Question for Financial Gurus....

[ashbeeigh]

I bought a car about 6 months ago at a huge interest rate (I think it's like 11%) with CarMax Auto Finance. They gave me a weekend to look for another lender to get a better interest rate/loan. I couldn't get one so I figured I would refinance at another time.

Well now, six months later I've gotten 4 refinance letters in the mail (Faragut, CitiBank, Capital One, and HSBC). All of them are those "you're preselected! Apply now!!" I applied with Capital One and HSBC the first go around and they declined me (too little income).

So, my question is now.... six months later and with a 20 point higher credit score and a 7% more credit amount for my income/whatever...would it be fair to at least send in one or two of those applications to see if they could refinance me? Like I said before I've got a 11% interest rate, 66 months worth of payments left, and a monthly payment of $334.52. Are those inquiries that those companies look at negative inquires or just inquires? Any thoughts?

[ShoogarBear]

The real question is not whether to send in an application (what does it cost you to do that?), but whether or not the lower rates in the long run save you the short-run costs of the refinancing charges.

I've never refinanced a car before, but I assume it's the similar to a mortgage. With those, because you're paying off over 15-to-30 years, a small drop in percentage leads to a large net dollar savings. Paying off a car over 5-to-6 requires that either you refinance at a significantly lower rate, or that the refinance costs are not huge.

There are lots of refinancing calculators on the net you can use to figure out what you would need to have in terms of rate change vs. finance costs to make sense. The ones I've seen are for mortgages, but you should be able to use them for car loans.

[scott]

I refinanced a car once... there was no fee (like a mortgage), just a lower rate.

However, there is a cost to sending in applications, just not an apparent monetary one. When you send in a lot of applications in a short period of time, it can lower your credit score. And a denied application can also lower your credit score.

[tsb2000]

If it says specifically "YOU ARE PREAPPROVED" then go ahead. If it says "check this box," or "click here" to see if you are approved, then suck up the payments for a year. Don't be late for anything or anyone, then refinance.

Did you try just going to your own bank? They might be willing to do you better than just blind forms. Just a thought.

[Nbadan]

Holy ...you bought a $20K car with no money down? I hope your making $40 large..

[CubanMustGo]

I would look into joining a credit union and seeing if they would refinance your car. Rates are generally far superior to anything you are going to get with those huge lenders you mention and the service is going to be a lot more personal, too. There should not be any charge to refinance from a legitimate lender on auto loans. I have been with Randolph-Brooks FCU for nearly 30 years now and they have always treated me right. Their 66-month car loans start at 4.5% but YMMV.

In addition to your income/debt ratio and credit rating, being upside down (owing more than the car is worth) may work against you. A co-signer (such as a family member) might help you secure a new loan, but recognize that co-signers are as responsible for the note should you be unable to make future payments for whatever reason, and the loan will count against their credit rating as well as yours.

[CavsSuperFan]

The lending ins ion is supposed to give you a copy of your credit score...You don't need to run a credit check over & over just to compare rates...A credit application "can Possibly" take two points off of your score for each inquiry...

If it makes you feel better…During the Carter administration I financed a new car @ % 17.5…(I had perfect credit)…What concerns me is that you financed a used car for 60 months …That is not wise…Used car financing should not exceed 36 months…Also do you know what your credit score is? That puts you in a better bargaining position…If you have a fical score of 710 you would qualify for the most stringent new car financing plans…American Honda is offering %0.9 @ 36 months & %2.9 @ 60 months on new cars…Ford & Chevy have easier less stringent requirements…

For people that need to finance, purchasing a new car is sometimes the better deal…You need to factor in how long that car is going to last & what is the projected $ depreciation…

[Clandestino]

Like someone said, don't keep applying for credit. Each application you put in drops your credit score. Also, it is always a bit more difficult to re-finance a car. You bought used, but it is even more used and worth less to the lender. I'm assuming you're a first time car buyer so 11% is not too bad.

Also, next time buy new. Always, always better financing deals on new vs used. Also, depending on the type of car you bought a new car barely costs more. 2 year old hondas, nissans, etc, generally cost about 1-2k less.

[xrayzebra]

I second the credit union solution.

[ashbeeigh]

Thanks for the help y'all. I know what my credit score is, it's in the high 500s, just because of student loans and higher credit limits at the moment, so I don't want to chance lowering my credit by applying for refinancing if I may not get it.

My bank doesn't do car stuff anymore. and I may consider the credit union thing at some point. The thing that's getting me is that I'm getting the complete opposite advice that i got in my last car thread. Everyone was saying "Buy used! Buy used!" and now I have a used car and everyone is saying i screwed. Oh well. Hindsight is 202/20 I guess.


