topic Some type of precomputed auto loan in Auto Loans

Some type of precomputed auto loan

Anonymous — Tue, 17 May 2016 07:27:40 GMT

Hi, so I had no credit history at all and found myself needing reliable transportation badly. After a string of used car drama and public transportation not an option and without a cosigner I received a loan from credit acceptance corporation. A horrible loan!

Accepted loan August 15'
Amount financed 14,887.xx
69 months
23.99%
$399 monthly payment
$27K + I will have paid at end of all scheduled payments

Around this time I opened Kohls charge account and fingerhut account more recently. I've kept utilization rates low and have 100% on time payment history. In the lady month or so I joined dcu cu and they gave me visa w $1k. Plan to keep ut rate low and pay on time obviously. Dcu has assured me if I show them 6-8 more on time payments they'll refi my auto loan.

My concern and question revolves around the type of loan I currently have. It isn't a simple interest loan. It seems to be a precomputed loan that will use the actuarial method to determine any rebates due if I prepay in full.

From my contract, " if you prepay in full you may be entitled to a refund credit or part of the precomputed finance charge. This credit will be calculated in accordance with the actuarial method. We will apply the credit to the amount you owe us or if you paid us more than the asking owed under this contact we will refund it to you. A minimum finance charge of $15 may be charged. If you prepay only a portion of the balance remaining under this contact we will apply the prepayment to your account balance," (not principle).

So I've been educating myself on credit and doing everything to position myself to get a refi. This is the sole reason I joined dcu. My current equifax is 638. I've only had my visa for one month. I'd like to apply for refi come December - January ish. Dcu said Nov-Dec ish. Hopefully the visa will help to boost it more by then. It's only reported once. I still have other issues such as average age of accounts and just a very limited history but dcu knows this.

Anyway, my primary concern is this funky precomputed interest loan.

Will new lenders refinance these loans? I can't keep this loan for 69 months. My mindset was get the loan, educate myself on credit scores, refinance in 12-18 months. I didn't understand simple interest vs precomputed, rule of 78s, actuarial,etc.....

My understanding is this about my loan: I owe the agreed upon amount of 27K. If I prepay in full (by means of refi) they will use the actuarial method ( whatever that is-worse than simple interest but better than rule of 78s) to "rebate" all the unearned interest owed on the 27K amount. Which in my situation would give me a payoff amount much much less than the 27K (which represents the amount financed and the total interest on this loan). When I call cac and request a payoff amount it fluctuates in the 13K range currently.

My understanding is this is a hidden prepayment penalty basically but the actuarial method is an improvement over the rule of 78s method which cannot be used for auto loans 61 months or longer.

Geez this is complicated. There is so much info online and it seems many commentators on various blogs seem to give contradictory info etc. I've read it doesn't even make sense to refi or prepay a precomputed loan???

When I call cac my current payoff amount given is 13K and change. Clearly this is significantly less than 27K so I don't understand information I've read stating it doesn't help to refi these loans?

Is my understanding above correct:

I owe 27K (amount financed plus interest)

If I prepay in full by means of refi they will use this crazy actuarial method to "rebate" me down to only owing the 13K figure cac says is my current payoff amount. I won't actually get a rebate but will be rebated (I may have invented that word) in the sense that I only have to pay the given payoff amount and not the agreed upon 27K.

I'm sure this whole situation was very unwise financially speaking and I will be several thousand dollars out of pocket to them and my principal has barely decreased but paying extra each month doesn't do much if anything to lower the principle.... Besides who can pay more than 400$ anyway?

This is the situation! So to recap my primary questions I'd love to have answered:

WILL LENDERS REFI PRECOMPUTED INTEREST LOANS USING ACTUARIAL METHOD TO DETERMINE REBATE -- We'll ignore specifics of ltv and whether I specifically qualify to get refi, etc. Just generally speaking CAN this type of loan be refi and does it make sense to? I'll have the 13K with new lender, interest on top, plus be out roughly 6K already( $399 monthly payments from Sept15'- Dec16') Will I even save anything compared to 27k? Should I tough out my current loan? Those 399 payments are brutal...

