topic How to cash in with Cash for Clunkers with Bad Credit? in Auto Loans

How to cash in with Cash for Clunkers with Bad Credit?

alsa — Wed, 15 Jul 2009 19:16:21 GMT

This is my first time posting here and I am looking for advice as to the best way to go about taking advantage of the new “Cash for Clunkers” program when I am sort of credit challenged at the moment. Here’s my situation, sorry for the extensive details, but I thought it might be helpful for those of you willing to share advice/opinions.

We are a couple in our 50’s, decent incomes, each earn about $80K annually, long term employed in jobs that are not likely to be affected by the recession in the near term. With a couple of kids in college, a couple or mortgages, etc. we have found ourselves somewhat stretched the past couple years. .

In any event, we are in need of a newer vehicle. I currently have 3 cars registered in my name—all over 10 years old and all with mileage exceeding 120,000. The recently passed “Cash for Clunkers” program seems like a great opportunity in this situation, as the least serviceable of these vehicles would qualify for the rebate of $3500-4500 (a ’99 Suzuki Grand Vitara that my son has been driving for the past 6 years and is probably worth about $500 at best).

This would all be great, but our credit kind of sucks at the moment, we had some emergency expenses last year that strained an already stretched budget and as a result there were a couple of hiccups that had dealt our credit a pretty bad blow on the face of it. The most devastating being a 30 day on a mortgage about 5 months ago—it actually hit on the 31st day and when my wife sent in the late fees in a partial payment it wasn’t applied as she had hoped, and subsequently we are showing 30 days for the last 5 months on our mortgage. We hope to be able to resolve this by the end of this month, the mortgage company also indicated that they might even be willing to reverse the 30 day marks, but that will likely take some time. I only found out about this when I pulled credit reports in preparation for doing some car shopping.

Bottom line, as a result of this my credit score took a pretty big hit, currently it is now in the 630-640 range across the 3 reporting agencies. My wife hasn’t pulled hers yet, but it is likely to be lower as she has been working to clean up some past issues.

Ideally we would have liked to postpone a car purchase until these things have been cleared up but unfortunately we feel under some pressure to move pretty quickly. Although the initial Cash for Clunkers was supposed to last until November 1 or until the funding ran out, indications are that it will likely last for a much shorter time than originally anticipated—a number of commentaries have suggested just 6-8 weeks as demand is likely to be quite high. I would really hate missing out on an opportunity to get $3500 for a car that’s on its last legs and only worth about $500 at best. I’m not looking for an exotic new car---just a reliable commuter, a Hyundai Elantra Touring valued at $18,500-1500 dealer rebate-3500 cash for clunker rebate=13500 to finance plus taxes/fees.

Sorry for the long winded explanation, but here are my questions:

Has anyone had any experience with bad credit auto financing and can you suggest a reputable source?

Is it better to shop on-line for this kind financing or through the dealer?

Is it possible to get a loan under these circumstances?

I am a member of a credit union, but haven’t talked to them yet—do credit unions do subprime auto loans?

What are average interest rates for subprime loans?

Once we get some of our credit issues cleared up would refinancing be a possibility?

Thanks for any advice you can offer..

Re: How to cash in with Cash for Clunkers with Bad Credit?

4ABlueOcean — Wed, 15 Jul 2009 21:27:47 GMT

In case you do not have it, here is the info on the Cash for Clunkers program from the govt.... www.cars.gov.

When you meant 30 days, did you mean you have one 30 day late on your mortgage? If so I would suggest writing a good will letter to your mortgage company asking them nicley if they would please consider removing the late as you need to desperatly buy a new vehicle. You can find examples of good will letters on the myFICO website.

Even though your scores are in the low 600's, you should qualify for an auto loan but the interest rate will be based on your score so I would think you would qualify for a rate that may be a a point for two higher. Check out the Auto Loan section of the forum and look for the thread at the top where people have posted what loans they have been approved for. It inlcudes the APR (rate), how much the loan was, the loan term, etc. I would jump to the last few pages for loans approved in the last few months as they are obviously more relevant.

