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Refinancing

Sir CarcassSir Carcass I have been shown the end of my worldRound Rock, TXRegistered User regular
edited January 2011 in Help / Advice Forum
So how does it work? Does your interest rate depend on your credit score? Your debt to income ratio? Some combination?

Basically, we have a lot of debt, credit cards, student loans, and a car. I'm not sure about the student loans offhand, but I know the interest rates on our credit cards and car loan are ridiculous. I think our car is something like 11.5% or 12.5%. Most of our credit cards are 25% or higher. We've never been late or defaulted or anything. The car loan was probably just us being inexperienced. The credit cards have generally just been credit card companies being their usual asshole selves and raising our rates over the years.

The reason I'm asking is we recently checked our credit score (was trying to buy a house) and found out we have pretty good scores. Both somewhere around 735. I'm pretty sure I was in the low 600s several years ago, but I recently had some settled medical bills that came off. The mortgage lady told us we'd be over 800 if we just didn't have our debt load.

So, do we have a chance of maybe getting some of this crap reduced? How do you go about doing it? I called Bank of America a couple of years ago to see if I could get my credit card rate reduced, and they just asked for my current salary and basically told me to go fuck myself.

Sir Carcass on

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    The Crowing OneThe Crowing One Registered User regular
    edited January 2011
    Credit Cards and Auto Loans are generally calculated different from a home mortgage, which is where we see most of the "reducing interest rates" interest.

    In most cases once a loan is locked in, a lender/servicer will not just give people a break. There are really two ways that a finance company will help you, first they'll refinance the loan grabbing a fee (usually) in points for closing; second, if an individual is delinquent a finance company may sometimes accept partial payments, "charge-off" and settle a balance, or even simply come up with a payment plan of sorts.

    Since you're current and have a good credit score, the refinance would be in your best interest (pun intended). For the auto loan you'd want to speak to a lender who will originate an auto loan. I'm uncertain, these days, who does auto loans but if nothing has changed you'd want to look toward the usual suspects of banks, credit unions and auto-industry lending groups (like how Honda has a financing arm of their business). Rates are rather low, still, but from what I understand there's still a spread from 4-6% up to 10%.

    Now credit debt tends to be a bit different. Credit cards will ream you, and they really only extend an olive branch in cases of deep default of payment. As above, settlements for charged off debts and temporary payment reductions which kill you in differed interest tend to be most common.

    You, in all likelihood, won't see an actual modification of either agreement to lower rates. Your credit cards may be convinced after hours and hours of angry calls, but the chances of that are slim and dependent on both being a huge ass and catching the "right person at the right time".

    The last option, which I suspect makes the most sense, would be to approach a financial lending institution (big banks, credit unions, etc.) and see if you could consolidate your auto payment with your credit cards in a big, sweeping refinance. You'd be able to get the debt away from the credit cards (probably/maybe having to close them but could hopefully get a new card assuming the refi doesn't ding your score too much*) and into a somewhat lower rate along with the auto loan balance. Rates, I would guess, would be somewhere in the 5-8% range, though I'm unfamiliar with the products in this specific industry.

    *every time someone pulls your credit, with exceptions of "soft hits" for things like pulling one's own credit, your score gets dinged a bit. I'm not an expert on credit scores, but be aware that the process of shopping around and refinancing tends to lower one's score a touch. I can't say by how much, but it shouldn't cause a 30+ point drop (I don't think) which should keep you at that target 700+ number.

    The Crowing One on
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    Sir CarcassSir Carcass I have been shown the end of my world Round Rock, TXRegistered User regular
    edited January 2011
    Thanks for all of that, it definitely helps. I probably should have also mentioned that these are all pretty old. The car loan is from June 2006. The credit cards we've had for at least 7 or 8 years, some as much as 11. I still have my first credit card (the BoA one I tried calling about), which I got in 1999. I thought maybe 10 years of good standing would make them likely to work with me. Ha.

    We bank with Wells Fargo and have for at least 8 years. I don't remember when they bought out our previous bank. I've thought about checking with them on some sort of consolidation loan. Any experience or knowledge of them and that process? Or just general advice in going that route?

