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]

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]

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]

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]

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]

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]

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]

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.