05-04-2014 09:51 PM
Hello, this is my first post to these forums, I currently have a 2012 caliber that I financed 11 months ago 6.1% at CU for 72 months (262 monthly) for 16.5k (rolled negative equity from last auto loan). I like the car but just got a new job and it's a 65 highway miles round trip and the caliber is not great on gas (24 combined) and factory bumper to bumper runs out at the end of the year, so am looking at a more fuel efficient vehicle. I am looking at a 2014 honda civic ex (21,800 sticker) or a 2014 toyota corolla eco (20,900 sticker) both have combined mpg of around 35 which is 10mpg better than current car. New job will be about a 11k increase in gross income. I am comfortable with a payment jump of 80-125 a month as I will be saving at least 50 a month in gas. I am confident I will qualify for tier 3 credit (4-7%) at either dealerships or about 5 % at my CU, will put down 2.5k on new loan.
Dilemma: I am about 2.2k upside down in current loan and at about 45% utilization on my 3 CC. Do I get utilization below 10% first to bump my scores to the 675 range or pay auto loan down to what dealer will give me (11k) first ? It will take me about 3 months to do the later, about a 6 weeks to do the first option, or do I do a little of both? Or do I just bite the bullet and roll the neg equity as soon as my utilization is down?
Just pulled my Transunion at 657 with about 2 year credit history, with no baddies on anything, so I am assuming my auto enhanced will be a touch higher. I am looking to move on this around late July but depending on feedback maybe sooner or later.
Any responses/ advice pertaining to my questions or what I am going to encounter at the dealers is greatly appreciated.
05-05-2014 05:56 AM
You have had this car less than a year. Consider paying off the negative equity and paying down your cc balances and then purchase a vehicle when you are in a better position. You can pick up a 2014 more toward the end of the year and take advantage of the deals to clear the 2014's. Rolling neg equity from vehicle to vehicle is not a financially sound move. The car dealers love it because they give you the worst possible financing that you will accept. It is far better for you financially to get your financing through a CU and put down enough to wipe out the neg equity. If you concentrate on it I bet you could do both (pay down debt and neg equity) by the end of this year and then get the new one. Congrats on your new job
05-05-2014 08:36 AM
Thanks for the reply! I am just wondering by doing both ( paying down auto loan and CC debt) is the savings in APR from better credit ( 10-25 point jump) going to outweigh the extra 2k neg equity being rolled, if I was to just pay down CC debt, then go to dealership.
However I am seriously considering waiting for 2015 models in october so I can steal a leftover 2014 Plus it will give me additional time to make sure my utilization is down and am in good position on current auto loan. I plan on going to both of my CU's first to get a better rate, with that being said I have read a lot about DCU on this forum, some good (rates) some bad (customer service) I just used their payment calculator and their best rate for me would be at 2.49% for 72 months which is easlily going to be 2% better than any rate I will get at stealership or local CU's. With a 657 CS (hopefully will be closer to 680 in july) a 30k income, no rent/ mortgage (live with parents) and good auto loan history be enough to get me at least close to that generic rate on the payment calculator?
05-05-2014 08:48 AM
My feeling is this: when you get the loan the terms are set based on the amount financed and rate and term. It is better for you to make sure you are in a better position so you get the best loan available given your financial condition.
Financing $2k less saves you money in interest and is a slighly lower payment. It also makes you a better risk for the lender (CU) so you get the best rate available at the time you apply. IMO I would try to get it for a shorter term to save more on interest say 48 or 60 months rather than going out to 72 months. If you run the calculators you see that the lender is the one that makes the money on the longer term loans.
But don't have the payment so high that it prevents you from moving out of mom's and dad's place...kwim? You don't have rent now, but you will when you get out on your own so keep that in mind.
Good idea about taking advantage of year end sales
05-05-2014 09:13 AM
I understand you're right, their is no hurry to get a new car right now other than an inflated petrol bill. I just wanted to weigh my options to make sure im not waiting 4 months to get a car if it saves me 5 dollars a month in auto loan payments haha. The term is something I definitely have to think about as I am graduating college soon and their is room for advancement in my new job especially with my degree, so moving out of mom and pops place is a definite scenario within a year. Right now I really wouldn't mind a 600 dollar payment on a 36 month term but as soon as I move out I will feel very different about that. If I decide that a shorter term is for me, I know that the rate changes for the better but does the CU or bank adjust your approval amount according to length of term?
myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.>> About myFICO