something is not right

[Anonymous]

my step dad had always paid cash for everything all his life .so he had no credit. by step brother had next to none .so here we go .my step dad wanted to by a new car but could not get a loan through dodge so a little creative thinking they use my step  brothers name and gets approved . for what little good credit he has .so my step dad puts 11,000 down on this truck that was 18500 plus 3000 for extended warrany.  so that makes 21,500 minus 11,000 down 10,500  to finance they finace him 326.00 a month  for 60 months thats 19.500 . maybe im wrong but that seems very wrong to me and maybe a little under handed . thats a very high interest rate  .so i really need some input here .something seems very wrong

[Anonymous]

Based on numbers you have provided; 10500 financed for 5 years with monthly payment of 326, the interest rate comes out to be 27.85%.

Couple of things; even though this rate is very high, it is based on borrower's credit worthiness. Every detail of the loan will be on the loan document signed by the borrower. My suggestion would be to make 6 payments and then look for refinancing through a local CU or national ones such as DCU, PENFED etc.

[takeshi74]

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@Anonymous wrote:

my step dad had always paid cash for everything all his life .so he had no credit. by step brother had next to none .

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Next to no credit is one reason for the high rate.

That said, the rate would have been disclosed during approval and should have been considered before accepting.  A lot of consumers seem to fixate on monthly payments but all the details of the financing and vehicle price need to be considered.  They could have shopped around as not all creditors have the same underwriting requirements.  Many years ago I was auto loan shopping and one creditor offered me a rate that was twice as much as another.  Credit unions were suggested above and can be a good option if one can find one that has easier underwriting criteria and if one qualifies for membership.  Refinancing is a possibility.

[Appleman]

Any extra payment towards the principal will be very well spent if it can be afforded. Your step-dad will need to look at the contract to see how extra money paid can be applied to the principal. Some banks hold the money and will use it toward your next payment, you want to make additional principal payments.

Assuming the 27% interest that another poster quoted (thanks for doing the calculations BTW), every $100 extra paid on the principal today will save $27 in interest charges per year! $100 extra today will save roughly $135 in interest over the life of the loan, a very good return on investment.

I do agree completely that this will need to be refinanced, and the 6 months of auto loan reporting should improve the credit profile. Hopefully they will report the loan and payment history (some buy here / pay here places do not report, unless you default)

I wish you luck.

[Anonymous]

You sure it's not 36 months at $326? 60 months at $326 is too unreasonable, I have a hard time believe anyone would agree to that.

[Anonymous]

One thing is that when you pay cash for everything you end up with no credit history (Just did 5 years living that way it is was tough to get a decent car loan).  The other thing is he made the mistake of walking into a dealer without a preapproved car loan.  The warranty is crazy, you can buy great warranties all day long for 2k, the dealership took full advantage of this situation.  The way to turn this around is to suggest to him to contact a credit union and finance the vehicle through them, it is not too late at all.  He can cancel the warranty if he wants and get his money back.  Many credit unions now offer pretty solid warranties, personally I don't think warranties are needed in the vast majority of cases but that is a personal decision.  Dealers prey on folks that don't have experience in these situations and they sure did here.  He can turn this around, my guess is they gave him a decent price on the vehicle because they were stealing from him in other areas.  

[Anonymous]

Forgot to add buying an extended warranty on a brand new car that has several years of warranty makes little sense, it makes no sense at subprime interest rates.  That warranty is going to cost a fortune.  It comes with 5 year 60,000 miles. Suggest to him to put that 3k in the bank and if after 5 years it breaks down he uses that money.  My guess is 10 years later most it not all would be sitting right there.  Cars and trucks these days don't break down very often, dealers make a ton selling warranties and warranty companies make a fortune because they pay off so rarerly.  Of course we all know someone who "won" by getting a warranty but I know a lot more folks who pay for them and never use them.