Refinance Question (new to this)

Anonymous · ‎08-02-2016

Hello All...

I am new to the forum so I've been learning quite alot.

Today I come to you all for advice and info on refinancing a vehicle.

My fiance has a 2008 (I think) Chevy Impala that isnt worth jack IMO. She finances thru American Credit Acceptance, I dont know the exact interest rate but I know it's not great coming from this company. I just called and the recording says her payout is around $4800 and her payment is $258 per month give or take a few dollars. So she's looking at this being paid off in about another 18-20 months.

This late in the game is it worth refinancing? From my research on refinance it's possible for her month payment to go down, but if a company pays off that 4800 wouldnt she then owe then 4800 for a longer amount of time plus their interest?

Her TU is 671 and EQ is 666 (per CK). So should she refi or should she just leave it alone and keep paying ACA?

curveball:

the car is crap and she needs/wants a new one. So we would like to trade it in but I know it will leave her upside down.

Any suggestions would be appreciated. We are both new to this credit knowledge world so as I have said in posts before....I am soaking up the knowledge!

Anonymous · ‎08-02-2016

It's maybe not as bad as you might think.

Depending on what type of car she's looking at buying now...

The Impala is worth about $4k as a trade, give or take, depending on options and mileage and the age of its current tires. So she's really not underwater too much. With some good negotiating, she should be able to roll that less than a grand remainder into a new loan without much problem. Since you don't know for sure what her current interest rate is, there's no way to tell if she'll come out better now, but she should at least land in single-digit rates, and maybe a little better with new car captive financing from Hyundai or Ford (who are known to be both somewhat lenient on lower-than-tier-1 scores and fairly generous with rebates and promotional financing).

She needs to be prepared to take on another 5-6 years of payments and to shop on the lower end of the market, if she wants to maintain her $250ish payments, though. On the upside, she'll have a vehicle with warranty coverage and updated options on it if she does decide to purchase new. Even if she buys a newer used car, she shouldn't see too much fallout from the negative equity, as she'll still only be adding less than a grand into the deal that way. It isn't ideal (ideal means NO negative equity), but it isn't a bad situation by any means.

Anonymous · ‎08-02-2016

@Anonymous wrote:
It's maybe not as bad as you might think.
Depending on what type of car she's looking at buying now...

The Impala is worth about $4k as a trade, give or take, depending on options and mileage and the age of its current tires. So she's really not underwater too much. With some good negotiating, she should be able to roll that less than a grand remainder into a new loan without much problem. Since you don't know for sure what her current interest rate is, there's no way to tell if she'll come out better now, but she should at least land in single-digit rates, and maybe a little better with new car captive financing from Hyundai or Ford (who are known to be both somewhat lenient on lower-than-tier-1 scores and fairly generous with rebates and promotional financing).

She needs to be prepared to take on another 5-6 years of payments and to shop on the lower end of the market, if she wants to maintain her $250ish payments, though. On the upside, she'll have a vehicle with warranty coverage and updated options on it if she does decide to purchase new. Even if she buys a newer used car, she shouldn't see too much fallout from the negative equity, as she'll still only be adding less than a grand into the deal that way. It isn't ideal (ideal means NO negative equity), but it isn't a bad situation by any means.

HMW,

Gonna try to dumb this down for myself lol.

I did see on KBB the trade value today and was kinda shocked. When you say she should be able to roll whats left into a new loan, do you mean rolling that into the loan for the new car? I didnt know they could do that.

I just called ACA she has paid 36 months so far and her current interest rate is 21%. The pay-off (as of today) is $4882.51.

I think she is willing to up the payments for a newer car, she was looking at some pretty nice cars on Carmax.com over the weekend.

With this new info (the actual figures)

is it better to refinance or is it better to trade it in, roll the leftover balance into the new loan, start fresh with a better car and better interest rate etc.

Anonymous · ‎08-03-2016

If she's already shopping, sounds like the decision has already been made... lol

It is not a bad move, with the numbers where they are. As long as she's ready to keep making payments for another 5-6 years (as opposed to having a paid off car sooner), and ready to carry the required full coverage insurance (a must when any vehicle is financed; if it's paid off you are allowed to carry liability only in most states) at a higher rate on the newer car, then there's no reason not to look at trading in.

