Upside-down on auto loan at final 14% APR

Anonymous · ‎02-19-2020

I'd appreciate any advice you have for me to get out from under this somehow. Thank you.

Here's the backgroud info:

- Leased vehicle was repossessed in Jan 2019

- Filed Ch 7 BK in Feb 2019 (included debt to auto creditor) at a FICO score of 568

- Purchased a used 2014 Subaru Outback Limited in Apr 2019 under the following terms:

$2000 down payment

Financed $21,085.87 for 72 months

On a rate reduction program that started at 15.99% and is now at 14.49% with lowest possible rate at 14% for remaining life of loan

Ch 7 BK D/C in Jun 2019

Started payments in Jun 2019 at $500.00/month ($454.36 is minimum due) and have perfect payment history

Payoff amount as of 02/19/2020 is $19,339.28

My current credit scores are: 630 (EX), 660 (TU), and 670 (EQ).

My only debt at present is my auto loan.

Current KBB trade-in value average listed at $11,202 which leaves me on the hook for approx. $8,137.

Current KBB private party value average listen at 14,407which leaves me on the hook for approx. $4932.

Either way it's clear that I'm upside-down on this loan for several thousand dollars. If I were to continue paying $500/mo x 63 remaining months at the lowest rate available from this lender at 14% I believe I'd be on the hook for the remaining total of $23,749 including interest.

I need to find a way to get out of this. I'm paying through the nose on an aging vehicle with current mileage of 79,500. I drive an average of 10,000 miles/year. I'm told I do not qualify for refinancing my auto loan due to being upside-down AND because my BK was so recent. I'm also told lenders want to see a minimum of two years' perfect payment history post-BK. Would it be more advantageous to purchase a new vehicle of same make/model, apply the trade-in value of my car against the purchase price, and roll the balance of the original loan into the cost of the new loan at a lower APR? I can increase my car payment from $500 to around $800 if needbe. Also, my retired mother lives with me so we pool our money together. She also filed Ch 7 BK which was D/C in Sep 2019. She has zero debt. Her current credit scores are in the mid-600s and she's willing to co-sign on a new loan if that's the route we should go.

TattnallTrio · ‎02-19-2020

I understand your situation and I know how you feel. I don't recommend trading "that upside down" of a deal and into another vehicle that will depreciate. But, you're likely able to get gap insurance and hope the best.
Have you tried pre-qualifying with Capital One Auto Navigator? When you're approved, you can build a deal with your negative equity and see what is required down and on which cars will absorb the equity. New cars that have been discounted from the MSRP will be a bonus. Ford, GM, Dodge, and Nissan come to mind.

You'll need to find out how much you're pre-approved for, in my case it's $35,000. Then feel them out to see what they want down ($0 for me but every bit down reduces the rate)

Also they'll know your maximum allowed monthly payment.

I hope this helps

Anonymous · ‎02-19-2020

Thank you. I have not heard of Capital One Auto Navigator. I'll look it up. However, I burned Capital One in my BK so I doubt I could even get pre-qualified. I don't want to 'shop' around and start incurring hard hits on my CR if I can help it. At least, not until I know what to do about this. Again, thank you.

Jnbmom · ‎02-19-2020

I hope you find a solution for your situation.

I must just say though that 79K on subarus isn't really much, if maintained properly these cars last well past 300K miles.

EXP 780 EQ 796 TU 810

TattnallTrio · ‎02-19-2020

I burned CapOne and for got back in with them. The auto navigator prequalify is a soft pull. It'll be a hard pull when the dealer runs your credit for financing.

Anonymous · ‎02-20-2020

Theres no way to escape that negative equity without taking a huge hit. My advice would to pay down the loan quicker to reduce interest paid on it or go the refinance route once your capable. If you roll negative equity into another vehicle purchase you may be able to "hide" it on a vehicle that has huge rebates but the negative equity will still be there. Example. $40k msrp discounted to $30k, once you add in $8k neg equity +fees/taxes your back at $40k financed. That "new vehicle is no longer/ever was worth $40k msrp but now actually worth under $30k as soon as you drive it off the lot.

