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New Member
Posts: 4
Registered: ‎02-28-2013
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8k used car loan, VERY high interest rate, really low debt to income ratio, VERY low score

My car broke down and I decided to get a used truck that stickered for about $9k. After tax and license, it's like $10k. So after a $3k down payment. the only place that would give me a loan wants to charge me 24.9% APR! AND I need full coverage which is $100 more per month.

 

My credit score is 531 on TU. Other than school loans, I have nothing really on there. (All bad debt from when I was young dropped off). Also, I just got a $70K job this past year that allows me to start rebuilding my credit. But, I'm not sure if this is a good a way to start.

 

I dont' have very much expenses. Just a phone bill, car insurance, and student loan payments. Plus I also do freelance web design on the side for extra income. If I wanted to, I could pay off this loan in about 3 months semi-comfortably. However, I can't tell if that's a horrible idea or not. I could also pay most of it up front, then pay it through 12 months. Maybe a better idea? 

 

Other info:

They want to charge me $750 fee (which they added on to the loan amount) for being a risky "financier"

I've been shopping around A LOT for a month and a half and found this is a good price for the truck I want - low miles, reliable model, in my price range

I've never had a car in my own name and I guess they looked at that when trying to finance me.

I plan on getting a secured credit card.

 

If I DO plan on getting this truck, should I just pay off the loan in three months? Or should I pay it off in a year to attempt to improve my credit score for when I want to get a car I really want down the line?

 

 

There's so many variables in play, I can't figure it out! Thanks in advance.

 

 

 

 

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Valued Contributor
Posts: 1,453
Registered: ‎04-14-2012
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Re: 8k used car loan, VERY high interest rate, really low debt to income ratio, VERY low score

WOW!!!!

For what you are going to pay in fees and interest you could buy a second vehicle.

 

Can you survive without the vehicle for 90 days? Use a friend or family car? Public transportation?

If so, wait the 3 months and pay cash!

 

Can you find a get me by car for the $3k you have on hand? 

 

If you so choose to go the route you have told us about......pay that thing off as fast as possible!!!!!!

 

 

*8/10/13
New Member
Posts: 4
Registered: ‎02-28-2013
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Re: 8k used car loan, VERY high interest rate, really low debt to income ratio, VERY low score

Will it hurt my score substantially if I pay it off that early? And will it help my score substantially if I pay it off ina year instead... considering I don't have much in my file?

Valued Contributor
Posts: 1,453
Registered: ‎04-14-2012
0

Re: 8k used car loan, VERY high interest rate, really low debt to income ratio, VERY low score

Once you open it, it will be on your report for 7-10 years. You will not gain the points per month as far as payments go but showing the loan amount and PIF is going to help. However, do not even consider paying interest and fees like that just for the sake of credit score!!!

There are many many many other options to build credit without doing that. 

The terms you described are outrageous and you are just throwing away your money...that is NOT a sound financial choice.

*8/10/13
Blogger
Posts: 2,876
Registered: ‎02-02-2012
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Re: 8k used car loan, VERY high interest rate, really low debt to income ratio, VERY low score

You can pay off this car in 3 months, but you want to take a loan at 25%?

 

If it's about 10K and you can pay it off in 3 months... does this mean you take in an extra 3.3K per month?

If that is so, I'd just use the $3,000 or LESS to buy a beater car. Use that for a few months, save up for a better car and pay that off cash.

 

No way anyone should pay a car loan at 25% and then pay OTHER fees on top of that.

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Frequent Contributor
Posts: 329
Registered: ‎02-24-2012
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Re: 8k used car loan, VERY high interest rate, really low debt to income ratio, VERY low score

[ Edited ]

Try somewhere else, a reputable dealer.  Not sure where you are applying - a used car lot or a brand backed dealer i.e. Ford, Honda, I think it makes a difference.  Back in May I got a used car from a dealer financed by Wells Fargo at 10% TU was in the 500's.  My previous car was financed at 20% with Santander. My score was prob in the 400's.  With 3K down, I would think a good dealership will be sure you walk out with something affordable, with a better interest rate. 

 

Good luck.  Hope you get a good deal and car you like!



Last HP 8/29/14

Regular Contributor
Posts: 173
Registered: ‎10-11-2007
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Re: 8k used car loan, VERY high interest rate, really low debt to income ratio, VERY low score

The lender is sleazy.  By paying them an extra $750 fee, you're effectively paying them a bonus as a reward for their being sleazy.  Do your civic duty and help put them out of business by refusing to do business with them, even if it means you have to drive a clunker for a few months.

 

New Member
Posts: 4
Registered: ‎02-28-2013
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Re: 8k used car loan, VERY high interest rate, really low debt to income ratio, VERY low score

Yeah. You guys are right. So I was looking for a beater, but I wanted to find one that was reliable that I could eventually resell and I didn't have to repair much. I think that was the hardest part.

 

Today, I was coming home from work and I found a 2000 jeep grand cherokee for $4300, 165k miles. High miles, but from edmunds reviews... very reliable. Maybe not as much as the 2004 Frontier I was going to get from that sleazy dealer, but reliable and I can pay cash. sweeet!

 

As long as the carfax checks out and it runs well, I'm going to go with that and save up for a truck in like a year. hopefully, resell the laredo for a few grand. No auto loan means no postitive credit from a loan paid in full though. I'll spend the next year working on my credt (i assume a secured credit card is the best way to go).

 

Thanks everyone for your help talking myself out of a dumb situation.

Valued Contributor
Posts: 1,453
Registered: ‎04-14-2012
0

Re: 8k used car loan, VERY high interest rate, really low debt to income ratio, VERY low score

That is a very good choice you made......I am glad you are going that route instead. You will be glad also 6-12 months from now.

*8/10/13
New Member
Posts: 4
Registered: ‎02-28-2013
0

Re: 8k used car loan, VERY high interest rate, really low debt to income ratio, VERY low score

Yes. ThanksSO MUCH  for the advice. I've learned a ton about how credit works in the past couple weeks. I suppose that when someting spurs someone to fix their credit up, such as getting turned down for a car loan, there's a TON of resources out there to help learn about it. And boy, is it interesting how it all works. Sorta fun even... and sorta like a  sick and twisted game. haha. But either way, it's all very enlightening.

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