Refinancing auto loans

DeadfallDeadfall Registered User regular
edited July 2008 in Help / Advice Forum
Recently, in an attempt to really work on correcting my minor financial mistakes, I consolidated my credit card (about $1,500. Yeah, I know) and my car loan (about $8,500) into one big loan through my bank, Wells Fargo. I've never had problems with them, they've always treated me well, so I figured I'd give them all of my banking business.

I usually do my research pretty well, but I suppose I haven't gotten the knack of financing and loans and the like, and upon looking some things up, I'm under the impression now that I got kind of a bad deal.

I was paying $100 a month off of my credit card, with an interest rate of 9.9%. I was paying 235 a month off of my car loan, and had a little more than 3 and a half years left on that.

My new loan has a monthly payment of $263, but is for 48 months with an interest rate of 15.94%. That's a total of over $3,000 in interest I'll be paying. The loan officer was exceedingly good at convincing me that was a good deal, but the more I think about it and look around other banking sites, the more I'm thinking, "GOOD LORD SIXTEEN PERCENT APR!"

Is this a better deal? I have good credit, 731 last time I checked for an apartment credit check (I think that's good). I've never used a credit union, but my sister, who works for a bank, tells me that credit unions are the way to go for auto loans.

Any suggestions on a way to lower my interest rate or a better bank to get a loan from?

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  • FeralFeral MEMETICHARIZARD along with you if I get drunk well I know I'm gonna be gonna be the man whoRegistered User regular
    edited June 2008
    15.94% is really high for a secured loan. What the heck was the interest rate on your auto loan before Wells Fargo?

    Yes, I would definitely be contacting a credit union.

    Feral on
    every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
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  • CauldCauld Registered User regular
    edited June 2008
    Feral wrote: »
    15.94% is really high for a secured loan. What the heck was the interest rate on your auto loan before Wells Fargo?

    Yes, I would definitely be contacting a credit union.

    Cauld on
  • DeadfallDeadfall Registered User regular
    edited June 2008
    Feral wrote: »
    15.94% is really high for a secured loan. What the heck was the interest rate on your auto loan before Wells Fargo?

    Yes, I would definitely be contacting a credit union.

    It sure wasn't 15.94. I'll have to do some searching. I moved away for a year, and somewhere in that process my statements were being sent to my father's house. By the time I finally got them to change my address, I moved back to Colorado. Bank of America never could figure out where I was living to send my statements, even after numerous requests.

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  • FeralFeral MEMETICHARIZARD along with you if I get drunk well I know I'm gonna be gonna be the man whoRegistered User regular
    edited June 2008
    Deadfall wrote: »
    Feral wrote: »
    15.94% is really high for a secured loan. What the heck was the interest rate on your auto loan before Wells Fargo?

    Yes, I would definitely be contacting a credit union.

    It sure wasn't 15.94. I'll have to do some searching. I moved away for a year, and somewhere in that process my statements were being sent to my father's house. By the time I finally got them to change my address, I moved back to Colorado. Bank of America never could figure out where I was living to send my statements, even after numerous requests.

    So the damage has already been done here, but I feel the need to point out that refinancing a loan when you didn't know what the interest rate was of the original loan was probably not the wisest financial decision you could have made. Frankly, that makes me wonder what else in your financial life is out of order.

    But, anyway, 15.94 is way too high. 731 is a C-tier credit score - not great, but still above average. You should still be able to qualify for a better rate on an auto loan, depending on the car and your income. What year of car is it, and do you know the Kelley Blue Book value off the top of your head?

    Feral on
    every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
    the "no true scotch man" fallacy.
  • DeadfallDeadfall Registered User regular
    edited June 2008
    Feral wrote: »
    Deadfall wrote: »
    Feral wrote: »
    15.94% is really high for a secured loan. What the heck was the interest rate on your auto loan before Wells Fargo?

    Yes, I would definitely be contacting a credit union.

    It sure wasn't 15.94. I'll have to do some searching. I moved away for a year, and somewhere in that process my statements were being sent to my father's house. By the time I finally got them to change my address, I moved back to Colorado. Bank of America never could figure out where I was living to send my statements, even after numerous requests.

    So the damage has already been done here, but I feel the need to point out that refinancing a loan when you didn't know what the interest rate was of the original loan was probably not the wisest financial decision you could have made. Frankly, that makes me wonder what else in your financial life is out of order.

    But, anyway, 15.94 is way too high. 731 is a C-tier credit score - not great, but still above average. You should still be able to qualify for a better rate on an auto loan, depending on the car and your income. What year of car is it, and do you know the Kelley Blue Book value off the top of your head?