So now that I have some of the answers, is anyone financed with any of the above mentioned companies? Capital One, Citi, Faragut or HSBC?

[robino2001]

Something that's helped me a lot in the past couple of years - just a thought - I have most of my major stuff all through Chase and because I have everything through one company, I get massive discounts/bonuses across the board. We have our mortgage, checking (w/ 2 direct deposits), savings, 2 credit cards and a CD with Chase... all of that linked together gets me awesome interest rates across the board. I know, I know - don't have everything with one financial ins ution - we don't... we have other stuff elsewhere - all of this combined along with not f'in up our credit got us into a house 0-down, 30 year fixed rate at 5.75% - not bad for only being 23 years old at the time.

Anyways, the moral of the story - often times, grouping your stuff through one place will help with the rates... just like having car/house insurance through the same company will typically get you a discount. But yes, sometimes you can get better rates by just going for the best option wherever.

[MannyIsGod]

Can you afford to pay more on your car per month than you are paying now?

[ashbeeigh]

Can you afford to pay more on your car per month than you are paying now?

a little bit more, but not too much, Manny.

[MannyIsGod]

Well any refinancing with a shorter time frame is more than likely going to drive up those monthly payments even if you get a lower interest rate. Early on all you do is pay interest so the majority of your car loan is still the same since what you've been doing so far is paying mostly interest.

Refinancing is good, but its not always easy. You should send as much extra on that payment as you can each month in any event so that you can lower your balance as quickly as possible and lower the amount of interest you will pay in the long run. The problem with financing (well one of the problems) a used car for that amount of time is that you end up paying far more than what the car is worth and you run the risk of having to pay for a car that won't work in the end. Getting rid of this loan as quickly as possible should be your goal and that means spending more of your money on hand to pay it down as quickly as reasonably possible.

[ashbeeigh]

Getting rid of this loan as quickly as possible should be your goal and that means spending more of your money on hand to pay it down as quickly as reasonably possible.

I'll see about that after I get my first salary check, move into a new apartment, and get all my other finances in order. Thanks for the advice.

[CavsSuperFan]

I did not mean to imply that buying 2nd hand is not smart…For me, I am quite content with purchasing 2nd hand…My last 4 cars have been previously owned…Mother on the other hand has to have the right color, navigation, brakes that work...She is a pain in the rear...

You did not mention student loans…That is another thread...Fed Student loans are your best best…Privarte student loans have no protection under bankruptcy laws…Have we confused you enough?

[tlongII]

I hope you really like that car.

[ashbeeigh]

You did not mention student loans…That is another thread...Fed Student loans are your best best…Privarte student loans have no protection under bankruptcy laws…Have we confused you enough?

I have a combination of federal and private loans, of course, already paying down the ones with the highest interest rate and the biggest amount first. Finances and being an adult are the biggest pain in the ass!

I hope you really like that car.

I will be living in it by the time I'm 30 at this rate.

[Clandestino]

don't worry about it. just pay it down quick. that will build your credit and now you have a better idea of the car buying process.... just wait til you try to buy a home! hahaha

[CubanMustGo]

Thanks for the help y'all. I know what my credit score is, it's in the high 500s, just because of student loans and higher credit limits at the moment, so I don't want to chance lowering my credit by applying for refinancing if I may not get it.

High 500s is pretty borderline, I'm afraid. Manny's advice is spot on - pay down your outstanding credit as much as possible since % of available credit is a big factor in your credit score. So is on-time payment history - if you have missed payments then the longer you go making on-time payments the more your credit score will go up. You're not going to lose very much just applying for a loan (unless you apply for a lot - and then creditors will want to know why you're applying for so much credit) but with a score in the upper 500s you're not likely to get a huge improvement over what you have now.

Why are you unlikely to get a much better interest rate right now? From a blurb on credit scores:

Lenders began to take a closer look at FICO scores and this is what they found out. The chart below shows the likelihood of a ninety day delinquency for specific FICO scores.

FICO Score Odds of a delinquent account

595 2.25 to 1
600 4.5 to 1
615 9 to 1
630 18 to 1
645 36 to 1
660 72 to 1
680 144 to 1
700 288 to 1
780 576 to 1

Lenders don't really want to loan money at good rates to people who are likely to have problem paying their accounts on time. So start paying things down, try not to draw on your existing credit lines, make your payments on time, and in six months to a year your score should improve to the point that you'll be able to get a better rate.

Many of us have been where you are so don't beat yourself up - just resolve to do better going forward.

