Ask The Money Coach

Archive for the ‘auto loans’ Category

Becoming the co-signer on a new car loan will not hurt your credit score unless you or your mother fail to meet the terms of the car loan and start to miss payments.  Your email indicated that you already have many charge-offs on your credit records. Therefore, your credit scores are likely to already be very low, which means you will not qualify for a home loan, something else you also asked about.  People who buy their FICO credit scores or subscriber FICO’s credit monitoring service (www.Myfico.com) can get access to an online credit simulator which can show you want actions you need to take to increase your credit scores to qualify for all kinds of loans.

A subscriber had his car voluntarily repossessed but the collection agency still wants more money to settle the debt.  The debt collector wants a lot more than is already shown on his credit report.  The subscriber has already filed bankruptcy once and wants to know his options.  Click now to hear Lynnette’s answer.

Negative information (such as late payments) generally stays on your credit report for seven years. So yes, your credit reports are likely accurate in indicating that in about a year or so, that car repossession – which is already about 5-plus years old – will be deleted from your credit files. If you make a lump sum payment to settle the account, or even make partial or monthly payments, then you would “reactivate” this account, so to speak, and extend the length of time for which is will be reported on your credit files. I suspect that you may have seen this information on your Experian credit report because Experian credit reports contain a unique feature that many users find extremely enlightening.

Experian Credit Report Highlights

For all of the accounts listed in your credit file, Experian shows you “Status Details” indicating when an account is scheduled to fall off your credit report. For example, an auto loan that you paid off and closed in July 2008 will show the following Status Details: “This account is scheduled to continue on record until July 2018.” Or let’s say you had an account go to collections and ultimate get written off by a creditor. In your case, the negative information is your car repossession. For you and anyone else with these and other negative marks in your credit file, you won’t have to wonder how long a certain blemish will haunt you. That critical “Status Details” section of your Experian report will give you that precise information.

No Need to Settle Very Old Debt

Regarding settling your debt, unless you’re in desperate need of getting that car repossession off your credit report before a year’s time (this might be true, perhaps, if you need to qualify for a mortgage), and unless you’ve got thousands of dollars sitting around to pay off that old car debt, I wouldn’t bother trying to settle the account. It’s already been on your credit report for nearly six years. I would simply tough it out for the next year or so until it falls off your credit.

For three reasons, I’d recommend paying off that credit card debt in full and then applying the remaining money toward your car loan. First, you’ll definitely get a boost to your credit scores if you can zero out that credit card bill, which are revolving debt. Paying off installment debt, like an auto loan, only has a negligible impact on your credit rating. Second, your credit cards probably have double-digit interest rates which are likely higher than your auto loan. So you can save yourself some money in finance charges by aggressively attacking that credit card debt. Lastly, it sounds as if your credit card debt balance is lower than your auto loan balance. So if you pay money toward that debt first, you’ll get the benefit of having money left over to also pay a hefty chunk toward your auto loan. That doesn’t appear to be the case with your car loan. It sounds as if you would not have much or any money left over to pay your credit card debt if you knocked out your auto loan in full. So go ahead and apply that tax refund first and foremost toward your credit card bill.

Based on all the circumstances you described, it seems you are going to be stuck with your existing car for the near term. For starters, you stated that no dealers were willing to finance you for a new vehicle without you putting down $3,000 to $5,000. I assume you don’t have that kind of cash sitting around. Moreover, you are already upside down on your car loan, meaning you owe more than the vehicle is worth. So no auto lender is going to want to touch that and a trade isn’t financially feasible. Even more damaging, at least potentially, is your poor credit history. The fact that you have a bankruptcy and car repossession already listed in your credit files may be the nail in the coffin.

If you let your current car go, and do yet another voluntary repossession, it is likely that it would take a month or two before that showed up on your credit reports. But there are already simply too many circumstances working against you for you to be able to convince a car dealer or finance company to finance or lease a new car to you. Even if you did find a rare auto finance company willing to do business with you, your loan would definitely carry sky-high double-digit interest rates, making your monthly payments extremely costly and probably totally unaffordable.

My suggestion is to tough it out with this existing car, which you said has $13,000 still owed on it. I know it also has a lot of miles on it. But with some TLC and proper maintenance, you may be able to keep it in decent running condition – at least until you can pay it off.