need a little auto loan advice

[ddnww]

I am going to be purchasing a truck soon and I wanted to ask when you guys thought the best time to do so is. I have 5 payments left on my 4runner, I am not trading it in, I am adding a vehicle to my garage. I have heard paying off a loan drops your credit a bit, although I would have thought it would raise it. So I am wondering if it would be better to buy right before its paid off , or after its paid off. I have good credit, but want to make sure my credit is at its highest so I can get the best rate possible.

 

[MtnT4R]

I did a little quick research and found that credit scores do seem to drop after paying off a loan, which is a bummer but kind of makes sense because you are effectively closing a line of credit in your name. I would suggest securing a new loan before closing the old one- a few posts I read were reporting drops of 30 or 40 points.

Are you buying a new truck or used? There are probably a lot of sales and specials going on right now to boost the bottom line for the 4th quarter earnings crunch.

 

[JayceeP]

It's not going to make much difference unless your debt servicing ratio is very tight and you have mediocre credit and payment history. Paying off a loan, much like cancelling a credit card, could impact your score but I would be willing to bet that impact is neglible and irrelevant actually. If you have good credit and strong payment history, job/income etc pull the trigger IMO.

In Canada, debt servicing ratios generally max at 32% of gross income for housing and 40-44% of gross income for housing and all other payments. Example. If you make $100k, housing related payments should not exceed $32k annually and total debt payments should not exceed $40-$44k annually. Having said that, if you are at or near those ratios, you'll have pretty low disposable income.

If you have a credit score that's pretty good, you don't really get a better rate on a good vs great credit score... the rate generally depends on your total relationship with the bank.

 

[1engineer]

Won't make much of a difference unless you are borderline.

If you are buying a Toyota and want the best rate you need to do a bit of research. What you will find is, as important as your credit score is, equally important is how much you are putting down on the vehicle. I think 20% plus a good credit score will get you the best rate.

 

[ddnww]

It's not going to make much difference unless your debt servicing ratio is very tight and you have mediocre credit and payment history. Paying off a loan, much like cancelling a credit card, could impact your score but I would be willing to bet that impact is neglible and irrelevant actually. If you have good credit and strong payment history, job/income etc pull the trigger IMO.

In Canada, debt servicing ratios generally max at 32% of gross income for housing and 40-44% of gross income for housing and all other payments. Example. If you make $100k, housing related payments should not exceed $32k annually and total debt payments should not exceed $40-$44k annually. Having said that, if you are at or near those ratios, you'll have pretty low disposable income.

If you have a credit score that's pretty good, you don't really get a better rate on a good vs great credit score... the rate generally depends on your total relationship with the bank.

thanks

Won't make much of a difference unless you are borderline.

If you are buying a Toyota and want the best rate you need to do a bit of research. What you will find is, as important as your credit score is, equally important is how much you are putting down on the vehicle. I think 20% plus a good credit score will get you the best rate.

I would say if it dropped my score 40 points then that may put me in fair credit. I am buying an f150 :tape:

I did a little quick research and found that credit scores do seem to drop after paying off a loan, which is a bummer but kind of makes sense because you are effectively closing a line of credit in your name. I would suggest securing a new loan before closing the old one- a few posts I read were reporting drops of 30 or 40 points.

Are you buying a new truck or used? There are probably a lot of sales and specials going on right now to boost the bottom line for the 4th quarter earnings crunch.

thank you, I am not sure if buying new or used at this point. It will be 2015 or newer, but it depends on the deal I can get. If I can get a great deal on a 2018 then I will get it.

 

[Frederick1]

thanks

I am buying an f150

I'm so sorry:brick:

 

[ddnww]

thanks

I am buying an f150

I'm so sorry:brick:

lol, I'm still keeping my 4runner, I don't think I will ever sell that. But I need a truck to tow etc.

 

[derryck]

Won't make much of a difference unless you are borderline.

