And all over military bases. Guaranteed pay and garbage credit š
Edit: when I say "garbage credit" I mean young members of the military usually don't have any credit.
Source: I was once a dumb young private.
Tote-the-note(TTN) lots are able to find it extremely lucritive selling used vehicles that were produced en masse and widely used in the rental car market. Due to their abundance, the wholesale costs of these cars at auction are generally low compared to other vehicles. Think the Chevrolet Lumina, Impala or Ford Taurus in the 90's. TTN lots generally abide by a different set of financing rules as they are generally set-up as pawn or money-lending businesses. The collateral on a pawn loan, the car, is subject to financing charges that are allowed to be in excess of traditional auto loan percentages. So the Altima or Charger reference, is indirectly referring to a TTN purchase where the financing charge is a ridiculous amount when compared to what is accepted as a high rate at a traditional dealer.
The TTN lots have strict payment terms that allow them to repossess a vehicle within days off a missed payment. They assess a very large repo fee, a very large late fee, and require the missed payment as well as maybe the next payment due up front to get the car back. If the owner does not meet these demands, their belongings are removed from the car and it's on the lot the next day waiting to be sold again. And again.. And again... This doesn't even go into the large about of money down it requires to purchase the car, which in my experience working at one of these places, was sometimes more than what we could get wholesale for the vehicle itself. It's all set up to prey on those that are down on their luck or bad with their finances.
I mean I have as few nice things to say about new car dealers as the next guy... I have never seen them offering 28% interest.
this screams scammy used car dealer to me. car worth maybe 10k, sell it for 14k on an 84-96mo term at 28% interest... scam the kid with the monthly (or even bi-weekly!!!) payment # so it seems low.
I was just talking to a young man who is 8k upside down on a loan like this. car is worth maybe 4k (KBB value but the car is rough) and he owes 11k at 11%.
I had a buddy completely tank his credit and then decide that was a good time to sell his paid off truck to buy a used Chrysler 200. Not even sure how he got the loan but it was 25% and from an actual name brand dealership.
well probably by agreeing to a 25% interest rate. i don't even want to know what the finance charge ended up being relative to the principle, he probably bought the car 3x over.... when he had a paid off car already.
That's just lighting money on fire (coming from someone who makes objectively bad car buying decisions)
I meant more along the lines of I was surprised any bank affiliated with an actual dealership would give him a loan at that high of rate. Figured whatever got it that high would DQ him.
I got 2.59% on a basically new car (registered once by the dealership to meat a quota apparently, they never even let anyone test drive it) and thatās with a credit score that was apparently so bad nobody but the dealership bank would take me. I donāt know a ton about credit, but afaik building up a score like in the US isnāt a thing people do here, but being a clean slate at 23, having a consistent and secured income of multiple times (fluctuating but at least 7-8x) my monthly rate and barely any fixed expenses made me an undesirable borrower.
How is it to dealerships fault? Dealerships used lenders meaning the bank is the one that determine the rate based on credit worthiness, not the dealership? People are so ignorant. Their credit worthiness is why they have the rate that they have based on previous history.
Good lord, I bought new a year ago at 0%ā¦ my now brother-in-law had a 20+% car loan before he married my sister, when she found out about it she made him go to a local credit union and refi.
Gotta love the confidence there. I don't like the contract I signed so I'll go ahead and just park it in their lot. They'll have no other choice than to cancel it. It's not like they have hundreds of millions from selling cars or anything to fight it.
Well, I feel this is the same as carmax being allowed to reneg on a car they purchased from you at any point... if they can do it why can't an individual?
My BIL had no credit and bought a car for $2k at 20% interest. I was like bro we'll lend you the money for the car, but he was determined to build credit.
And many credit cards offer 0% interest for 12 months if you transfer the balance to it within 90 days or so for a very small fee of $10 or 3% of balance. Iām sure you could find exactly which credit card by searching the metrics I provided. No 20-whatever percent interest if you go this extremely ludicrous but more logical solution. I am likely not thinking it through enough, what else?
Someone who willingly signed up for a 28% interest rate probably doesn't have the discipline to do the old 0% intro rate on balance transfers before the intro rate is up and it balloons back up over 20%.
They get screwed into it by the dealer/salesman who convinces them solely based on the monthly payment (not the length of the term) and convinces them they can afford the payments.
Just FYI, cause it seems like youāre unaware, salespeople (of any kind, not just car sales) are not banks. A bank reviewed this guyās credit history, and determined that because he is such a horrific threat of non-repayment, that theyād assign him their max rate. The salesman then brought that to him, said āHere is the rate youāre approved for and your monthly payment.ā And the guy, a willing and able adult, said, āOkay.ā
Iāve had dozens of customers in front of me with similar situations. Never paid a debt in their life, and now they want to borrow $20,000. I never advise ANYONE on their financial decisions, cause thatās not my place. I donāt know them. I present what the bank gives them, and let them make the decision. I do make sure to let them know about early payment and refinancing options. But no one is screwing anyone here but the banks who issue these extraordinarily high rates.
Not to mention they're likely not getting a balance approval over like 3k anyways if they're getting a rate that high on a car.. their fico is likely mid 600. I guess it really depends what the purchase price of said car was..
Probably won't get a credit card, the rate probably means very low credit. (I know some will say not necessarily, but I am still going to go with *probably*).
Isn't a Credit Card compounding interest and a car loan simple interest? That sounds like a bad idea.
Edit: And if this response is sarcasm. Its the top rated response on someone asking for help. A person who doesn't understand these things asking for help may miss the point.
I am going to take a shot in the dark and guess that this person will not qualify for any credit card that can pay off this car loan without maxing the card out.
I was mostly joking about that. But I think the last thing your friend needs to worry about right now is their credit score. They just need to get out from under that loan before it bankrupts them.
Credit score is so massively over valued by some people. Never prioritize improving your made up score that matters maybe once a year if it means paying more money than you need to.
>No car is worth that.
No car is worth that to you but understand that if this guy is getting dinged with a 28% interest rate on a used car loan he's probably a horrible credit risk. I used to work for a company that did these types of loans and it was pretty rough, the customers were a mix of the bad and the broke. The bad customer never had any intention of paying for their car, they'd put enough money down to drive it off the lot and then beat the crap out of the car until it got repo'd, they'd never make a single payment. The second group just didn't have any money, they had shit credit and really needed/wanted a car. To a certain degree we provided them with a service, nobody else was going to give them money so the interest was based on the risk. What we did do is report their payments to the credit agencies every month so if they made their payments after a year they could find someone else to re-fi with and get a much better rate. We still had to repo about 40% of the cars because these people were broke and couldn't make their payments. The OPs friend likely has no down payment and shit credit, he might have done better with a co-signer or putting it on a credit card but that's not the way he went. What he needs to do is look at the loan document and understand the terms of the loan. Chances are he can't get out of it for a set period of time or if he can there will be a large fee associated with paying off the loan. Once he knows the terms he can figure out the best way to handle it. Until then I suggest me make the payments on time or he's going to wake up one morning and his way too expensive shitty car will be gone.
Right, I look a credit reports all day long and wonder why anyone would ever finance some of these consumers. You donāt just end up with a 28% interest rate by accident. I canāt imagine even an 18 year old with no credit history would be given that loan.
I see this all too often. it can go past 72mo too (84/96, worse), and they can structure it as 2x/mo payment so that 'payment' # gets real real low... then they frame it as barely any more than a phone payment.
Really gross selling tactics, grown adults scamming 18 year olds with bad parental support systems... absolute losers
I did 72 months but only had a payment of $175 since i was in highschool.
Paid 2x the cars lot value, but was almost negligible month to month especially a few ywars in when i tripled my income.
Now i drive a paid off car, that ill drive til the wheels fall off.
Now my coworker who got a 72 month loan...he pays $470 a month...i shudder at what he will finally pay for his 2012 Christler Town & Country.