    Sir Carcass on
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    schussschuss Registered User regular
    edited January 2011
    Also be sure to check out credit unions in the area, as they will often offer better rates. Another option for the CC debt is to just get an unsecured loan. The rates will be higher than a home or auto loan, but will probably be lower than the CC. It also consolidates things into one neat package. I did this with my motorcycle and paid it off early, and I only ended up at 7% or so.

    schuss on
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    The Crowing OneThe Crowing One Registered User regular
    edited January 2011
    We bank with Wells Fargo and have for at least 8 years. I don't remember when they bought out our previous bank. I've thought about checking with them on some sort of consolidation loan. Any experience or knowledge of them and that process? Or just general advice in going that route?

    I work with residential mortgages, so my knowledge of other lending is limited by many of the interactions between mortgages and other debts.

    Wells has a product specifically for consolidation of credit debt and auto loans.

    If you received the auto loan in June 2006, your term should actually be up in 5 months (assuming 5 years)? You'd be far better off trying to simply make a lump sum payment/monthly payments to finish it off and eliminate it, entirely. If you're this far into the term and amortization schedule, you're probably paying very little interest and primarily principle (loan payments consist of principle balance and interest payments, the more payments you make, the more of that payment goes toward the actual loan balance) and the worst thing would be to re-set that clock with a refi so that you end up paying interest on a loan that is currently posting more principle to the balance.

    There are many non-profits out there who will do credit consolidation, and as Schuss pointed out, an unsecured loan at even 8-10% would be preferable to 25% on the cards.

    How much debt are we talking about? The efficiency of such depends on the load and if it is causing financial hardship.

    The Crowing One on
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    Sir CarcassSir Carcass I have been shown the end of my world Round Rock, TXRegistered User regular
    edited January 2011
    I think the car loan is actually a 6 year loan. :|

    I don't know what we owe on the car currently, probably several thousand. Our payment is like $390 a month. Total credit card load is somewhere around 22k-24k, from what I remember (my wife handles the finances). It's not necessarily causing financial hardship, but we never have any money left over for savings or entertainment or any of that fun stuff, and it specifically caused us to get rejected for a home loan (something about one of the two numbers they calculate, the government says it can't be over 50 and ours was around 75).

    Edit: Just looked it up and as of November, we owed 7k on the car and 22k in credit cards.

    Sir Carcass on
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    schussschuss Registered User regular
    edited January 2011
    Get that CC debt taken care of ASAP, and don't even think about a house until it's paid off. CC's are for emergencies/float, not for carrying debt.

    schuss on
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    Sir CarcassSir Carcass I have been shown the end of my world Round Rock, TXRegistered User regular
    edited January 2011
    It was 36k last year, so....

    Sir Carcass on
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    The Crowing OneThe Crowing One Registered User regular
    edited January 2011
    I did a quick schedule calculation on the assumed terms of the auto loan (12% 6 years 20k, right?), and I believe that you should be paying something like an 8 to 1 ratio of principle to interest. That's not too shabby.

    Also quickly looking at 8% 5 years on 25k for the credit consolidation shows a payment in the $~500+ range.

    I'd think that consolidating the credit debt and using the savings to pay down the principle on the auto loan (assuming you don't have a pre-payment penalty-- check your documents).

    The Crowing One on
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    Sir CarcassSir Carcass I have been shown the end of my world Round Rock, TXRegistered User regular
    edited January 2011
    Wow, thanks. That definitely gives us something to look into. I appreciate it.

    Sir Carcass on
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    The Crowing OneThe Crowing One Registered User regular
    edited January 2011
    Wow, thanks. That definitely gives us something to look into. I appreciate it.

    This is what I do for a living, more or less. I'm happy to help.

    Please don't take anything quoted as anything more than my best guess. It's far more complex than this, but it should give you an idea of your situation. Consolidating the credit cards is probably most important, because that's where you can probably get the most savings.

    The Crowing One on
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    The Crowing OneThe Crowing One Registered User regular
    edited January 2011
    Oops.