    I know, I'm still learning. This was the first car I've financed and purchased by myself. And this is the first time I've tried to refinance anything. These are the only two things in my financial life that need looking into, which, compared to some acquaintances, isn't that bad, all things considered.

    It is a 2001 Ford Escape. The Blue Book is about $10, 200. My income is about 34,500 a year, if that helps.

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  • FeralFeral MEMETICHARIZARD along with you if I get drunk well I know I'm gonna be gonna be the man whoRegistered User regular
    edited June 2008
    Okay, so the total amount you need to refinance is less than the blue book value of the car. That is good.

    But the amount is very close. That is bad.

    The car is more than five years old. That is also bad.

    Credit unions typically will not refinance a car more than five years old. The key word there is "typically" - they might still do it, but it's a slightly higher risk. See, they're going to look at it from the point of view that if you default on the loan, they'll just repo the car and auction it. But at this point they would going to take a huge loss on it, because the value of the car isn't going to be enough to cover their administrative costs for dealing with the mess if you defaulted.

    And I didn't mean to come off as snarky in my last post. I've made some pretty bad financial decisions in my life too.

    But yeah I would contact some local credit unions and see if they can give you some ideas on refinancing. You might need to sit on your current loan for a few months and pay it down, they're going to be a little averse to loaning somebody the entire blue book value of a car that's more than five years old.

    Feral on
    every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
    the "no true scotch man" fallacy.
  • DeadfallDeadfall Registered User regular
    edited June 2008
    The loan is for 10,000 because it's also consolidating my credit card. I owed a little less than 8,500 on the car, but the credit card brought the total to about 10,000. Looks like I'll be doing my homework on loans in my area, then.

    I didn't take your post as insulting. I know full well that credit card debt is awful. There was a summer in college where I couldn't get a job, and I decided to pay off college as I went, instead of dealing with student loans. That didn't leave much in the way of "extra money." But at least I'm not drowning in student loans, though.

    Thanks for the advice. I thought 15.94 was a little high.

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  • useless4useless4 Registered User regular
    edited June 2008
    I am not exactly sure you can refinance the car after you moved it to the Wells Fargo loan.
    Did you get the car title as part of this transaction? Sounds like you simply moved credit card and car loan to something "new" that's not a car loan but more a unsecured bigger loan.

    Honestly you could have gotten a better deal just by getting a credit card with a 15k or so limit and low low transfer rates and then pay more then the minimum due and never use the card for anything else. (This is bad advice but actually true in this case)

    Hey what is a good credit score ? I thought that was more of a "B" credit score he had there. How's my 775 look?

    useless4 on
  • DeadfallDeadfall Registered User regular
    edited July 2008
    useless4 wrote: »
    Honestly you could have gotten a better deal just by getting a credit card with a 15k or so limit and low low transfer rates and then pay more then the minimum due and never use the card for anything else. (This is bad advice but actually true in this case)

    I actually considered this. You are correct in that I didn't get a new title, I just combined the car and credit into a bigger new loan.

    Forgive my ignorance, but would transferring it to a low-transfer rate credit card honestly be a viable option? Or would it be better to just get a low-rate personal loan? Would a personal loan even work? I've always led a relatively "simple" financial life. Like I said I'm still learning, and well, I gotta learn somehow.

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  • CryogenCryogen Registered User regular
    edited July 2008
    Everything Feral said is good.

    This highlights why people need to be a lot more careful with refinancing. A lot of people get suckered in because their repayments are lower, so they think its automatically a better deal. Of course, in the long term, its often not a better deal at all. In your case you're paying more interest both because the APR is higher on your consolidated loan than it was individually on your old loan and credit cards, and also because it has likely extended the terms. Or at least, your repayments are lower so paying off the same amount will obviously take longer.

    Its fine if you need short-term relief and are willing to sacrifice long-term gain. I'm doing this myself right now - i have a car loan for about $15k. I have enough money in the bank to pay it off. I dont, even though it is costing me money, because at present i am concerned about my job security, and its more important to me to have a safety net than to reduce my long-term losses. As soon as i feel secure, i'll kill the loan.

    If you are in this kind of situation, then its really not so bad. Yeah, your APR is pretty high, and you might be able to do better, so shop around. But in the short term you have reduced your payments. As soon as you are able, just start making payments greater than the minimum required. Reducing your loan balance will reduce the interest you pay long-term.