I would advise that she not shop at CarMax, though, as they are known for generally selling at above-market pricing on their inventory.

Regular car dealers' used car departments are usually better priced and more willing to negotiate. Most dealers these days have websites where you can take a look at the cars they have on hand - and you can check out "certified pre-owned" vehicles, which usually have extended warranties included, which can help too. And the dealer's finance office will have all of the lender contacts to shop the loan for her, if y'all are going that route. If you're going with pre-approved financing from a credit union or Capital One, the lender will be able to point you toward dealers they work with too.

Anonymous · ‎08-03-2016

HMW,

GREAT info once again thank you.

No decisions made yet. We discussed last night about me buying her a new car, refinancing the one she currently has and trading it later down the line OR trading her car in now. I think the drawback is that if I buy her a car it will be something she really wants vs if she trades her car in and tries staying under $300 a month she knows that she is limited on what kind of car she can get.

I will update as the situation plays out...to ensure we make a smart decision

Anonymous · ‎08-03-2016

UPDATE:

We have decided to refinance her current vehicle and then look into trade options (I feel like an NFL GM) in 6+ months. This will give her time to save for a down payment plus be more willing to take on more than $300 per month.

As stated before her scores (per CK) is 671 TU 666 EQ. Any companies you guys recommend looking into? Remember she only owes about 4800 on this car.

I dont want to apply to 4-5 different places because it will hurt her score right?

based on other posts in the forum I was thinking:

Carfinance.com

Navy Fed

PenFed

Unify Credit Union (she has an account there)

Cap 1

good places? Any I should cross off? Any do a pre-qual with a soft pull?

StartingOver10 · ‎08-03-2016

@Anonymous wrote:
UPDATE:

We have decided to refinance her current vehicle and then look into trade options (I feel like an NFL GM) in 6+ months. This will give her time to save for a down payment plus be more willing to take on more than $300 per month.
As stated before her scores (per CK) is 671 TU 666 EQ. Any companies you guys recommend looking into? Remember she only owes about 4800 on this car.
I dont want to apply to 4-5 different places because it will hurt her score right?

based on other posts in the forum I was thinking:
Carfinance.com
Navy Fed
PenFed
Unify Credit Union (she has an account there)
Cap 1

good places? Any I should cross off? Any do a pre-qual with a soft pull?

First, you are a good friend for helping her. I hope she is also coming to this site and reading up on tips to increase her FICO scores.

Second - do NOT use the scores from CK - they are Vantage scores and lenders don't use Vantage scores. Those scores are not anywhere close to FICO scoring algorithms - could be higher or lower. They measure different things so don't assume that her Vantage scores will relate to FICO scores - because they don't.

Have your GF pull her FICO scores here. She can look under the product section. I suggest the 3B report so she can see all of her FICO scores. Some dealers will use the auto enhanced scores and others won't. At least she will know where she stands before she attempts an application to refinance.

If she is not in a position to refi just yet, she can then visit the rebuilding forum to see what she needs to do to get her score into a better position for her new refi.

Anonymous · ‎08-07-2016

Update:
I've looked into the refi for her current car.
Now she's nervous because she keeps saying she wants to build her credit. I previously mentioned her credit cards but forgot to mention she is paying on a loan she got a few months ago. So she already has a auto loan and a personal loan on her credit and fears that's a refi won't help her any. Other than the obvious, get out of 21% argument does anyone have any pointers I can bring to her attention about why refi is definitely a good idea right now?

Anonymous · ‎08-08-2016

The refi loan will replace the current auto loan.

They will pay off the original lender and report themselves as her new loan.

The paid/closed loan will remain on her reports for 10 years, helping her with long-term history, and helping her auto-enhanced FICO scores (which are the ones she will need when she's ready to trade in/buy a new car next year).

She will possibly suffer a loss of a handful of FICO points when the switch happens - because the new loan's balance will be "high," that is, no payments will have yet been made to lower it - but this is temporary, and happens with any new loan. After 6 months or so of payments, the "high balance" note will disappear, and the points will return. And since by that time, she'll have added a closed/paid auto loan to her history and will have made 6 on-time payments on a current loan, her score will likely improve from where it is now. And she will have paid much, much less cash out by way of interest reduction. Assuming she gets approved at a better rate (and I really don't think this will be a problem, especially since it's practically impossible for her to end up with a *worse* rate than she already has), it's a win-win.