Also, plan to shop for auto loans. I think you can shop for up to 3 loans with in a week or two and it will not affect your credit score. Maybe someone can post what the exacts are of this. Anyways, DO see what the local credit unions are offering. Maybe apply at the one you belong to and see if there is another credit union that is offering good rates. The dealers sometimes have decent rate offers but I would ask lots of Q's before applying and letting them pull your credit report. Who knows, with the rate you get it may be OK, not real high and would have no need to refi.

Hope this helps some! Good luck!

Re: How to cash in with Cash for Clunkers with Bad Credit?

203bravo — Thu, 16 Jul 2009 14:21:53 GMT

our credit a pretty bad blow on the face of it. The most devastating being a 30 day on a mortgage about 5 months ago—it actually hit on the 31st day and when my wife sent in the late fees in a partial payment it wasn’t applied as she had hoped, and subsequently we are showing 30 days for the last 5 months on our mortgage

Am I reading this correct --- you wife made a partial payment 5 months ago and has not be able to make full payments to include the missed amount to date? This resulted in 5 straight months of late pays - including the most recent month?

we had some emergency expenses last year that strained an already stretched budget

Is your budget still stretched as thin or have you been able to shore it up?

A good deal is only a good deal if you can afford it... While you may need a more reliable vehicle, it may make better financial sense to save a couple of thousand and get a "newer" used vehicle.

I have serious concerns from your post that if you haven't brought your mortgage payments current in 5+ months then you don't have enough emergency funds in the event ANYTHING happens. And this concern seems further strengthened by the fact that in your financing consideration you are using the Gment money and dealer incentives and NON of your own cash as a down payment..

Re: How to cash in with Cash for Clunkers with Bad Credit?

MattH — Fri, 17 Jul 2009 01:47:23 GMT

203bravo wrote:
our credit a pretty bad blow on the face of it. The most devastating being a 30 day on a mortgage about 5 months ago—it actually hit on the 31st day and when my wife sent in the late fees in a partial payment it wasn’t applied as she had hoped, and subsequently we are showing 30 days for the last 5 months on our mortgage

Am I reading this correct --- you wife made a partial payment 5 months ago and has not be able to make full payments to include the missed amount to date? This resulted in 5 straight months of late pays - including the most recent month?

we had some emergency expenses last year that strained an already stretched budget

Is your budget still stretched as thin or have you been able to shore it up?

A good deal is only a good deal if you can afford it... While you may need a more reliable vehicle, it may make better financial sense to save a couple of thousand and get a "newer" used vehicle.

I have serious concerns from your post that if you haven't brought your mortgage payments current in 5+ months then you don't have enough emergency funds in the event ANYTHING happens. And this concern seems further strengthened by the fact that in your financing consideration you are using the Gment money and dealer incentives and NON of your own cash as a down payment..

I strongly agree with 203bravo on all points: it sounds to me like it would be a major mistake for the original poster to buy a new car at this time. New cars are an expensive luxury for those who can afford them, and any car bought without hard cash from the buyer is highly likely to be a mistake.

Re: How to cash in with Cash for Clunkers with Bad Credit?

KarimaKC — Sun, 02 Aug 2009 05:28:42 GMT

alsa, the original poster, is not coming here to be judged; he is coming here for support. he is a grown person in his 50's who is trying to see if he can improve his credit situation but still partake in this program so that he can alleviate himself of an older car with little value, and perhaps obtain a more efficient vehicle. i think he and his wife ARE CURRENT (as was indicated if you read before judging), and they are making reparations for their financial futures.

i agree with one of the initial supporting posts. go into the section and see which financial institutions will be helpful. see which rates you can get. you may need to start with an initially higher rate while repairing your credit and getting things sorted out. my credit union told me that as my credit scores improve i may refinance as many times as necessary until we are at the lowest possible rate.

good luck!

Re: How to cash in with Cash for Clunkers with Bad Credit?

usmc58555 — Sun, 02 Aug 2009 06:52:05 GMT

KarimaKC wrote:
alsa, the original poster, is not coming here to be judged; he is coming here for support. he is a grown person in his 50's who is trying to see if he can improve his credit situation but still partake in this program so that he can alleviate himself of an older car with little value, and perhaps obtain a more efficient vehicle. i think he and his wife ARE CURRENT (as was indicated if you read before judging), and they are making reparations for their financial futures.

