tothetop is right on with his assessment of bad credit habits and how that mindset works. That's not an insult, I have bad credit, that's why I'm here. I've been in the same place you are. The first thing I saw when I got in the car biz is that the best salesman drove the crappiest cars. The multi-millionaire owner of my first dealership drove a used Olds Alero. I drove a Cadillac at the time. I've since woken up, now I drive a 2001 Hyundai Elantra. Can I afford a BMW, yes. Why don't I buy it? A car should be a point A-point B thing. It's a liability, not an asset. Here's where you're headed: you're going to get into the new car and have a higher payment. WHy higher? Dealerships are not churches. Salesmen are not honest. You won't know all the numbers until you go into "the box" (F&I office) to close your deals. I've seen less than 1% of people walk out when I hit them over the head with a $100 bump in payment. Seriously. People just want something new. My best line is, "look, it's only $30 a month more. That's a cup of coffee." But guess what, if I bump you 30 a month x 60 months I just added 1800 to my bottom line. Usually I go for 100 a month. Anyway, let's say you get into your new car (which is doubtful, you can't bury 3k worth of neg equity and a small downpayment into a 2007 Taurus. It won't qualify for a new car rebate (most likely) since it's over 24k miles and considered used or a program car. So now you have a new car that you are 8k upside down on right off the bat. You have the 3k from the old car plus the depreciated value and interest on the new car. 2 years pass by and you have a 2007 taurus with 67k on the clock (the 27 you bought it with plus your 20k per year driving). You think back to the good old days when you were only 3k upside down. Because now (2009) you're about 5-6 upside down on that Taurus and it has the same mileage/tradability issues. You're only going to bury yourself deeper. 1) Look around for refinance offers. If you were going to scrape up some $ for the new car downpayment, put it on the car you have now so you can make a refi work. 2) warrantydirect offers lots of different options. Full bumper-to-bumper you don't need. I would go for their policy that cover's major issues, or better yet, their cheapest option that only covers powertrain (engine & transmission). These are the most expensive compnents to fix so if you take their powertrain only coverage you can afford it (ask for 12 monthly payments). If a window motor goes, live with it or work overtime.
Okay, I didn't hear back so I'll use my zip and your car and numbers. I went to cars.com loan calculator and put in the following numbers: Vehicle price 15500 (their 12500 + your 3k upside-down.) Downpayment 300 Trade-in value (I left this blank since it is a negative that I added to the new car) Sales Tax (I assumed 5%, it's closer to 9 here in NYC) Interest rate 17% (this is what you said your CU would get you, I doubt a dealer will beat that. They know you're desperate and they will exploit that, expect 21%) Term: 60 months. Monthly Payment...(drumroll)...$397. That's the sad reality. You're $100 higher than when you started. The first thing you said is that you wanted to stay around $289. Ain't gonna happen. Not to mention that the "selling price" of your car will probably get hit with a bank fee (for bad credit cases), destination fee (a phony charge to make $$), paperwork fee, prep fee...I can go on. Also, you said that your car books out wholesale for $6k and retail for $8k. Then you said that they would give you $7500. Take my advice...RUN!!! Dealerships don't buy for retail value, they BUY WHOLESALE and RE-SELL RETAIL. Why would they give you $7500 when the most the could get retail (according to the numbers you saw) is a $500 profit. They are setting you up. At best they would give you wholesale, likely about 2k lower or $4000. Here are some more realistic numbers: Selling Price 18000 (12500 + 1000 in fees + 4500 upside-down based on the real value of your trade) Downpayment 300 Tax 5% Interest 19% Term 60 months Payment $482 Their mindset is, "hey, if this person is so desperate to get out of their car, they won't walk away from this payment. Nobody else is going to buy the deal." Sad part is, they're probably right. Take the extra $$$ you would have put on the Taurus, or the $300 downpayment that you were going to come up with and use it to get an extended warranty (powertrain only) on monthly payments from warrantydirect.com and a new windshield. In the meantime, unbury yourself. When your credit is OK and the car is a wash (value=payoff) then you can sell privately, pay off your bank and get something new.
