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.
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.
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.