easily be TWO separate cars, unless they somehow specify VIN # or that it's a refi on the CR. 1. One tradeline: - $20k, 60-month auto loan, no lates, paid off in 60 months. or... 2. Two tradelines: - $20k, 60-month auto loan, no lates, paid off in 46 months - $5k, 36-month auto loan, no lates, paid off in 13 months I'm not so much conerned with the dollar saved if I refi or not refi, b/c I can pay the auto loan off at anytime. I'm only interested in impact on FICO. A lot of people have talked about using secured loan paid off over 12 months or whatever to increase their FICO. Why not consider an auto-refi for the very same purpose? In fact, it'd be even easier in my case to get an auto refi b/c my LTV is about 60%.
