Hi all, I've followed the advise from here on cleaning up my report a bit and it seems to have paid off. I'm able to purchase a vehicle through Capital One. Yay! I feel like I'm being given a second chance. I have low scores (TU and EX are FAKO, EQ is FICO) TU 578, EX 584, EQ 623. Of course, this loan didn't come without a price. My interest rate on a 14,500 loan is 15%. Is it possible that I will be able to refinance this amount after about a year or so? Has anyone here ever refinanced a vehicle at a lower interest rate? Also, the financial mgr. at the dealership suggested I get "Gap" insurance. Any thoughts on this? It pays the difference of what your insurance company will pay for your car and what you owe on the loan. I've never heard of this coverage. Thanks!
Thats a very high interest rate. Check with a local credit union, they have very good rates, maybe a co-signor? Gap insurance is very good to have. Usually a bank you go with will offer a better version than the dealership, but cap1 doesn't offer it. I would take it.
Before you sign on that dotted line, really think about what your about to do. What if you cannot get refinanced for a lower rate in a year? What if interest rates go through the roof? Do you have the financial resources to make that payment for life of the contract? What other issues do you have hanging out there, such as what if another creditor sued and got a judgement. If they garnish your wages will you still be able to afford the payment? What about your insurance rates? With comprehensive coverage it's not going to be cheap. How about routine maintenance, even on a new auto, oil changes, tires, and such really add up. What if gas hits $4 a gallon this summer? I'm not trying to take anything away from your approval, good for you. I just want you to really think about hard hoad your working to improve your credit and think about what could happen. If you take out that loan you could get a great TL if all goes well, but if it turns sour your going to loose a lot of the work you have already done. Just because we can get credit dosent mean we should.
Yes the interest rate is high, but I doubt you will do better elsewhere with your scores. As to auto refinancing, it can be done but it has to be a SIGNIFICANTLY lower rate to make financial sense. The fees usually eat up all the rate differential savings. You would have to target a rate of 8% or lower to really come out ahead. Your best bet is to try and "beat the loan", this means making "extra principal payments", as much as you can COMFORTABLY afford. In essence you are shortening the loan length. The other reason you should do this is for possible refinancing in a year or so. Most likely after only a year, you will be "upside down" on the loan, you will owe more than the vehicle is worth. It will be harder to get a loan for more than the asset you securing the loan with. (This is also where the "gap insurance" comes in). Before you sign on this auto loan, look over the Terms And Conditions, see how the "payoff amount" is calculated (in other words is there a prepayment penalty on the interest). Your best bet may be to hold the car until your at a "breakeven" point with the loan (2-3 years), improve your credit in that time, and then trade out for a new vehicle and loan.
Thanks everyone for the helpful advice. I really have thought about this and all scenarios. I don't have any pending debt situations that could cause a problem later on and I'm able to afford the payments, even at that interest. My job situation is secure as I've had the same employer nearly 20 years, so no problem there. I have checked around and anyone else that would approve me had no better rate to offer, most were higher. I have no other outstanding debts as I haven't charged or borrowed in nearly 4 years (hence my low scores, along with a few lates and paid collections). Nor is there anything that would come back to haunt me. I feel really comfortable with this, aside from the crazy interest rate, and do intend to pay extra on the note to get to that "breakeven" point quicker. I guess it's probably very easy for someone who has had credit problems to get overly excited at finally getting an approval and jumping in without really thinking. I've tried to keep my head straight about it, though. Thanks again all!
Well, in September, I has approved through Honda Finance for a brand new minivan. With a 2.5 and <1 yr old at the time, I had to take what I could get since the '98 Ford Escort wasn't cutting it. I took a loan at 17%. Then in December or January, I got an offer to refinance through Household. No financing charges and a rate just over 10%. My payment went up $29 per month, but I cut 19 months off the life of the loan. And I didn't even ask for the refinancing, Household just offered it. And my scores were and are lower than yours. So, if you need the car, take it. Look in to refinancing within a couple of months, before your negative value gets too high. Plenty of companies out there will see 2-3 on time payments on a 15% loan and figure they can take the same chance and undercut your current lender to get a good return. If you don't get any offers, contact Household.
My suggestion, don't buy the gap insurance from the dealership. They will always mark it up. You'll come out better getting it from your local credit union, insurance company, or any other admirable firm that offers it. I think the going rate right now is about $2-300 for gap insurance through them. If you get it at the dealership, you're looking at an upwards of $600. The only thing is whether or not you have the cash on hand to purchase it outright. If not, then you have to settle for the sucky price the dealership gives you, but at any rate, I'm definitely not an expert, but I know that gap insurance is an absolute must have. P.S. Don't feel too bad about your rate, at least it's not 22.897% You gotta start somewhere.
