topic Re: Looking for options on my terrible car loan in Auto Loans

Looking for options on my terrible car loan

Anonymous — Sat, 11 Nov 2017 15:45:04 GMT

In Feb 2017 when my scores were in the 500s I had to purchase a car on short notice (old one broke down, couldnt afford to miss work, etc) so I accepted what has got to be the worst auto loan I have ever seen.

301/mo, 54 months, 22.9 APR, 2000 down for a 10k loan on a car now worth about 5000 (4500-5500 per black book)

To date I have paid down to 7500, my LTV is currently 150 so I cannot refi this car right now. (and by the time i get to 6k or under the value may have decreased even more)

However

My scores have improved dramatically in the last nine months. My auto score 8s are currently 716 EQ, 670 TU, and 629 EX (and i have no idea why they are so varying, experian seems to hate my profile when it comes to cars even though ive never missed a payment? my FICO8s are in my sig for comparison)

My thought is to just go to a dealer or through a major auto lender and try to get a new car loan that will cover my old one, and get me into another higher value vehicle. Basically go trade-in value, roll over the remaining loan into the new one, and drive off with a different car hoping my improved profile would make it all possible.

I know the end result would be yet another upside down loan, but I need to get out from under this interest rate. Lowering the monthly payment wouldn't hurt either.

Ideally I would be aiming for something 200-250/mo with a single digit interest rate, 4-6 years, with a ceiling of 15-20k. I am not looking for an expensive ride, a 10k pre-owned would do me fine. I am highly aware though that a lender would be terrified of underwriting a loan that comes out of the box at 200% LTV or so.

Any options out there I am not thinking of? I really cant afford two car loans. There is nothing wrong with my current one, but I am paying 150 a month in interest right now.

Re: Looking for options on my terrible car loan

Anonymous — Sat, 11 Nov 2017 15:57:39 GMT

This is what I would do and what I've suggested to many folks to do:

Enter poverty spending mode. This means things like putting cable/wifi on "vacation hold" for 6 months. Cutting your grocery spend to essentials. No consumer shopping, no bars, restaurants, movies, video games, vacations, etc. Do it tomorrow and use it as an education to remind you in the future! I've done it twice in my life. The second time was easy peasy, the first time I'd rather not discuss, lol.
Get a new/CPO/used car loan but as you said, don't get a fancy one. Find the least expensive car for getting to work. Do your due diligence, shop around a lot, take a friend with who negotiates well. Get a preapproval for a loan from a CU or Capital One Auto or whoever (or multiple) -- some/many can be soft inquiries, too. I would say go for a 48 month loan if you can afford it but don't hurt yourself. 60 months is fine. 72-84 is bad news unless you are assured you can make double payments early on to get the LTV way down quickly. Double payments in the beginning hit principal down HARD which is what you want.
Do your upside down new car loan and make sure there is NO PREPAYMENT PENALTY. Using poverty mode savings, pay that loan down so it isn't upside down anymore, and review it every 6 months to keep it from never being upside down again. If necessary, re-enter poverty mode in the future so you can get 80% LTV on your vehicle value going forward, by any means possible.

You can do this. It requires doing. It isn't easy, but it will be a huge stress relief when you get to the point that you owe 80% or less on your car's value!

Option #2

Enter poverty mode tomorrow and then put all your extra spend towards getting that car down to 80% LTV to refi. If the car is driveable another 3 years, this is a better option that will actually save you way more money. Then stay in poverty mode to start saving so your next car you finance at 80% LTV including trade-in.

Re: Looking for options on my terrible car loan

Anonymous — Sat, 11 Nov 2017 16:34:53 GMT

I also put a feeler out to my local bank I do normal business with (payroll and my savings account are through them) but they are a small town bank and god knows if they will bite on a 150ltv loan.

We shall see. What really makes me sick? If I just paid down 2000-3000 on this car with one of my credit cards, it would be cheaper in the long run since the APR is lower on some of the cards than on the loan. Of course thats just moving money around accomplishing nothing.

Makes my head spin. But wait.... wouldnt that bring me into better LTV territory....

Re: Looking for options on my terrible car loan

Anonymous — Sat, 11 Nov 2017 17:10:49 GMT

Moving 2-3 k to your credit cards is usually a bad idea- it will lower your credit score unless your limit on the card is > 25 k. This is assuming your credit cards are at <10 % utlization now ( probably a bad assumption ).

Fastest way out of the hole

You need a part time job to get that car down to 80% LTV and then turn it in on a lease deal for a stripped econobox ( like 175 / month) if you can qualify. This shoud take you about 12 months to pull off even with a minimum wage part time job. This will buy you time to raise your income and put some money aside each month towards the next car.

Best way out of the hole

Using a part time job - pay off the car and then drive it into the ground. Put some money away each month once it is paid off so you can get a 5-6 k replacement car paying cash. This may take 24 - 30 months ( hard to estimate without knowing your earning potential for a part time job)

Re: Looking for options on my terrible car loan

Anonymous — Sat, 11 Nov 2017 23:55:40 GMT

Get out of 22.9 with your scores now. No reason to enter poverty mode to pay off 22.9 APR with your scores. How much neg equity will you roll over? Find an inexpensive new car you like with large incentives.

