Q: I purchased a 2000 Acura Integra in April of 2007. The purchase price was $10,409 at an interest rate of 15.99 percent. I paid down $1,000. The loan is for six years at $255 a month. My credit was great at the time I bought it. What can I do to either lower my interest rate or can I get out of it and get another vehicle? The value of the car is now at $7,775.
A: Wow, an interest rate of 15.99 percent with a great credit history? Something doesn’t add up here. From my calculations, you still owe approximately $8,300 on your loan. So, you are upside down on your loan (which means you owe more than the car is worth), but by less than $600. Although being upside down in a car loan is never good news, you are in better shape than some I have seen.
I want to take the time now to congratulate you on making a down payment on your car loan. If you had not made a down payment, your upside- down situation would be worse and you would have fewer options now that you want to refinance or get a different vehicle.
Several factors will help to determine whether refinancing to lower your interest rate or getting another vehicle would be your best option. Let’s start by asking ourselves a couple of questions.
Has your credit history gotten worse since you bought the car, remained the same or improved? Do you have money set aside to use as a down payment for another vehicle? (Keep in mind you will have to make up the difference in the sales price of the car and the amount owed on your loan.)
If your credit history has stayed the same or improved and you decide you want to keep your current vehicle, shopping for a refinance loan might make the most sense. I would recommend starting with your local credit union, as credit unions tend to have better terms for auto loans. You’ll want to do all your loan shopping within a 30-day period so the credit inquiries will be counted together as only one inquiry and will not harm your credit score.
If your credit history has worsened and you have money saved for a down payment, selling your current vehicle and purchasing another might be your best bet. A private sale would most likely get you the best price when selling your current vehicle. You might check out selling it on Craigslist.org or another online site where you can list your car for sale for no cost, but I have seen people have the most success in their local newspaper.
Be sure that you purchase only as much vehicle as you can afford. If possible, it would be best to keep the terms of your car loan to 36 or 48 months. The longer the loan, the more potential you have for getting seriously upside down in the loan again.
When you are shopping for your new loan, make sure you have copies of your credit reports and your credit scores. Do some research before speaking with a lender so you have a good idea of what interest rate you should qualify for based on your credit score. You can find that information at the three major credit reporting agencies — Experian, Equifax or Trans- Union — or at myfico.com. If the lender does not offer you the interest rate you believe you deserve, move on to another lender.
● Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D., and a board member of the Association of Independent Consumer Credit Counseling Agencies. He answers readers’ questions about debt and credit issues for CreditCards.com. To ask a question, e-mail Editors@CreditCards.com.