Your question: New car? Answer: NO! Big Al is right on. Last thing you need is a new car. I used to be in the automobile business.
I don't think I've ever driven a car less than 150K miles. Even with the driving I do, there are 3-4 years at least left on your car. Fix it, take the extra money you'd pay on the new car and save it. You'll end up ahead. You goal in life should be to increase wealth. The new car isn't going to do it.
ok, so new plan, I'm keeping my car. The financing fell through, so I'm taking that as a sign. Any advice on where I could refi?
A credit union is usually the best bet, but I suspect they won't refi as long as you're upside down. You'll have to do as Al suggested and track your payoff amount and the value, then when you get rid of the negative equity you might be able to refi. Right now I don't think you'll get a better deal than you have.
JD- Worry about your credit right now. Refi with bad credit will not save you any money. If you truly concentrate on your credit for 6-12 months, your score will raise and you will be able to Refi on your own!
Let's start at the top again with your initial post. You said you wanted to get into the new car because you were concerned about potential big repair bills down the road on your current car. You also said there is nothing wrong with your car currently. So, I'm getting the feeling that you want to make a move because you have a fear of a big repair bill down the road. Or, you just want something new (human nature, that's okay). Or both. Trading your current car and rolling the negative equity gives you at least $100 more in monthly payment. Plus you will be more upside-down dollarwise than you are now (you'd be adding interest from the new loan onto carryover interest from your current loan). Three years from now you'll be in a worse situation than now if you trade: you'll have a 2007 car in the year 2010 (3 years old, same as now), it will be overmiled (same as now unless you change your driving habits) and you will be upside-down on the new loan also(same as now. You will owe more on the Taurus come 2010 than it will be worth because all of your interest is backloaded). So we have already agreed, a new car is out of the question. Now, the refi came into consideration when CCBOB suggested it. We all talked about the pros and cons for a while. But to be honest we were all kind of off-topic. It doesn't even make sense if you are able to handle your current payment which you are--you didn't ask for advice on lowering your car payment you asked for advice on getting into a new car. Refi is for those who have improved their current credit and want a lower interest rate (not you), OR those who can't handle their monthly note and want to stretch it over a new 60 month loan to make it manageable (not you either). You'd only be burying yourself deeper by refinancing. You'd be adding interest on top of interest. Basically you'd take the 10k you owe now and stretch it out over 60 months. Even if you got better than your current 17% rate the payment would not be that much lower. So forget refinancing. So I'm a little confused at this point as to your motive. You said you were afriad driving your car would make the value go down at a greater rate than your payments were affecting your loan (in other words, making yourself more upside-down every day). I've shown that to be false. Like I said, track it month-by-month and you'll see your negative equity start to shrink. When you break even, sell (or trade if you absolutely must). You also said that you were afraid of breakdown costs based on other cars you have had. I advised you to go to warrantydirect.com. That's really your best bet. Take the $300 you were going to put on the Taurus or the $1000 you were thinking of scraping up for something else and warrantize it with MajorCare (only the big ticket items which cost a lot to fix) up to 100,000 miles. Or better yet, ask about their powertrain only coverage. The 100,000 mile limit should cover you for two more years at which time you car should be a wash (payoff=trade value) or very close to it. They are very flexible with the payment arrangements so if the automated Web site shows you a payment structure with $600 downpayment, don't panic. Get on the phone and talk to someone and tell them how much cash you have now ($300). They can help. Bottom Line: (1) Forget the new car (I think you already did). (2) Forget refinancing. There's no need unless you have better credit than you did or if you want a monthly lower payment. Since neither of those are the case it should not even enter your head. (3) Get an extended warranty to cover MAJOR items. You want to have protection against engine and transmission failure. Don't pay hundreds more to cover power window actuators and radios. If they break, live with it, as long as the car drives. (4) start fixing your credit. In two years, your car will be a wash so you can sell privately and use the proceeds to pay off the bank. And since your credit will be cleaner than it is now, you can get the car of your dreams at a much better interest rate than your 17%. Hope that helps - Alex P.S. Please service your car every 3000 miles. Even if your manual says 7500 miles, change the oil every 3000. Check things like battery terminals, p/s fluid, clutch or a/t fluid, etc. You'll find a list of things you need to do in your manual or anywhere like meinekee.com. Trust me, I used to abuse my cars by driving recklessly and by neglecting maintenence. They would get revenge by making me take them to the shop on a regular basis. Once I grew up and started doing simple maintenence (I bought Auto Repair for Dummies) and paying for what I could not do, I've been much happier. It's a lot cheaper to spend 17 on an oil change 4x a year and $70 to change a belt than it is pay $2500 for a transmission rebuild.
