Auto refinancing question.

jtusa

Diamond Member
Aug 28, 2004
4,188
0
71
So I bought a used car last year, financed it for 5 years so I could be sure I wouldn't over extend myself, and since it was my first loan other than credit cards and a small student loan, I didn't get the greatest interest rate. I financed it through my insurance company. I can refinance through my bank for 36 months at a lower interest rate, and basically shave a year off my loan for $50 more a month (keeping my current loan I would have to put an extra $100ish/mo to shave a year off). I make a fair amount more now than I did when I bought the car, so the extra money every month isn't an issue (I'll probably pay extra on the premium every payment even if I do refinance.)

So it seems like a no brainer to me, but I just want to know, does refinancing a loan affect your credit in any way? I have good credit, always on time with payments, etc, just want to make sure I won't have any unknown affects on credit by doing this. I can't see how would negatively affect me in any way, but I'm no expert, and credit scoring criteria seems finicky, which is why I'm asking.
 

CPA

Elite Member
Nov 19, 2001
30,322
4
0
Even if it affected your credit score 20-50 points, which I doubt it would, why do you care? Are you expecting to make a huge financed purchased (ie, house) in the next six to twelve months? One credit review, which this is, will not substantially hit your score.

Honestly, too many people make too big of a deal of their credit score. As long as it's not 650 or less, then you really don't have much to worry about. Going from 750 to 725 or even 700 is not going to effect you much in terms of credit-worthyness or interest rates.
 

jtusa

Diamond Member
Aug 28, 2004
4,188
0
71
Originally posted by: CPA
Even if it affected your credit score 20-50 points, which I doubt it would, why do you care? Are you expecting to make a huge financed purchased (ie, house) in the next six to twelve months? One credit review, which this is, will not substantially hit your score.

Honestly, too many people make too big of a deal of their credit score. As long as it's not 650 or less, then you really don't have much to worry about. Going from 750 to 725 or even 700 is not going to effect you much in terms of credit-worthyness or interest rates.

I might buy a house in the next year, hence the caution regarding my credit. I haven't had an actual score done in awhile, but I'd be willing to bet it's currently over 700.
 

shocksyde

Diamond Member
Jun 16, 2001
5,539
0
0
Generally, a score of 720 or higher will get you the best rates.

When you're talking about a house purchase, the difference in just .25% is HUGE.
 

CPA

Elite Member
Nov 19, 2001
30,322
4
0
Originally posted by: shocksyde
Generally, a score of 720 or higher will get you the best rates.

When you're talking about a house purchase, the difference in just .25% is HUGE.

Uh, no, it's not.

On a $300K house at 30 years for 7% your payment is roughly $2,000; at 7.25% it's 2,046. Total interest over the life of the loan at 7% is $418K; at 7.25% it's $437K. That's $19K (not considering the tax effect, which would make it lower). I don't consider that HUGE.
 

SoulAssassin

Diamond Member
Feb 1, 2001
6,135
2
0
Originally posted by: CPA
Originally posted by: shocksyde
Generally, a score of 720 or higher will get you the best rates.

When you're talking about a house purchase, the difference in just .25% is HUGE.

Uh, no, it's not.

On a $300K house at 30 years for 7% your payment is roughly $2,000; at 7.25% it's 2,046. Total interest over the life of the loan at 7% is $418K; at 7.25% it's $437K. That's $19K (not considering the tax effect, which would make it lower). I don't consider that HUGE.

Would you be willing to send me a check for $46 every month for the next 30 years then? Thought not. I would call it significant, maybe even huge, but not necessarily HUGE.
 

CPA

Elite Member
Nov 19, 2001
30,322
4
0
Originally posted by: SoulAssassin
Originally posted by: CPA
Originally posted by: shocksyde
Generally, a score of 720 or higher will get you the best rates.

When you're talking about a house purchase, the difference in just .25% is HUGE.

Uh, no, it's not.

On a $300K house at 30 years for 7% your payment is roughly $2,000; at 7.25% it's 2,046. Total interest over the life of the loan at 7% is $418K; at 7.25% it's $437K. That's $19K (not considering the tax effect, which would make it lower). I don't consider that HUGE.

Would you be willing to send me a check for $46 every month for the next 30 years then? Thought not. I would call it significant, maybe even huge, but not necessarily HUGE.

nope, and I still don't consider it HUGE.
 

Gibson486

Lifer
Aug 9, 2000
18,378
1
0
Originally posted by: SoulAssassin
Originally posted by: CPA
Originally posted by: shocksyde
Generally, a score of 720 or higher will get you the best rates.

