Got hit hard on interest rate, best way to pay this down?

[JerseyJeff84]

Back in June, I was forced into a situation where I had no choice but to purchase a new vehicle. I couldn't use my used car anymore and all the used car dealers I went to were highly over priced.

Therefore, I ended up being put into a 2010 Yaris Sedan, with a payment of $375 a month and 18.5% interest. They told me my credit wasn't bad, but that the score just wasn't high. My only "hiccup" on the report they said, was a past due AT&T cell phone account from two years ago.

I'd like to attack this loan as best as I can, but I don't have a lot of extra side money to do so. Would paying $400 a month, instead of the minimum $375 make a difference, or would the extra dent not be worthwhile?

Any suggestions or advice would be much appreciated.

[djct_watt]

I used to work in credit. . . trust me, the faster you pay down a loan, the better. You only can pay interest for the time you have the loan out for. . . unless they signed you up for some sort of evil pre-paid/financed points scheme.

I will ask you this; is the AT&T late collections account (that's what it is, since normal bills will now show up on a credit report), a legitimate debt you did not pay? If so, it's killing your credit. Basically, it means that they paid someone (internal or external) to collect a debt from you since you never bothered to pay them.

If it's not legitimate, call AT&T, clear it up, get it in writing, and have them clear it up with the credit reporting agency. Or you could always just dispute it anyway, pay it, and see if they will clear it up.

Without looking at your credit report, I can tell you that the collections account is drastically bringing down your credit profile and score. Get rid of it, and you can refinance the car for a much lower rate. But if it is 100% your fault, then you'll have to live with it. Also any late payments are very bad (30 days late, bad, 60+ forget about it). Also make sure your credit card balances are low, relative to their limits.

[jambo101]

Hard to believe there arent used cars by the 1000nds in the Philly area, if you dont like paying interest buy a car that you can afford and have no payments and no interest. if you only have $5k buy a car in the $5k range, if you only have $5k and you want to borrow the money to buy a $15-$20k new car its a bit naive to start complaining about interest payments, which in your case are quite high but thats probably because you couldnt qualify for a loan at a reasonable rate for whatever reason. Try Craigslist next time you are looking for a used car.

[KrazyDawg]

I hate how shady lenders and credit scores are. They take advantage of people. When I had no credit I was locked into a T-mobile contract without free weekend and night minutes and no international call for the same price that everyone else with credit would've paid. I had my Yaris temporarily financed by a local bank at 8% and my credit score isn't bad. The bank I wanted to use gave me 3.9% and now they're offering 2.9%.

18.5% is ridiculously high for an auto loan. Hope you can get that refinanced. As a side note missed payments stay on your credit report for up to 7 years but you can have your credit score increase in the mean time.

[djct_watt]

Late payments stay for 7 years since it's credit, but your bills like power or cable do not. Unless AT&T was a credit card, it was a bill that was so late it was turned to collections. You are legally entitled to a 1 free credit report from each agency per year, equifax, transunion, and Experian. Get them. If it is a collections
account, it can be disputed and corrected easily.

[tomato]

18.5% yikes, that's so high. What a bunch of evil !$!@$!@$@#.

The more you pay off, and the faster you're done paying, no? I don't know the terms of your loan. but I would imagine that even paying an extra $25 / month would help save you some in the long run.

[YarisSedan]

Do what i did. Continue to make payments on time and early dont wait just a few days till it is do. Continue to do this for about a year. Then after that find your local credit unit and have the car refinanced. My credit at the time i bought my car was 666. Now it is 760. Its a very fast efficient way to put a major boost in your credit score.

[DebbyM46227]

Ackkkk! 18.5% is ridiculous! If that AT&T collection wouldn't have been on your account, you may have qualified for 0% APR from Toyota Financial. That's what I got in June when I bought mine, it's really great to make a payment knowing every bit of it is going towards the principal. It took a credit score of minimum 740 to get 0%.