I believe we can SUPPORT posters by also pointing out some contradictions in their posts and by bringing up alternatives to their situations. i

The OP has some recent issues regarding income that has negatively had an effect on their credit score.

They are trying to rush to cash for clunkers cash. Which is admirable, but it was brought up by other posters questions of how much cash on hand they did have.

They want a $14,000 (post cash for clunkers cash) transaction.

The cheapest car you have is 90% of the time the paid off car you already have.

a 14,000 deal financed with some of the credit issues described WILL mean at least a 340-360 a month payment.

So if they try to not focus on CFC cash, and start putting aside 320 a month, in one year they will have put aside the equivalent top the CFC money and put themselves in a better credit score position. Quite simply they probably tanked their credit score with the lates and they need to fix that.

360*12=$4320 neglecting any incidental maintenance and fuel efficiency costs

$14,000 at 60 month and 24.9% = 410 a month and total interest of $10,650

$14,000 at 60 month and 8.9% = 297 a month and total interest of $3,807.

assmuing the CFC vehicle is currently running fine and has no projected mechanical issues, Sitting on their current vehicle for a year and "paying themselves" the mid threes car payment they would qualify for will garner them the same cash as CFC cash and hopefully allow them to sort out their score issues and cash on hand issues

"Car Value" is subjective and important only if you are trying to sell the vehicle. paid off and running is invariably cheaper.

Trying to "partake" in a program simply because it exists may not always be the best decision.

trying for a new car after their credit issues are "fixed" makes much more sense then rushing to use CFC cash and getting a high interest rate. Poor scoring and the resultant higher rate will pretty much eat up all CFC savings and put them into a less beneficial transaction then they originally thought.

Re: How to cash in with Cash for Clunkers with Bad Credit?

Eager2Learn — Sun, 02 Aug 2009 07:16:59 GMT

I do not believe anyone is "judging" anything except the situation. From a lender's perspective, if the borrower is not keeping up with current obligations (present situation that can be resolved IAW OP) it is not likely that they would lend under most circumstances. Although we know the income, we do not know the amount of the "couple of mortgages". As the OP stated, they have been "somewhat stretched the past couple years" which leads me to believe that the monthly obligations are close to the monthly income. Sound financial advice is to forgo the additional monthly expenditure, even if it means missing out on the CFC program.

These decisions on what to do next are entirely up to the OP and spouse. If you do decide to pursue utilizing the CFC program, get all of your applications in during the same 14 day period and they will only count as one inquiry. You can go in and talk to a loan officer at your credit union and they can give you a general indication without doing an inquiry of whether or not you could be financed through them.

Just on a side note about marketing..... the way things are presented are designed to get you into a state of mind that you must act quickly or you will lose out. If I make 50K a year and a 10 million dollar house is selling for 9 million, I can look at it as:

A. I am saving a million dollars!

B. I can't afford a 9 million dollar house.

Of course that is a drastic example; only meant to help put things into perspective.

OP, best of luck in accomplishing whatever you decide.

Re: How to cash in with Cash for Clunkers with Bad Credit?

txjohn — Sun, 02 Aug 2009 23:20:54 GMT

OP -

I think usmc has presented some compelling things to think about.

1. The value of CFC may be offset or more than offset by the higher costs of interest on a loan with current credit derogs.

2. Fixing the financial problems and then credit issues should precede considering a CFC UNLESS you can find a vehicle for $3500 to $4500 that you can trade the existing vehicle for and pay nothing or next to nothing out of pocket.

3. The current vehicle has more value than $500. It is worth $14,000 in replacement value based upon presented scenario. As usmc said, the least expensive vehicle is the currently owned vehicle in most circumstances, even with repair costs.

4. Cash reserves. If reserves are stretched to the point that unexpected expenses (a part of life) have caused lates, the additional car payment will add stress to this situation, not relieve it.

5. Insurance costs will increase as the lender will require full coverages to protect the loan vs. liability, uninsured & PIP on the owned vehicle.

6. The savings in interest over the term of loan now vs. in one year with credit cleaned up and repaired presents far more value than CFC presents and does not add to financial strain in the interim.