I also am intrigued at this thread..I've followed it, and I'm not sure what exactly it is you're trying to achieve. If your main concern is a huge repair bill, then you're worrying about something that only "may" happen. All the other scenarios, which worsen yur financial picture "will" happen if you do them. We have a saying in business.."When you don't know what to do, do nothing." Right now you shold be doing that. If anything, look over your monthly expenses and income, and try to squeeze out money for extra principal payments on your auto loan, or SAVE the money for those possible repair bills. You can beat a lot of the current interest by making extra principal payments, go to www.bankrate.com, and use some of the calculators there to experiment. Bottom line, drive this car into the ground, that is really the only way to get the most value out of any vehicle. Big Al is correct in all his scenarios, and his advice should be taken. The only way you'd get around all this is to have a friend, that owns a dealership, who will sell you a basic, dependable vehicle at wholesale, and wholesale the loan also. But, that is a hard combination to find.
Thanks for the kudos. Wish I'd said that; that's it in a nutshell. Sometimes that cheese (the new car) in the mousetrap (the financial implications) looks so good we try to find a way to justify grabbing it even though we know what's inevitably going to happen. This is a great option we didn't talk about. Certainly, paying down principal will shorten your loan. John Cummuta's program, "Turning Your Debt Into Wealth", is predicated on this concept. He gives some great advice for finding (and squeezing out) a few extra bucks here and there in the monthly budget and applying it toward debt which he also shows you how to prioritize. In your case, making your monthly payment as well as a second check for whatever amount you can handle will help you "unbury" yourself (or even pay off the car) a lot sooner than you might expect. This is truly the best way to get value out of your car--riding it until it dies (or at least ten years). Most people don't want to do that, they go 3-5 years which passes on car life (and value) to another owner. Surprisingly, the second best way to get value out of a car is by leasing. I mentioned John Cummuta before and he hates this idea, as do a lot of people who want to "own" or don't believe in leasing. But by leasing the right vehicle (look for subvented leases which artificially increase the car's residual value or decrease the money factor, i.e. interest rate) you can get a great deal. By the way, jd937, I'm not suggesting your next car be a lease, you drive far too many miles for it to be viable. Drive your car to 10 years or 150k minimum, then get something reliable that will go another ten years or 150k.
Big Al, Congrats on the "Junior" status, on to "Senior". and..you are right on about all these aspects. To "JD", the hardest part is "accepting the "upside down" scenario, and just riding it out. I know because I'm in that position right now... I am an example of the two extremes of "car deals", we have two "high end" vehicles. "My car" was a steal, through a friend who owns a dealership, by getting it wholesale. My friend "made his money" on the "spiff" of running the financing through him, (per Big Al's explanantion of auto F&I), and then I close out the loan once the "holding period" is up. Short story, the bank loses money. The other vehicle we are "upside down" on like you are, again as Big Al stated, I took the huge hit driving off the lot, and my wife piles on miles commuting 130 miles per day. I look at the amortization of this loan every month, tracking the equity vs. payoff amount! Now, add on "your fear" of large repair bills; the amount I have spent (outside of warranty) could purchase a "normal" vehicle, possibly two! As much as I hate this situation, I have gone over every number numerous times, and realize I have to "wait this out", and drive this vehicle as long as we possibly can. We will definitely drive this vehicle well beyond 150K miles, I'm looking at 250K possibly. Look around for cheaper options for maintenance and repair. I switched from the dealership service to a local mechanic, the savings were incredible, and the work is even better! I am now of a mindset that I think my next vehicle will be something like a 1972 Chevy pickup truck! The "luxury" I have now is simply not worth it. Moral of the story: suck it up, and "ride it out" (literally, in this case).
