New-to-us car

[KiwiJo09]

Hey all,
Hubby and I just bought a used car (certified pre-owned with a warranty y todo!) and I had a question about the car loan.

In terms of paying off the loan, should we pay more than the minimum payment to pay it off faster or is it better to pay the minimum to pay it off over time to improve credit score? Any advice would be great.

Hubby's credit stinks and the car is entirely on his credit so I'd just like to know what you would do in this situation. The loan is for 72 months, APR of 15.62%, for $11,811.29.

Thanks in advance!

[maat55]

I would not pay one penny in interest to build credit score. So, I would pay it off or sell it quickly.

As for myself, we save and pay cash for cars. I am satisfied with my score based on our mortgage and one card we pay in full.

[kork13]

First thing I'd try is to get the loan disassociated with your husband's credit, by refinancing it under your name only (if your credit is better). 15% interest is nuts! However, if improving his credit is partly the idea, obviously that's not a good option

Yes, I would absolutely try making additional payments on the principle as large and frequently as reasonably possible. If you can make monthly double-payments, you'll cut the term down at least in half. If you have any loan kept in good standing for longer than a year or two, it will adequately demonstrate regularity of payments, and will be a good mark on his credit.

One note of interest, be sure to specify that the extra payments are against the principle balance. If you don't, the loan company will just consider them to be pre-payments (like making the next month's payment early), and it won't actually save you anything in interest charges (I learned this the hard way).

[disneysteve]

Pay off that loan as fast as you possibly can. That loan is insane. Sorry to say this but taking out a 12K loan just to improve his credit score really wasn't such a great idea. You could have accomplished the same thing with a much smaller loan. 7K would have gotten him a perfectly nice used car.

[mcfroggin]

Originally Posted by disneysteve

Pay off that loan as fast as you possibly can. That loan is insane. Sorry to say this but taking out a 12K loan just to improve his credit score really wasn't such a great idea. You could have accomplished the same thing with a much smaller loan. 7K would have gotten him a perfectly nice used car.

Agreed. Pay off this loan FAST! That interest rate makes me cringe.

[KiwiJo09]

I know. We did it on a whim. And we know that we made a mistake by taking out such a large loan, but it's too late now and there's nothing we can do. We love the car. I plan on making larger payments to pay off the car faster. And I'll be sure to specify that it's to go towards the premium. Thanks for the advice.

[disneysteve]

Originally Posted by KiwiJo09

I know. We did it on a whim. And we know that we made a mistake by taking out such a large loan, but it's too late now and there's nothing we can do.

Considering that this is a used car, you might be able to get out of it faster than you think. Just for the heck of it, list it on craigslist for about what you paid. See if you can sell it for enough to pay off the loan. Since you have $5,000 equity, you can probably reverse this mistake. It may cost you a few dollars but you'll come out way ahead in the end by not being saddled with this debt. Then, go buy a car you can actually afford. Take out a small loan (under 5K for sure). That will still help improve your husband's FICO (assuming all payments are made on time) but you won't be dealing with this huge debt.

[greenskeeper]

Every dollar you pay extra per month you will get a "15.62% return" on your money.

Tough to beat that in this economy.

[disneysteve]

Originally Posted by greenskeeper

Tough to beat that in this economy.

Tough to beat that in any economy.

[KiwiJo09]

We love the car and have no intention of reselling it. It was more of a question of paying it off faster or not. We are going to pay it off at $300 a month instead of $250. Which means it'll be paid off in about 4 and 1/2 years instead of 6. Does anyone have a calculator? How much in interest will that save me? Probably crazy.

[disneysteve]

Originally Posted by KiwiJo09

It was more of a question of paying it off faster or not. We are going to pay it off at $300 a month instead of $250. Which means it'll be paid off in about 4 and 1/2 years instead of 6. Does anyone have a calculator? How much in interest will that save me? Probably crazy.

You should absolutely pay this off as fast as you possibly can. I would be eating rice and beans and selling everything that isn't nailed down to get rid of this loan.

Paying an extra $50/month would save you $1,698 in interest. Each additional dollar saves you about $25.

You can play with the calculator here:
Auto Loan Early Payoff

[KiwiJo09]

Originally Posted by disneysteve

You should absolutely pay this off as fast as you possibly can. I would be eating rice and beans and selling everything that isn't nailed down to get rid of this loan.

Paying an extra $50/month would save you $1,698 in interest. Each additional dollar saves you about $25.

