Q: I got got a sused car while I was in college at $12,000 for 5 years at 21% interest. I sorta got stuck in it and within two days I realized just how bad a deal this was. I tried to get my dad to give it back to the guy but nogo... Anyway: the payments are $325/mo for the 95 Mitsubishi Galant. I've been making all the payments ok, missed one, and I think I have about a year left. I'd really like to put the car note behind me, so I tried to renegotiate a rate with the company holding the title. Their attitude was "we don't care you have only missed 1 payment of (40+ ?) payments. We've got you and now we're going to get you :) They were not at all interested in lowering my car rate for "good behavior". also, my credit history is pretty poor (job market, wasn't responsible, over ambitious, yadda yadda) Yet somehow I've always managed to make my car payment and the rent (although I, was a bit skinnier some months:) Questions : What benefits do I have with refinancing? How/where can I refinance with bad credit but good "car credit"? Can my present lender retaliate if I leave them? Will it help if I make bigger payments, what happens to the extra money I pay? (someone told me in some situations, they will owe ME money if I pay too fast) I don't want to trade in get a new car since this one still runs ok. I've sunk so much money into the thing I think i should be it's last owner! what can I do to get out of this bad loan?
A: I had this problem before, although I did not have bad credit... just not great at the time. Here's what I know from my experience: You need to find yourself another bank/lender and have them pay your current lender the "payoff amount." This amount changes almost on a daily basis, according to the finance amount and how often it is compounded on your loan. Then, that amount becomes the amount you owe the new bank, in addition to the interest rate. On a used vehicle, you'll not likely get a better rate than 7.5%APR, and that's with a credit union with good credit. Likely, the bank will want at least 10%APR b/c they are into making money. However, if you only have one year left on your current loan (and depending on your job status, present credit rating) they may outright refuse to consider the loan because the duration is too short and their profit may be too low. Your present lender can indeed retaliate if you refuse to make payments. They can come and reclaim your vehicle, regardless of the fact you're almost done with payments. And, that scenario doesn't involve if they want to sue you in court for breach of contract. Also, don't forget they will likely report your breach of good faith to the crediting agencies so that you'll have an uphill climb getting good credit again. Depending on your loan contract (you MUST read it carefully to figure out this part) paying more on your payments can sometimes do nothing as much as something. In one case, the loan may state that paying more will allow you to not pay the next month but interest will still accrue (thereby not lowering your principal, or the amount you are financing). This is one way they make money of off you. In a better case, making higher payments will lower your principal, minus any interest, every time you pay more. Granted, every payment you make WILL lower your principal, but every over-payment doesn't necessarily unless the contract states that it will. You have to read it carefully to know if it's worth it. Your lender will NEVER owe you money as far as I am aware. I'm 99% sure about that. If you pay off early (if your contract allows it) than they don't reap as much in interest and you have a few more bucks in your pocket. If you refinance, than the same end scenario applies - they get less in interest. If you overpay (and the contract stipulates there's no benefit to doing so) you may end up with the same term and paying them every cent of interest they anticipated when you signed the papers. Anyway, I hope my tirade helps. I refinanced my vehicle relatively early on so I didn't get screwed as royally as I might have. It helps to have a credit union on your side (and a steady job). Also, I am not a lawyer so please don't ask me any legal questions - I'm speaking from my experience. Your state laws may differ and you may have legal recourse.
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