[Kal-El]

That is ridiculously high for having just one delinquent bill. Almost everyone has a late payment or something they have forgotten yet the majority of people get decent rates.

I have you beat though. I needed a car right after bankruptcy and just a month after my debt was discharged, I qualified for a $15,000 loan (that's all I applied for). The rate: 20%! As much as it hurts, I was just so happy to even get a loan immediately after bankruptcy at a time when I was driving a car with 253,000 miles on it. And I figured paying a lot in interest was still a lot cheaper than the 10's of thousands I had just written off through bankruptcy.

This is what's weird though, you're paying almost as high interest with good (but not great) credit as me with a fresh bankruptcy.

[djct_watt]

^ late payments don't get reported until they are 30 days late, and most lenders have a 30 day grace period before reporting... So that means you have to be two months (60 days) behind MINIMUM payments. Random collections and judgements happen (and thus can be cleared), but not being able to make a minimum payment shows extreme financial irresponsibility to accumulate THAT much debt... It's a big reason why our banks are collapsing. Banks should have never given out the loans, and greedy people should never have maxed out their credit cards, bought that car payment they could barely afford, finance for $10k for 6-7 YEARS, or bought that house when they could only afford to pay a neg-am mortgage (payment less than interest, so you owe MORE each month if you only pay the minimum). How many people in the hood do you see with a set of chrome rims bought on a credit card? I bet they have bad credit too... Something tells me they should be spending their money on better things than rims.

When I moved out of the USA, I learned that credit doesn't exist in the rest of the world like it does in the US. Interest is higher, limits are lower, and minimum incomes for credit are waaaay higher. A simple rule exists, if you can't afford it, don't buy it. If you want it, SAVE. And don't give me the anti-corporate spiel. The banks are going bankrupt (A big part of it is their fault) and blame can also be placed on credit abuse. I used to analyze 30 credit profiles a day... There is perfect credit, and people on their way to bad credit. There's not much middle ground. Everything else is calculated as a payment to income ratio and risk factor.

[djct_watt]

A collections on your record can be just as bad as a bk or foreclosure if you have little
Installment history. Get it fixed.

[nemelek]

Try to get another loan now. Use your extra money and join a Credit Union. Then see if they will give you a loan.

Next car try getting a loan first.

[BailOut]

I have some advice that is different from what others have given, and I'll explain why. I recommend saving up the funds to pay the car off as a lump sum in a high yield savings account that is wholly separate from your checking account, meaning it is at a different institution altogether. Here is the reasoning:

- Overpaying on an installment loan is the riskiest and silliest option one can take. A payment is due each month regardless of anything else. For example, you can double pay in January but a standard payment is still due in February, and even if you'd double paid every month for a year, if you miss February's payment you are hit with fees and the possibility of repossession as if you'd never overpaid at all. This leaves open the possibility of losing even more equity in the vehicle later on if you miss payments for any reason.

- Keeping your savings account wholly separate from your checking account places at least a 2 business day restriction on accessing the funds due to the timing of the Automated Clearing House (ACH). This is a great impulse interrupter as it provides a reality check any time you want to spend. Take any extra money that you would like to overpay the auto loan with and place it in this high yield online bank (I used to use ING but recently switched to AMEX FSB due to ING's parent company's issues).


A more advanced and highly helpful format of handling money is to set your direct deposit to be placed into your online high yield account, then only transfer the funds you need to pay your monthly bills to your checking account for bill pays, etc. When combined with only paying bills around your own pay cycle you'll find that you spend much less time paying bills each month, and there is the wonderful side benefit that you really are paying yourself first with the DD going into your savings account, which means you get to see your money move back out of that natural home to pay bills each pay period. This will help you to further curb your spending and manage your funds better as you'll want to see more funds remain in the savings account.

Once the car is paid off continue in this format to build an emergency savings fund, and then to plan more long term things such as investments and "wish list" items.