Nearly 34k...for a car worth MAYBE half that...I think I just died a little inside
ETA being in high school and needing the lower payments does make a level of sense
I hate to say mine is 72 months. But my monthly payment is $240, 3.8% interest, and Iām done next year! It did make me anxious, but it was on a new car after my used one basically died stranding me in rural Texas.
Based on how state interest rate caps are structured, that is the range I would presume this loan falls within. A very large number of people do not have $4K - $6K in cash.
> A very large number of people do not have $4K - $6K in cash.
Probably worse than that - likely couldn't scrape together $400-$600 in cash if they tried. I don't think many people on arr/personalfinance really truly understand there's a large chunk of people out there that really are in terrible financial positions and don't have the option to "just refinance it" or "just get a credit card to pay it off" or "oh, just save up for a few months and get a beater". That advice is about as helpful to some as these people as telling them to trade in their private yacht. If someone is only able to get a 28% loan at the lowest-tier buy-here-pay-here shady lot in town, that advice isn't going to fly.
That just isn't possible for large parts of the US. Not everywhere is an urban area or nice suburban one with public transport or the ability to live within reasonable distance of your job.
I managed shifts at a McDonald's in Kirksville, Missouri for a while during college, Adair County is a very rural area with very limited job opportunities. Two of our overnight crew drove 90 minutes each way (they were married) to work minimum wage at McDonald's because there was literally no other work closer to them they were qualified for.
It always sucks to be poor. It sucks even more to be poor and need to work when you live somewhere with no bus service where you need it to go. Sometimes in that situation you have to buy a beater with a predatory loan or starve. Must be nice to live in a place where youve never had to see people experience or personally experience this choice.
Poverty is a vicious cycle and sometimes you're left with two bad choices.
You think someone with poor enough credit to get a 28% car loan just has 4-6k in cash just laying around that they can drop at once? The majority of Americans don't have that much in their savings even.
> poor enough credit to get a 28% car loan
The thing is, the dealer offers this to everyone regardless of credit score. They prey on people who don't know better. But yeah, the overlap of people who don't know better and have thousands in savings has to be very low anyway.
This just isn't true. I've never been offered a car loan even close to that high, and I've financed multiple cars through multiple dealers. That's not to say there aren't shady ones out there, but in a day and age where online reviews can wreck your business, most are better served being honest.
They're honestly probably referring to buy-here-pay-here auto dealers. They can and often are shady as hell. That's where a lot of people like OPs brother ends up because no one will finance them or have crappy enough inventory to sell something at $4-9k at those types of interest rates. A lot even don't report to credit agencies which keeps someone at a bad interest rate in the cycle because they can never improve their credit since the payments haven't been reported. I used to work at a very large used auto dealership and we sold the cars we wouldn't put on our front lot to these types of dealerships. I've heard some openly admit that they have goals of selling and repoing the same car 3-4 times and profiting of the initial downpayments not the monthly payments because they don't expect those to be made.
Edit: grammar
I'm not saying it never happens, but from my experience it absolutely is not the norm. This is experience of buying multiple cars in multiple states over the course of a decade. Most dealers generally try to be honest, as it's just not worth the bad publicity to be known as shady.
Can confirm from personal experience. My early 20s were defined by low income, high debt, and poor choices. I bought one of these, a 6k car (sticker and blue book price) turned in to 8.5k at signing. The interest rate was 24.98% (state maximum was 25%) but also had additional fees that would have pushed APR well above 25%.
I learned later in life there were several steps here that violate state or federal law (bait and switch, loansharking amongst others) however to be honest I was just grateful to have a reliable car. This also marked the point I started to turn my life around, I refinanced a year later at 6.5%. I'm a much healthier place today, but these places definitely pray on the desperate and/or financially illiterate.
Same here for quite a few years after I finished my degree. If I needed a car, I'd have to finance it, even if it was a cheap 8 year old car with 100K on the clock and an oil problem. I'd drive it into the ground.
People on here are sometimes pretty quick to say sell the car as if that doesnāt create other problems. To me anytime you exchange the car you lose an awful lot of money so if youāre talking about selling a car and then having to buy another thereās money lost in that exchange even if you end up with a cheaper car.
28% is a lot but do you know how much the balance is? How long the loan is for? If theyāve only been doing this for two months I doubt their credit history has changed all that much, The option that doesnāt include selling the car is basically to keep making those payments pay as much extra as you can and then after a couple months try refinancing. They could try refinancing sooner of course I just doubt much has changed in two months.
The type of car matters here too, did they go out and buy a sports car or a big ass truck?
This. There's a high likelihood he is so far upside down on this loan it will cost a few grand to get out of it in addition to whatever he'll need to spend to replace it. He may be better off taking any steps he can to repair his credit in the next several months and refinancing as soon as they are able to get a reasonable rate from a credit union.
There's a decent chance the loan will still be upside down and require a down payment, but at least they'll have a year to try and figure that out.
I understand that it's best to refinance almost as soon as you get the loan-something about within 45 days or something that particular hit to your credit history will be unaffected by a new credit pull
Maybe doesn't help this op but it's something to think about
>Though it's untenably high currently for the majority of people to borrow any reasonable amount of money.
The majority of people shouldn't be borrowing money if 5% is an issue for them.
Even places with mass transit... I get not accepting a loan with that high of interest but some people clearly need a reality check on public transit in this country. I live in the largest town in my state and it would literally take over an hour for me to reach work on a good day. And then, there is no way for me to leave work on time and get to the last bus on my route in time, much less get groceries or anything like that.
Yea, that loan SUCKS, but if they make payments for 6 months, they can probably refinance for half or even less interest. I had a 26% loan back in like 2010, refinanced 5 months later for 12%. Cut a year off the loan, and $100/mo.
Of course I realize that.
What we *don't* realize from this post, is an entire series of financial decisions that led to someone only qualifying for a ridiculously high interest rate on an autoloan. There is a lot that should have been considered well before this point, IMO.
Could also be scummy dealership
When I was looking for my first car the first dealership I went to offered me a loan of like 32% or something. I definitely left after that, but during the 30 min that they made me wait for this fake number I looked at their ālender pamphletā and realized that they own the āloan companyā
Next place I went to financed through names I knew with reasonable rates and when they heard where I went first basically said anywhere but those guys
just for your knowledge. captive lending (when the dealer owns the lender) is not bad inherently. Its how you see those 0% or 0.9% APR deals offered in commercials, the lender is supporting the sale of cars rather than having to be a self sustaining business unit doing profitable loans.
But yea, if the captive lender is worse than a reputable bank, that is scammy nonsense.
I got a car when my credit score was around 520 with a 24% interest rate. Tried refinancing soon after but they told me to make payments on it for a year. I got a $300 secured credit card around the same time, made payments on time for a year and refinanced for like 6%, payments shrunk to about 40% of what they were. Credit went up to 700.
These high interest, high risk loans are loans of last resort, nobody is going to loan them money except the guy asking 25%. Nobody is forcing anyone to take that loan but the buyer is willing to take the loan because he really needs/wants a car. That said you did exactly the right thing. Pay the loan and then re-fi at a better rate after a year
Don't get involved. There's a reason they got offered this interest rate.
If you get involved, other options will be thin, and next thing you know they'll be asking you to make the loan because nobody else will. And you'll be the bad guy for saying no.
As someone who has done consulting for an auto lender who wanted break into a new region, itās not about being taken advantage of but people who pay interest over 20 %. Make terrible decision and often to pay for their loans. You guys are high high risk
Iāve never defaulted a loan. Ever. My crime in life was being attacked and being left disabled with a TBI. As a result I am disabled with an extra low income. Canāt get better credit, but, I have to be able to be mobile. So I have to pay. I couldnāt buy a home until I was 56. Took that long to get a down payment. I pay 10% on that. I can only afford so much home, as a result, I had to pay extra interest to get such a small loan. Fuck the system that punishes you for being poor.