If you are buying a Toyota and want the best rate you need to do a bit of research. What you will find is, as important as your credit score is, equally important is how much you are putting down on the vehicle. I think 20% plus a good credit score will get you the best rate.

You can get 0% all day long from manufacturers that offer it (like Ford) with zero money down if you have strong credit and free money is free money. I'm not advocating that you shouldn't put money down on a depreciating asset but 0% is 0% and it doesn't get any better.

 

[lucky7]

The auto industry is on the brink once again. I'd keep my powder dry. There will be many, many deals. Especially if you want something GM.

 

[1engineer]

You can get 0% all day long from manufacturers that offer it (like Ford) with zero money down if you have strong credit and free money is free money. I'm not advocating that you shouldn't put money down on a depreciating asset but 0% is 0% and it doesn't get any better.

I don't know about other manufacturers, only Toyota. I only know this because we just bought a replacement Highlander for my wife after her two month old new highlander was totalled in a wreck. Toyota will give you the zero percent only on selected vehicles at selected times. Otherwise, it's all about your credit score and down payment. To max out, you need both to get the lowest rate from Toyota.

What I meant by my comment above on "not making much difference" if you have great or "greater" credit score is this: A few points one way or the other won't make a difference. Excellent credit is 750 or above. If you have 750, 760 is not going to get you a better rate.

Good credit is 700 to 749. If you have a score of 740 and you bump it up to 755, then you might gain a few tenths on your rate. But, it actually takes quite a bit to change your score substantially, and losing a few points by paying off a loan early is not going to change it substantially. That's what I meant.

 

[wadle5]

The auto industry is on the brink once again. I'd keep my powder dry. There will be many, many deals. Especially if you want something GM.

THIS! With the highest default rates in history, this most likely will be the next bubble to burst. Once this occurs and the market collapses you will be able to actually not get burned at the dealership with their prices.

 

[ddnww]

Especially if you want something GM.

:barf:

What I meant by my comment above on "not making much difference" if you have great or "greater" credit score is this: A few points one way or the other won't make a difference. Excellent credit is 750 or above. If you have 750, 760 is not going to get you a better rate.

Good credit is 700 to 749. If you have a score of 740 and you bump it up to 755, then you might gain a few tenths on your rate. But, it actually takes quite a bit to change your score substantially, and losing a few points by paying off a loan early is not going to change it substantially. That's what I meant.

what I am concerned with is say I have a 730, and if I pay the loan off it drops it 40 points to 690, making it "fair credit", then I not get as good of a rate .

 

[1engineer]

:barf:

what I am concerned with is say I have a 730, and if I pay the loan off it drops it 40 points to 690, making it "fair credit", then I not get as good of a rate .

40 points is a big jump at one time in credit scoring. Usually the jumps are just a few points at a time. Late? dinged a few points. Close an account? Another few points. Lower debt? A few more points. 40 is a big jump at one wack. Read this http://www.investopedia.com/articles/pf/10/credit-score-factors.asp?lgl=myfinance-layout-no-ads

 

[Gunslinger-13]

You should also be thinking about a loan for all the repairs you will have to do to that Ford....

In all seriousness 1engineer is correct, 40 points is a big jump. You'd likely see less than a ten point jump for the scenario you laid out.

Good luck with the Ford!ray:

 

[Khjphoto]

Don't get a loan. Pay cash. You will never build wealth by borrowing!

 

[Muzzle of Bees]

Your score will drop 30 or 40 points quickly. My score was above 800 before I bought my 4Runner. My mortgage is zero. My auto was owned. No credit cards. No late payments ever. I bought the 4Runner, opened two credits cards a couple of years later with 0 interest and balance transfers. My score dropped 40 points. Still no late payments. I recently canceled the cards too.
It is a system that you will rarely win in. I just try and play their game against them. You know 0% interest and transfers and keep rolling those as needed.