Anonymous · ‎02-20-2020

Your car is just getting broken in.

If you can pay $800 you should be doing that now and eating up your negative equity and saving on interest.

When you're right side up, either refinance or consider a different car then.

For me personally, taking on more debt to tackle an existing debt problem makes no sense whatsoever.

Anonymous · ‎02-20-2020

^ This. Sound advice from SteelerNYC

Anonymous · ‎02-20-2020

UPDATE: I spoke with a financial coach at greenpath.com about this situation. He stated the most important thing to do is increase my FICO score until it's above 700 before I do anything with the car. He stated a good way to do that is to open up a small line of credit with my CU or bank and keep the balance under 5% and pay the balance off every month. He said this process should take about 6-12 months to increase my score to 700+.

He also suggested I make double payments each month so I set up autopay online at $500 on the 1st and $500 on the 15th of every month. I called the lender to see how this would impact my balance, but they weren't available. My APR will drop to 14% in April 2020, and that is where it will stay for the remainder of the loan.

I asked the lender rep how I could calculate what the total balance would be after these adjustments start, but he said the math was too complicated and couldn't help me. He mentioned that the daily interest amount changes as the balance drops. What does that mean? Can anyone help me figure out how much I'll save in interest on this loan?

I spoke with a loan officer at RBFCU who wasn't much help either, but he did share an option for building my credit. It's called a "credit builder loan" and it's a soft hit on my credit report initially. The CU places $300 in my Savings Acct, and I pay back $50 + $1.25 interest every month for six months. Once the debt is paid back in full, they transfer the money back to me and I'm free to do with it as I choose. He said I can take out as many of these loans as I like. That sounds like the safest way to rebuild my credit, but is it the fastest or most advantageous?

Anonymous · ‎02-20-2020

@Anonymous wrote:
UPDATE: I spoke with a financial coach at greenpath.com about this situation. He stated the most important thing to do is increase my FICO score until it's above 700 before I do anything with the car. He stated a good way to do that is to open up a small line of credit with my CU or bank and keep the balance under 5% and pay the balance off every month. He said this process should take about 6-12 months to increase my score to 700+.

He also suggested I make double payments each month so I set up autopay online at $500 on the 1st and $500 on the 15th of every month. I called the lender to see how this would impact my balance, but they weren't available. My APR will drop to 14% in April 2020, and that is where it will stay for the remainder of the loan.

I asked the lender rep how I could calculate what the total balance would be after these adjustments start, but he said the math was too complicated and couldn't help me. He mentioned that the daily interest amount changes as the balance drops. What does that mean? Can anyone help me figure out how much I'll save in interest on this loan?

I spoke with a loan officer at RBFCU who wasn't much help either, but he did share an option for building my credit. It's called a "credit builder loan" and it's a soft hit on my credit report initially. The CU places $300 in my Savings Acct, and I pay back $50 + $1.25 interest every month for six months. Once the debt is paid back in full, they transfer the money back to me and I'm free to do with it as I choose. He said I can take out as many of these loans as I like. That sounds like the safest way to rebuild my credit, but is it the fastest or most advantageous?

Check with the auto lender and find out how to make your extra payments in a way that they are applied fully to principle.

You have a car loan which is an installment loan, so you don't need a credit builder loan. This is also an installment loan and you only need one to satisfy the mix of credit for FICO scoring.

A small line of credit would essentially be a credit card. You really want to have 3 cards (this line of credit could be one) and it's okay if these are secured. Try Capital One and Discover prequals. (Take Discover secured if that is all they offer you.) Then have two report $0 each month and one report a balance of less than 8.9% of it's limit.

Your scores will go up considerably in a year. Maybe not to 700+, but you can get a great rate with them around 675.