Any scoring benefit to refinancing this auto loan?

[masscredit]

DCU is advertising a refinance rate of 4.99% so I figured I’d jump on that to lower the rate of the auto loan I got from them in October.  That one is 7.49%.  Their requirements for the best rate used to be an EQ 08 score of 680 or higher so I figured I was golden with the 698 I saw just before I applied this past weekend. I found they now go by EQ V5 scores and they have it broken down by four score levels. I currently fall into the 6.74% range with the additional .50% for having a direct deposit set up.

My current payment is $520 per month (65 months with 57 remaining). The new loan will also be 65 months with a payment of $456.  I’ve been paying $600 per month and will continue to do that. I estimate I’ll have it paid off in 48 months and will save about $500 with the refi.  Plus there is a $150 fee to do this so $350. Okay, the offer is getting less attractive as I type this.

I've taken the inquiry on EQ. No score change there. Current loan is at 89% ($24557/$27549).  I guess I'll take the temperory hit for the new loan and it will be 6-7 months until I have the new one paid to 89%. I don't know if I'm missing anything so I'm wondering if there is any scoring benefit to following through with this? 

[FICOdawg]

Cars are a losing asset.     If you can get lower payment I'd just refi the loan and ask them to keep the same 57 months and then continue making the higher payment amounts.     Unless you need the score for something else the financial move trumps FICO here.   You'll gain equity in the car quicker and as you pay it down the points cone for free.   Don't blow out the term  and if possible try to get shorter term with same payment.       

As always, on time payments and paying down any credit cards to below 9% utilisation is the biggest knob you control for FICO.     

[Patient957]

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@masscredit wrote:

DCU is advertising a refinance rate of 4.99% so I figured I’d jump on that to lower the rate of the auto loan I got from them in October.  That one is 7.49%.  Their requirements for the best rate used to be an EQ 08 score of 680 or higher so I figured I was golden with the 698 I saw just before I applied this past weekend. I found they now go by EQ V5 scores and they have it broken down by four score levels. I currently fall into the 6.74% range with the additional .50% for having a direct deposit set up.

My current payment is $520 per month (65 months with 57 remaining). The new loan will also be 65 months with a payment of $456.  I’ve been paying $600 per month and will continue to do that. I estimate I’ll have it paid off in 48 months and will save about $500 with the refi.  Plus there is a $150 fee to do this so $350. Okay, the offer is getting less attractive as I type this.

I've taken the inquiry on EQ. No score change there. Current loan is at 89% ($24557/$27549).  I guess I'll take the temperory hit for the new loan and it will be 6-7 months until I have the new one paid to 89%. I don't know if I'm missing anything so I'm wondering if there is any scoring benefit to following through with this? 

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I can't see how there would be any scoring benefit.  As you correctly point out, you will be resetting your loan B/L from 89% back to 100%.  That could cause a small score hit, depending on what other installment loans you have, if any. 

But any score hit would likely be small and temporary, and since you've already taken the HP, I see no reason not to take the new loan and the savings, however small.  Okay, maybe one reason not to is that a new loan hits your AAoA.  So you have to consider that as well.  The finances over Fico crowd would say do it.  $350 is $350.   You could go either way, really, but it's not a slam dunk IMO.

[masscredit]

I woke up this morning thinking I might pass on the offer. I would haved a couple thousand if I got the 4.99%. I've been with DCU for over 10 years and have been happy with them but the rate based on scores wasn't clear at all.  The breakdown was about length of the loan. I have 24 more days to decide.

[FICOdawg]

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@masscredit wrote:

I woke up this morning thinking I might pass on the offer. I would haved a couple thousand if I got the 4.99%. I've been with DCU for over 10 years and have been happy with them but the rate based on scores wasn't clear at all.  The breakdown was about length of the loan. I have 24 more days to decide.

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If they already dinged you with a HP then I'd do it.   My only thing would be resist adding length to the term.   Call them and see if you can essentially reamortize it with the new rate and not add payments and keep making the same payment.    Vehicles are money sucking losers.

[SouthJamaica]

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@masscredit wrote:

DCU is advertising a refinance rate of 4.99% so I figured I’d jump on that to lower the rate of the auto loan I got from them in October.  That one is 7.49%.  Their requirements for the best rate used to be an EQ 08 score of 680 or higher so I figured I was golden with the 698 I saw just before I applied this past weekend. I found they now go by EQ V5 scores and they have it broken down by four score levels. I currently fall into the 6.74% range with the additional .50% for having a direct deposit set up.

