Auto Loan Questions... Down Payment vs Trade in?... What are my chances?

[Anonymous]

Greetings! I'm new to myfico, just wanted to say it's a great resource for people like myself who are trying to improve our credit and maybe clean up some mistakes from the past.

I am interested in trading in my current vehicle and financing a new(er) car. Here's my situation...

I had a reposession back in '05 that's since been paid off. I also have 2 unpaid credit cards in collections from the same time period... I lost my job, got behind, and the rest is history. I have another auto loan from '03 that was paid in full, never late. I have 3 current credit cards with low credit limits but utilization is only around 10%. I've been at my current job for 3 years and make a salary of $45k. My DTI ratio is very low... rent + credit cards = $500/mo

My FICO score through EQ is 574. Don't have FICO's for TU or EX though. My FAKO PLUS scores are 596 EX, 587 EQ, 587 TU. I know, I know, the FAKO scores don't mean much but I'm providing them anyways  

My current vehicle is a '02 VW Jetta GLS 1.8T that's completely paid off, and I've been offered $5500 - $6500 trade in at various dealers I've talked to. This car was never financed, so it's not helping my credit. I'm looking at a vehicle now that is $17,000. I haven't applied for financing yet, but called my credit union and was told they will not finance scores below 639.

Based on the above information, what do you think my chances are of getting approved in today's credit markets? I can get a co-signer with FICO's around 650 if necessary... but would rather go it alone. Also, I'm wondering if my ~$5500 credit for trade in will be sufficient, or if they may also want a cash down payment as well?

Sorry for the long winded post, and all the questions... just trying to get a sense of what my chances are before I start applying and getting my score dinged even more.

Message Edited by SeattleCSL on 02-27-2009 12:56 PM

[203bravo]

It's harder today to find sub-prime financing... but not impossible.  Given recent repo and currnet charge offs along with low scores.. you are going to pay credit card interest rates at best when you find a company.

Don't waste your time trying to find a bank or credit union.

Message Edited by 203bravo on 02-27-2009 09:11 PM

[Anonymous]

I disagree with the above response.

This is one of those cases that illustrates the disconnect between credit score and reality.

Assuming that you have spoken the truth, have no other not stated major Derogs and a reasonable rent/mortgage, home address and job history, I think that you will not have any problem getting a LOAN. (The big question will be why get the loan but I will address that in a minute.)

Why will you get a loan?

Simple math:

You want a $17,000 vehicle that the will be about $19,000 after fees and taxes.

You are putting down the trade in at $6,000 which for all purposes of the deal is you are putting down cash of $6000. (Trade in is basically the dealership is paying you for the car and instead of cutting you the check, it is cutting the check to the deal)

Add say a thousand dollars cash down too(which you may not really need to add).......

That means a bank would be financing $12,000 on a $17,000 vehicle.

That is a no brainer. Their money is at very little risk as they will probably get whatever is outstanding on the loan if they were forced to repo it.

Definately a case where the finance department of the dealership would structure the deal and get it bought by someone for you.

BUT:

1- You would still pay secondary rates on the loan which means for about 12,000 you would be at 300 or more a month in a car payment. (granted again your dealership could get you better)

2- You will be making a car payment now when you dont really have to be. Your current car works/runs if it did not you would not be able to get 6k for it.

Are you trying to buy a car just to improve your credit scores?

I do not recommend this as the monthly cost in interest rate is very high just to pop up your credit score.

I would keep your current car.

Especially in the current economic climate. Why saddle yourself with a make or break car payment when who knows what next month will bring. Getting the loan to help get your credit score up and then losing your job in September would really suck. YOU HAVE A CAR RIGHT NOW THAT IS PAID OFF.

Start making Car payments to yourself every month for say 350 a month, every month. Let the money accumulate in your bank.

Take a long hard look at your credit report, pay off what you can, try to open a new card account or two to reestablish and in 3-4 years when you need to buy a car you will have a better score overall just do to time and you will have 350*36=12,600 to put down on a car.