Re: Looking for options on my terrible car loan

Anonymous — Sun, 12 Nov 2017 03:30:17 GMT

@Anonymous wrote:
Get out of 22.9 with your scores now. No reason to enter poverty mode to pay off 22.9 APR with your scores. How much neg equity will you roll over? Find an inexpensive new car you like with large incentives.

Car is worth about 5000, owe 7500, so -2500

Re: Looking for options on my terrible car loan

dabrian — Mon, 13 Nov 2017 07:58:56 GMT

If there is nothing wrong with the car I would do everything I could to scrape the 2500 dollars and refi the car. Makes much more sense financially even if that takes 2-3 months to come up with the money.

Re: Looking for options on my terrible car loan

Anonymous — Mon, 13 Nov 2017 14:52:50 GMT

Fixing an upside down loan with an upside down loan (and even more wasted money on spending yet even more on another car) just makes no sense to me.

$2500 is not a lot of money. Play hardball with your budget, sell things you don't need, pick up a second job and throw all of the cash at the current loan and refinance in a few months. Pay off the remaining $5k and save for the next car and never be in this boat again.

Re: Looking for options on my terrible car loan

Anonymous — Tue, 14 Nov 2017 22:23:15 GMT

So it turns out my local small town bank is more amazing than I gave them credit for.

I just refinanced (closing in a couple days when my current payment posts so we get a final payoff amount) with the following terms

36 months

235/month

3.9 APR

The LTV issue wasnt an issue to them, since it hasnt been a year yet, they said they can use the sale price I bought the car for as its "value"

So my LTV is actually 90 percent using that method. Holy crap!

Re: Looking for options on my terrible car loan

Anonymous — Thu, 16 Nov 2017 15:02:32 GMT

@Anonymous wrote:
So it turns out my local small town bank is more amazing than I gave them credit for.

I just refinanced (closing in a couple days when my current payment posts so we get a final payoff amount) with the following terms

36 months
235/month
3.9 APR

The LTV issue wasnt an issue to them, since it hasnt been a year yet, they said they can use the sale price I bought the car for as its "value"

So my LTV is actually 90 percent using that method. Holy crap!

This is great news! Nice, reasonable payment and for a short term. Well done!

Re: Looking for options on my terrible car loan

Anonymous — Thu, 16 Nov 2017 15:57:18 GMT

Great job geting out of 22.9%; with your current scores that was throwing cash away.

Re: Looking for options on my terrible car loan

Anonymous — Thu, 16 Nov 2017 16:07:26 GMT

Fantastic job! Slam dunk savings.

Now...how about taking the payment you WERE making and take the new loan out of that and put the rest into your future downpayment?

Live like you didn't refinance the loan, so that next time you'll have a trade-in plus cash on the table and get yourself a small payment with the next car.

Re: Looking for options on my terrible car loan

Anonymous — Sat, 18 Nov 2017 03:32:32 GMT

Well ill be saving about 70 dollars a month (to be fair, looking at the payment schedule and total finance charges, i just saved six THOUSAND in interest)

Sick.

And yeah I was actually considering upping my 401k contribution a percent now that I have that extra 70, but either way I am going to make it into more money. Whether I save it or put it towards a future car (my current vehicle is actually in excellent condition so I will probably be driving it well after the 36 months are over)

All good advice, I got lucky man. I did NOT expect my bank to come through for me.

Re: Looking for options on my terrible car loan

Anonymous — Tue, 21 Nov 2017 22:18:29 GMT

1) Congrats!!!!

Very happy you got lucky!!!

My advice to anybody facing the situation the OP originally had in Feb (cause many might not be so lucky on the back end)

With 2k one can either

a) Buy a 2k commuter to drive as you save up for better

b) Have Max loan of 5-6k, so the 2k is a HUGE down, creating better terms and then, complete a)

The OP had an overall 'small' auto loan and was actually SAVED by the overall amount, honestly....this type of 'mess' is a death nail

as the dollar amounts pick up....this is much more difficult to get RESCUED from when the dollar amounts are in the tens of thousands vs sub 10 overall.

PLEASE, PLEASE...BE CAREFUL!!!!

High % auto loans are dangerous....truth be told a 6k ride vs a 10k ride, can't be that much in terms of the WHAT one is driving

But the loan terms and ability to pivot a few months later, into a better situation can be DRAMATICALLY different

= Don't SHOP with your 'heart' n 'eyes' when you're in 'need' a car mode... ALWAYS seek to make a 'financial' 2-step decision,

always consider what's next, financially vs if you like the color (it's all temporary....in 10-15 months your world, will generally be different, just like the OP found out)

=Great story, but most better not, bank on it!

Re: Looking for options on my terrible car loan

Appleman — Tue, 21 Nov 2017 23:01:50 GMT

Outstanding story, that is a great improvement in interest rate!

I was doing some calculations and did some rounding to simplify things a bit.

I assumed you financed $10,000 at 22.9% for 54 months as you list.

IF you would have made 9 payments under the scheduled payments and should owe $8,956. That means you paid extra and looks like you already shortend the loan by about 10 months. A great start for getting out of that situation.

Looking at where you were on the old amortization schedule, your next payment would have been approximately $150 toward interest and $150 toward principal.

With the new 36 month loan you new payment is around $221 and your first payment has $196 going to principal and $25 for interest. Saving $125 of interest the first month!

So from this point the old loan was going to cost you just shy of $3,000 in interest and the new loan will cost you about $460 in interest.

The future is indeed bright!