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Where to go from here?!

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Where to go from here?!

Hello, I’m trying to figure out what to do and need some suggestions. My car payment is currently $430 a month and I hate my car! I am upside down on my loan, owing $14000 on a car worth $7000 at most. I would like to buy a car, and buy a house in the next 3 years. Right now, I have about $500 extra a month. My options are 1- putting it all towards the car until it’s paid off enough to trade it in and get a new car. 2- putting it all towards my car and paying it off, then saving the $430 & $500 for a House. 3- keep paying my normal car payment and save the extra $500 for a house.

I’m not sure which is better for my credit either. I know paying off the car will lower my score because the loan will close, but my debt to income ratio won’t be good enough to buy a house with the car loan. Also, a new car loan would lower my age of credit which is currently only 5 years. Lastly, I’m not sure if my car would make it 3 years plus.

I know this is a lot, I’ve been stressing for months about it. Any advise would be helpful! Thank you in advance!
EX- 604. TU- 608. EQ- 613 (03/13/2016)

MATRIX- $300 (opened March 2013, plan on closing soon)
SECURED USAA- $500 (opened March 2015, plan on closing soon)
Cap Once Plat & QS1 - Both $300 (opened April 2016)
GOAL- Southwest Credit Card & Mortgage Approval in 4 to 6 years!
Message 1 of 8
7 REPLIES 7
Super Contributor

Re: Where to go from here?!

How do you owe $14000 on a car loan for a car only worth $7000?  It's not common that a car would depreciate at a rate faster than the car loan is being paid down.  Is it damaged or something?

Message 2 of 8
Super Contributor

Re: Where to go from here?!

It sounds like (a) you want to buy a house and (b) you have determined that this is impossible (due to DTI) as long as you have that car payment. 

 

It therefore follows that you need to pay off the car, at whatever speed you feel comfortable with.

 

 

Message 3 of 8
Valued Contributor

Re: Where to go from here?!


@JerseyJess wrote:
Hello, I’m trying to figure out what to do and need some suggestions. My car payment is currently $430 a month and I hate my car! I am upside down on my loan, owing $14000 on a car worth $7000 at most. I would like to buy a car, and buy a house in the next 3 years. Right now, I have about $500 extra a month. My options are 1- putting it all towards the car until it’s paid off enough to trade it in and get a new car. 2- putting it all towards my car and paying it off, then saving the $430 & $500 for a House. 3- keep paying my normal car payment and save the extra $500 for a house.

I’m not sure which is better for my credit either. I know paying off the car will lower my score because the loan will close, but my debt to income ratio won’t be good enough to buy a house with the car loan. Also, a new car loan would lower my age of credit which is currently only 5 years. Lastly, I’m not sure if my car would make it 3 years plus.

I know this is a lot, I’ve been stressing for months about it. Any advise would be helpful! Thank you in advance!

First off, your score is the least of your worries. The loan stays on your report for years anyway. Do not spend inefficiently just to boost a score a few points.

 

If you have an emergency fund, and if the interest rate on the car loan is more than 3-4%, I would throw everything I had extra at paying that down as fast as possible ($950/month). If the rate is lower, you can put half toward the car and half into a down payment savings for the home. If you don't have an emergency fund, get that built with the $500 then do either of the two choices above, depending on interest rate.

 

The part you won't want to hear is that once you pay off the car, I suggest you keep it and drive it until maintenance is costing you more than a new car would each year. Do you really want to go through all of this to pay off your current car, just to jump right back into this problem with a different car?

Message 4 of 8
Community Leader
Senior Contributor

Re: Where to go from here?!


@JerseyJess wrote:
I know paying off the car will lower my score because the loan will close

Paying off the loan will definitely affect your FICO8 scores. But it shouldn't have much of a negative effect on your mortgage scores.

Message 5 of 8
Member

Re: Where to go from here?!

No, my credit was awful when I got the car. My interest is 12.75%. I cant refinance because I owe more than it’s worth.
EX- 604. TU- 608. EQ- 613 (03/13/2016)

MATRIX- $300 (opened March 2013, plan on closing soon)
SECURED USAA- $500 (opened March 2015, plan on closing soon)
Cap Once Plat & QS1 - Both $300 (opened April 2016)
GOAL- Southwest Credit Card & Mortgage Approval in 4 to 6 years!
Message 6 of 8
Member

Re: Where to go from here?!

Thank you!
EX- 604. TU- 608. EQ- 613 (03/13/2016)

MATRIX- $300 (opened March 2013, plan on closing soon)
SECURED USAA- $500 (opened March 2015, plan on closing soon)
Cap Once Plat & QS1 - Both $300 (opened April 2016)
GOAL- Southwest Credit Card & Mortgage Approval in 4 to 6 years!
Message 7 of 8
Member

Re: Where to go from here?!

Thank you! My car interest is 12.75%. Don’t want to hear it, but it definitely makes the most sense! Thank you!
EX- 604. TU- 608. EQ- 613 (03/13/2016)

MATRIX- $300 (opened March 2013, plan on closing soon)
SECURED USAA- $500 (opened March 2015, plan on closing soon)
Cap Once Plat & QS1 - Both $300 (opened April 2016)
GOAL- Southwest Credit Card & Mortgage Approval in 4 to 6 years!
Message 8 of 8
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