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What should I do? Upside down with 21 months left in car loan

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Senior Contributor

What should I do? Upside down with 21 months left in car loan

Hi All,

 

I'm looking for guidance/suggestions on what (if any) options I may have for this upside down loan. Here's the deal:

- Financed vehicle in April 2014 @ 21%, final payment due Oct 2020

- Current principal balance is $15,520.92

- 10-day payoff is $15,690.18

- Vehicle trade-in value is currently $6,125 (based on truecar.com)

- Private sale value is $7,075 (based on truecar.com)

 

Here's my situation:

1. I have my annual bonus coming up in March which will provide an extra ~$8,000 in cash to use towards debt

2. I have a credit card balance transfer offer from NFCU @ 1.99% interest BUT it must be paid off 12 months to avoid remaining balance being charged a rate of 14.99% (limit is $15K)

3. I may be able to qualify for a personal loan at a lower rate but that's a big maybe. My luck hasn't been great in that space so far.

 

Should I continue paying the loan off at the current payment schedule? Is there any benefit to paying the loan off this late in its life? Do I apply the bonus cash towards the loan balance? A balance transfer doesn't feel like the right/responsible move to make but I wanted to kick the tires on the option.

 

Any help this group can provide would be appreciated- thanks!

Starting Scores FICO 8 (Feb '18):
EX- 519, TU- 530, EQ- 545

Current Scores



Message 1 of 4
3 REPLIES 3
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Frequent Contributor

Re: What should I do? Upside down with 21 months left in car loan

I am trying to figure out the loan.

 

Was it about 38K @21% for 6.5 years mwith a payment of about $890?

 

You still are paying a lot of interest on the car loan.  

Based on my guesses above and an amortization table your January payment would have been $282.24 in interest.

 

if those numbers above are correct then this is what I would do.

  • Use the $8,000 bonus in March to pay down the loan.
  • Once that posts your balance will be $6,274
  • Refinance with DCU or other credit union $6,274 should be (fingers crossed) within 120% LTV forget which book DCU uses for example but you can search and find out to verify it's within 120% LTV. If you are shy of the 120% LTV then do whatever it takes to pay down the difference.
  • Assuming with your current scores you get a 7% loan but hopefully better.  DCU uses Equifax Mortgage scores for example so IDK what you will qualify for.  But assuming that 7%
  • a 1 year Loan @7% for $6,274 would be a monthly payment of $542.87 which should be considerably lower than your current payment.  Maybe even make the same payment as today $890 and pay it off in 8 months.  If you pay it in 1 year you will save over $3,000 in interest and be done with it 7 months early.
Message 2 of 4
Senior Contributor

Re: What should I do? Upside down with 21 months left in car loan

@njcobra10tha

 

I've paid $36,288 so far and the monthly payment amount if $647.40. The remaining balance is $15,699.09. You're correct that the interest rate is a little over 21%.

 

I understand the above information may change things a bit but I want to thank you for the information you provided in your response. Assuming most of that will still hold true, I hadn't considered refinancing. I actually thought it was completely out of the question due to the vehicle's age. 

Starting Scores FICO 8 (Feb '18):
EX- 519, TU- 530, EQ- 545

Current Scores



Message 3 of 4
Frequent Contributor

Re: What should I do? Upside down with 21 months left in car loan

First off what year is the car and how many miles. 

If it was purchased new it's what 5 years old you should be able to refinance but if it has too many miles it could be a problem.  For gigles just chat with DCU or another credit union there is a chat option on the car loans page and ask them if your car qualifies.  You will have to have it paid below 120% LTV using NADA book to get refinanced though.

 

Something still does't add up.  

You added more pieces to the puzzle so I think I got it right now:

6.5 year loan

21% interest 

last payment 10/2020

Loan amount around $27,500

 

I am spelling that out because I am not seeing the same payoff amount that you are.

Looking at an amortization tabel if those are the numbers above then you should owe $11,295.39 after the January 2019 payment.

 

Download an amortization table for Excel like this one http://www.vertex42.com/ExcelTemplates/loan-amortization-schedule.html

Why do you owe $4,300 more?

 

Did you defer payments? Are the late fees or something else added in?

 

 

Message 4 of 4
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