    Cryogen on
  • FeralFeral MEMETICHARIZARD along with you if I get drunk well I know I'm gonna be gonna be the man whoRegistered User regular
    edited July 2008
    Cryogen wrote: »
    As soon as you are able, just start making payments greater than the minimum required. Reducing your loan balance will reduce the interest you pay long-term.

    Yes. Exactly.

    If you can't refinance right now, it's not a disaster. Just pay off as much as you humanly can.
    Deadfall wrote: »
    Forgive my ignorance, but would transferring it to a low-transfer rate credit card honestly be a viable option? Or would it be better to just get a low-rate personal loan?

    No and no.

    You're not going to qualify for a credit card with a credit line of $10,000 and an interest rate better than 15.94% right now. Same with a low-rate personal loan. A typical unsecured personal loan for somebody in your situation might be $3000 with an APR of 20%.

    The only way you're going to get an APR lower than 15.94% is through an actual auto loan, where the bank retains ownership of the car (called a "lien") and you just get to drive it until it's paid off.

    Feral on
    every person who doesn't like an acquired taste always seems to think everyone who likes it is faking it. it should be an official fallacy.
    the "no true scotch man" fallacy.
  • DeadfallDeadfall Registered User regular
    edited July 2008
    Alright then. Very helpful.

    The wife is about four months from paying off her car, so once that is done, her monthly allocated car funds are going to help me pay off my loan.

    I think I've gotten about all I can here. Much appreciated.

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  • CauldCauld Registered User regular
    edited July 2008
    make sure your new loan doesn't have early repayment penalties. I wouldn't think it would be a problem, but I also wouldn't think a loan officer would flat out lie to you.

    Edit: Also, if you still have the credit card with the 9.9% rate, you might want to consider paying part of your loan off with that. You'd end up with 2 payments instead of one, and you might still need to make your payments on the new loan you got along with a credit card payment. So you might end up having to pay more every month, but less overall. And at a lower interest rate. I'd look into it.

    Checking around at credit unions/other banks is definitely a good idea though.

    Cauld on
  • chrishallett83chrishallett83 A dagger in the dark is worth a thousand swords in the morningRegistered User regular
    edited July 2008
    Edit: Also, if you still have the credit card with the 9.9% rate, you might want to consider paying part of your loan off with that. You'd end up with 2 payments instead of one, and you might still need to make your payments on the new loan you got along with a credit card payment. So you might end up having to pay more every month, but less overall. And at a lower interest rate. I'd look into it.

    But with loans, aren't you paying off the interest at the same time as you are paying off the capital? So in effect, when he comes to make the credit car payments, he is paying interest on interest? I don't think that's such a great idea...

    chrishallett83 on
  • CryogenCryogen Registered User regular
    edited July 2008
    But with loans, aren't you paying off the interest at the same time as you are paying off the capital? So in effect, when he comes to make the credit car payments, he is paying interest on interest? I don't think that's such a great idea...

    Nope, doesnt quite work that way. Unfortunately i dont have time to post a full explanation, but in theory it works out fine. If theres no answer from someone else next time i get to see the thread i might try to write something that makes sense.

    What might be more of a problem is that it can be difficult to use your credit card to pay certain things. I dont know exactly how it works in the US, but here in australia you generally cant pay credit with credit. You could draw a cash advance and pay with that cash, but generally you then get raped with cash advance interest rates... it all varies with the card. I've greatly simplified things, but thats more or less the deal.

    Cryogen on
  • CauldCauld Registered User regular
    edited July 2008
    Cryogen wrote: »
    But with loans, aren't you paying off the interest at the same time as you are paying off the capital? So in effect, when he comes to make the credit car payments, he is paying interest on interest? I don't think that's such a great idea...

    Nope, doesnt quite work that way. Unfortunately i dont have time to post a full explanation, but in theory it works out fine. If theres no answer from someone else next time i get to see the thread i might try to write something that makes sense.

    What might be more of a problem is that it can be difficult to use your credit card to pay certain things. I dont know exactly how it works in the US, but here in australia you generally cant pay credit with credit. You could draw a cash advance and pay with that cash, but generally you then get raped with cash advance interest rates... it all varies with the card. I've greatly simplified things, but thats more or less the deal.

    I agree. In regard to Cryogen's question, you're paying interest on interest either way. With the loan its all scheduled out with a pre-determined end date if he makes all of his payments on time. With a credit card there isn't that handy pre-made schedule. But one could easily be made. I make them in excel occasionally (it has a built in pmt function).

    Cauld on
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