My New Car Approval!!!

I agree with mj. PSUgirl, you're excited and all, but 18% is crininal.

 

hay psugirl, how much did you get them down on the car ? btw. Those alero's are selling for considerably less than invoice these days...

Btw, you know, Now that you have a loan extended to you, you can take the price and features to another dealer , and haggle the price down. By law, any other dealer will accept that loan approval.

We did this to knock $1000 of the price by telling our dealer, Well dealer B has the car for $1000 less, and i can walk over there right now with that approval you got me, (legally) and use it there.

The guy was flabbergasted at me, and practically cussed me out. I knew the law. He still got his pretty penny thought, $1000 less than he was expecting.

 

PSU--

SECURED means that the lender has some basis of security for repayment of the loan. In this case, your car is the collateral for the loan- if you don't pay, a nice man with a tow truck will pay a visit.

Same holds true for homes-- mortgages and equity loans/lines are secured by the underlying property; margin loans are secured by the underlying securities, secured credit cards are secured by cash in a savings account, etc..

Like I said, I 'm happy for you, but it sounds like you were so thrilled to get the loan you may not have done all of your homework first.

Please remember, I'm not judging -- I made the exact same mistake myself at about the same point in my life!

Hopefully you can learn from other folks here and avoid their mistakes -- and it sounds like you've got a plan to lower the interest rate in 1 year -- I'd start trying sooner, if you can't get out of the loan already.

Here's some calculations I made --

$14.095 Amount Financed (assuming you put $2k down on a $16,095 deal)
5 years, 12 payments per year
$395.00 payment

==NET INTEREST RATE (APR) = 22.72%==

PSU - I can't say it loudly enough, YOU'RE GETTING TAKEN ADVANTAGE OF HERE!!!!!! Where did your dealer give you 18%?? I calculated this number using Quicken.

Even if you wait ONE YEAR, you will NOT be able to refinance the car as you may think -- at this interest rate, you're barely touching the principal -- and the car's value will have depreciated more than you've paid in principal. Amortize the loan:

Month Principal Interest Balance
0 $14095.00
1 $128.21 $266.87 $13966.79
2 $130.64 $264.44 $13836.15
3 $133.12 $261.96 $13703.03
4 $135.64 $259.44 $13567.39
5 $138.20 $256.88 $13429.19
...and continued to
12 $157.59 $237.49 $12385.66

Based on ALG's residual values - your car will be worth somewhere in the neighborhood of $4400 at the end of 60 months ... $7425 at the end of 24 months. You should expect to lose about 30% ($3400) just for driving it off the lot. Let's be conservative (banks are) and say you want to refi at 12 months. The car will have a value of maybe $13000. The bank will only finance 70-80% of that value. Let's go 75% to be "in the middle" -- so you will be able to get $9750 from them.

Your balance due to GMAC will be $12385.66.

YOU WILL HAVE TO SCRAPE UP ANOTHER $2635 JUST TO DO THE REFINANCE!!!

As any sub-prime (is this through Nuvell, the GMAC sub-prime subsidiary??) lender will know, you will not likely be able to get the extra money, so you'll just let sleeping dogs lie, and stick with what you've got.

This same reasoning applies not only if you want to refi, but god forbid something bad happens to the car. Let me give you a worse-case scenario -- something awful happens (it's a crappy world) ... car is stolen or totalled. The insurance company will give you BLUE BOOK value on the car. That will NOT pay off the loan - and you could be stuck with a BIG, IMMEDIATELY DUE amount (remember, it's a secured loan, no car, no security- the "DUE IN FULL" clause gets activated).

Scenario - in 6 months the the car is stolen. The blue-book at that time may be $10500. The insurance pays GMAC that amount, and you get a bill for the remainder ($13288 - 10500 = $2788). Pay it, or else all your hard work to clean up your credit goes down the toilet, and you get a FORC on your report.

I'm sorry to be so darned negative - it sucks when you're all high & happy about a new car. BUT .. I wish you had asked some of the questions BEFORE you put yourself in a bad financial position.

I wish you the best - whatever you decide to do.

-mj

 

Mj -- that has got to be the best, most honest and caring post I've ever seen on creditnet. Thank you. I wish you had told that to me before I bought my car at a sub-prime rate. EVERYTHING you said is true.

Psugirl -- Ii'm sorry that you seem to disregard Mj's advice; it was very good. That post is more correct than you could ever realize. If you owe neg. equity on the car (i.e. "upside-down") you will have to pay out that equity before you refinance. You will have to put out another down-payment on the car in addition to what you have already paid. Your choice...

And by the way, the loan is indeed "secured", not by the money you put down on it - but by the vehicle itself. You should know this, since you say you work in the credit business.



Mj- you can lead a horse to water, but... you know the rest...


Excellent post.

 

Again, MJ, excellent post. I learned the hard way, too.

 

Yes, unfortunately most dealers do this. This is one of the reasons they send your credit report to every Tom, Dick, and Harry out there for financing. Also, how you end up with mega-number of inquiries (even though FICO considers them as one inquiry in the scoring model, when another lender sees all these inquiries, they still question this).