My current payment is $520 per month (65 months with 57 remaining). The new loan will also be 65 months with a payment of $456.  I’ve been paying $600 per month and will continue to do that. I estimate I’ll have it paid off in 48 months and will save about $500 with the refi.  Plus there is a $150 fee to do this so $350. Okay, the offer is getting less attractive as I type this.

I've taken the inquiry on EQ. No score change there. Current loan is at 89% ($24557/$27549).  I guess I'll take the temperory hit for the new loan and it will be 6-7 months until I have the new one paid to 89%. I don't know if I'm missing anything so I'm wondering if there is any scoring benefit to following through with this? 

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Sorry, no. There's no scoring benefit.  Might be the opposite, since you're taking out a new account.

So it's just a question as to whether the economic benefits (a $64 per month lower payment and an interest savings of $350) are worth it. I vote no, don't bother.

[Realist]

If you've already taken the inquiry hit, there's little reason not to follow up with a cost savings maneuver, provided the term doesn't change.  While it's true that vehicles can be money sucking pits, at the end of the day, people still need vehicles to get around.  The levers you have available, which comes in multiple forms, is the attempt to improve on efficiency.  Better price, better interest rate, better monthly rate, reduced term, better fuel efficiency, upgraded safety and security, etc.

We're in an efficiency situation similar to this with P4.  Upgrading a vehicle would enhance fuel savings to greater than 50% each month.  Necessary for a new job, with a bit longer drive.  The average in fuel savings over the term of a loan, is about $8,000 over the vehicle owned today.  The life of the current vehicle has to also be considered.  A healthy down payment makes the loan extremely affordable.  Additionally, there's a bit of life left to sell private party, to a newer driver looking for a safe and reliable starter vehicle.  This will help offset some costs.  These are factors that we face while considering a purchase for our specific need.

[masscredit]

This was inquiry number 4 on my EQ in the last 12 months.  It showed but no ding. That score has inched up to 698. Don't really want to go back. Actually, I guess I would have felt better giving up some points for a 4.99% rate. They offer no payments for 2 months. I'm going to pass on that if I go through with it. Even if they can't do 57 months, I'll still be hammering away at $600 per month. 

[FICOdawg]

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@Realist wrote:

If you've already taken the inquiry hit, there's little reason not to follow up with a cost savings maneuver, provided the term doesn't change.  While it's true that vehicles can be money sucking pits, at the end of the day, people still need vehicles to get around.  The levers you have available, which comes in multiple forms, is the attempt to improve on efficiency.  Better price, better interest rate, better monthly rate, reduced term, better fuel efficiency, upgraded safety and security, etc.

We're in an efficiency situation similar to this with P4.  Upgrading a vehicle would enhance fuel savings to greater than 50% each month.  Necessary for a new job, with a bit longer drive.  The average in fuel savings over the term of a loan, is about $8,000 over the vehicle owned today.  The life of the current vehicle has to also be considered.  A healthy down payment makes the loan extremely affordable.  Additionally, there's a bit of life left to sell private party, to a newer driver looking for a safe and reliable starter vehicle.  This will help offset some costs.  These are factors that we face while considering a purchase for our specific need.

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40% of cars are driving around with negative equity.       I traded in my Mercedes last year that I had bought in 2022 to go to a less expensive vehicle.     I had to write a check to prevent rolling negative equity into my new to me but 3 year old certified Ford.    I basically only had maybe few thousand down in realty.

I just checked and my car is worth exactly what I owe on it and every payment I've put $160 extra on the payment.      I'll really start gaining equity in it over the next two years as I ramp up the payment.      Cars are abysmal and just keep people broke.    I'll keep my SUV a long time and plan to never have a car payment again.    

  Don't forget the sales tax and registration that also gets you everytime you buy.

Calling the car market efficient sounds like something dealers like to claim.     It was efficient when cars were over priced during Covid and now efficient again after Covid?   lol. 

[Realist]

We would typically drive our vehicles into the ground, so we'll hold on to them for quite some time, or until it no longer makes sense.  A lot of people we know, including family, need a new vehicle every other year.  That is fortunately, not a "want" type item that we desire in life.  We place value elsewhere, or into other items we desire.

In my scenario above about improvement in efficiency for P4, the job will produce an additional $50k in income annually, at a cost of nearly one-half of fuel consumption as the current vehicle cost.  But, we don't purchase new vehicles, we purchase excellent used vehicles, with nearly half down, making payments almost negligable.  I think for P3, and their 70k job (still young in corporate), their loan payment was $130/mo.  Just recently paid that one off.

Automobiles can be expensive.  They can be money pits.  But they also don't have to be if structured properly, and selected appropriately.