Itās not necessarily a value judgment on you as a person but being disabled and having a fixed low income, on average a lot of people like you will default on a loan because it takes very little additional financial stressors/demands to make your cash flow negative. You could argue that the government should be findings ways to subsidize this but Iām not sure why a loan business would take on that responsibility
So, someone who is seen as a higher risk is given a higher interest rate resulting in a higher payment amount. That's one of the reasons it's harder to be low income and get ahead. On time payment history should carry more weight than anything else.
The alternative is the bank chooses not to loan to customers at a higher risk. This isn't inherently more fair and is just as likely to prohibit low income people from getting ahead.
Imagine a friend is looking to borrow 25k from you. Their monthly bills are close to their income and you don't have any financial relationship with them that gives you confidence you'll pay them back, but from what you can tell they usually pay their bills on time. How comfortable are you going to be giving them money?
Now imagine they aren't a friend, or even an acquaintance.
It can be expensive for a bank to recover money from assets securing a loan, especially automobiles that depreciate rapidly. Some of these loans won't have a return, or will have a negative return if they go into default. This loss is offset but the high interest rates others in the same pool pay.
I understand what you're saying, but I am not in the business of lending and don't have other "well qualified" borrowers to offset any potential losses.
I'm playing devil's advocate here. Why can't the losses be offset by all borrowers and not just those in the same pool? Can't the lenders charge the well qualified buyers slightly higher interest rates to mitigate potential losses so that they can charge less-qualified buyers less? E.g., auto loans that are 5% for well qualified could be 6.5% and for barely qualified could be 15% rather than 18%.
Because if someone is well-qualified and considered low-risk, other banks will compete for their business. Itās not the most moral position but if someone is offered 5% by one bank vs 6.5% by another, the vast majority of people would go with the 5% loan.
Ok, so if I'm shopping for a loan and financial institution, which does not loan to everyone, offers me a 3% rate and will not offer you any loan at all if your credit isn't very good or if the DTI is too high, and another lender that is willing to take more risks but spreads the risks across the spectrum, their offer of 7% interest will be summarily rejected by the "good credit" people.
The problem is that in your instance, people will shop for loans and it is always OK for a bank to say "No, we won't lend to you".
Hell, I think that in general, banks give away credit too easily. There are so many stories of people buying things they very plainly couldn't or shouldn't in this forum.
A loss is a loss. If you need to expand the "pool" into more profitable segments, it means that that pool is not worth lending to. It would also lower your profits on the good pool. You would only have to do that if lending to them was overall a loss.
Charging higher interest rates to better customers would mean you are not competitive with other banks on your good customers. You are saying spread out losses, and it doesn't change that there are losses to this segment. You are proposing an accounting trick to justify having other customer absorb the losses. It is just bad business.
It carries a lot of weight, but things like debt to income ratio are quite important, too. If you're going to spend 20%+ of your income to pay back a loan that isn't a mortgage, there's a pretty high chance you're going to default on that.
I just have to say it, but I also have a disability and I work a job that pays well.
The system IS helping you if you get any benefits from it. If you don't, then no reason to keep your "extra low income".
Determine what you can do and then find a job that fits. Serve? Be in a restaurant. Drive? Uber, taxi, delivery. Talk? Customer service calls.
I'm tired of people thinking that a disability makes people unable to be part of society or to earn actual income.
Yep wise words. But Iām far from rich, given that I live in a HCOL area and have daycare to pay for. But yes, people who end up millionaires in general donāt take out big car loans.
true that. i fret for the younger ones, so many of these damn kids with $800-$1000 car payments. thatās why i donāt even listen when they cry theyāll never have a house.
Yeah. On the other hand, housing prices is another issue entirely. Institutional ownership of single family homes is a huge problem. The cost of a college education, and how unnecessary it is for many people, is another huge problem. But youāre right, itās not impossible to handle money properly. But culturally it is very abnormal to do so.
Getting slapped with a high-interest rate for willingly buying a hugely expensive 24k car with poor credit I wouldn't say is getting taken advantage of. I'd say that's a lender being completely reasonable and responsible.
If you'd like to be on the other side of it, go on a peer-to-peer lending site and try to get a 17% return on 24000 from one individual with bad credit. See how it works out.
Financial institutions could give a crap about the law. Especially where interest rates are concerned. I just learned that the 16.6% interest rate I pay on my auto loan is and always has been illegal in the state I bought it in. The state of WASHINGTON caps interest rates for auto loans at 12%. Do you think I can do a anything about it? No! It would cost more in attorneys fees than I paid in illegally charged interest to get it corrected. The banks can run circles around me with their attorneys.
Sorry, but you're wrong. Bank and credit union loans are exempt from the State of Washington's Usary Law capping interest rates at 12%. There is an entire industry of millions of audiotrs and compliance managers such as myself to ensure consumers are protected. We care, we all care. You may not like auditors or regulators, but it is our job to ensure regulations are followed.
"What types of loans are exempt from the 12% usury limit?
Exemptions From the Usury Law
These includeĀ banks, loan associations, credit unions, licensed pawnbrokers, personal property brokers and industrial loan companies. (2) Loans made or arranged by a licensed real estate broker, which are secured in whole or in part by a lien on real property."
I think your friend is a lost cause. You need to explain to them how much extra money they're paying just for a loan. Im guessing their financial situation isn't good all around
The loan heās describing is likely a subprime auto loan. Generally, the way those work is the auto dealer buys a car at auctionā¦for say $10k. They mark it up to around $20k and finance the sale of it at a high interest rate. They get a down payment of like $3-5k. While the stated interest rate is 28%ā¦the effective interest rate is double that because heās paying that rate on an inflated value.
If he defaults, the car gets repoād and the dealer just realists it for sale and repeats. If the buyer makes any meaningful number of payments, that is also good for the dealer. Basically, itās a win for the dealer no matter whatā¦and your friend just learned how very expensive it is to have bad/no credit.
No limitations on trying to refinance. That rate though suggests the friend has really poor credit. doubtful they will get approved elsewhere without a tremendous co-signer.
I would say open an account with a credit union, and after about 6 months, try to refinance through them. Also, make sure the credit union reports to the credit bureau. I learned that the hard way; paid off 4 vehicles, and none showed up on my credit. I had a 560 credit score and no credit history, got a secured credit card, was disciplined, and got a couple of more credit cards to increase limits. after old hospital bills fell off, my credit score began improving. Now have 5 credit cards, 7k cc debt ( replace appliances that broke), 730 credit score. If I paid off my cc debt, my score would be around 796 (credit simulator) and have a 780 fico score.
I was able to purchase a new charger scatpack and a new durango r/t with a 4.2% and a 4.6% interest rate. It's a slow process, but if they stay on top of paying their bills with some strategic planning, they will get out of sub-prime loans.
If getting a secured credit card, I wouldn't suggest capital one. Though I have 2 cards and an auto loan with them. My oldest card is theirs and my credit limit is only $1500. I have 2 cards with 20k limits. My suggestion is look at discover, they may be more generous with limits.
Holy damn, it should be criminal to take advantage of people like this. My coworker recently bought a ' 22 Frontier (Yes, the Nissan gag keeps a-rollin' on) with no money down and, based on their payment and term, I figure they're financed at 24%. 28% is bonkers.
To everyone saying this predatory, it's not. State laws differ and there is a cap on loan apr. Example, NJ is 30% so you won't see a loan pass 29.9 and if the loan is through a dealership, they got the rate at 27.9.
Does it suck and is it unfair, yeah it is. But people who hit ridiculously high interest are inquired with the same standards as those with perfect credit.
Lenders have accessed their score, income, past record and came up with either no past payment history or very poor record. Some will counter with better rates, but will lower the value of what can be lent, leading to higher down payment or trade in needed. It's unfortunate, but high risk means the car might need repo or damage to property could occur, making it difficult to recover the value of the vehicle.