When you're talking about a house purchase, the difference in just .25% is HUGE.

Uh, no, it's not.

On a $300K house at 30 years for 7% your payment is roughly $2,000; at 7.25% it's 2,046. Total interest over the life of the loan at 7% is $418K; at 7.25% it's $437K. That's $19K (not considering the tax effect, which would make it lower). I don't consider that HUGE.

Would you be willing to send me a check for $46 every month for the next 30 years then? Thought not. I would call it significant, maybe even huge, but not necessarily HUGE.

Loosing $6xx a year is huge for you?
 

dullard

Elite Member
May 21, 2001
25,655
4,172
126
Originally posted by: CPA
On a $300K house at 30 years for 7% your payment is roughly $2,000; at 7.25% it's 2,046. Total interest over the life of the loan at 7% is $418K; at 7.25% it's $437K. That's $19K (not considering the tax effect, which would make it lower). I don't consider that HUGE.
I consider it huge. Using your numbers, it is $1995.91 vs $2046.53. That is $50.62 difference a month.

Case 1): Pump the $50.62 savings into your house principal. You'd pay off the house 27 months earlier, saving over $61,000. $22,500 inflation adusted.

Case 2): Pump the $50.62 savings into a retirement account earning 10% interest. After 30 years it is worth over $114,000. $42,000 inflation adusted.

True, I didn't include taxes in those cases, which would reduce the difference a bit. But still, I'd be much happier with $42,000 extra dollars. That is a whole years extra salary for many families (well, maybe a half year for people with a $300,000 house). All over a 0.25% change. A half-year worth of income is huge. Or on the flip side, a half year more retirement would be wonderful. The average retirement is probably 10-15 years long. That extra half year (in the best portion of your retirement) is big.
 

CPA

Elite Member
Nov 19, 2001
30,322
4
0
Originally posted by: dullard
Originally posted by: CPA
On a $300K house at 30 years for 7% your payment is roughly $2,000; at 7.25% it's 2,046. Total interest over the life of the loan at 7% is $418K; at 7.25% it's $437K. That's $19K (not considering the tax effect, which would make it lower). I don't consider that HUGE.
I consider it huge. Using your numbers, it is $1995.91 vs $2046.53. That is $50.62 difference a month.

Case 1): Pump the $50.62 savings into your house principal. You'd pay off the house 27 months earlier, saving over $61,000. $22,500 inflation adusted.

Case 2): Pump the $50.62 savings into a retirement account earning 10% interest. After 30 years it is worth over $114,000. $42,000 inflation adusted.

True, I didn't include taxes in those cases, which would reduce the difference a bit. But still, I'd be much happier with $42,000 extra dollars. That is a whole years extra salary for many families (well, maybe a half year for people with a $300,000 house). All over a 0.25% change. A half-year worth of income is huge. Or on the flip side, a half year more retirement would be wonderful. The average retirement is probably 10-15 years long. That extra half year (in the best portion of your retirement) is big.

I'm not arguing that there is a difference, only the severity of that difference as stated by a poster. 42K is still not HUGE to me over a 30 year period. I would not forgo the refinancing of the car because of the slight possible worry that I would have .25% increase in my home loan rate. To me, the opportunity cost is not great enough to fret over.
 

SoulAssassin

Diamond Member
Feb 1, 2001
6,135
2
0
Originally posted by: Gibson486
Originally posted by: SoulAssassin
Originally posted by: CPA
Originally posted by: shocksyde
Generally, a score of 720 or higher will get you the best rates.

When you're talking about a house purchase, the difference in just .25% is HUGE.

Uh, no, it's not.

On a $300K house at 30 years for 7% your payment is roughly $2,000; at 7.25% it's 2,046. Total interest over the life of the loan at 7% is $418K; at 7.25% it's $437K. That's $19K (not considering the tax effect, which would make it lower). I don't consider that HUGE.

Would you be willing to send me a check for $46 every month for the next 30 years then? Thought not. I would call it significant, maybe even huge, but not necessarily HUGE.

Loosing $6xx a year is huge for you?

Of course not, it's a fraction of a percentage of my salary, I wouldn't refinance for a 25 basis point reduction but initially, all other things being equal, I would chose one bank over another for that much of a difference. HUGE is definitely not the right way to describe it.
 

shocksyde

Diamond Member
Jun 16, 2001
5,539
0
0
Isn't it personal opinion? I said I thought it was huge. Doesn't mean you have to agree with me.