@Anonymous wrote:Hi
I just bought a used 2012 Corolla about a month ago, with 83000 miles on it. I got a 22% interest rate because of my limited credit history, but accepted without realizing how much money was actually being added onto the loan. The loan is for 10,000 but the payoff is 17,000. I am going to try to refinance with a relative cosigning, and she has a credit score of around 850. What I'm concerned about is that since the payoff is so much higher than the car is worth, nobody will refinance me. Is there any way I can do this, without having to pay off the difference, since my relative's credit is so good? I didn't understand enough about interest when I bought the car and definitely should have thought this through more, but am still hoping there might be a way. I feel like I definitely didn't know enough when I bought this car. My dealership didn't tell me what the interest rate was at the time, just the monthly payment which is 286, although I should have asked. Thanks so much for any advice.
Sorry u had to learn a lesson the hardway a refinance is based on loan to value even though your relative has a 850 score u will not be unable to Refi because u are upside down owe more than its worth. Example your payoff is 17K lets say your car is only valued at 8K thats a gap of 9K u have to bring that to table before a lender will Refi some lenders will go as high as 125% LTV but anyway u slice it u are going to have to bring cash to the table to get this done.
Hi @Anonymous. Welcome to the forums! Multiple threads on the same subject are not allowed on myFICO due to potential confusion. I have merged your 2 new threads into your existing one.
It's important to keep in mind that the $17,000 figure you've quoted is the full amount you will pay for the loan over the course of 5 years. The actual payoff amount (to either pay it off or to refinance the loan with a new lender) will be the current balance plus any interest that has accrued since your last statement. You will generally be able to find the current payoff amount listed in the online management account for your loan, or you can contact the lender directly to find out this amount.
Any additional funds paid over the usual monthly payment should be applied to the principal balance.
First, if their online system doesn't give you a principal only option, never make a payment of less than your required monthly payment. I was bit by this several times on my home loan. I made a random extra payment via bank bill pay and they treated it as a incomplete/partial payment, complete with fine. (I did get this fixed, but it required a couple hours of telephone tag.)
If you pay an extra amount with your normal payment, review the next statement to see if they treated it as a principal payment. If they do, then you can probably assume they will continue to do so.
You could make additional(separate) payments (caveat first paragraph) which should push your payment date out a bit if you decide it would be beneficial to do so.
I would go for the single big payment, assuming they handle that properly, as it's just less complicated.
If you pay an extra amount with your normal payment, review the next statement to see if they treated it as a principal payment. If they do, then you can probably assume they will continue to do so.
You could make additional(separate) payments (caveat first paragraph) which should push your payment date out a bit if you decide it would be beneficial to do so.
I would go for the single big payment, assuming they handle that properly, as it's just less complicated.
Rule of thumb, always see how much interest you will pay over the life of a loan before signing the paperwork. Don't think about how low the payments are, but look at how much money in interest you are throwing away that you could use for something else. Tends to keep you from making mistakes. That said, taking a high interest loan isn't the end of the world, providing that you aren't overpaying for the used vehicle and have a plan to get out from under it within a year. One very important thing is to not take a long loan period (more than 3 or 4 years), else you'll remain underwater on the loan (owe more than car is worth) for most of the loan period which makes it much harder to get out from under.
- I know you already plan on doing this, but it should be emphasised again since it's the best thing you can do. Make larger payments each month, making sure the extra is applied to the principle and not future payments. This helps pay the principle owed down quickly so you aren't underwater on the loan anymore which can make it easier to refi it later and reduce the amount of interest you'll pay. Making bigger payments at the beginning on the loan helps more than making bigger payments later. As an example, I bought a SUV last year, but am paying it down at a rate that reduces the loan period to 3 years from 4. It has dropped several hundred in interest off my loan.
- Make your loan payments at the beginning of the statement period rather than the due date, as this reduces the amount of interest they calculate. Though if you can't afford to pay the entire thing on the front end, pay what you can, and pay the rest later in the month.
- Do what you can to improve your credit situation in the 6 months prior to taking a loan. In your case, you want to make it easier to qualify for a refi loan in 6 months. Make sure you make all your payements on time. Make sure you have a good credit mix on your credit reports. You have an auto loan, but do you have any credit cards? If you need to open new accounts to get a better mix, don't just apply for everything and uselessly add a lot of new credit inquires (which can hurt your credit if they didn't accomplish anything positive). Instead only apply for credit products you can realistically get qualified for. Dont open a lot of new accounts either, as until they age, they can hurt your scores, so just get the minimum new accounts you actually need. For Credit Cards, 2 or 3 should be enough until your credit profile is older.
After 6 months, I'd try to re-fi if you haven't made any mistakes. If it still is no good, repeat and try again in another 6 months. As long as you don't have negative information on your credit reports, a year is more than enough time to build up a good credit history to qualify for a much better rate, even without a co-signer. If the big banks won't refi you, try joing a credit union. Though in my case, Chase Bank was actually more generous than my credit union on approving me with poor scores to due old negative info. Which told me, maybe I need a new credit union.