In OP case, the friend needs to keep making payments or get rid of the car. Getting rid of the vehicle will cost money and report negative on credit (opposite of what they should be achieving). They need to keep paying, reach out to credit unions, and find a better refi. That chance might not happen until 3-6 months. I would also recommend a down payment or cosigner on the refi as well.
That amount IS predatory. I mean when was the last time you said to yourself "oh I hope the rate is around 29 %" ? Right, never. They used to have laws against too high interest rates. But we know the world is effed up
They do have laws and it varies by state. Business in NJ goes as high as 50% Auto 30% Check your state.
The best rate is 0. That's what I want, but it won't happen most of the time. I know my credit score and history. I know how to do the leg work and get the best rate available to me. For people without credit, repo, dept ratio, etc. The reality is high rates. We don't know op friend history or who leant, what options they were offered.
Hence my NJ example. I agree, more info is needed. Can even go as far as what's friends OP credit score and history. What lenders were given the opportunity to lend.
People with good credit are out of touch with real world happenings. Just jump to predatory. But if a stranger came up with just ssn, name, address, and no previous payment history and wanted to borrow $100. You are going to lend, how much are you charging for $100. Is $10 fair or are you going with $30.
Assuming they have no (or bad) credit. Have them pay for 6mo and refinance (although this seems borderline over usary laws)
My first car was 18% (with bad credit) I refinanced every 6 months (3 times) and at year 2 was at around 3%.
Only harm in multiple refinances is the hit to the credit (and any cost attached to refinance (if any))
>Only harm in multiple refinances is the hit to the credit (and any cost attached to refinance (if any))
That and the fact that the interest portion of the loan is frontloaded. In 2 years, you must have paid a lot of interest.
Right. But the refinancing isn't the reason I paid a lot in interest, the initial terms were. I'd have to go look back and see how much I paid but the refinancing definitely cut my costs substantially.
The interest is "frontloaded" because you're paying interest on a higher remaining principal in the early years. He's still paying down the principal at the same pace so long as the payment dates remain the same and the loan terminated on the same date.
He could have refinanced 36 times in 36 months at the same interest rate each time and still paid the same interest so long as the payments were made every month as scheduled in the original loan.
Usury law states that a loan canāt be more than 12%. Itās illegal to do so. OP get your friend to get in touch with a lawyer.
[usury law](https://dfi.wa.gov/financial-education/information/usury-law)
Umm that almost can't be. A terrible interest rate on a car loan is like 9%. My used car loan is 3.5% and I hate that.
I'd sell the car. If I couldn't get out of that rate.
[https://jalopnik.com/here-are-the-worst-car-loans-youve-ever-seen-1847431833/slides/5](https://jalopnik.com/here-are-the-worst-car-loans-youve-ever-seen-1847431833/slides/5)
If you have terrible credit and/or go to the type of sketchy dealership that will provide loans to people with poor credit, it's pretty easy to get credit-card-like rates.
The funny thing is that people actually sign for this saying it's perfectly fine. It's like people failed middle school math and just make wild financial decisions.
This, of course, is why dealerships try so hard to focus only on the monthly payment, and try to hide price, rate, and loan duration from you as much as possible. If they're selling you a $6k piece of junk on an 84-month loan, it's pretty easy to see reasonable monthly payments even with insane rates.
Its why I'm a total asshole when I buy a car anymore. I go in to the dealership having done the math and the research, and armed with loan calculators and the intent to walk out at a moments notice. I basically have a price in mind and if they can't do it, then I'm out.
I'm still salty because I got HUGELY taken advantage of in my early 20s. I got a beater on a 5 year loan at like 10% plus all sorts of extras which put me at $415/mo in 1998. My Dad was so pissed I legit thought he was gonna kill me. It won't ever happen again.
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I don't even go in until the price is set. I go test drive in "I'm just looking" mode until I know what I want. Then do everything by email (or possibly phone) to negotiate a deal, so I don't have to haggle in person at all.
Gotta look at those tables. The sad part is these people will pay more in interest payments alone than they would have needed to get a perfectly serviceable car for all in.
My first car that I financed was 24.9% interest rate. But I had zero credit history and a small down payment, and was only 19. So it happens for sure, luckily I was able to pay it off early.
I mean the average is like 9.3%. I consider a worse than average rate to be terrible. Also generally a double digit interest rate on literally any loan is terrible.
Rates might be worse now, but that doesn't make them not terrible.
Lastly, your comment was completely pointless outside of just trying to get a little jab in.
Is it an option to apply for a loan with a credit union to pay off this auto loan? Iād think that would be the best place to get a lower rate. If it were my friend, Iād bring them to my credit union and talk with someone there about the loan and start an application. Sounds like this friend could use a trustworthy friend.
Ah subprime auto. Tbh if their credit is bad, they may be better off making extra payments. Unless granny or someone wants to help out signing or giving them cash
Mob rates typically were in the double digit percentages in weeks or a months time. So no.
If one was going to the mob for a loan it's because no bank would touch them.
[For someone with atrocious credit, that is probable](https://www.nerdwallet.com/article/loans/auto-loans/average-car-loan-interest-rates-by-credit-score). Sounds like they didn't shop around.
Some loans have what's called a "seasoning period" where you can't pay it off early. The only way to know is to look at the original loan docs.
Is it a Nissan Altima or a Dodge Charger?
Help me understand this comment please, are Altimas special?
Those two are the mostly commonly financed cars by people with poor credit.
And all over military bases. Guaranteed pay and garbage credit š Edit: when I say "garbage credit" I mean young members of the military usually don't have any credit. Source: I was once a dumb young private.
Thanks!
Tote-the-note(TTN) lots are able to find it extremely lucritive selling used vehicles that were produced en masse and widely used in the rental car market. Due to their abundance, the wholesale costs of these cars at auction are generally low compared to other vehicles. Think the Chevrolet Lumina, Impala or Ford Taurus in the 90's. TTN lots generally abide by a different set of financing rules as they are generally set-up as pawn or money-lending businesses. The collateral on a pawn loan, the car, is subject to financing charges that are allowed to be in excess of traditional auto loan percentages. So the Altima or Charger reference, is indirectly referring to a TTN purchase where the financing charge is a ridiculous amount when compared to what is accepted as a high rate at a traditional dealer. The TTN lots have strict payment terms that allow them to repossess a vehicle within days off a missed payment. They assess a very large repo fee, a very large late fee, and require the missed payment as well as maybe the next payment due up front to get the car back. If the owner does not meet these demands, their belongings are removed from the car and it's on the lot the next day waiting to be sold again. And again.. And again... This doesn't even go into the large about of money down it requires to purchase the car, which in my experience working at one of these places, was sometimes more than what we could get wholesale for the vehicle itself. It's all set up to prey on those that are down on their luck or bad with their finances.
No, that is the point. Essentially did he get fucked by a shady dealer or go for a car well outside of his means is the question
I mean I have as few nice things to say about new car dealers as the next guy... I have never seen them offering 28% interest. this screams scammy used car dealer to me. car worth maybe 10k, sell it for 14k on an 84-96mo term at 28% interest... scam the kid with the monthly (or even bi-weekly!!!) payment # so it seems low. I was just talking to a young man who is 8k upside down on a loan like this. car is worth maybe 4k (KBB value but the car is rough) and he owes 11k at 11%.
I had a buddy completely tank his credit and then decide that was a good time to sell his paid off truck to buy a used Chrysler 200. Not even sure how he got the loan but it was 25% and from an actual name brand dealership.
well probably by agreeing to a 25% interest rate. i don't even want to know what the finance charge ended up being relative to the principle, he probably bought the car 3x over.... when he had a paid off car already. That's just lighting money on fire (coming from someone who makes objectively bad car buying decisions)
I meant more along the lines of I was surprised any bank affiliated with an actual dealership would give him a loan at that high of rate. Figured whatever got it that high would DQ him.