These are all FYI ideas and commentary, not judgements. Obviously the OP will make the final decision. However, I believe OP is distracted by the CFC and not doing all the math to see if CFC is actually a good deal (in current circumstance).

As in poker and sung by Kenny Rogers, the gambler, you gotta know when to hold em and know when to fold em.

Good luck :)

Re: How to cash in with Cash for Clunkers with Bad Credit?

Lyythine — Mon, 03 Aug 2009 00:29:12 GMT

+1 USMC / txjohn

Re: How to cash in with Cash for Clunkers with Bad Credit?

marty56 — Mon, 03 Aug 2009 12:06:13 GMT

Ignoring the question of should the person do this, I would say to take a copy of all 3 CRs and your TU and EQ FICO score to a local CU and see what they say. They may give you an idea of whether they would finance you or not and it wont cost you an INQ.

If you do buy a new car, I would go for the cheapest model they offer, bare bones if you will. This will mitigate the higher payment if you can't get a good interest rate. I would look at say a Kia since its much cheaper. You can always upgrade latter when your situation improves.

Re: How to cash in with Cash for Clunkers with Bad Credit?

txjohn — Mon, 03 Aug 2009 15:33:01 GMT

marty56 wrote:
Ignoring the question of should the person do this, I would say to take a copy of all 3 CRs and your TU and EQ FICO score to a local CU and see what they say. They may give you an idea of whether they would finance you or not and it wont cost you an INQ.

If you do buy a new car, I would go for the cheapest model they offer, bare bones if you will. This will mitigate the higher payment if you can't get a good interest rate. I would look at say a Kia since its much cheaper. You can always upgrade latter when your situation improves.

You cannot ignore the question of "should" OP do this. That was, essentially, the core of OP question if you read carefully. Here are excerpts that were key:

"...we are in need of a newer vehicle. I currently have 3 cars..."

"...we have found ourselves somewhat stretched the past couple years."

"...our credit kind of sucks...we are showing 30 days for the last 5 months on our mortgage"

"...strained an already stretched budget ."

"Ideally we would have liked to postpone a car purchase until these things have been cleared up..."

"The recently passed “Cash for Clunkers” program seems like a great opportunity...."

"...unfortunately we feel under some pressure to move pretty quickly."

OP has stated that they would IDEALLY like to postpone a purchase until their credit issues and finances are fixed, but is feeling PRESSURED to act quickly due to the CFC program which SEEMS like a good opportunity.

The fact is, that if the OP pays substantially higher interest on the loan, in addition to higher insurance costs on a strained budget, that the cost of loan will be greater than the benefit of the CFC credit.

To put it another way: By pressuring the OP to take a loan they cannot afford now, at higher interest, does not provide any REAL VALUE, because the CFC credit will be eaten up in interest and loan costs AND OP will have a payment now when the budget is all ready strained.

What the various posts in this thread have sought to do is show OP ways to measure the real value of CFC now, and not act solely because the CFC is available, but to act in OP best interest, lowest costs and greatest bottom line value.

In the end, OP makes the final decision. But would hate to see OP in a loan and deal only to find out later that CFC actually COST MONEY, not providing any value due to offsets in loan costs while credit issues and financial strains exist.

Otherwise, and auto loan is pretty straight forward: Make an application at a CU, online, dealership and see who will offer you what. There's no secret there.

Good luck OP. If you do go now with a purchase/loan, be sure to get the credit fixed asap and look for a refi at better rates within 6 to 8 months so that you don't pay the full cost of higher rate loan.

So the hybrid between DO and DON'T is, get best deal that you can now while getting credit fixed, then refi asap with better rates when you get mortgage lates and credit glitches fixed.

Message Edited by txjohn on 08-03-2009 08:33 AM

Re: How to cash in with Cash for Clunkers with Bad Credit?

marty56 — Mon, 03 Aug 2009 20:25:15 GMT

Just trying to give the OP some ideas on how to see what they can qualify for without an INQ and a cheaper alternative to the car they mentioned.

If the OP asked me directly and I was in their position, I would not buy now.

The choice to buy is the OP's.