BTW I greatly disagree with the assertion that buying new is smarter. As soon as you walk out the door with the car you lose 15-30% of the value of the car. If you want a new car, that's fine, most of us do, but buying used is a better deal because most of the initial depreciation was paid by the guy who had the car before you. Right now small cars are retaining value much better but that simply means the dealer's not going to be motivated to give you a great deal on a new one because they can probably sell it at a premium to some guy tired of getting 8 MPG in his SUV.

[ashbeeigh]

High 500s is pretty borderline, I'm afraid.
Why are you unlikely to get a much better interest rate right now? From a blurb on credit scores:

Lenders began to take a closer look at FICO scores and this is what they found out. The chart below shows the likelihood of a ninety day delinquency for specific FICO scores.

FICO Score Odds of a delinquent account

595 2.25 to 1
600 4.5 to 1
615 9 to 1
630 18 to 1
645 36 to 1
660 72 to 1
680 144 to 1
700 288 to 1
780 576 to 1

Lenders don't really want to loan money at good rates to people who are likely to have problem paying their accounts on time. So start paying things down, try not to draw on your existing credit lines, make your payments on time, and in six months to a year your score should improve to the point that you'll be able to get a better rate.

That was an awesome little blurb. There isn't anything delinquent in my history and my oldest credit card is coming up on that three year mark where a lot of creditors consider it "history." So, from what I've read in the past, I think I'm just moving in the right direction and should probably wait a bit longer to get the car refinanced or get anything else credit related.

[1369]

Ash, since you're "just starting out", I'd recommend follwing this program.

[Clandestino]

High 500s is pretty borderline, I'm afraid. Manny's advice is spot on - pay down your outstanding credit as much as possible since % of available credit is a big factor in your credit score. So is on-time payment history - if you have missed payments then the longer you go making on-time payments the more your credit score will go up. You're not going to lose very much just applying for a loan (unless you apply for a lot - and then creditors will want to know why you're applying for so much credit) but with a score in the upper 500s you're not likely to get a huge improvement over what you have now.

Why are you unlikely to get a much better interest rate right now? From a blurb on credit scores:

Lenders began to take a closer look at FICO scores and this is what they found out. The chart below shows the likelihood of a ninety day delinquency for specific FICO scores.

FICO Score Odds of a delinquent account

595 2.25 to 1
600 4.5 to 1
615 9 to 1
630 18 to 1
645 36 to 1
660 72 to 1
680 144 to 1
700 288 to 1
780 576 to 1

Lenders don't really want to loan money at good rates to people who are likely to have problem paying their accounts on time. So start paying things down, try not to draw on your existing credit lines, make your payments on time, and in six months to a year your score should improve to the point that you'll be able to get a better rate.

Many of us have been where you are so don't beat yourself up - just resolve to do better going forward.

BTW I greatly disagree with the assertion that buying new is smarter. As soon as you walk out the door with the car you lose 15-30% of the value of the car. If you want a new car, that's fine, most of us do, but buying used is a better deal because most of the initial depreciation was paid by the guy who had the car before you. Right now small cars are retaining value much better but that simply means the dealer's not going to be motivated to give you a great deal on a new one because they can probably sell it at a premium to some guy tired of getting 8 MPG in his SUV.

regarding used vs new.

the depreciation part is true, however, why buy a 2 year old car for 19k when you can buy a brand new one for 21k? that is what you will find if you go out and car shop.

[Clandestino]

Ash, since you're "just starting out", I'd recommend follwing this program.

and stay away from this idiot. he preys on church goers to get them to buy his get out of debt program. him and suze orman are some of the worst financial people out there.

some advice he gave recently on the air to a dr fresh out of school.

dr had 100k in student loans at 2-3%. somehow he was going to be ablel to pay them off bc one of his family members passed away. ramsey told him to pay off student loans early.

why pay off a tax deductible debt at such a low interest rate when you can invest elsewhere?.... ramsey's response, "the debtor is a slave to the lender..." stfu... whatever.

[1369]

and stay away from this idiot. he preys on church goers to get them to buy his get out of debt program. him and suze orman are some of the worst financial people out there.

some advice he gave recently on the air to a dr fresh out of school.

dr had 100k in student loans at 2-3%. somehow he was going to be ablel to pay them off bc one of his family members passed away. ramsey told him to pay off student loans early.

why pay off a tax deductible debt at such a low interest rate when you can invest elsewhere?.... ramsey's response, "the debtor is a slave to the lender..." stfu... whatever.

So you'd rather owe money to someone else in an attempt to "game the system" instead of owing nothing to anyone and paying yourself?