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A few months ago I bought my first ever financed car (I'm 19). It's the only credit history I have as of now. I bought a 2015 Chevy Spark with a 28% front loaded interest rate. So, regardless of whether I pay it off now, it will cost the same overall. The finance company allows me to make payments months in advance. My fourth payment is due in a month. There's a cadillac at the dealership down the road that I want to get that they're asking $16,699 for. I owe $8,000 ish on my Spark and it probably has about $1,000 worth of cancellable warranty. The Spark is probably only worth around $6,000 trade in value. What do I need to do to get the cadillac at a reasonable interest rate (sub 12.5% simple interest)? I'll be financially able to pay the whole loan off at the end of the year. If I can get put down the negative equity and get approved for the cadillac I'd be happy. I have check stubs to prove I make around $6,000 a month. Chase says my current score is 601 with the 3 payments I've made on time and over the minimum.

  • Which loan will you be able to pay off by the end of the year, the current one or the Cadillac? – D Stanley Nov 21 '18 at 22:47
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    You're 19 and you make $6k a month? Just save for little bit and pay cash. Why volunteer to give someone interest money when you can avoid it? Hell, take your new Cadillac to vegas and put all the interest money you saved on red. – Kai Qing Nov 21 '18 at 23:21
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    It is even legal to front load interest nowadays? (All I can find is articles about amortization.) – stannius Nov 21 '18 at 23:51
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    28% ?!?! That's almost as good a scam as that Nigerian prince wanting to deposit millions in your account. If you actually do make something like $6K per month, just buy something for cash. (I consider myself borderline rich, but in a lifetime have bought only one car that cost over $6K, and that one wasn't much over.) If you want to build credit, you'll do better getting a credit card or two, make small purchases (basically your normal spending), and pay them in full every month. – jamesqf Nov 22 '18 at 5:36
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    The Spark is a great car. Cadillacs are total trash. Stick with the Spark. At your age focus on the main thing in life - women! - and forget about wasting your hard earned money on cars. Good luck. – Fattie Nov 22 '18 at 15:50
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You have two main things working against you:

  • 601 credit score - either you have very little credit history or some bad marks. You are not going to get a good rate with this score
  • 2,000 in negative equity - you'll have to borrow the difference, which will keep you underwater when you roll it to the next car.

At your "reasonable" 12% interest rate, over three years you'll pay almost $23,000 for that car - 20,000 for the car plus the negative equity, and $4,000 in interest. If you extend the loan to 5 years, the total paid will be close to $26,000. By then, you'll have paid $26k for a car that's not worth $10k or 12k.

MY advice would not be stuck with a 12% loan on a car that will only go down in value. Cut expenses to pay off your current loan as quickly as possible, then save enough to buy the car for cash. At $6k/month you might be able to do that in a year by saving $1,500 a month. Or find a cheaper car to buy in cash, and save up for the next car with the money you would have been spending on a car payment.

At the very least, save enough to make a good enough down payment to get the loan down to 5% or less over 3 years.

  • I have very shallow credit. My three payments on the Spark are the only thing I have on it. – Spencer S. Nov 21 '18 at 23:42
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    You're always under water when you buy a new (used) car. You can not sell it the next day, month or likely year without losing money. The dealer makes you pay more than it's worth and more than they'd buy it for because the dealer needs to eat, too. – xyious Nov 22 '18 at 17:28
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    @xyious by "underwater" I mean you owe more than it's worth. You're never underwater if you buy for cash. – D Stanley Nov 23 '18 at 1:09
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Unless there's something wrong with the Spark, your best option is to wait.

What do I need to do to get the cadillac at a reasonable interest rate (sub 12.5% simple interest)?

12.4% is not reasonable. No positive rate is reasonable for investing in a depreciating asset.

I'll be financially able to pay the whole loan off at the end of the year.

Then wait till the end of the year and pay cash.

  • Might just do that. There's nothing wrong with the Spark other than it's a horrible car (performance, comfort, etc). – Spencer S. Nov 21 '18 at 23:41
  • I don't agree that "No positive rate is reasonable", especially when you can make the incontrovertible statement "12% is unreasonable" – stannius Nov 21 '18 at 23:46
  • @stannius That was not my whole sentence. You wouldn't borrow at 12% to invest at 5%, and you certainly wouldn't borrow at 12% to invest at -25%. – Rupert Morrish Nov 21 '18 at 23:52
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    @RupertMorrish It’s not an investment. It’s still not reasonable, but that’s because this kind of desire (woo hoo, nice car; gotta have it) isn’t rational, not because the rates aren’t favourable. Even at a zero interest rate, it doesn’t sound reasonable to trade in a car in good condition, with negative equity, just months after buying it. But as Pascal said, the heart has its reason, that reason does not know. :) – Lawrence Nov 22 '18 at 1:18

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