Auto Purchase Dilemma

Anonymous · ‎04-17-2011

Hello out there. I have a 2006 vehicle which is in fairly decent condition, however I am upside down on the loan. I owe roughly 13,000 on the vehicle, but when I attempted to trade it in the offer was only $6,500. My current payment is $600 per month. I am now on a fixed income and would like to get a new reliable vehicle that wont require much attention for the next few years. I believe that I can get a much better interest rate this time around but need a lesser payment.

The dilemma : Should I voluntarily return my current vehicle and pay the difference finance once sold; and use the cash I have as a down payment toward a new car, or should I trade the vehicle and pay the finance company the balance owed on the vehicle (thereby sparing my credit score)?

Also, how much would such an act lesser my score?

Thanks

llecs · ‎04-17-2011

Welcome to the forums!

I know it can be frustrating. I was in the same boat with a Chrysler T&C with about the same at $606.72 for 72 stinkin' months. At one point I was upside down due to the depreciation by over $10k.

If I had that going, I would aggressively pay it off. I'd use the down payment money to throw at the balance and make aggressive payments to get it paid off early or at least closer to break-even for a trade-in down the road. That's what I did with mine. While it hurt and had to change my lifestyle a bit, I increased the payments by an extra $400 and paid it off almost a year early. Now I'm driving a perfectly good (despite 172k miles) minivan and repairing it at $500-$1000 per pop 1-2x/yr is a heck of a lot cheaper than making payments every month at $600.

If you do as proposed, it'll be treated as a voluntary repo. Your score drop would be 100+ easy and you'd owe $13,000 minus what it sold for at auction ($2-3k I bet). That balance would be due immediately. If not paid immediately, then lates and interest would accrue. Your FICO scores would drop 100+ for the repo (assuming your credit is clean now...less of a loss if you have recent lates or baddies) and would drop further as lates are added assuming you didn't PIF immediately.

I know it hurts making the payments, but IMO, you are better off just paying it off. Everytime I paid mine, I wanted to give up, but the losses are greater financially if I had.

Anonymous · ‎04-17-2011

Hello and thank you for the warm welcome! Your response was very helpful. At this point I need to have something that wont break down because I wont be able to afford repairs etc. Also, I am no longer able to make the $600 payment - let alone any extra. Im hoping to get a vehicle with payments atleast $200 less per mnth. If I understand you, I should trade the vehicle and just payoff the balance. My purpose for doing so now is that the money that I have will be depleted after the next several months and then I'll be right back where I started - no money and a car payment that I can't afford. Ultimately ending up with no car.

Am I making any sense?

Anonymous · ‎04-18-2011

there is no way around the fact you owe more then your car is worth.

I would trade it in on a new car, which would have rebates and preferred financing, and assuming your credit has improved pay the difference to get yourself to a payment you can handle.

Also assuming your credit has improved significantly

Big question? Do you drive a lot? If you drive less then 10K miles a year you may also consider shopping a cheap lease and rolling the negative into that.

Put down the minimum you need to get the lease done, maybe roll 4K into the lease ($4,000/39 months would be maybe an additional 110-120 a month on a lease- )

At the end of the term yes you need a new car but you may have saved significantly on a per month payment basis with only a few grand down on the onset on the lease.

Anonymous · ‎04-18-2011

Thank you USMC.

Thank you for your response. Very helpful info. The insight on the lease is good too. I had wondered if I could trade my vehicle on a lease. BTW my credit is not A credit. I'm actually around 700 give or take a few points. Do you know if I"i'll be eligible to take advantage of a 2.9%apr? I've asked the dealer what type of score I need to have in order to qualify for the low apr, but I did not receive a direct response.

Anonymous · ‎04-19-2011

@Anonymous wrote:
Thank you USMC.

Thank you for your response. Very helpful info. The insight on the lease is good too. I had wondered if I could trade my vehicle on a lease. BTW my credit is not A credit. I'm actually around 700 give or take a few points. Do you know if I"i'll be eligible to take advantage of a 2.9%apr? I've asked the dealer what type of score I need to have in order to qualify for the low apr, but I did not receive a direct response.

Ok there is a lot to go over here:

1- When you trade a vehicle in to a dealership you are always getting the value of the car and will carry over any shortage or overage into the new loan. Ther eis no difference trading a car in for purchase or lease. If you owe more then the car is worth you haev your choice of "rolling" the negative equity into the new deal. Depending on rebates, incentives and purchase price to value of vehicle you may or may not have to pay down the negative equity in th eform of a downpayment to get the deal bought. New cars are usually easier to rollnegative equity into since most people are buying at a discounted price over MSRP before the rebates get factord in, used cars can absorb some negative equity but usually only very little.

If your vehicle is worth more then the amount you owe you can usually apply that to a new deal or actually get a check cut to you.