[YarisSedan]

How safe are those high yield online bank accounts. Ive always felt safer where my money is tangible in a bank that i can walk into and talk to someone.

[djct_watt]

Originally Posted by BailOut

I have some advice that is different from what others have given, and I'll explain why. I recommend saving up the funds to pay the car off as a lump sum in a high yield savings account that is wholly separate from your checking account, meaning it is at a different institution altogether. Here is the reasoning:

- Overpaying on an installment loan is the riskiest and silliest option one can take. A payment is due each month regardless of anything else. For example, you can double pay in January but a standard payment is still due in February, and even if you'd double paid every month for a year, if you miss February's payment you are hit with fees and the possibility of repossession as if you'd never overpaid at all. This leaves open the possibility of losing even more equity in the vehicle later on if you miss payments for any reason.

- Keeping your savings account wholly separate from your checking account places at least a 2 business day restriction on accessing the funds due to the timing of the Automated Clearing House (ACH). This is a great impulse interrupter as it provides a reality check any time you want to spend. Take any extra money that you would like to overpay the auto loan with and place it in this high yield online bank (I used to use ING but recently switched to AMEX FSB due to ING's parent company's issues).


A more advanced and highly helpful format of handling money is to set your direct deposit to be placed into your online high yield account, then only transfer the funds you need to pay your monthly bills to your checking account for bill pays, etc. When combined with only paying bills around your own pay cycle you'll find that you spend much less time paying bills each month, and there is the wonderful side benefit that you really are paying yourself first with the DD going into your savings account, which means you get to see your money move back out of that natural home to pay bills each pay period. This will help you to further curb your spending and manage your funds better as you'll want to see more funds remain in the savings account.

Once the car is paid off continue in this format to build an emergency savings fund, and then to plan more long term things such as investments and "wish list" items.

True, but it depends on the yield of the savings account and how long the term of the loan is. If it is a 6-7 year auto loan, a change of $20-30/month can save you $1,000's of dollars. Just to recoup that much from an interest bearing savings account would take decades. But in terms of having emergency cash available, you are right.

Also keep in mind that anything over the minimimum payment goes straight towards bringing down the principle. But in terms of debt reduction plans, the first target should be the credit cards. . . compounded interest on top of variable rates (even if it is fixed, if your credit rating drops, they have the right to jump your rate to 30%) will be most effective. Not only does paying off your credit cards reduce your debt, it will improve your credit rating too.

In terms of debt management, people with high debt seldom have the discipline to keep the money IN a savings account once it's there. . .

If you do take my route, the method suggested to clients is to start with the smallest credit card balances and pay them off first. Pay minimums on everything except that one card, and make the biggest payment you can. Eliminate the payment completely and move on to the next biggest card. Once you get the ball moving, this process picks up steam about 1-2 years down the line, when you have eliminated several payments and have more disposable income to work with.

[BailOut]

Originally Posted by YarisSedan

How safe are those high yield online bank accounts. Ive always felt safer where my money is tangible in a bank that i can walk into and talk to someone.

Watch "The History of Money" and then let me know if you still feel that way about your tangible bank :

http://www.youtube.com/watch?v=D0IJCGuNtqk

[djct_watt]

As long as your money is FDIC insured (and you can verify it), you don't have much to worry about.

[STC]

Originally Posted by BailOut

Watch "The History of Money" and then let me know if you still feel that way about your tangible bank :

http://www.youtube.com/watch?v=D0IJCGuNtqk

Fractional Reserve Banking, eh? Gotta luv centralized banking ... aka the FED, IMF, World Bank, International Bank of Settlements, Bank of England (BOE), Bank of Japan (BOJ), etc...

This is the crux of all political and economic world problems. A system of honest money needs to be instituted again by governments (USA, GB, Japan, etc), not banking cartels (the FED, the BOE, the BOJ, etc).

Cheers!