 

[t4r blinder]

Shop around for the best interest rate. I imagine the rate has more to do with your score than anything else. Sounds like your debt to income ratio is not a problem, so your interest rate will be affect more by your credit score. Just have a solid loan at the best rate before you go shopping for the F150, you could use that as a bargaining chip when they try to get you to use ford financing. Good luck and congrats on the vehicle

 

[ddnww]

40 points is a big jump at one time in credit scoring. Usually the jumps are just a few points at a time. Late? dinged a few points. Close an account? Another few points. Lower debt? A few more points. 40 is a big jump at one wack. Read this The 5 Biggest Factors That Affect Your Credit

i have spoke to people who's credit has dropped 30-40 points after paying off an auto loan.

You should also be thinking about a loan for all the repairs you will have to do to that Ford....

In all seriousness 1engineer is correct, 40 points is a big jump. You'd likely see less than a ten point jump for the scenario you laid out.

Good luck with the Ford!ray:

:lol:

Your score will drop 30 or 40 points quickly. My score was above 800 before I bought my 4Runner. My mortgage is zero. My auto was owned. No credit cards. No late payments ever. I bought the 4Runner, opened two credits cards a couple of years later with 0 interest and balance transfers. My score dropped 40 points. Still no late payments. I recently canceled the cards too.
It is a system that you will rarely win in. I just try and play their game against them. You know 0% interest and transfers and keep rolling those as needed.

AGREED

Shop around for the best interest rate. I imagine the rate has more to do with your score than anything else. Sounds like your debt to income ratio is not a problem, so your interest rate will be affect more by your credit score. Just have a solid loan at the best rate before you go shopping for the F150, you could use that as a bargaining chip when they try to get you to use ford financing. Good luck and congrats on the vehicle

Yup I am planning to do just that.

 

[1engineer]

Your score will drop 30 or 40 points quickly. My score was above 800 before I bought my 4Runner. My mortgage is zero. My auto was owned. No credit cards. No late payments ever. I bought the 4Runner, opened two credits cards a couple of years later with 0 interest and balance transfers. My score dropped 40 points. Still no late payments. I recently canceled the cards too.
It is a system that you will rarely win in. I just try and play their game against them. You know 0% interest and transfers and keep rolling those as needed.

What's the difference between 770 and 810? Nothing. There is no graduated system. You fall into one of four categories and that's it. Why? Because your credit rating is gonna change and they know that. Very seldom does it change significantly unless something significant happens. It's usually a few points +-. My original post said "Unless you are close to the line..." which means losing 40 points off of 800 means nothing, but losing 5 points off of 750 might cost you a tenth on the interest rate over five years. That's the key being in a solid position. 800 is a solid position. For all intents and purposes, 750 is a solid position as long as you keep it there or above.

And lastly, if you finance through a manufacturer, the DEALER has leeway on what interest rate you can get to a point. You could have a 720 score and get the same rate as a guy with 800 score if the dealer wants to give up a piece of the margin to make the deal, or if the 720 guy put down 25% and the 800 guy only put down 5%. My point is there are many ways to get screwed. There are also many ways to mitigate the damage. Having a high credit score, putting down 25% and using the interest rate as a bargaining chip are ways to keep more money in your pocket.
Good luck!

 

[Biggs77]

Don't get a loan. Pay cash. You will never build wealth by borrowing!

Most dealerships will actually get you a better deal through financing - sales folk have perks and incentives for each vehicle financed and dealerships as a whole do as well, I believe. Because of this, I've found the old belief of walking in and dropping a stack of cash and getting the best deal to no longer be true.

If it were me, I'd have the cash available to pay all/most of it, finance with the best terms you can (either at the dealership or at your local credit union), finance the vehicle and go and immediately pay it off.

In terms of your credit score, if you're worried about your score dropping due to paying it off, you can always pay it down to almost nil, get your financing all set for the truck, and then pay off the rest of your T4R. Loan officers look at credit score and your debt to income ratio - by leaving a nominal amount on the loan before buying your truck you lower your debt to income ratio and don't cause any hiccup with your credit score.