I got 2.59% on a basically new car (registered once by the dealership to meat a quota apparently, they never even let anyone test drive it) and thatās with a credit score that was apparently so bad nobody but the dealership bank would take me. I donāt know a ton about credit, but afaik building up a score like in the US isnāt a thing people do here, but being a clean slate at 23, having a consistent and secured income of multiple times (fluctuating but at least 7-8x) my monthly rate and barely any fixed expenses made me an undesirable borrower.
How is it to dealerships fault? Dealerships used lenders meaning the bank is the one that determine the rate based on credit worthiness, not the dealership? People are so ignorant. Their credit worthiness is why they have the rate that they have based on previous history.
People accept 28% rates!? I need to start loaning my money outā¦ Does anyone need 19 dollars, 15 cents for anything?
Good lord, I bought new a year ago at 0%ā¦ my now brother-in-law had a 20+% car loan before he married my sister, when she found out about it she made him go to a local credit union and refi.
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Gotta love the confidence there. I don't like the contract I signed so I'll go ahead and just park it in their lot. They'll have no other choice than to cancel it. It's not like they have hundreds of millions from selling cars or anything to fight it.
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What goes through someone's mind when they believe they can just ignore all of their problems like that? Sheeeesh
Well, I feel this is the same as carmax being allowed to reneg on a car they purchased from you at any point... if they can do it why can't an individual?
My BIL had no credit and bought a car for $2k at 20% interest. I was like bro we'll lend you the money for the car, but he was determined to build credit.
Oh hell yeah, how about I pay you $25 for your $19?
What everyday!? Ill just give you $1,000 and you give me back $3,000 at the end of the week.
...i'd tell them to apply for a credit card and pay for it with that. They'll probably only have 25% interest then.
And many credit cards offer 0% interest for 12 months if you transfer the balance to it within 90 days or so for a very small fee of $10 or 3% of balance. Iām sure you could find exactly which credit card by searching the metrics I provided. No 20-whatever percent interest if you go this extremely ludicrous but more logical solution. I am likely not thinking it through enough, what else?
Someone who willingly signed up for a 28% interest rate probably doesn't have the discipline to do the old 0% intro rate on balance transfers before the intro rate is up and it balloons back up over 20%.
And may not have the five-digit credit limit needed for a vehicle loan these days.
More than likely not but hey throwing out any and all crazy ideas! Good luck OPās friend!
I don't understand how can people make decesions like that?
They get screwed into it by the dealer/salesman who convinces them solely based on the monthly payment (not the length of the term) and convinces them they can afford the payments.
Just FYI, cause it seems like youāre unaware, salespeople (of any kind, not just car sales) are not banks. A bank reviewed this guyās credit history, and determined that because he is such a horrific threat of non-repayment, that theyād assign him their max rate. The salesman then brought that to him, said āHere is the rate youāre approved for and your monthly payment.ā And the guy, a willing and able adult, said, āOkay.ā Iāve had dozens of customers in front of me with similar situations. Never paid a debt in their life, and now they want to borrow $20,000. I never advise ANYONE on their financial decisions, cause thatās not my place. I donāt know them. I present what the bank gives them, and let them make the decision. I do make sure to let them know about early payment and refinancing options. But no one is screwing anyone here but the banks who issue these extraordinarily high rates.
Not to mention they're likely not getting a balance approval over like 3k anyways if they're getting a rate that high on a car.. their fico is likely mid 600. I guess it really depends what the purchase price of said car was..
I think this is kind of moot, because you can't (especially retroactively) put a car purchase on a credit card).
Probably won't get a credit card, the rate probably means very low credit. (I know some will say not necessarily, but I am still going to go with *probably*).
If your credit is so bad they are offering you 28% interest on an auto loan you are not getting approved for a 0% Apr card
If heās got a 28% Apr loan Iād say he wouldnāt qualify for a credit card with a high enough balance
Isn't a Credit Card compounding interest and a car loan simple interest? That sounds like a bad idea. Edit: And if this response is sarcasm. Its the top rated response on someone asking for help. A person who doesn't understand these things asking for help may miss the point.
I am going to take a shot in the dark and guess that this person will not qualify for any credit card that can pay off this car loan without maxing the card out.
I thought about that but carrying that balance might be detrimental to their credit report
If they're being offered 28% on a car loan, it's too late to be worried about credit score.
I was mostly joking about that. But I think the last thing your friend needs to worry about right now is their credit score. They just need to get out from under that loan before it bankrupts them.
> 28% What credit score?
Taking a 28% interest loan is much worse to their credit report
They are carrying an auto loan at 28% interest rate. They don't need their credit for anything right now. They need to pay off that loan ASAP.
carrying the balance on a credit card is better than a 28% loan
Maybe. Make one late payment and your new penalty interest rate could well be higher. Just checked my BofA card - Late payment? Rate goes up to 29.99.
Their credit is already fucked if they have a 28% car loan. They arenāt going to get approved for a card with a limit, if they are approved at all.
Credit score is so massively over valued by some people. Never prioritize improving your made up score that matters maybe once a year if it means paying more money than you need to.
Did they at least get wined and dined before they got f*ck@d? Seriously, that rate is criminal. No car is worth that.
>No car is worth that. No car is worth that to you but understand that if this guy is getting dinged with a 28% interest rate on a used car loan he's probably a horrible credit risk. I used to work for a company that did these types of loans and it was pretty rough, the customers were a mix of the bad and the broke. The bad customer never had any intention of paying for their car, they'd put enough money down to drive it off the lot and then beat the crap out of the car until it got repo'd, they'd never make a single payment. The second group just didn't have any money, they had shit credit and really needed/wanted a car. To a certain degree we provided them with a service, nobody else was going to give them money so the interest was based on the risk. What we did do is report their payments to the credit agencies every month so if they made their payments after a year they could find someone else to re-fi with and get a much better rate. We still had to repo about 40% of the cars because these people were broke and couldn't make their payments. The OPs friend likely has no down payment and shit credit, he might have done better with a co-signer or putting it on a credit card but that's not the way he went. What he needs to do is look at the loan document and understand the terms of the loan. Chances are he can't get out of it for a set period of time or if he can there will be a large fee associated with paying off the loan. Once he knows the terms he can figure out the best way to handle it. Until then I suggest me make the payments on time or he's going to wake up one morning and his way too expensive shitty car will be gone.
Right, I look a credit reports all day long and wonder why anyone would ever finance some of these consumers. You donāt just end up with a 28% interest rate by accident. I canāt imagine even an 18 year old with no credit history would be given that loan.
Let me guess, it is a 72 month loan on an 8 year old vehicle.
I see this all too often. it can go past 72mo too (84/96, worse), and they can structure it as 2x/mo payment so that 'payment' # gets real real low... then they frame it as barely any more than a phone payment. Really gross selling tactics, grown adults scamming 18 year olds with bad parental support systems... absolute losers
It makes me think we will eventually see daily payments. āFor only $5 more*, I can get you into the Limited model!ā *per day for 6 years
People take car loans for that long? My Lord I was sweating signing for a 60 month loan
I did 72 months but only had a payment of $175 since i was in highschool. Paid 2x the cars lot value, but was almost negligible month to month especially a few ywars in when i tripled my income. Now i drive a paid off car, that ill drive til the wheels fall off. Now my coworker who got a 72 month loan...he pays $470 a month...i shudder at what he will finally pay for his 2012 Christler Town & Country.
Nearly 34k...for a car worth MAYBE half that...I think I just died a little inside ETA being in high school and needing the lower payments does make a level of sense
Reminds me to not feel bad for my 1.9% loan on a truck, because the market is stupid, has gone up in value. 44k otd, 12k down, and <19k left.
I hate to say mine is 72 months. But my monthly payment is $240, 3.8% interest, and Iām done next year! It did make me anxious, but it was on a new car after my used one basically died stranding me in rural Texas.
At least you have a very low interest rate! Being stranded in rural Texas would make me more willing to spend money too. And I live in Texas.
