Help for Daughter with a Bad Car Loan

[DeeWill]

I have a hardhead 21 year old who just had to have a car because the used one I gave her wasn't good enough. She went to Carmax in 11/2016 bought a used Honda Civic for 12K. Got financed through American Acceptance but the interest is 28% and she pays $360 per month and the loan is going nowhere. She can't seemed to get refinanced because of the LTV (Been paying almost 2 years and payoff is $11009). I'm trying to help her either get refinance or get another car however the negative equity (payoff $11009, trade value $6500) is killing all the deals and her down payment is not enough to cover it.  Anyone with any ideas, suggestions, thoughts?

Thanks!!!

[marty56]

IMHO you've done more then enough.  Pain is a great teacher.

Her best bet is to improve her credit scores enough to refi if she can pay extra to get the car into a refi state.  She doesn't need to trade if it is running and helping her any more then just giving advise most likely won't end well based on the info you have provided.

[Anonymous]

You won't find any legit lenders that will refiance 11k on a 6.5k used car. That is sickening that lender would approve someone for 28% APR.

However, to answer your question and if you want to help your daughter, the only way is to pay her 11k debt by dipping into savings or via personal loan since APR will be much lower than 28. Good luck.

[Anonymous]

While 28% is very high when you reach those numbers the risks of the borrower are very high on defaulting. You get the interest rate you deserve. And knowing the company she was financed with they almost added an origination fee to make sure they covered their bases.

Her daughter was and is sub-prime and she had to get this car because she wanted it. I got whacked with a 25% interest rate when my finances were in the tank and I built my way up, my current loans are at 2.49%, as for coming in with your own financing, sub-prime customers will never get approved through normal institutions.

Good credit gets you a good rate. I've been on both sides of this coin plus working in the car business I understand what actually goes into structuring deals and getting them funded.

[Kree]

Specifics might change with more exact numbers. IE was it 12000, or 12191 after tax.   28% or 27.95 etc.  But with what you have given me I was able to make a few assumptions and model your daughters loan reasonably well.

Basic breakdown. Over the course of 72 months she will pay about 13000 in interest.  We are 18 months in, so nothing we can do about the start, but going forward:

If paying the 360 for the next 54 months she will pay about 8500 in interest.

If paying 400 a month she will pay about 6800 in interest over 44 months.

If paying 450 a month she will pay about  5500 in interest over 37 month

If paying 490 a month she will pay about 4600 in interest over 31 month

As you can see any additional payments will make large changes.  just  an extra 40 dollars will cut down her interest paid by 20%. She will also get down to her trade value in about 24 month.  So by Christmas 2019 she should be eligible for refinance. 

If paying additional money is not an option for her, perhaps a balance transfer card could help.  If she can transfer 7500 to a card for 18 months at 0%, then she could pay off the car in less than a year. And then pay down half of the transfered balance before the introductory APR is done with.  (This might not be doable if she doesn't have enough flexibility to pay a CC minimum along with her car payment, or if she doesn't qualify for a BT card.)   Alternatively jsut the transfer would get her LTV down, and perhaps allow her to refinance the auto,  which could save even more money.  NOTE: if she can't afford more payments, there is a chance she can't afford a new CC, although maybe an existing card has a BT option.

Finally,  your daughter is an adult.  It is very nice that you want to help, but please consider that bad purchasing decisions are a learning experience.  If she isn't actively asking for your financial help, please give her options.  "my research shows that if you do this, you can save this much. If you do this, you can save this much. etc", and let her decide for herself. If she doesn't change her financing, that too is a learning experience. 

EDIT: removed glaring analysis error where I compared the remaining loan interest paid to original loan interest paid, and overstated savings.

[Anonymous]

Unfortunately no quick fix. Any thought of trading the car needs to disappear. She can't take the hit from taking convenience of a trade over the higher yield more involved process of selling the car her self. By selling the car her self she can close the negative equity gap drastically then finance any remaining negative equity into her replacement car loan. (This usually done when a car is a total loss and value is insufficient to satisfy the loan, so dealers will be very familiar with this.) That said, it might be best for her to take her lump on this one and teach her to make better financial decisions going forward. As said, she can/should be paying more than the minimum to offset that massive interest and try to get ahead of the depreciation curve. Good luck!

[DeeWill]

Thanks for all the responses.

[Anonymous]

I have a question on regards to this thread. I'm in a similar situation. I'm upside down on my frs. My credit at the time was low 600's and now I've brought it up to mid 700's. I feel I'm running uphill with my car. I have 17k left to pay and kbb value is 14k private buyer and 10k trade in. My payments are 490 with a 19% interest. So essentially in the 2 years I've been paying only 3500 has gone to the principal.
I would like to know if anyone can tell me my options as of right now. My credit has increased and my utilization on 13k is at 10%. I do not know what to do to get out of paying this much in interest when I'm upside down on my loan.

[Anonymous]

Have you looked into refinancing? Your probably pretty close to permissible value range and you could certainly do better than 19%. Call around, you have options i am sure. Otherwise my advice to op applies, sell the car privately, go to dealer and and make them eat difference to sell you the car.