Your credit score today does not matter unless you need to use it, time and payment history helps that.

[Anonymous]

Thanks for the responses! This information is very helpful... yes, the reason I am considering financing a vehicle is primarily to increase my credit scores. I don't NEED to get a new vehicle, but I think having a current installment loan that's not in default will help me in the long term. I have a goal of buying a house in the next 5 years and want to do everything I can between now and then to raise my scores as much as possible. All derogatory items will be off my report in 3 years so I'd like to have as much good credit history as I can when that happens.

I'm also somewhat concerned about the long-term reliability of my current car.... it's a VW with 90k miles and I don't want to put alot of $$$ into maintenance and repairs as the mileage continues to climb... having a car with low miles and a warranty would be great. I'm not worried about the possibility of losing my job at this point, but like you said you never know what next month brings, and obviously losing my job in the past is what got me where I am right now.

Again I truly appreciate the response and the helpful information/insight you've given me. I think I need to take some time to really sit down and evaluate my current situation and my options.

[Anonymous]

Ok well now we have more info.

If a dealership is offering you $6K for a 90K vehicle is your VW a diesel? That is just an insane amount for a gasoline engine vehicle with that many miles.

if it is not a diesel, dump the car as at 100K it will probably be worthless.

Honestly I am curious if you will actually get $6K for it if they went through with the deal. Think about it, if a dealership gave you $5.5K for the car, just processing it would put their costs to about $6.5K, they would have to price it to sell opening at $7.9K-$8.4K just so they could negotiate down and not lose money....I am really curious about that.

For gasoline engine cars the big points in losing money on trade in are:

• 70K miles
• 75K miles
• 80K miles
• 100K miles
• 6 model years old.
• dec 31st to jan 1st (car becomes a year old and depreciates more) Yep every new years even if you do not drive your vehicle you take a hit
• one month to the next car becomes OLDER and depreciates more. same as above

Why are those points big? They effect the ability of the dealership to find banks to finance the loan, warranties to put on the car with the sale, desirability of persons to buy.

Now: in general when people have paid off cars and repairs this is what I ask them:

Say you need $2K in repairs and maintenenece that will extend your car for 2 more years before you need to put more money in other then oil changes and gas thats 2,000/24 which means you will have a "realistic car payment"  of $84.00 a month for the two years that those repairs should last you. Add an arbitrary amount to cover aggrivation and etc as well. Take a look at your car and do you expect any more unexpecteds to happen if so add that into that car payment number.

If you can keep the number below a $100 a month that is still cheaper then a  car payment.

No matter what you do you will have a car payment in excess of $300.00 a month.

Honest opinion: 90K gasoline engine (assuming that there is nothing else making that car worthwhile) that dealership will give you $5.5K to go into newer vehicle with warranty- DO IT.

Message Edited by usmc58555 on 03-01-2009 12:39 PM

[Anonymous]

It's the 1.8 Turbo, not the diesel. The car has all factory options plus a $4,000 Alpine navigation/dvd system (came with the car, since I didn't buy it I'm willing to let it go), so I'm assuming that's why I have been quoted higher trade in values. We'll see what they actually give me when I go to trade in... thanks again for all your help. I feel a little more confident now about applying for the loan. Like you said they'll be financing an amount that is much lower than the value of the car so I'm hoping I'll be in good shape... but even if I'm denied, I'll just have to suck it up and go back with a co-signer.

[oneilldn]

The reason why you been told a lot for your trade is cuz they have room on their car. It's seems a lot but that cuz they are overpricing their car. That's the problem with trading cars, not good. The car may have incentives, cash back, rebates, etc. so they use that to show you more for your car. At the end, they got your car very cheap, and sold you theirs at full price.

My advise, since you don't really need a new car, stay with yours, try to dispute the negative items in your CR. you'll see how your score goes up with time. Also, getting a new car loan with your DTI will back fire on you, since first, it'll be a new account, second, you'll be adding to your debit overall, and we both know you don't want that. Good luck. BTW, I was a former manager of a big dealership, so i do know this business. Take care...