Yep, if you walk away, you will most likely get a better deal on the financing. It's amazing what these dealers will do when they know you are serious about purchasing and then try and walk away. Been there done that. It is miraculous! LOL

You may want to check your credit report when all this is done and check to see exactly how many inquiries were actually done. To their credit, there are some dealers that deal only with their parent finance company (ie Ford Motor Credit, GMAC, etc.) but this is the exception more than the rule. Dealers usually shop your credit all over the place.

I do want to congratulate you on your new car, just be careful.

 

18 % is outrageous, that guy was not you any favors.

But good luck!


Cyprigirl

 

Sorry, ... I meant ....not doing you any favors.

 

i have to agree. household offered me 18% before i did any credit restoration. Think long and hard about how much you are going to pay for that car, etc..

4 years from now you'll have an old car with negative equity and be kicking yourself.

Btw, nobody is going to refinance your car for lower interest until your credit is flawless again.

 

Let me first start by saying that mj had a terrific post! WoW! Such great advice. I agree with sam, also, that it can be much harder to refinance the car. I know from personal experience... When I first moved to Washington, I purchased my Alero and it was financed thru GMAC at 12.99% I thought that it was ok, since at that time I had two paid hospital collections on my report. I went to refinance after one year with my credit union. No way! They refused, even though the two collection accounts dropped off and I had spotless credit on all three reports. The reason was the car, with interest, was higher than the CU's limitation on make, model and year variables. The car, even to me still "new" was considered a "used" car loan to them. They said the most the could loan me on the car was 75% of the buy-off amount, but they could not refinance the entire car. The value was too low for them. If I could pay it down further, to the 75% ratio, they would refi. I finally made it to the target and they refinanced my @ 6.99%. My Alero is great, but like I said earlier, the repairs are quite high! Even though I am totally under the "warranty" the "normal repairs and wear and tear" seem to apply to everything that goes wrong. In January, the environmental sensor went out - $1,100.00 to repair... the thermostat went out - $800.00 because it is cam-driven - I could go on and on...

 

It is secured by the vehicle.

breeze

 

MomtoQ is in this situation that MJ described exactly..only her rate was 21%...anxious to get it, they accepted it..now they can't refinance because the interest was so much they couldn't make any headway on the principal..and you don't plan for life's happenings..as some here know, MomtoQ (and I) had a lot of family losses this year..and you miss time and new bills come up..you don't control them, you can't forsee them, but they do happen...no matter what your situation at the moment, it's the "what if" when it happens that knocks you to your knees...

It's really a scary situation!

 

Thanks all for sharing your experiences.

THIS is what this board - and the 'net - are good for.

I hope that someone somewhere sees this stuff before they get sucked into someone's predatory lending trap and avoids it.

I have a bit of a passion when it comes to predatory lending - it's immoral and just screws those who can least afford it. I understand fair profits and risk-based pricing- but 22% on a secured loan for someone who is young with minimally-damaged credit (with recent positives) is wrong.

Knowledge is power - don't let people take advantage of you.

-mj

 

No, that was me with the Reliant. BTW, the car stops now! hehe

 

If you signed a recision agreement, you own it. However, if you refuse to insure the vehicle, and you have had the car less than 72 hours, call GMAC and tell them you cannot get insurance and the car has been returned to the dealer.

CardKid

 

Where has the original poster gone? A lot of good information has been posted,but I think it has has fallen on deaf ear's as far as PSUGIRL is concerned.I don't mean to be harsh because I was once 21 and knew everything at the time

 

Didn't we all, LOL

breeze

 

To PSUgirl,

I can tell that you were rushed making your last post on the thread.

Again, enjoy the car. Your father sounds like a good man!

As a former resident of PA, now living in CA, many board members here may not realize that GM cars are much more popular in PA than in some other states. You did not say that you bought in State College but PA in general lacks a car dealer on every corner unlike Southern CA where i live.

The purchase is a done deal! End of subject.

You got some good advice but past a certain point, move on with your life as you are doing.

1. Education
2. Graduation
3. Employment
4. Personal relationship
5. ?
6. ?
7. ?
8. Maybe refinance. 8 maybe too high.

Best wishes - Jim

 

Glad to hear that you went over it w/your Dad.

I'm still pissed at GM for giving you the shaft - from what you've shared, your credit was better than my partner's and I was able to get him 1.9-- then again, he's pulling in $50k/yr which makes a diff.

I was a freshman in college back in '85 with a few dings on my credit (including a whole bunch of new cards) and got 9% from GMAC.

It's a secured loan - there is NO risk to them. There is NO reason they should charge you >20% APR. Your credit blemishes are your own doing, and you shouldn't get the lowest rates -- but you shouldn't be paying much over prime on a loan secured by real property. The only reason I could understand for 20% would be a prior auto forclosure or past fraud.

You're going to learn when it's time to refi exactly what being upside down means - a cosigner with an 800-fico won't change the underwriting guidelines of 70-80% LTV (loan to value) ... but it sounds like you'll need to experience it first hand.

I like the last poster's advice- put it at the bottom rung of your list (not the payments, just the refi part) and enjoy life.

One more idea for 'ya - if you can, put try to put an extra $100/month away in a savings account. It will help when you want to refi, and it's a good habit to be in anyway (the "rainy day" fund ... or the "get to some sun" fund).

mj