As for who to apply with, study the boards and collect some information on where others have gotten approved, and at what scores/rates. People talk about that freely around here, so a search of the boards will get you hundreds of reports. If she belongs to a credit union, that's a good place to start. Joining another credit union in order to apply will incur a hard pull even if she doesn't get a loan from them, so plan those accordingly. Capital One will not make an offer on refi with a soft pull, but they are fairly lenient lenders, so they might be worth looking at. Stay away from some of the online lenders like RoadLoans/Santander - they have monstrous interest compared to others not to mention long histories of bad service - but big banks may be another option, especially if she has a checking account with them already (many offer interest rate discounts to customers with checking accounts there). Make a list in order of where you think she'll have the most success, and apply to the first two. Compare the offers, and if you believe one is fair and reasonable, you will only have created two pulls and you'll have the loan. If she gets offers from both of those that seem too high, there is an indication there that others will likely have similar results, so you'll have to decide if y'all want to risk further pulls or not trying for a better one.

Be aware that there are companies out there - Lending Tree, for example - who are not actually lenders. They are brokers, that is, they will take your supplied application information and submit it to several of their clients to see who will make you an offer. Applying with a company like this means you are opening yourself up for multiple credit pulls when their clients get your application, so if you are trying to control inquiries, avoid them. Apply directly to the lender(s) you want to try.

Anonymous · ‎08-08-2016

@Anonymous wrote:
The refi loan will replace the current auto loan.
They will pay off the original lender and report themselves as her new loan.
The paid/closed loan will remain on her reports for 10 years, helping her with long-term history, and helping her auto-enhanced FICO scores (which are the ones she will need when she's ready to trade in/buy a new car next year).

She will possibly suffer a loss of a handful of FICO points when the switch happens - because the new loan's balance will be "high," that is, no payments will have yet been made to lower it - but this is temporary, and happens with any new loan. After 6 months or so of payments, the "high balance" note will disappear, and the points will return. And since by that time, she'll have added a closed/paid auto loan to her history and will have made 6 on-time payments on a current loan, her score will likely improve from where it is now. And she will have paid much, much less cash out by way of interest reduction. Assuming she gets approved at a better rate (and I really don't think this will be a problem, especially since it's practically impossible for her to end up with a *worse* rate than she already has), it's a win-win.

As for who to apply with, study the boards and collect some information on where others have gotten approved, and at what scores/rates. People talk about that freely around here, so a search of the boards will get you hundreds of reports. If she belongs to a credit union, that's a good place to start. Joining another credit union in order to apply will incur a hard pull even if she doesn't get a loan from them, so plan those accordingly. Capital One will not make an offer on refi with a soft pull, but they are fairly lenient lenders, so they might be worth looking at. Stay away from some of the online lenders like RoadLoans/Santander - they have monstrous interest compared to others not to mention long histories of bad service - but big banks may be another option, especially if she has a checking account with them already (many offer interest rate discounts to customers with checking accounts there). Make a list in order of where you think she'll have the most success, and apply to the first two. Compare the offers, and if you believe one is fair and reasonable, you will only have created two pulls and you'll have the loan. If she gets offers from both of those that seem too high, there is an indication there that others will likely have similar results, so you'll have to decide if y'all want to risk further pulls or not trying for a better one.

Be aware that there are companies out there - Lending Tree, for example - who are not actually lenders. They are brokers, that is, they will take your supplied application information and submit it to several of their clients to see who will make you an offer. Applying with a company like this means you are opening yourself up for multiple credit pulls when their clients get your application, so if you are trying to control inquiries, avoid them. Apply directly to the lender(s) you want to try.

WOW HMW,

You are definitely a fountain of knowledge! I appreciate all your help and will definitely bring this to her attention.

As I am beginning to learn more about credit, how it works, and what it takes to build/rebuild it due to BK....I'm noticing that alot of people have the misconception that just leaving your credit alone and paying off your credit cards is the magical solution to better credit.

Best way I've seen it put lately is "you dont go to the gym and just stand there to get fit....you work out....and you work out hard for results. Same with credit. You can't just let it sit there and think it will get better. You have to lift the heavy weights to gain your credit muscle and be better than where you currently are"