Denied Auto Loan...DCU next try

Anonymous · ‎01-06-2017

Hi there,

So I tried to apply for a pre-owned tahoe the other day (Which was priced around $37K) and I had a 2013 Chevrolet Equinox LTZ to trade in which was financed and I still owe $22000 on it but the trade in value on KBB was 16-18K but the dealership only offered me $15K Trade in for it

So when it came time to finance they ran my credit and hit me with 5 hard inquires. My credit score at the time was 640. They denied me, they say it may have been because of the negative equity on the vehicle and the high CC debt...

But I'm in the process of paying down, so far I'm at about $12K spread across 6-7 CC's debt but just paid $270 yesterday and plan on paying another $500 in a few weeks. CC use is around 82% as of right now.

The only reason were trading is because the family is growing and we all really can't fit into the Equinox anymore so we need more space and a vehicle to take the family on road trips. The dealer also claims it might be better for me to simply purchase a new Tahoe at around $50K but I'd really rather not as I would like my payments to stay around what they are now.

I'm planning on paying down more debt and waiting for the hard inquiries to fall off and give DCU a shot this February.

Oh also on the bright side, I have all positive previous vehicle installment loan payments and never missed any payments or any baddies at all on my credit report, just a bit of debt that's slowly going down haha.

Please no lectures on why I shouldn't trade in with negative equity etc...I've already weighed the pros and cons and this is the most reasonable choice for me and if I do receive the auto loan at a decent rate then I would be more than happy and able to pay it

Thanks in advance for all your advice guys!

Appleman · ‎01-06-2017

That 82% utilization is what will likely kill the financing options. Remember 90% is considered maxxed out.

From my experience I saw increases in score dropping below 70%, 50% and 30% Utilization.

You may want to look into SoFi.com and see if you can get a pre-qual offer (soft pull). Usually if they approve a pre-qual you should be good to be approved with a HP.

If you could get a personal loan to cover much of your credit card debt, your scores would really take off (even though you would have the same debt, revolving versus installment are viewed differently).

Good luck!

StartingOver10 · ‎01-06-2017

OP, you are in no position to take on further debt at this time given your 82% utilization on your credit cards.

I think Appleman has a great idea about converting the revolving debt to a SoFI loan, if you qualify. The only caveat I have is this: will you run up your cards again? If not, then I think it is a great idea to get on a plan like the SoFI loan. If you don't get approved, then try the snowball method.

If you can paydown/payoff the credit cards substantially without the SoFI loan (snowball method), that might be a better solution. Then look into getting a vehicle. I know you said you had to have one now due to your family size, but putting yourself in a long term high-interest rate loan (if you are able to get approved) will only hurt your financial future. This is how repo's happen - vehicle loans given to those that are already in over their head. I am not saying this to be mean - I happen to be in one of my paydown periods too before I buy my next vehicle. Everything is timing. Once you get to where your finances are in better shape, then you can get a better loan for the vehicle you want.

Anonymous · ‎01-06-2017

I understand that you've made your decision, but I'll just add my input from the standpoint of an outsider. With CC debt of $12k and $7k upside down on the trade in. It seems that you REALLY aren't in a position to take on even more debt. I wouldn't attempt to buy more expensive until your current debt is under control. Pay off the credit cards and eliminate the negative equity unless the new vehicle purchase will have a lower interest rate than the old vehicle.

Is the Equinox your only vehicle? How many people do you tote around on an every day basis? How often are you taking family road trips?

I don't feel like the occasional road trip justifies adding to your debt. Even more if the interest rate is going to be greater than 2% which it probably will be.

Anonymous · ‎01-06-2017

Thanks for the input guys. I've thought it over and still want to go ahead and try for the loan on DCU in a few months. After doing some research (even with the negative equity and the 15K Trade value) my payments on a new or pre-owned vehicle would still be around the same (give or take 50 bucks).

Also I went ahead and took you guys advice and tried SoFi but after the signup process I was told that they unfortunately do not offer personal loans in Las Vegas

So I tried Prosper and I was actually approved for 5K

the interest rate wasn't crazy great but more than reasonable and very manageable. I just sent in my ID and Bank Statements to them.

This should cut my credit utililization down almost 50%. And I can pay off all of my interest bearing credit cards! So I can just focus on the credit cards that are still interest free. This gives me alot of much needed breathing room!

From that I should see a nice boost to my credit score soon!

Thanks for the helpful advice guys!

Appleman · ‎01-07-2017

Congrats on getting the Prosper Loan. Of course the big thing is to avoid bringing back in more credit card debt.

I know for me, finally utilizing a budget was a game changer. I am still a fan of YNAB.com but there are many budget programs out there....

Budgeting helps change your perception of money and debt. I know I always viewed an open credit line as an invitation to spend. Now I think in terms of the daily and monthly cost of credit, utilization and debt to income ratio.

Anonymous · ‎01-07-2017

Yes definitely! I'm putting my Capital one and American Express cards in the drawer and making sure I have no incoming recurring charges coming in on either. And on top of that any more income or extra cash I can get will be going to the rest of my other CC'S. I may be able to get everything paid off before this summer

Anonymous · ‎01-09-2017

Thought I would add my 2 cents. In the early years of my married life we got into the cycle of having negative equity roll from one car to another as our needs/preferences changed and we traded in existing cars for new ones. My experience is that this is a terrible practice. Eventually you have to pay off that extra 5-7k that got rolled into the new deal and why you can have a payment that is affordable you are driving a car that has and will have a ton of negitive equity for several years. Now we plan carefully when it comes to our car purchases and we don't go for a new car until we have positive equity. This has forced us to be a little more disciplined but has opened many doors for us in terms of options.