Refinancing advice

[Anonymous]

Back in October my truck died. I had enough of the buy here pay here places (this was my 3rd car in 4 years and each car had mega problems after 6 months even though they where inspected as managable from my local mechanic) and i wanted to take a step for my future and get a used card from a dealership and an auto loan to build my credit. I was also extremly niave at the time and though that my 2 years of building credit and my decent FICO score of 650 would be enough to get a loan. I found out the hard way it was not. I was eventually approved for a loan thru GM, but not before destroying my credit with inquiries. (27) and having to settle for a very high interest rate. Since then my inquiries have gone down, ive paid down some debt and opened some new credit cards and built my credit back up to where it was before and then some. Recently looking at credit karma, i was informed i am overpaying $5k on my auto loan in interest. Looking at my bill, i was also disgusted to find out that out of my $358 a month payment, only $50 actually goes towards that loan, the rest is interest. I knew i would need to refinance eventually, but dam. I intend to garden another few months, but instead of going in blind again,  was looking for advice on where would be best to get refinancing and anything i can do while gardening to give myself better chances. I realize that theres nothing that can really be done for my Auto FICO score besides paying off my loan, but i was thinking about other things, like maybe joining a credit union (theres a local one, and my dad is military so FNCU could be an option as well) but i wasnt sure if you had to be with them for a long time for them to offer loans, I also have insurance thru State Farm (who my initial attempt to loan thru was denied but my agent said pay the loan off for 6 months and come back, they might finance me then) and credit cards thru Capital One (who offers auto financing but i cant seem to find a refinance option) Discover (who i considered doign a personal loan thru for the balance on my auto loan, not sure which would be better, the loan is 13k) and Citi.

[Anonymous]

Your auto-enhanced FICO scores will improve over time not by just paying your auto loan but by all mixes of credit. Auto-enhanced scores aren't soley determined off of your auto loan history, it is just simply a different scoring model more geared towards auto lending.

I would suggest paying as much extra a month on your auto loan towards principal, be sure to specify that you want the additional amount applied directly to the principal.

Another option would be to look at your vehicle's value (NADA Clean-Trade-in and NADA Clean-Retail) and see if you are within guidelines of refinancing based on LTV (your payoff divided by the clean trade in figure and clean retail figure... different banks and CU's use different valuations). If you are outside LTV limits then bring some cash to the table to refinance. Look at Cap One Auto Navigator for refinancing, check out some CU's such as DCU,NFCU, or even State Farm as they do alot of refinances with decent rates. If you pull your actual FICO scores here and they are in the 650+ range and your LTV is in line, I see no reason why you shouldn't/couldn't refinance right now and begin to save money that was previously being applied to interest.

[Anonymous]

I also wouldn't say you were naive when you first bought your vehicle, first, congratulation's on getting away from buy-here-pay-here lot's as they do nothing to help your situation. Secondly, I think many people don't fully understand financing and that a score is only one input into the equation.

Many people may start with 1 store card they got approved for, or multiple student loan's that are in deferrment but they are still generating a score and think they can obtain prime financing.

Unfortunately that isn't the case, many thing's go into auto financing other than score, a person with a 710 credit score wtih a 6 month old store card reporting with a 250 CL can't obtain financing by themselves for a 20k car with a decent interest rate. Bank's look at actual history, the credit score, payment history, high credit, comparable credit, residence time, job time, income, LTV, collateral and so on and so forth. Scores are only one part of the equation and can often be misleading to consumer's thinking they qualify for something they don't.

Many of your captive lender's like Well's Fargo and Ally don't simply tier and assign interest rates based on score, rather by using a complex algorithm to determine rates based on the above inputs.

[Anonymous]

Thanks for the advice! Is there anywhere I can look at pre-approval s so I can test the waters instead of dinging my report again and getting denied? I know my trade in value is 10k and the loan is 13k so I don't think I qualify for the LTV you were talking about.

[Anonymous]

You could try Capital One or NFCU/Penfed/DCU...Capital One will use your NADA clean trade in value (or KBB depending on what state/region you live in). Cap One I belive limits 125% LTV but you will have to have very good credit to get to that. The CU's I mentioned I believe use NADA Clean Retail which might put you in a better spot. I would recommend using Cap One's pre-approval to see exactly what they will refinance on your vehicle, and it should give you an idea of what kind of APR you are looking at as well as how much cash down would be needed to refinance. Capital One is very LTV driven so the more money down you put the better the APR...I have seen dramatic decreases in APR by as little as $100 more down so play around with it and see what kind of term's it will offer based on structure. If you can simply manage to put a couple thousand down to get your LTV within guidelines to refinance, you very well may save that much if not more in interest by refinancing.

Best of luck to you!