cancel
Showing results for 
Search instead for 
Did you mean: 

Auto Loan Approved

Frequent Contributor

Auto Loan Approved

I was approved for 40K auto up to 125% of the vehicle value. What does this mean?
Message 1 of 12
11 REPLIES
Valued Contributor

Re: Auto Loan Approved

125% LTV means you could roll in a negative equity car loan or cover an extended warranty etc.
FICO8FICO8Visit my posts:
03/1712/17My 11 Rules to Credit RebuildingFree FICO Scores!
550EX
570TU
559EQ
710EX
701TU
734EQ
FICO alert: why did my credit score drop???
Message 2 of 12
Frequent Contributor

Re: Auto Loan Approved

Oh okay. Gotcha. I do have a car o regret and still paying 7k upside down.
Message 3 of 12
Valued Contributor

Re: Auto Loan Approved

Don't do a $40,000 loan if you can't truly afford the monthly payment for 5-6 years!

But if you can afford it, you can roll 6,600 into a 33,000 car for just under $40,000. Payment is going to be really high even with a low interest rate.

Make it a habit to make extra payments the first year. Cars can depreciate 20-30% in year 1 so a $33,000 car might only be worth $24,000 after a year which means you'd have to make $2000+/month payments to not be upside down anymore after a year.
FICO8FICO8Visit my posts:
03/1712/17My 11 Rules to Credit RebuildingFree FICO Scores!
550EX
570TU
559EQ
710EX
701TU
734EQ
FICO alert: why did my credit score drop???
Message 4 of 12
Community Leader
Senior Contributor

Re: Auto Loan Approved

It means you have been approved for a loan, and the loan amount must be < 40k and also < 125% of the vehicle value.

Message 5 of 12
Frequent Contributor

Re: Auto Loan Approved

Thanks man. I can afford it. I'm looking at something for 31k. 5 percent.
Message 6 of 12
Established Contributor

Re: Auto Loan Approved

Stop the negative equity cycle. Deal with your current negative equity first and save up a healthy down payment on the next car. Spending even more money to get out of $7k negative equity doesn't sound like a bargain to me.

Ch 7 Discharge May 2015: EQ 588/TU 552/EX 570
Nov 2017: EQ 683/TU 660/EX 668 w/ 24% CC util reporting
Discover/Target/NFCU CLOC/NFCU Cash Rewards/PenFed Power Cash Rewards - $46k total revolving
Message 7 of 12
Valued Contributor

Re: Auto Loan Approved


SteelerNYC wrote:

Stop the negative equity cycle. Deal with your current negative equity first and save up a healthy down payment on the next car. Spending even more money to get out of $7k negative equity doesn't sound like a bargain to me.


The entire auto loan cycle is nefarious and contrary to building wealth, but few discuss it.  Negative equity, positive equity, it's a real hammer on long term wealth building, but we all do it, and we do it because we assume we can afford it month-to-month.

 

I recently posted on my blog some amazing points to make on auto loans and a typical individual...

 

If a person finances a new car every 5 years with a $30,000 loan at 5% (after trade-in) and does this 6 times in their life (30 years of borrowing), the numbers say one pays "only" $566/month or $3,968.22 in interest each loan.  So over 30 years, that's about $24,000 in interest.  Doesn't sound too shabby, just $100/month or whatever paid in interest every month for 30 years.  After 30 years the only asset they have is the trade-in value on the most recent vehicle.

 

On the flip side, if a person saves up $30,000 to buy a car for cash (after trade-in) and drives the car for a full 5 years while putting away money towards buying the next car (let's say $566/month in savings) to pay cash, after 5 years with the money parked in a 7% S&P returning fund, they will have $40,500 in investments.  They take out $30,000 to pay for the car and say $2000 to cover taxes on growth, leaving them with $8500 in their investment fund.  That's after 1 car cycle.  At the end of the identical cycle #2 (5 more years), they now have $52,500 in the fund.  Remove $30,000 to pay cash for a car and cover $2000 in taxes and they have $20,500 left.  At the end of cycle #3 (5 more years), they will now have $69,500 in the fund -- again remove $32,000 for the car + taxes leaving $37,500 left and go into cycle #4 and you're looking at $93,500.  Repeat for cycle 5 and you're left with $127,500.  Finish with your 6th car in 30 years and at the end of the 5 year period you have the trade-in value of the car along with $175,000 in investments.

 

It's incredible to think about.  The best thing someone can do today to finance a car is finance the absolute cheapest new car that gets them from A to B if all they do is commute (let's ignore kids and work trucks in this scenario) and then start shoving money into an investment so you can pay cash in 5 years.  There's no loan, not even a 0% loan, that makes much sense otherwise.  Even a 0% interest loan means you're paying backwards than paying forwards.

 

So negative equity versus positive equity is only one small sliver of wealth building!  $130,000 lost to "opportunity costs" in half a lifetime is a ton, imagine what that number is if your first car loan is at 18 and your last car loan is at 72...  Might be half a million dollars lost.

 

FICO8FICO8Visit my posts:
03/1712/17My 11 Rules to Credit RebuildingFree FICO Scores!
550EX
570TU
559EQ
710EX
701TU
734EQ
FICO alert: why did my credit score drop???
Message 8 of 12
Frequent Contributor

Re: Auto Loan Approved

Still looking. I have a buyer on my current car. Thanks people.
Message 9 of 12
Frequent Contributor

Re: Auto Loan Approved

I've always believed buying a car isn't the smartest. No matter what situation.
Message 10 of 12