    I redid my schedule for the auto loan and I messed up, somewhat (was using variables for home mortgages in my calculator by mistake).

    As of now you should be paying about $340 in principle and about $50 in interest each month with around 7k left on the balance. This isn't the "8 to 1" ratio, but is still very good. Each month you should shift another $3-4 from interest payment to the principle payment. If you could put a little extra toward the loan, knocking that balance down should be easy.

    The Crowing One on
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    DeebaserDeebaser on my way to work in a suit and a tie Ahhhh...come on fucking guyRegistered User regular
    edited January 2011
    With a 735 you really shouldn't have that much of a problem getting another credit card with a lower rate and transfering the balances, yes?

    It's still a wierd environment consumer credit-wise, but I would think there'd be at least one bank out there that would love to have your debt at 12-15% APR.

    Obviously, it's not as good a solution as getting a personal/consolidation loan, but I would think it'd be a whole lot easier.

    Also, call your credit card companies. A LOT. If you're persistent and are in good standing, they will eventually knock a few % off.

    (If any of the above contradicts what The Crowning One posted/posts, ignore it.)

    Deebaser on
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    ThundyrkatzThundyrkatz Registered User regular
    edited January 2011
    Also, with the student loans. If they are all federal student loans (not private student loans) you may be able to consolidate them with the government. Basically the federal government would buy out your loans and you would get an average rate that is typically lower then the combined rate on your multiple student loans.

    In then end, this won't save you any money as it extends the term of the loans. However, it could buy you some breathing room to pay off your other debts faster and then attack the student loan as there is no prepayment penalty.

    For example, my wife recently graduated and we owe like 40k in student loans, the monthly payment was over $600 which was painful. We consolidated and extended the term out to 20 years, but cut the monthly payment in half to just over $300 per month. That has given us the room to aggressively attack some CC debt that built up in our first year of home ownership and pay down 12k in debt this year.

    Here is the website
    Word of caution, it takes a few months to get the whole thing completed and you must pay your old lenders until told to do otherwise.

    Thundyrkatz on
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    DjeetDjeet Registered User regular
    edited January 2011
    Join a credit union. I joined UFCU (university federal credit union) just to get good rates for my mortgage refi; I think all that was needed was $30 combined to put into a checking account and savings account. They have auto loan refis at 3% for those with good credit. If you don't want the university there are a half dozen other credit unions locally that'd work too (rbfcu, velocity, austin telco, etc.).


    As for credit cards, if you're aggressively paying them down already you could try the balance transfer game where you transfer to new cards (which you generally need decent credit to qualify for) that have 6-18 months teaser interest rates, and then agressively pay down these lines of credit before the teaser expires. You need to be careful not to trigger "default APR" cause those rates are usually usurious, and can be triggered if you get a late payment on a completely unrelated line of credit. Also it's not going to do anything good for your credit score in the near term since you'll be increasing the amount of credit available to you without a concommitant increase in income. Though you can address this by closing down unneeded revolving credit lines once you've paid stuff down.

    Djeet on
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    Dr. FrenchensteinDr. Frenchenstein Registered User regular
    edited January 2011
    Djeet wrote: »
    Join a credit union.

    THIS!!! I just transferred all my balances to credit union card that was like 3%, whereas my other cards were 15-30%. Also i was getting the "fuck off and die" treatment from commercial banks as well. I think they need your business (or at least act like they do) more, so they have far more competitive rates. Getting a new card will make your credit take a small dip (maybe) in the short term, but it will improve due to your debt/credit ratio being better.

    As far as the mortgage, you can get that through the CU as well but i think there's a lot more parity across the industry. Just make sure you're not extending the mortgage just to lower your payments (unless you want to do that, if you aren't staying in the house/the house is a dog it's perfectly reasonable). Depending on your equity, you could really change your payments/length of your mortgage. I was only in my house a year, and rates had dropped so i refi'd. I basically paid all my equity into points (i think) to lower my rate, i think. whether that was a good idea remains to be seen.

    Dr. Frenchenstein on
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