When I was a salesman I used to follow orders like a good soldier and tell everyone that they had to have their car serviced at the dealership. Most people bought it not knowing that service was one of the store's profit avenues (the others being financing, aftersale, taking in & reselling trades, and of course the actual sale of new cars which nets the least profit). I even serviced my own car at the dealer when I bought my Hyundai Elantra brand new back in 2001. I quickly found out that labor costs more at the dealership and parts were up to 50% more than non-dealer mechanics. Also, they often try to throw in unnecessary service (and I worked there at the time!). Furthermore, the service was not nearly as good--it was often careless. So I asked around and consulted my friends on a good mechanic. For the last four years now I've brought my car to my local Meinekee for service or whenever something goes wrong. I have a good relationship with the owner/mechanic and get great service. If my problem is engine/transmission he tells me to take it to the dealer since that part of my car is warrantized up to 100k. I keep all receipts so the dealer can't question the fact that I take care of the car. Bottom line: any situation where you can't actually talk to the person fixing your car (like a dealership) and where info has to be funneled through a service rep or manager is a bad situation. Imagine going to a doctor but not being able to talk to him and having to route your questions through his "rep". Sometimes a service advisor tries to tell me, "you were supposed to do your service at an authorized Hyundai dealer. I'm gonna' have to check to see if your warranty is still valid." I just laugh and say, "no kidding, show me exactly where it says that in the manual." (it doesn't for any vehicle!) Or better yet, "oh I'm sorry, let's call the Northeasternl Hyundai HQ in New Jersey on my cell phone and talk to the regional service manager about that." The look of panic on their faces is priceless.
Paying extra principal may not really lower the interest, depending on how it is computed. If it's a "simple interest on unpaid balance" your statement is correct. However, if it's Rule of 78 interest as I described above, it's not going to help him a lot. He'd be better at this point to take all that extra money he can scrape up and put it in a good savings or money market account. That way, if repairs are needed, he has the money for it.
sorry I've been out for awhile. I want to thank you all for keeping me from making a fairly large mistake. The only reason that I was asking about refi is becaue I figured if I could save some money on interest (as it is computed on rule of 78 I believe) I could put that extra towards repairs and the like. I guess that my major motivators for wanting to replace it where the fear of repair (every car I've had for more than 80,000 I've had to do work on that put me out a lot financially. Nothing major like engine repair, but when your a poor student, replacing an alternator twice in six months as I had to do on my last one is daunting). Plus, something new and shiny is nice, lol. However, I had my car looked over by the local Chevy dealer when I was looking at trading it in there. Of course they wanted me to come up with the down payment and trade. I told them it's an Impala, it's a reliable car, and there's nothing major wrong with it so I see no reason to do that, at which point the salesmen agreed that more than likely it's not on the brink of any major repairs. So I ended up taking it to a Meineke to get an estimate on the repairs that it does need done (new rotors and new front tires) who quoted me about half of what I was expecting (even less if they can machine the rotors). Anywho, moral of the story, I'm waiting about a year and working on my credit, at which point I'll see where I am. You'll all be happy to know that I've made pretty significant strides in that area. I managed to get three negative remarks turned to positive remarks and one negative account deleted completely in the last month or so. :-D
Sounds like you've made all the right decisions and moves. Good for you. Believe me, a year will come quicker than you think. Take a look at it again then. You may decide to push it for another year.
Well I figure in another year I should be able to qualify for a good rate on a new car as many of my neg accounts will hit 5 years. While I realize that 7yrs is the sol, many OC's can't verify at the 5 yr mark as the remove it from their systems. If I get enough of these deleted who knows, I may be able to use any rebates on a new car to "make up for" any neg equity.