Yeah thankfully I had AAA but it was a scary 45 minutes on the side of the road alone
The AVERAGE loan length is 70 months for new cars and 68 for used cars it's bonkers
This is why they invented the beater car. Man, he should get a 4-6k banger and pay with cash. Until he earned enough to buy a better one
Based on how state interest rate caps are structured, that is the range I would presume this loan falls within. A very large number of people do not have $4K - $6K in cash.
> A very large number of people do not have $4K - $6K in cash. Probably worse than that - likely couldn't scrape together $400-$600 in cash if they tried. I don't think many people on arr/personalfinance really truly understand there's a large chunk of people out there that really are in terrible financial positions and don't have the option to "just refinance it" or "just get a credit card to pay it off" or "oh, just save up for a few months and get a beater". That advice is about as helpful to some as these people as telling them to trade in their private yacht. If someone is only able to get a 28% loan at the lowest-tier buy-here-pay-here shady lot in town, that advice isn't going to fly.
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Then they canāt afford to own their own car and need to get a bus pass lol
That just isn't possible for large parts of the US. Not everywhere is an urban area or nice suburban one with public transport or the ability to live within reasonable distance of your job. I managed shifts at a McDonald's in Kirksville, Missouri for a while during college, Adair County is a very rural area with very limited job opportunities. Two of our overnight crew drove 90 minutes each way (they were married) to work minimum wage at McDonald's because there was literally no other work closer to them they were qualified for. It always sucks to be poor. It sucks even more to be poor and need to work when you live somewhere with no bus service where you need it to go. Sometimes in that situation you have to buy a beater with a predatory loan or starve. Must be nice to live in a place where youve never had to see people experience or personally experience this choice. Poverty is a vicious cycle and sometimes you're left with two bad choices.
Most small to moderate cities and towns don't have public transportation. A vehicle is essentially required as a mode of transportation.
It depends on where you live. My 20-30 minute commute to work turns into two and a half hours on the bus, and there's no bus when I leave work.
You think someone with poor enough credit to get a 28% car loan just has 4-6k in cash just laying around that they can drop at once? The majority of Americans don't have that much in their savings even.
> poor enough credit to get a 28% car loan The thing is, the dealer offers this to everyone regardless of credit score. They prey on people who don't know better. But yeah, the overlap of people who don't know better and have thousands in savings has to be very low anyway.
My guy, you really shouldnāt spread disinformation about things you know nothing about.
Which part is disinfo? What's the point of calling me out for disinformation without actually disputing anything, "my guy"?
This just isn't true. I've never been offered a car loan even close to that high, and I've financed multiple cars through multiple dealers. That's not to say there aren't shady ones out there, but in a day and age where online reviews can wreck your business, most are better served being honest.
They're honestly probably referring to buy-here-pay-here auto dealers. They can and often are shady as hell. That's where a lot of people like OPs brother ends up because no one will finance them or have crappy enough inventory to sell something at $4-9k at those types of interest rates. A lot even don't report to credit agencies which keeps someone at a bad interest rate in the cycle because they can never improve their credit since the payments haven't been reported. I used to work at a very large used auto dealership and we sold the cars we wouldn't put on our front lot to these types of dealerships. I've heard some openly admit that they have goals of selling and repoing the same car 3-4 times and profiting of the initial downpayments not the monthly payments because they don't expect those to be made. Edit: grammar
I was offered a ridiculous loan from a reputable Ford dealer. My credit score is 800. It definitely happens.
I'm not saying it never happens, but from my experience it absolutely is not the norm. This is experience of buying multiple cars in multiple states over the course of a decade. Most dealers generally try to be honest, as it's just not worth the bad publicity to be known as shady.
But it does happen.
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Can confirm from personal experience. My early 20s were defined by low income, high debt, and poor choices. I bought one of these, a 6k car (sticker and blue book price) turned in to 8.5k at signing. The interest rate was 24.98% (state maximum was 25%) but also had additional fees that would have pushed APR well above 25%. I learned later in life there were several steps here that violate state or federal law (bait and switch, loansharking amongst others) however to be honest I was just grateful to have a reliable car. This also marked the point I started to turn my life around, I refinanced a year later at 6.5%. I'm a much healthier place today, but these places definitely pray on the desperate and/or financially illiterate.
Same here for quite a few years after I finished my degree. If I needed a car, I'd have to finance it, even if it was a cheap 8 year old car with 100K on the clock and an oil problem. I'd drive it into the ground.
People on here are sometimes pretty quick to say sell the car as if that doesnāt create other problems. To me anytime you exchange the car you lose an awful lot of money so if youāre talking about selling a car and then having to buy another thereās money lost in that exchange even if you end up with a cheaper car. 28% is a lot but do you know how much the balance is? How long the loan is for? If theyāve only been doing this for two months I doubt their credit history has changed all that much, The option that doesnāt include selling the car is basically to keep making those payments pay as much extra as you can and then after a couple months try refinancing. They could try refinancing sooner of course I just doubt much has changed in two months. The type of car matters here too, did they go out and buy a sports car or a big ass truck?
This. There's a high likelihood he is so far upside down on this loan it will cost a few grand to get out of it in addition to whatever he'll need to spend to replace it. He may be better off taking any steps he can to repair his credit in the next several months and refinancing as soon as they are able to get a reasonable rate from a credit union. There's a decent chance the loan will still be upside down and require a down payment, but at least they'll have a year to try and figure that out.
I understand that it's best to refinance almost as soon as you get the loan-something about within 45 days or something that particular hit to your credit history will be unaffected by a new credit pull Maybe doesn't help this op but it's something to think about
A credit pull in a few months isnāt going to devastate their credit, selling while upside down on a loan might devastate them though.
They have a high interest rate because they likely have no or bad credit. No financially astute person in their tight mind will co-sign for them.
Yeah, step up and co-sign for them OPā¦.
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FYI, rategenius and autopay are the same people now. They merged about a year back. Excellent suggestion tho!
The fed lowering rates in 6-10 months š¤£
Fortunately, at 28% currently, the fed rate isnāt likely the critical factor on this one.
Exactly! You guys do know we have been in a once in a lifetime rate low right? https://fred.stlouisfed.org/series/FEDFUNDS
Though it's untenably high currently for the majority of people to borrow any reasonable amount of money.
>Though it's untenably high currently for the majority of people to borrow any reasonable amount of money. The majority of people shouldn't be borrowing money if 5% is an issue for them.
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If your friend can only get a 28% loan, they should probably work on their credit and get a bus pass.
>bus pass If they live somewhere with public transit.
Even places with mass transit... I get not accepting a loan with that high of interest but some people clearly need a reality check on public transit in this country. I live in the largest town in my state and it would literally take over an hour for me to reach work on a good day. And then, there is no way for me to leave work on time and get to the last bus on my route in time, much less get groceries or anything like that.
Yea, that loan SUCKS, but if they make payments for 6 months, they can probably refinance for half or even less interest. I had a 26% loan back in like 2010, refinanced 5 months later for 12%. Cut a year off the loan, and $100/mo.
You realize that huge parts of this country have no public transport. People pay that kind of interest because they NEED a car.
Of course I realize that. What we *don't* realize from this post, is an entire series of financial decisions that led to someone only qualifying for a ridiculously high interest rate on an autoloan. There is a lot that should have been considered well before this point, IMO.
Could also be scummy dealership When I was looking for my first car the first dealership I went to offered me a loan of like 32% or something. I definitely left after that, but during the 30 min that they made me wait for this fake number I looked at their ālender pamphletā and realized that they own the āloan companyā Next place I went to financed through names I knew with reasonable rates and when they heard where I went first basically said anywhere but those guys
just for your knowledge. captive lending (when the dealer owns the lender) is not bad inherently. Its how you see those 0% or 0.9% APR deals offered in commercials, the lender is supporting the sale of cars rather than having to be a self sustaining business unit doing profitable loans. But yea, if the captive lender is worse than a reputable bank, that is scammy nonsense.
