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Should You Pay Off Credit Cards Before Refinancing Your Auto Loan?

If you're thinking about refinancing your auto loan, you might be wondering whether paying off your credit cards first will help you qualify—or even get you a better rate.

It’s a smart question, and the short answer is: yes, it can definitely help. But the real answer depends on a few key factors, including your credit utilization and debt-to-income (DTI) ratio.


Let’s break it down so you know what to do before you apply to refinance.


Why Credit Card Debt Matters When Refinancing


Refinancing a car loan means a lender is evaluating how likely you are to repay the new loan. Two of the biggest things they look at:

1. Credit Utilization

This is how much of your available credit you're using—especially on revolving accounts like credit cards.


If you’re using more than 30% of your total credit limit, lenders may see you as overextended. That could:

  • Lower your credit score

  • Push you into a higher interest rate

  • Even cause a denial in borderline cases

2.Debt-to-Income Ratio (DTI)

This is the percentage of your monthly income that goes toward debt payments—credit cards, student loans, personal loans, and yes, your car loan.

A high DTI makes lenders nervous because it suggests you might struggle with more monthly obligations. The lower your DTI, the more attractive you are as a borrower.


How Paying Off Credit Cards Can Help

Let’s look at an example to see how it plays out:


Scenario A: Before paying off credit cards

  • Credit score: 665

  • Utilization: 72%

  • DTI: 42%

  • Refinance APR offer: 12.99%

  • Monthly car payment: $534


Scenario B: After paying down cards below 30%

  • Credit score: 695

  • Utilization: 28%

  • DTI: 36%

  • New APR offer: 8.49%

  • Monthly car payment: $479


That’s a $55/month savings and $1,980 saved over 36 months—just by knocking down credit card balances before applying.


Should You Pay Off Cards Completely?


If you can, yes. Paying cards down or off entirely before refinancing can:

✅ Boost your credit score✅ Lower your DTI✅ Improve your approval chances✅ Qualify you for a lower interest rate✅ Save you more money over the life of the loan

But if you can't pay everything off, focus on reducing your utilization below 30%, starting with the highest interest rate cards first.


When You Might Want to Refi First


There are a few cases where it might make sense to refinance before paying off cards:

  • If your current car loan has a very high interest rate (15%+)

  • If you’re behind on payments and need to reduce your monthly bill now

  • If your car has equity that can be used to consolidate debt (yes, we do that too)


In these cases, we may be able to lower your auto loan payment first, which frees up monthly cash you can then use to pay down cards.


Credit Score Increases When Payments decrease!

Final Answer: Yes—If You Can, Pay Off or Pay Down First

If you’re planning to refinance and your credit card balances are high, paying them off (or even partially down) is one of the smartest moves you can make.


It improves your approval odds, lowers your interest rate, and helps you lock in better terms—saving you money both short and long term.


🚗 Ready to see how much you could save by refinancing?We work with all credit tiers—and we’ll help you structure your loan for the best results.👉 Get a no-credit-hit quote in 60 seconds


 
 
 

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