2- a 700 score is fine for leasing or purchasing, assuming that you have good car payment history and no major derogatories on your record. Be aware unless you have purchased your FICO score from myFico or applied for credit and were told that number and told it was your FICO it may not be your "real" credit score. Either way it does not really matter since most companies use something called an auto-enhanced FICO score that is weighted in respects to the risk of you not paying your auto loan. Its adifferent number. Which is why I never recommend anyone "buy" their score off of myFICO for Auto loan purposes, you are just throwing your money away.

3- Car loans are not score dependent. They take the whole picture of the transaction into account, your debt to income, past loan history, loan to value on the new car you are purchasing, many other factors into the mix.

NO ONE CAN GIVE YOU A DEFINITE ANSWER ON WHAT INTEREST RATE YOU WILL GET BASED ON SCORE ALONE.

Its a very slippery slope and can get you as a salesman or finance guy in trouble for "bait and switch," or just upset the customer so much that he does not do business with you and wastes your time if you do. Until the deal gets ran we have no way of knowing the exact rate you will get- since we are not the bank financing the loan.

You can be 55 years old with a great current history on your credit bureau, and come in to get 0%. I do all the paperwork and the deal gets bounced and find out you took down Ford Credit in a BK 15 years ago. Promising you I could get you that 0% over the phone and then not being able to get it could cause serious trouble. Thats why we always speak in "yes it is available if you qualify, or we will see what we can do, i am sure we should be able to get it done, etc.."

Anonymous · ‎04-19-2011

Wow USMC! Your really know your stuff.

I am concerned with debt ratio since I do have student loans (although they are in deferment). Guess I'll cross that bridge...

USMC, do you happen to know anything about negotiating a vehicle purchase. I believe that too often we accept what is offered... while test driving a vehichle this past weekend, I observed a buyer walk in and say "I would like to make an offer...". I'm uncertain as to the outcome, but I was impressed.

Can you offer any insight here? LOL. As you can see I have alot of issues.

Thing is after my last purchase, I vowed that I would make a more informed and sound decision the next time around. I ended up paying sticker price with an apr of almost 17%. I later refinanced for a 13.9%. I'm definitely not looking forward to another deal like that one!

Anonymous · ‎04-19-2011

@Anonymous wrote:
Wow USMC! Your really know your stuff.

I am concerned with debt ratio since I do have student loans (although they are in deferment). Guess I'll cross that bridge...

USMC, do you happen to know anything about negotiating a vehicle purchase. I believe that too often we accept what is offered... while test driving a vehichle this past weekend, I observed a buyer walk in and say "I would like to make an offer...". I'm uncertain as to the outcome, but I was impressed.

Can you offer any insight here? LOL. As you can see I have alot of issues.

Thing is after my last purchase, I vowed that I would make a more informed and sound decision the next time around. I ended up paying sticker price with an apr of almost 17%. I later refinanced for a 13.9%. I'm definitely not looking forward to another deal like that one!

Ok, FYI I do not like to get too emmeshed in people's decisions as it allows them to absolve themselves of responsibility and blame the decision on someone who is not there, was not there.

1-American cars will have better nogotiating prices then many foreign brands. (unless it is a hard to find or low production unit)

2- Do you or any family members work for FORD or GM etc? If so you can get a family plan price which is prenegotiated.

3- If you do not have that option are you a member of COSTCO, or USAA? they both have auto buying programs tha give you a prenegitiated price. (I am sure there are others out there I just named those two off the top of my head)

4- When you have found the car/trim level you want you can always go online to a few dealers in your area and get an internet quote. In most cases the internet price is very discounted and competitive.

In regards to the guy who walked in: Anyone can make an offer, it can be reasonable or not. The dealership can accept or counter or laugh at you.

On a Friday I once had a guy on the lot looking at Fusions. I was doing my salesman stuff with him and he asked what the Ford Employee price was. I gave him a rough number for that car and asked if he worked for Ford. He proceded to tell me how Ford should give the employee price to everyone and it was unfair that people had to pay more starting to get loud and indignant and the only way he would buy the car and he would right now is if I gave him employee pricing.

I proceeded to tell him that the employye pricing was a Benefit, negotiated by the Unions with Ford Employees, like the job benefits he gets at his job, and that even dealership employees like myself did not get that price, and it actually is not the price the vehicle sells for although it is a the price the employee pays, but that Ford cuts us the delearship a check to compensate us and not have us sell a car for thousands under invoice at a loss.

Now he proceded to tell me he would only accept the car for $100 under the Ford A-Plan. I laughed, SIr, the A-Plan price is significantly below invoice, and we as a dealership if you had the A-Plan are unable to sell a Plan vehicle at a Plan price for anything but what the predetermined price would be.

This caused him to rave more. The sales manager had gone out for a smoke and watched and I just told the guy i would be inside if th customer wanted to talk more. the salesmanager was mad at me for walking away and went up to the guy. i went inside and ten minutes later the SM walked in. I was like "Well how did it go?"

He said I walked away when he wanted $500 less then plan.