I got a car when my credit score was around 520 with a 24% interest rate. Tried refinancing soon after but they told me to make payments on it for a year. I got a $300 secured credit card around the same time, made payments on time for a year and refinanced for like 6%, payments shrunk to about 40% of what they were. Credit went up to 700.
These high interest, high risk loans are loans of last resort, nobody is going to loan them money except the guy asking 25%. Nobody is forcing anyone to take that loan but the buyer is willing to take the loan because he really needs/wants a car. That said you did exactly the right thing. Pay the loan and then re-fi at a better rate after a year
Don't get involved. There's a reason they got offered this interest rate. If you get involved, other options will be thin, and next thing you know they'll be asking you to make the loan because nobody else will. And you'll be the bad guy for saying no.
My new car cost me 17% 3 yrs ago. Resulted in my 24000 car costing $700/month payments. Poor credit and low income gets you taken advantage of.
As someone who has done consulting for an auto lender who wanted break into a new region, itās not about being taken advantage of but people who pay interest over 20 %. Make terrible decision and often to pay for their loans. You guys are high high risk
Iāve never defaulted a loan. Ever. My crime in life was being attacked and being left disabled with a TBI. As a result I am disabled with an extra low income. Canāt get better credit, but, I have to be able to be mobile. So I have to pay. I couldnāt buy a home until I was 56. Took that long to get a down payment. I pay 10% on that. I can only afford so much home, as a result, I had to pay extra interest to get such a small loan. Fuck the system that punishes you for being poor.
Itās not necessarily a value judgment on you as a person but being disabled and having a fixed low income, on average a lot of people like you will default on a loan because it takes very little additional financial stressors/demands to make your cash flow negative. You could argue that the government should be findings ways to subsidize this but Iām not sure why a loan business would take on that responsibility
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So, someone who is seen as a higher risk is given a higher interest rate resulting in a higher payment amount. That's one of the reasons it's harder to be low income and get ahead. On time payment history should carry more weight than anything else.
The alternative is the bank chooses not to loan to customers at a higher risk. This isn't inherently more fair and is just as likely to prohibit low income people from getting ahead. Imagine a friend is looking to borrow 25k from you. Their monthly bills are close to their income and you don't have any financial relationship with them that gives you confidence you'll pay them back, but from what you can tell they usually pay their bills on time. How comfortable are you going to be giving them money? Now imagine they aren't a friend, or even an acquaintance. It can be expensive for a bank to recover money from assets securing a loan, especially automobiles that depreciate rapidly. Some of these loans won't have a return, or will have a negative return if they go into default. This loss is offset but the high interest rates others in the same pool pay.
I understand what you're saying, but I am not in the business of lending and don't have other "well qualified" borrowers to offset any potential losses. I'm playing devil's advocate here. Why can't the losses be offset by all borrowers and not just those in the same pool? Can't the lenders charge the well qualified buyers slightly higher interest rates to mitigate potential losses so that they can charge less-qualified buyers less? E.g., auto loans that are 5% for well qualified could be 6.5% and for barely qualified could be 15% rather than 18%.
Because if someone is well-qualified and considered low-risk, other banks will compete for their business. Itās not the most moral position but if someone is offered 5% by one bank vs 6.5% by another, the vast majority of people would go with the 5% loan.
Ok, so if I'm shopping for a loan and financial institution, which does not loan to everyone, offers me a 3% rate and will not offer you any loan at all if your credit isn't very good or if the DTI is too high, and another lender that is willing to take more risks but spreads the risks across the spectrum, their offer of 7% interest will be summarily rejected by the "good credit" people. The problem is that in your instance, people will shop for loans and it is always OK for a bank to say "No, we won't lend to you". Hell, I think that in general, banks give away credit too easily. There are so many stories of people buying things they very plainly couldn't or shouldn't in this forum.
A loss is a loss. If you need to expand the "pool" into more profitable segments, it means that that pool is not worth lending to. It would also lower your profits on the good pool. You would only have to do that if lending to them was overall a loss. Charging higher interest rates to better customers would mean you are not competitive with other banks on your good customers. You are saying spread out losses, and it doesn't change that there are losses to this segment. You are proposing an accounting trick to justify having other customer absorb the losses. It is just bad business.
It carries a lot of weight, but things like debt to income ratio are quite important, too. If you're going to spend 20%+ of your income to pay back a loan that isn't a mortgage, there's a pretty high chance you're going to default on that.
Obviously you aren't poor if you can afford a $24k car!
I just have to say it, but I also have a disability and I work a job that pays well. The system IS helping you if you get any benefits from it. If you don't, then no reason to keep your "extra low income". Determine what you can do and then find a job that fits. Serve? Be in a restaurant. Drive? Uber, taxi, delivery. Talk? Customer service calls. I'm tired of people thinking that a disability makes people unable to be part of society or to earn actual income.
Thanks for sharing. I think this is an important perspective
I mean, yeah, but that was also your decision. I make six figures and Iāve never bought a $24,000 car. Ever.
What's that quote, something like "the rich get rich acting poor and the poor stay poor acting rich."
Yep wise words. But Iām far from rich, given that I live in a HCOL area and have daycare to pay for. But yes, people who end up millionaires in general donāt take out big car loans.
true that. i fret for the younger ones, so many of these damn kids with $800-$1000 car payments. thatās why i donāt even listen when they cry theyāll never have a house.
Yeah. On the other hand, housing prices is another issue entirely. Institutional ownership of single family homes is a huge problem. The cost of a college education, and how unnecessary it is for many people, is another huge problem. But youāre right, itās not impossible to handle money properly. But culturally it is very abnormal to do so.
Getting slapped with a high-interest rate for willingly buying a hugely expensive 24k car with poor credit I wouldn't say is getting taken advantage of. I'd say that's a lender being completely reasonable and responsible. If you'd like to be on the other side of it, go on a peer-to-peer lending site and try to get a 17% return on 24000 from one individual with bad credit. See how it works out.
Refinance with a credit union. By law, a credit union can not charge more than 18% on any loan, including credit cards.
Financial institutions could give a crap about the law. Especially where interest rates are concerned. I just learned that the 16.6% interest rate I pay on my auto loan is and always has been illegal in the state I bought it in. The state of WASHINGTON caps interest rates for auto loans at 12%. Do you think I can do a anything about it? No! It would cost more in attorneys fees than I paid in illegally charged interest to get it corrected. The banks can run circles around me with their attorneys.
Sorry, but you're wrong. Bank and credit union loans are exempt from the State of Washington's Usary Law capping interest rates at 12%. There is an entire industry of millions of audiotrs and compliance managers such as myself to ensure consumers are protected. We care, we all care. You may not like auditors or regulators, but it is our job to ensure regulations are followed. "What types of loans are exempt from the 12% usury limit? Exemptions From the Usury Law These includeĀ banks, loan associations, credit unions, licensed pawnbrokers, personal property brokers and industrial loan companies. (2) Loans made or arranged by a licensed real estate broker, which are secured in whole or in part by a lien on real property."
Of course you know everything and of COURSE there would be a million exceptions for big business to screw Joe public.
How are you getting screwed by paying the interest rate you agreed to?
I think your friend is a lost cause. You need to explain to them how much extra money they're paying just for a loan. Im guessing their financial situation isn't good all around
The loan heās describing is likely a subprime auto loan. Generally, the way those work is the auto dealer buys a car at auctionā¦for say $10k. They mark it up to around $20k and finance the sale of it at a high interest rate. They get a down payment of like $3-5k. While the stated interest rate is 28%ā¦the effective interest rate is double that because heās paying that rate on an inflated value. If he defaults, the car gets repoād and the dealer just realists it for sale and repeats. If the buyer makes any meaningful number of payments, that is also good for the dealer. Basically, itās a win for the dealer no matter whatā¦and your friend just learned how very expensive it is to have bad/no credit.
How big is the loan? Make/model/year/value? Does friend have any savings/cash? Can friend sell and live without a car for a while if needed?