Are there any other important factors to be aware of?

Wish I would of never got this car... Should of just had three kids and got welfare....

All this because I never used credit in my past... So much for living within your means and SAVING up for purchases, which requires great discipline btw.

Thoughts and or opinions are welcomed.

Oh one more thing I have a 2010 Honda about 70K miles. If I'm going to end up paying nearly 30K for this stupid thing should I see what my credit score is come December and if it's good enough to get a good apr just trade this in for brand new civic base model? My thought is a new civic is say 18 or 19K then add the 13K from current car which would equal somewhere in the neighborhood of say $ 31-33K ish but IF I could get a simple interest loan with decent apr (assuming my credit is good enough to do??) The interest on that amount might be few thousand ish roughly speaking... Which of course equals more than 27K but at least it's a new car to drive for next 7-10 years (or until wheels fall off). I understand rolling an old car that's underwater into a new loan is usually stupid... But if I gotta pay 27K for a 2010 but could come out with new car for 10K more should I?

Or is that the dumbest idea ever?

Re: Some type of precomputed auto loan

StartingOver10 — Tue, 17 May 2016 12:39:36 GMT

@Anonymous wrote:
Hi, so I had no credit history at all and found myself needing reliable transportation badly. After a string of used car drama and public transportation not an option and without a cosigner I received a loan from credit acceptance corporation. A horrible loan!

Accepted loan August 15'
Amount financed 14,887.xx
69 months
23.99%
$399 monthly payment
$27K + I will have paid at end of all scheduled payments

...
My understanding is this about my loan: I owe the agreed upon amount of 27K. If I prepay in full (by means of refi) they will use the actuarial method ( whatever that is-worse than simple interest but better than rule of 78s) to "rebate" all the unearned interest owed on the 27K amount. Which in my situation would give me a payoff amount much much less than the 27K (which represents the amount financed and the total interest on this loan). When I call cac and request a payoff amount it fluctuates in the 13K range currently.

....
WILL LENDERS REFI PRECOMPUTED INTEREST LOANS USING ACTUARIAL METHOD TO DETERMINE REBATE -- We'll ignore specifics of ltv and whether I specifically qualify to get refi, etc. Just generally speaking CAN this type of loan be refi and does it make sense to? I'll have the 13K with new lender, interest on top, plus be out roughly 6K already( $399 monthly payments from Sept15'- Dec16') Will I even save anything compared to 27k? Should I tough out my current loan? Those 399 payments are brutal...

Are there any other important factors to be aware of?

Wish I would of never got this car... Should of just had three kids and got welfare....

All this because I never used credit in my past... So much for living within your means and SAVING up for purchases, which requires great discipline btw.

Thoughts and or opinions are welcomed.
...

^^^To answer yrour questions:

The lender that will refinance you will take into account the value of the vehicle for your refinance.The value depends upon the make and model of your vehicle, it's age, the milage. It doesn't matter what type of loan they are paying off. However, if the loan exceeds the value, there is a cap on how much an individual lender will pay beyond the vehicles value. Most of the time it is capped at 120% of the value - but it could be lower depending upon your credit score and income and DTI and the lenders own guidelines.

It is a very good idea to start saving as much as possible so if there is a short fall between the amount the lender will finance and the payoff amount (if any), you will have that difference to bring to closing the new refi.

Don't trade the vehicle - it will add substantially to your debt and make you more upside down, not less.

Your original idea of refinancing with DCU is an excellent idea. Plan for it just as you are doing now.

The really good thing about a mistake is that you learn from it. Most of us here have made similar mistakes in the past and that's why we make a point not to do it again. I bet the next time you finance a vehicle you go to a CU before you accept any type of subprime financing from a dealership

Re: Some type of precomputed auto loan

sr383 — Tue, 17 May 2016 15:11:17 GMT

However strangely they worded things, you should be able to call the lender at any time and ask, "What is my payoff amount?" If it's reasonably close to the value of the vehicle, you should be in business with DCU.

