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I have a 2007 mini cooper that I bought for around 20K 3 years ago with CarMax. I currently owe about 10K but the blue book value is around 6K. I am starting a new job where I will be traveling 70% of the time and won't really need a car. One of my goals this year is to significantly reduce my debt.

I had originally thought to refinance my car as the interest rate is about 9% however I am wondering if there is any benefit to refinancing before selling. Ideally I would like to sell the car back to Carmax as it would require the least hassle. My car loan is also with them. Does anyone know the odds of them buying the car back and settling for a lower amount to pay off the loan? Does a settlement look bad on a credit report?

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  • The answer depends on what the closing costs are to refinance and how long it takes to sell the car. You need to figure out what the closing costs are, how many months of reduced interest it'll take to pay off that cost and start showing a real savings, and then guess at whether the car will be sold before then. That last part is a judgement call only you can make, and of course is related to what price you want to get for it. – keshlam Aug 21 '15 at 13:43
  • As far as them settling for less goes: why would they possibly be motivated to do so? As it is, either you make the payments or they repo the car and sue you for the balance plus legal fees; either is better for them than buying a used car for more than it's worth or letting you underpay. – keshlam Aug 21 '15 at 14:51
  • Note too that you could refinance and keep the car. – keshlam Aug 21 '15 at 16:34
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    Although I stand by my answer re: "settling" or forgiving the loan, one lesson I've learned over the years is that it certainly never hurts to ask. Worst that could happen is they laugh and laugh and then say no. Then laugh some more. Politely of course. But who knows, maybe they're so desperate for a Mini they'll do whatever it takes to get one on the lot. – BobbyScon Aug 21 '15 at 17:51
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Carmax will be interested in setting a price that allows them to make money on the reselling of the vehicle. They won't offer you more than that. The determination of the value compared to the BlueBook value is based on condition and miles.

The refinancing of the auto loan could lower your monthly payment, but may not save you any money in the short term. The new lender will also want an evaluation of the vehicle, and if it is less than the payoff amount of the current loan they will ask you to make a lump sum payment. This is addition to the cost of getting the new loan setup.

If you can pay the delta between the value of the car and loan then do so, when you sell the car. Don't refinance unless you plan on keeping the car for many months, or you are just adding paperwork to the transaction.

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Having just gone through selling a car, I can tell you that CarMax will most likely not be the best solution. I recently sold my '09 Pontiac Vibe which had a KBB and Edmonds value (private party sale) of around $6k. Trade-in value was around $4,800. I took it to the local CarMax for a quote, and they came back with $3,500.

Refinancing is tricky. Banks have a set limit on how old a car they will finance. Many won't even offer financing if the vehicle has over 100k miles. We looked at refinancing our other car, and even getting the APR down over a point we would only have saved $15/mo or so. Banks typically offer much higher interest rates for used non-dealership cars and refinancing than they do for new cars, or even used cars purchased from a dealership. Assuming you have 2-3 years left on your loan, I don't think that refinancing would save you enough to be worth considering.

CarMax sells cars in 1 of 2 ways. They are also up front with you about the process. They do not reference KBB or Edmonds or any other valuation tool other than their own internal system. They either take the car, spruce it up a bit, then resell it on their lot, or they sell it at auction. If they determine your car will be sold at auction, then they will offer you a rock bottom price. The determining factors that come into play include age of the car, mileage, and of course overall condition. If you Mini is still in good shape and doesn't have a lot of miles, then they may try to resell it on their lot, for which they could offer you closer to personal-sale price than trade-in. How many 2007's are for sale in your area? How much are they selling for? I did sell them a truck back in 2005 and received $200 more than KBB valued it for, but it was in great shape, only a couple of years old, relatively low mileage, and it was in high demand. God bless the South and their love for trucks!

I ended up selling my Pontiac to another local car dealership. They offered me $5,300 (after negotiating, leaving the dealership, then negotiating more over the phone). It took me a day and a half and really very little effort. I have several friends that have gone through the same thing with selling cars, and all have had similar luck going to other dealerships, where prices can be negotiated, rather than CarMax.

CarMax has no incentive to "settle" or forgive your loan. If you really want to pay it off, save up what you believe the difference will be, then shop your car around the local dealerships and get prices for your Mini. Remember that dealers have to turn a profit, so be reasonable with your negotiation. If you can find comparable vehicles in your area listed for $X,000 then knock $1,500 off that price and tell the dealerships that's what you want.

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  • As a side note: my initial communication with the dealership that ended up buying my car was through the AutoTrader.com trade-in market place. I received an instant quote online through that, then negotiated up with the dealer. – BobbyScon Aug 21 '15 at 17:54
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As for refinancing:

Many institutions charge up-front fees when doing any type of vehicle loan. Typically this is in the neighborhood of 1% the value of the loan, with a floor of $100 (although this may vary by lender).

However, for the loan the be secured by the vehicle, the principle value must be less than the collateral value. In your case, this means there is a collateral shortfall of $4,000.

When working with a traditional bank, you would have two options: pay the difference up front (reducing the principle value of the loan), or obtaining a separate loan for the difference. This separate loan would often have a higher interest rate unless you have some other form of collateral to secure it with.

I doubt CarMax would do a separate loan.

All that being said, if you plan on selling the vehicle within the next twelves months, don't bother refinancing. It won't be worth the hassle.

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