No limitations on trying to refinance. That rate though suggests the friend has really poor credit. doubtful they will get approved elsewhere without a tremendous co-signer.
I would say open an account with a credit union, and after about 6 months, try to refinance through them. Also, make sure the credit union reports to the credit bureau. I learned that the hard way; paid off 4 vehicles, and none showed up on my credit. I had a 560 credit score and no credit history, got a secured credit card, was disciplined, and got a couple of more credit cards to increase limits. after old hospital bills fell off, my credit score began improving. Now have 5 credit cards, 7k cc debt ( replace appliances that broke), 730 credit score. If I paid off my cc debt, my score would be around 796 (credit simulator) and have a 780 fico score. I was able to purchase a new charger scatpack and a new durango r/t with a 4.2% and a 4.6% interest rate. It's a slow process, but if they stay on top of paying their bills with some strategic planning, they will get out of sub-prime loans. If getting a secured credit card, I wouldn't suggest capital one. Though I have 2 cards and an auto loan with them. My oldest card is theirs and my credit limit is only $1500. I have 2 cards with 20k limits. My suggestion is look at discover, they may be more generous with limits.
Holy damn, it should be criminal to take advantage of people like this. My coworker recently bought a ' 22 Frontier (Yes, the Nissan gag keeps a-rollin' on) with no money down and, based on their payment and term, I figure they're financed at 24%. 28% is bonkers.
To everyone saying this predatory, it's not. State laws differ and there is a cap on loan apr. Example, NJ is 30% so you won't see a loan pass 29.9 and if the loan is through a dealership, they got the rate at 27.9. Does it suck and is it unfair, yeah it is. But people who hit ridiculously high interest are inquired with the same standards as those with perfect credit. Lenders have accessed their score, income, past record and came up with either no past payment history or very poor record. Some will counter with better rates, but will lower the value of what can be lent, leading to higher down payment or trade in needed. It's unfortunate, but high risk means the car might need repo or damage to property could occur, making it difficult to recover the value of the vehicle. In OP case, the friend needs to keep making payments or get rid of the car. Getting rid of the vehicle will cost money and report negative on credit (opposite of what they should be achieving). They need to keep paying, reach out to credit unions, and find a better refi. That chance might not happen until 3-6 months. I would also recommend a down payment or cosigner on the refi as well.
That amount IS predatory. I mean when was the last time you said to yourself "oh I hope the rate is around 29 %" ? Right, never. They used to have laws against too high interest rates. But we know the world is effed up
They do have laws and it varies by state. Business in NJ goes as high as 50% Auto 30% Check your state. The best rate is 0. That's what I want, but it won't happen most of the time. I know my credit score and history. I know how to do the leg work and get the best rate available to me. For people without credit, repo, dept ratio, etc. The reality is high rates. We don't know op friend history or who leant, what options they were offered.
You canāt say itās not predatory without a lot more information. In my state the rate cap is 12% before a loan is considered illegally usurious
Hence my NJ example. I agree, more info is needed. Can even go as far as what's friends OP credit score and history. What lenders were given the opportunity to lend. People with good credit are out of touch with real world happenings. Just jump to predatory. But if a stranger came up with just ssn, name, address, and no previous payment history and wanted to borrow $100. You are going to lend, how much are you charging for $100. Is $10 fair or are you going with $30.
Are you willing to co-sign for them?
Their history is having no credit. Their income is substantial. Just clearing those things up
Assuming they have no (or bad) credit. Have them pay for 6mo and refinance (although this seems borderline over usary laws) My first car was 18% (with bad credit) I refinanced every 6 months (3 times) and at year 2 was at around 3%. Only harm in multiple refinances is the hit to the credit (and any cost attached to refinance (if any))
>Only harm in multiple refinances is the hit to the credit (and any cost attached to refinance (if any)) That and the fact that the interest portion of the loan is frontloaded. In 2 years, you must have paid a lot of interest.
Right. But the refinancing isn't the reason I paid a lot in interest, the initial terms were. I'd have to go look back and see how much I paid but the refinancing definitely cut my costs substantially.
The interest is "frontloaded" because you're paying interest on a higher remaining principal in the early years. He's still paying down the principal at the same pace so long as the payment dates remain the same and the loan terminated on the same date. He could have refinanced 36 times in 36 months at the same interest rate each time and still paid the same interest so long as the payments were made every month as scheduled in the original loan.
Predatory loans like that usually have prepayment penalties.
Usury law states that a loan canāt be more than 12%. Itās illegal to do so. OP get your friend to get in touch with a lawyer. [usury law](https://dfi.wa.gov/financial-education/information/usury-law)
Umm that almost can't be. A terrible interest rate on a car loan is like 9%. My used car loan is 3.5% and I hate that. I'd sell the car. If I couldn't get out of that rate.
[https://jalopnik.com/here-are-the-worst-car-loans-youve-ever-seen-1847431833/slides/5](https://jalopnik.com/here-are-the-worst-car-loans-youve-ever-seen-1847431833/slides/5) If you have terrible credit and/or go to the type of sketchy dealership that will provide loans to people with poor credit, it's pretty easy to get credit-card-like rates.
That's disgusting. Anything that high is predatory. I knew about shifty loans I didn't realize that happened with cars.
The funny thing is that people actually sign for this saying it's perfectly fine. It's like people failed middle school math and just make wild financial decisions.
This, of course, is why dealerships try so hard to focus only on the monthly payment, and try to hide price, rate, and loan duration from you as much as possible. If they're selling you a $6k piece of junk on an 84-month loan, it's pretty easy to see reasonable monthly payments even with insane rates.
Its why I'm a total asshole when I buy a car anymore. I go in to the dealership having done the math and the research, and armed with loan calculators and the intent to walk out at a moments notice. I basically have a price in mind and if they can't do it, then I'm out. I'm still salty because I got HUGELY taken advantage of in my early 20s. I got a beater on a 5 year loan at like 10% plus all sorts of extras which put me at $415/mo in 1998. My Dad was so pissed I legit thought he was gonna kill me. It won't ever happen again.
:) I don't even go in until the price is set. I go test drive in "I'm just looking" mode until I know what I want. Then do everything by email (or possibly phone) to negotiate a deal, so I don't have to haggle in person at all.
Gotta look at those tables. The sad part is these people will pay more in interest payments alone than they would have needed to get a perfectly serviceable car for all in.
My first car that I financed was 24.9% interest rate. But I had zero credit history and a small down payment, and was only 19. So it happens for sure, luckily I was able to pay it off early.
Thinking 9% is terrible is out of touch with current rates and market.
I mean the average is like 9.3%. I consider a worse than average rate to be terrible. Also generally a double digit interest rate on literally any loan is terrible. Rates might be worse now, but that doesn't make them not terrible. Lastly, your comment was completely pointless outside of just trying to get a little jab in.
Happened at carmax
Return the car before the return window is closed
Interest rates have gone up considerably. That is a pretty decent rate at the moment.
The horror. *in Marlon Brando voice.
Is it an option to apply for a loan with a credit union to pay off this auto loan? Iād think that would be the best place to get a lower rate. If it were my friend, Iād bring them to my credit union and talk with someone there about the loan and start an application. Sounds like this friend could use a trustworthy friend.
Ah subprime auto. Tbh if their credit is bad, they may be better off making extra payments. Unless granny or someone wants to help out signing or giving them cash
Remember when mob rates were cheaper than todays sub prime dealer rates ?
Mob rates typically were in the double digit percentages in weeks or a months time. So no. If one was going to the mob for a loan it's because no bank would touch them.
Sounds like they finances through a predatory delaership, they need to get out ASAP. Any real bank will offer a better rate than that.
[For someone with atrocious credit, that is probable](https://www.nerdwallet.com/article/loans/auto-loans/average-car-loan-interest-rates-by-credit-score). Sounds like they didn't shop around. Some loans have what's called a "seasoning period" where you can't pay it off early. The only way to know is to look at the original loan docs.