You can play with the calculator here:
Auto Loan Early Payoff

I played around with that calculator a bit. It makes me feel so much better.

[jpg7n16]

Originally Posted by KiwiJo09

The loan is for 72 months, APR of 15.62%, for $11,811.29.

ouch

[snafu]

We're alarmed that you've agreed to pay 15.6% interest while savers struggle to find an account that pays 3% interest. The rule of thumb financing a used car is 3 yrs/ 36 months. Does the warranty extend for 5 yrs/72 months? What can hubby do to increase income to increase payments to $350. per month aiming for a shorter payment term. After 2 years can you refi at a better rate?

[nick__45]

Originally Posted by snafu

We're alarmed that you've agreed to pay 15.6% interest while savers struggle to find an account that pays 3% interest. The rule of thumb financing a used car is 3 yrs/ 36 months. Does the warranty extend for 5 yrs/72 months? What can hubby do to increase income to increase payments to $350. per month aiming for a shorter payment term. After 2 years can you refi at a better rate?

Who's paying 3% to keep my money? I am getting 1% and that's it. But in these hard time I like to keep extra money available even though I have a very very secured job and low monthly expense comparing to salary.

[nick__45]

Originally Posted by KiwiJo09

Hey all,
Hubby and I just bought a used car (certified pre-owned with a warranty y todo!) and I had a question about the car loan.

In terms of paying off the loan, should we pay more than the minimum payment to pay it off faster or is it better to pay the minimum to pay it off over time to improve credit score? Any advice would be great.

Hubby's credit stinks and the car is entirely on his credit so I'd just like to know what you would do in this situation. The loan is for 72 months, APR of 15.62%, for $11,811.29.

Thanks in advance!

Can you at least tell us what car it is. Make and model as well as the dealership/lender you got it from. I drive a 92 Corolla with over 300k miles and I make over $100k. Trust me, I like cars and all type of cars but I don't even think I am in position to buy a $12k car. I am in a $5k market at my salary range. While I am not as wise like some folks here to invest money properly instead of keeping cash (well, history will tell who's wiser) in this tough time, I am not crazy to spend $12k on a car when I can put that toward a small piece of land somewhere. The only way I would spend $12k for a vehicle now is if it has a family value investment or work investment, which usually mean a work truck with gears or some specialties such as a ice cream or landscraping trucks.

[disneysteve]

Originally Posted by nick__45

I like cars and all type of cars but I don't even think I am in position to buy a $12k car.

This wasn't a 12K car. It was a 17K car. They put down 5K. They borrowed 12K.

[nick__45]

Originally Posted by disneysteve

This wasn't a 12K car. It was a 17K car. They put down 5K. They borrowed 12K.

$17k used car for a person with bad credit? This has to be a April Fool joke. Either that or I am a fool for saving and living frugally.

[KiwiJo09]

Originally Posted by nick__45

$17k used car for a person with bad credit? This has to be a April Fool joke. Either that or I am a fool for saving and living frugally.

I didn't ask for insults. I asked for advice. And my hubby's car was falling apart, which is why we decided to buy a car. If it was anything else, we wouldn't have done it. And this is the first car we've ever purchased. Did we do our research 100%? No. And I realize that we've made mistakes, but I'm going to stand by those. I don't want this car on my credit, which is why is isn't. My family complicates things too much for me to put the car under my name. I'm just going to leave it at that.

[disneysteve]

Originally Posted by KiwiJo09

my hubby's car was falling apart, which is why we decided to buy a car.

KiwiJo, the insults are inappropriate but if you can look past them, the concern is legitimate. Okay, your husband's car was falling apart. That is definitely a very valid reason to be car shopping. Buying a 17K car with a 15.62% loan wasn't a reasonable path to follow however. You had a $5,000 down payment. You could very, very easily have bought a good quality used car for $5,000. If you also wanted to borrow some money in his name to help build his credit, you could have borrowed $2,000 instead of $12,000.

Now that you have the car, you could probably correct this mistake, as I explained above. The fact that you aren't willing to consider that option is certainly your choice, but I would hope you can understand why it would frustrate many other people around here.

You asked us:
what you would do in this situation

and you said:
Any advice would be great.

What would I do? I would sell the car for as close to what I paid as possible, even if I took a loss in the process. Then I would go out and replace it with a used car that actually fit my budget. I would borrow a minimal amount toward the goal of improving his credit, not more than $2,000-$3,000 (at least not at that interest rate).

Your opinion may vary but you did ask for our opinions.