Bad Auto Debt

[qwestlove80]

old car croaked. needed a car bad. had bad credit and no savings. now I have an auto loan @ 20% interest. It was financed for 16,066 for 72 months. Bringing the monthly payment to $389.49. There is a remaining balance of 12,868 (not the payoff amount). Last year nearly 64% of my $4674 in payments went straight to interest.

have been making timely payments but credit is still in the low 500s

will auto refinancing even be worth a shot?

looked up the kelley blue book value as a private seller and in excellent condition (which it is) it came to 11500. Estimating the payoff at ~13000 that would leave 1500 remaining and no car to show for it.

my gut instinct was to go ahead and sell the car and try to get the 11500. Then find another cheap reliable(sub $5000) car and purchase outright. using tax money and an upcoming bonus from work. then take the 390 we were paying monthly and pay down the rest of the 1500 in the loan.

once the loan is gone then start using most of that 390 to start snowballing our high interest credit card debts.

another thought I had was to try to refinance and get a lower rate and keep the car.

or just keep paying the 389 as is.

what do you all suggest?

[Hector]

20% interest rate on auto loan. I never heard anything like this before. If thats the truth, you must be out of your mind buying 16000 car at 20%. Go ahead and sell it and pay that 1500 ASAP. Hope you dont have CC debt on which you are paying more than 20%. I also think, you need to have garage sale and sale everything that you dont need. Also, you need to save money in everything you do. Have tight budget if you dont already have it.

Hope you are not using CC anymore. If so, you need to stop doing it and start using cash for everything you can.

[wincrasher]

If the car is still reliable, I think you best bet is just to aggressively pay down the balance.

Put all your tax refund towards the debt to reduce the balance. Then going forward pay as much as you can each month until it's paid off. By reducing the balance, you are reducing the amount that the interest is calculated.

With poor credit and an asset with a declining value, you are probably not going to get a better refi deal.

All this is assuming that the car is in good enough shape to last you awhile, and that your loan doesn't have pre-payment penalties.

Good luck.

[jpg7n16]

If the car is still reliable, I think you best bet is just to aggressively pay down the balance.

Put all your tax refund towards the debt to reduce the balance. Then going forward pay as much as you can each month until it's paid off. By reducing the balance, you are reducing the amount that the interest is calculated.

With poor credit and an asset with a declining value, you are probably not going to get a better refi deal.

All this is assuming that the car is in good enough shape to last you awhile, and that your loan doesn't have pre-payment penalties.

Good luck.

Agreed.

I was gonna say, put the whole tax refund and bonus towards the debt 1st. Maybe after you've done that, you'll be in a better position to qualify for a refi too.

Pre payment penalty is better than 20% interest for 3 more years.

[woodie96]

Financing 16K for a car at 20%, over the course of 72 months....that car will end up costing over 28K all inclusive....IF...you dont aggressively pay...

Your post stated that you have already paid over a year, so that 28K is from the start of the loan, not necessarily now.

Keep in mind that you only mentioned the car payment, what about auto insurance?

If it were me, I would sell it, take the loss and buy something less expensive. And doing that would also probably save on the auto insurance too.

Just my opinion.

[maat55]

Sell it. Buy the cheap car and payoff debt.

[cicy33]

20% interest rate on auto loan. I never heard anything like this before. If thats the truth, you must be out of your mind buying 16000 car at 20%. Go ahead and sell it and pay that 1500 ASAP. Hope you dont have CC debt on which you are paying more than 20%. I also think, you need to have garage sale and sale everything that you dont need. Also, you need to save money in everything you do. Have tight budget if you dont already have it.

Hope you are not using CC anymore. If so, you need to stop doing it and start using cash for everything you can.

Hector, Try to remember that not everyone has options others do. This interest rate is not unheard of, it is actually very common and I have heard of higher! Sometimes people HAVE to have a car and are in a situation that requires doing things they really don't want to do. its that job thing. and eating and living indoors.

I agree, keep the car and pay extra on the loan. whats the cost offers calculators that show how much quicker you could pay it off. its really cool! Then once the car is paid for, put the money aside to have like an emergency fund for the car, or at least half of it every month. then if it dies you will have enough to buy you a reasonable car to get you through. I paid 8,000 for my Jeep Grand Cherokee Limited 4 years ago and it is still running great. Have had to do little things to it but that is it. When I bought it the jeep was about 7 years old. (it is a 99) still going strong.

[bjl584]

It depends. Call your bank, credit union, etc. and explain to them your situation. Ask them if they will refinance the loan for you if you pay down a large chunk of it with your tax return and bonus money. Tell them that you have a poor credit score. Get it in writing that they will do a refi for you. If they say no, then there is no point to paying a huge chunck of the loan, as it will not change your payment. You will be stuck with the high payment until your credit score improves and you can qualify for a refi. That may be a couple years. If that scenario is the case, then sell the car and get yourself into something cheaper.

[jpg7n16]

...Sometimes people HAVE to have a car and are in a situation that requires doing things they really don't want to do. its that job thing. and eating and living indoors...

I agree with your posts with one slight caveat. Although sometimes people do have to have a car, they don't have to have one that cost $16k (or $30k). OP could have found a decent car to fulfill what's needed for his job for say $5-8k, and be done paying it off by now. Obv you've seen how an $8k car can be a really good car.

I've seen people give the "I need a car for my job" reason for why they still have a $35k BMW in the driveway. Well yeah, you need a car, but you don't need one that costs that much!

Having said that, I like the rest of your post Nice work on the Jeep!

[littleroc02us]

You already know what to do. Your gut instinct already told you. Sell the car, and get the cheap used car. Cars are a horrible place to put your money.