Last June when I needed a car, I really needed a car. I dragged my feet (and rode the bus) for months because I knew my poor credit score would be an issue. When I applied for financing, I was shocked to learn I was immediately approved. I couldn’t care too much about auto loan interest rates then but a little over a year later and I can say with all certainty, I care about the interest rate now. A lot.
18.03%. That’s my current APR on my auto loan.
Some would call that usurious. (I just learned that phrase yesterday and I’m going to use it a lot. Usurious means “charging illegal or exorbitant rates of interest.”)
18.03% for a used vehicle? Yes, that’s pretty f’ing usurious in my opinion. (Maybe not by the true legal definition but it’s still pretty punny.) Considering Bank of America is offering 3.19% and my own credit union is offering 5%, my current rate is pretty ridiculous.
However, as with most things in my life, I’ve contributed largely to my current predicament.
Auto Loan Interest Rates: Buyer Beware
How I Got 18.03% APR Auto Loan
Last year, when I applied for the financing, I was what most financial folks would call a “credit risk.” And by “credit risk” I mean scathing-red-hot-mess-of-a-credit risk. Here what I mean by that. At the time, I had:
- Poor/Below average credit score (check this credit score category chart)
- Under 4 months residency in the state (complete with out of state driver’s license)
- Under 2 weeks residency in my apartment
- About 3 months self-employment income (operative word, “self”) after 2 months unemployment
- No co-signers
- The stench of desperation (I even brought my 8-year old kid to the dealership like a dumb bitch.)
In fact, I’m not entirely sure I didn’t have a giant sign pinned to the back of my shirt that said “Sucker.” Regardless, I had a decent down payment saved up and my calculated monthly payments were very reasonable. I drove out of that dealership that night in a shiny, not-quite-new, excellent-condition, amazingly fuel-efficient Toyota Prius.
I was THRILLED. (So was my daughter.)
How I’ve Live With An Usurious Interest Rate
How can I go about my daily profitable life with 18.03% hanging over my head?
Well, quite nicely actually.
I know it’s there and that it is ridiculous. However, I also knew going in that I had other financial priorities to resolve before tackling my auto loan interest rate. You see, I need to get square with Uncle Sam and the State of California. I also had a huge chunk of charge-off debt strangling any chance to improve my credit score.
Surprisingly, I actually did have a plan. Having a plan made a ridiculously high interest rate more tolerable.
- Step 1: Address my tax debt.
- Step 2: Eliminate my charge off debt/Improve credit score to at least 640.
- Step 3: Refinance auto loan with small bank or credit union.
Eleven auto payments later, I’m about ready to get serious about my usurious rate. Step 1 is in progress. You can learn about the shocking details of my tax debt here but just know, I’m actively working on Step 1. I’m less than 30 days from dropping about $30,000 of charge-off debt from my credit report. (Yes, you can read about my charge-off debt, too.) My credit score is at 649 and should get a good bump after the charge-off clears. It’s almost time for Step 3.
The Dilemma: Refinance or Trade Up
The Universe is sending me messages, I think. I got a promotional email from the local Toyota dealership (where I get my maintenance done) that said they were giving away “complementary trade-in evaluations.” Well, no shit, Sherlock. I wasn’t born yesterday and worked in automotive sales training/marketing for years. It’s a pretty transparent ploy to get you in the front door so they can upsell you to a new model. Well, fuck that, right? My car is perfectly fine. A simple refi will take care of my interest rate.
Or maybe, just maybe, The Universe is pointing out something to me that I might never have considered.
I could get a newer model Prius, with lower miles, for nearly the same monthly payments.
Here’s the math.
- Payoff Amount: $9,615
- Current Monthly Payment: $272/month
- Conservative KBB Trade-In Value: $7,160
- Estimate cost of newer model/less miles: $15,000
- Estimated interest rates: 5% from my credit union
So, if I get the estimated trade-in and paid about $2,500 down payment, I’d finance the price of the newer vehicle for 5% for 60 months. This equates to $283/month payment.
- Newer car (possible warranty) with less miles
- Lower interest rate
- Comparable monthly payments
- Loan extended out 1 year
- Uncertainty of trade-in value
- Uncertainty of new interest rate
- A $2,500 downpayment (that should go to taxes.)
And This is Where You Come In
Since I’m new to this whole personal finance community, I’m not sure what the rules are about openly seeking advice. But that’s what I’m doing.
- What am I missing?
- Is my math right?
- What should I do?
- Any suggestions on where to find the best interest rates?
- Any tips on how to secure an interest rate (for either option) without too many hard inquiries against my credit report?
Regardless of your feedback, I will likely not make any final decisions on this front for another 2-3 months. I do value everyone’s opinion on this one so please feel free to comment below (or if you aren’t comfortable with that, contact me via email.)
Sometimes in life, you are forced to make a not-so-wise financial decision.
Last year, I absolutely needed a vehicle. I accepted ridiculous terms in order to ensure continued employment and my individual independence. I am grateful everyday for my car and the life it allows me to lead. Am I ready to let my “new” car go quite yet? I’m not sure. I’m a ready to dump an usurious interest rate? Fuck yes I am.
Regardless of what happens in a person’s financial realm, some things must be tolerated as part of a grander plan of improvement. It’s important during those times to stay patient and positive. Remember that everything is temporary. Everything is temporary. One more time. Say it with me. Everything is temporary.
You have the ability to change and improve.
You have the strength to be patient and work through difficult situations.
You have the power to prioritize what matters to you.
Usurious about your financial path? I so am…it’s not even punny.