I had a horrible loan that I refinanced after a year. Saved $6,000 for half a day's work.

Re: Some type of precomputed auto loan

Anonymous — Tue, 17 May 2016 16:09:46 GMT

Prior posters are correct - you can and definitely should pursue refi on this one.

The language is farily normal in your contract - they are roundabout saying that they will credit you unearned interest if you pay in full, but they are reserving the right to apply prepayments (extra payments) to the entire balance (principal and interest) rather than directly to principal. It's a little trick they use to keep more of the interest in the long run, but the (legal) fact remains that unless they state in pure language that you cannot pay if off early (and really, who would sign such a thing?) then they must credit you the interest they did not earn, less any fees they outline up front, when calculating your payoff. All loans are "precomputed interest" loans - every single one has an amortization schedule where they took the amount they loaned you, figured out the interest, and divided it into equal monthly payments where part of the payment is interest and part is principal - interest-heavy up front and principal-heavy on the back end, to maximize their return on investing in you. In that sense, what your paperwork says is completely normal. All Retail Installment Contracts on cars (and notes on other types of loans) are required by the federal govenrment truth-in-lending to tell you up front what you are borrowing, what you will pay in interest, and what the total of those two amounts will be. Doesn't mean you can't undercut it by paying off the thing early. In your case, I'd pursue it with gusto - especially since you have a credit union already telling you they'll do it in a (relatively) few months.

Since you are in the early stages of your loan (under a year), your payoff is primarily principal. Payoff quotes are typically good for 10 days or so, meaning that if they receive payoff funds within those days, you do not owe any more interest and will be clear. If you pay off a loan on a 10-day payoff in less than those 10 days, you may even be due a small rebate for a week's worth of interest - this has happened to me each time I pay off a loan, this last time I got a check for $11 in overpaid interest because the 10-day payoff amount was paid in 3 days.

Re: Some type of precomputed auto loan

RASULL12 — Tue, 17 May 2016 18:24:13 GMT

My car was financed with Santander who also uses simple interest and was 21% and my car got paid off last month the exact amount of the payoff indicated by Santander however just Saturday I received a refund for $222 which was stated to be overpayment of the loan.

It may have been because I always pay extra every month on my car payment and once all was said and done they calculated the value of the interest owed back??

Re: Some type of precomputed auto loan

Anonymous — Tue, 17 May 2016 19:18:35 GMT

$222 back is nice. Just curious if you refinanced or simply made your last payment.

Re: Some type of precomputed auto loan

Anonymous — Tue, 17 May 2016 19:58:05 GMT

Oh one more thing I have a 2010 Honda about 70K miles. If I'm going to end up paying nearly 30K for this stupid thing should I see what my credit score is come December and if it's good enough to get a good apr just trade this in for brand new civic base model? My thought is a new civic is say 18 or 19K then add the 13K from current car which would equal somewhere in the neighborhood of say $ 31-33K ish but IF I could get a simple interest loan with decent apr (assuming my credit is good enough to do??) The interest on that amount might be few thousand ish roughly speaking... Which of course equals more than 27K but at least it's a new car to drive for next 7-10 years (or until wheels fall off). I understand rolling an old car that's underwater into a new loan is usually stupid... But if I gotta pay 27K for a 2010 but could come out with new car for 10K more should I?

I missed this part earlier - this is not doable.

You cannot roll 13K into a 19K note.

Lenders will loan you up to about 120% of the vehicle's value to cover part of an underwater situation, or whatever, but you cannot secure $31K in loan with $19K in collateral. Just plain won't happen. The only way this works in your situation is where you owe less than $4k more than what the original car is worth - say, its blue book/trade-in value is $5K and you owe $6K on it, in that case the new lender will roll the $1000 extra into the new car loan. They are NOT going to roll in more than $3800 on a $19K car.

Refi is still your best option for now, and trading in to swallow negative equity may be ok later on once you're closer to what the car is actually worth vs. what you owe on it.

Re: Some type of precomputed auto loan

RonM21 — Thu, 19 May 2016 22:11:52 GMT

Refinance seems the way to go. Many options out there.