I just got approved for a $15k loan through Bridgecrest (Drive Time) with a subprime loan at 22.259%. Obviously I'd like to get a better rate in the future. I don't have a FICO score yet but my Vantage 3.0 is 542 with some derogs and a repo. How long should I wait and what FICO score should I target before attempting a refinance?
How long has it been since the repo? I would work on rebuilding by visting the good folks over in the rebuilding section and provide them with full details so they can help you establish and build good FICO scores which will open the doors to the best oppourtunities. On the refiance one thing you have to be very careful with is the loan to value ratio. Frequently folks with subprime credit end up having too much negative equity to refinance regardless of the progress that they have made on their credit. For this reason you will want to be careful to not add to any negative equity with dealer add ons. With a repo history and derogs a refi will be a challange but not impossible. I strongly suggest a credit union for refinancing, capital one is also an option while your rebuilding.
You may never be able to refinance.
Sorry for scaring you but refinancing is not just about your credit score.
No one I am aware of will refinance at any interest rate if the loan to value of the car is more than 110% - 120%.
I am assuming it's a used car which is better than a new car for depreciation but you may still have this issue unless you put a lot of money down and that doesn't seem likely.
a 15K loan for 6 years is a payment of around $380 with only about $100 going towards principal your first month.
Is the car going to be worth $12K in 2 years?
You paid tax, title, fees on your car purchase, those don't count in figuring LTV.
Now I am sorry if I scared you but it's a harsh reality and I was in the same boat in 2016 figured I would just refinance a bad loan. While my scores shot up I wasn't able to as there was too much negative equity. Eventually I traded in the car rolling 1/2 the negative equity into the new car and putting a large down payment. The new loan while at a good rate will still be upside down and unable to refinance for a long time.
What can you do?
Besides trying to improve your score you can chip away at the loan by making larger payments as those should all go to principal but be careful and read the contract I have heard some new loans now have prepayment penalties meaning even if by some miracle you could refinance you might be stuck because of the fees the first loan would hit you with to pay it off early.
When your credit gets good like 680 + FICO's you might be able to work something out with a local credit union. I just refinanced my A3 from 7 years at 7.99% to 6 years at 3.75% but I owed $1,400 too much. I could have paid that $1,400 but the credit union offered me a Visa $5,000 limit 0% for 6 months then 10% after that and took the $1,400 from that with no fees. Theoretically I could have taken $5K negative equity from the Visa.
Again sorry to be the bearer of bad news.
Google an amortization schedule and play with the numbers. See what adding $25 a month does. With my example it saves abotu $1,600 in interest over 6 years and pays off the loan 8 months faster.
GAP - YOU NEED IT!
See if it's not too late to add GAP insurance.
Credit unions charge $299'sh I am sure it's much higher but it' added to the loan and split over your payments. $1,000 would be about $25/month.
If your car gets totalled or stolen this GAP coverage pays the portion of your loan that is not covered by your insurance payout.
So today you owe $15,000 if insurance paid you $13,000 you would still owe $2,000 on the loan and that is really tough to swallow if god forbid you just totalled your car because a drunk driver hit you and you still owe $2,000 on top of trying to get a new car.
All insurance is a gamble but this is not a risk I am willing to take.
Pre bankruptcy I had this happen my kid totalled their car and I owed about $3,000 still. Luckily that as washed away with the bankruptcy.
Know your scores, watch your scores.
It's not a matter of time per say it's a matter of the score.
Find a credit union like DCU or a local one, know exactly what score they use (DCU uses Equifax Mortgage Score).
Forget Credit Karma scores they are more or less worthless. Good for seeing what's on your report but scores are meaningless. At times they have been 100 points higher or lower than my FICO scores.
Optimize your scores.
That's the basics. You can find other tips by searching for AZEO all zero except one.
I am still concerned about your loan to value, watch the value and mileage try to know it's value. Not KBB but find out who the credit union you want to use will look at and get their value. DCU uses NADA You may be right about it retaining it's value but it's a very serious factor.
You also mentioned the age of the car find out how old a car the credit union will refinance and if it affects the rate. When I refinanced my car with Visions FCU they would only do it if I had < 26,000 miles I think. I was at 22,000 so I was good.
Honestly your vantage 3 score means less than nothing here. DCU will use Equifax Mortgage Score. Visions FCU used Experian Mortgage score. My Equifax Mortgage score was 60+ points higher than my Credit Karma scores. Other places will use the FICO Auto score and Capital one will take all 3 FICO Auto Scores into effect to give you the lowest rate they can lol.
If that 542 was a real score like the Equifax Mortage score then I would say wait until you are at least at 620. How quickly you can get that high depends on you and lots of factors. Pay off all your debt and it could happen as quickly as it reports. If you have negative items see if they are legit or if they can be challenged and removed.
Go find some real FICO scores. Discover will give you a free FICO score for Experian I think even if you are not a member go google it.
For reference looking at MyFico histories. between 8/30 and 11/10 one year I jumped 54 points that may not be typical so there is no magic number. You app when your score is good enough and I would say a 620 should offer you a lower rate with a credit union but a 660 will be much better and 690 + will probably be the best but again those scores have nothing in common with the vantage score you are looking at.
Also great news on the GAP insurance probagbly so much chaper through USAA than driveline.
Thanks again for the insight cobra.
I've since gotten a three-bureau score from MyFICO and added to my signature. Like you mentioned there was a big difference from the Vantage as my middle FICO 8 score is a 507. Now I know where I'm starting from and the neighborhood I need to shoot for.
The MyFICO simulator shows an expected improvement of 55 to 85 points after opening a revolving line of credit. I've just opened this auto loan, a self lender account and a cap one secured card. The scores in my sig don't reflect any of these account but do reflect the inquiries. I plan to add a couple more secured cards within the next two weeks and then work on developing a mix of good positive history and paying off or paying down the baddies.
I do have one negative item reporting incorrectly that I am in the process of disputing although I don't know how much impact it will have. Overall, there are about 6 derogs with about half smaller balances under $1k and the other three from $1500-$5100 (repo) that will take some time for me to resolve.
If you joined MyFICO to get those scores look at the full quarterly report and the other scores.
When I say DCU uses Equifax Mortgage Score that is a different score than the FICO 8 you see every day on MyFICO.
The point spread between the different FICO scores within the same bureau can be significant too. That's why you need to know what they pull.
My lowest Experian is my FICO 9 which is 48 points lower than my Experian FICO 8.
The other scores are a little less spreadout but my Experian Auto 8 is still 38 points lower than my Experian FICO 8.
Having current negative items is probably the thing effecting your scores the most. I am not sure how best to address these as they will continue to report negative each month.
Get some advice from the group probably via a diferent post on how best to pay down. I'm not well versed in that area as I had to file bankruptcy years ago.
I think having 6 currently negative items is really bad and maybe chip away paying minimum to keep it from going to collections (if not there) on all but 1 and trying to pay off completely one at a time. If in collections look into CreditShield360 believe it or not it's free and they look at your collections and challenge anything that might be wrong with it and have had success getting items removed again for free. Wife had 2 removed that way. Even if it's a legit debt there may be something wrong with it that lets them challenge it like statute of limitations or something else. Give it a try.
Also as a data point my Vantage score is 87 points lower than my Fico 8 or mortgage scores.