It really is wild. I was looking for a car for my girlfriend (now wife) and needed to finance. I know the conventional wisdom is "buy used because depreciation" but the higher interest on a used car made the math a bit more fuzzy.
In the end, we bought the dealership's demo car, that was priced like it was used, but the interest rate was much lower than a vehicle listed as used.
Then we got big promotions and Covid hit. We ended up trading that car in and getting something she really wanted. We got the new car before the shortages hit, but at the same time used cars were booming. We actually traded her car in for more than we bought it for, which was absolutely wild to me.
I had a coworker that crashed their used car (I think it was an accord), during the pandemic, and the total loss insurance payout was more than what they paid for it initially.
This is actually why a lot of auto insurance rates went up. Cars were insured for less than their current value, so insurance companies were paying out the ass for repairs/total losses.
Same thing happened to me. Bought a 16 Corolla right before the pandemic, paid like $13.7k I think. Total loss settlement was around $15k after driving it for a few years.
Yeah I was torn on what to buy. I wanted a sports car that was still a decent daily, was thinking of getting a Toyota gr86 brand new or a used Stinger or G70 so I could have 4 doors. Ended up settling on the used Stinger as it has super low miles, was extremely well maintained, and that 3.6l V6 was calling me.
But tbh with new car rates being as low as they are I probably wouldn't be paying too much more on the brand new gr86 lol.
The downfalls of no credit. It is worse than bad credit. Companies have no way to evaluate you. 21% may seem high, but you have to realize cars are depreciable asset, a highly depreciable asset. In order to get the return they got to charge a high interest rate because they don't know if you're going to fail on it or not. You may not feel on yours, but the next one or the next two might and they have to cover their losses for all loans.
You really don't have a choice when you're no/low credit. Despite what people may assume, a dealership can't charge whatever they want for an interest rate. At most, they can add 2% to whatever the bank approved them at. Meaning, the bank gave them a 19% loan and the dealer added 2 to get to 21%. Unless there is a clerical error, OP is not getting a good auto loan rate from any bank if what they actually qualified for is 19-21%
If you "don't have a choice" either get the cheapest, reliable car you can (which is WELL below $25k) or you save and pay cash/increase the down payment. I drive a car that costs half of what this guy paid, and I make more than double what he does. Buying that car was a bad decision, no two ways around it.
Hey I agree with you mostly. Up until recently where used car prices are finally going down, "cheapest" and "reliable" haven't typically been used together to describe a used car. (Note I said typically).
Also, typically and not directly speaking of OP, people who qualify for such high APR aren't the best at managing money.
All I was stating was that generally, people earn their APR either justly (not paying their legitimate bills) or unjustly (like unforseen medical bills).
Kudos on being able to manage your finances responsibly š
True. But one doesn't need to spend 25k @ 21% interest to do it.
Sometimes you gotta buy a starter car for 5-10k... And try to save up and buy private party cash. It will pay better dividends in the long run
Find a "starter car" for 5-10k that isn't going to be an absolute money pit in repairs and sure, but these really don't exist the way they did when we were getting our licenses. [The data says they don't](https://www.cargurus.com/research/price-trends#) and [it says it in multiple places](https://fred.stlouisfed.org/series/CUSR0000SETA02).
The prices of used cars are *just* starting to return to a semblance of sanity, but the supply is still not meeting the demand.
Done.
https://lasvegas.craigslist.org/cto/d/las-vegas-2008-honda-pilot-awd-ex-v6-91k/7759109764.html
All it takes is a little effort and flexibility. If you wanna have money, you gotta make smart choices by not giving it away for no reason.
Edit: and paying interest is the no reason.
And you wouldn't likely need it all for repairs "right now." You save the $300 difference in the note, and if you need it for repairs then you've got it. If you don't need it for repairs then you've got more money to put down on your next vehicle when you trade up. And you will earn interest instead of paying interest.
That interest is very high, but that payment is going to make you car poor. Cash management is important to a sustainable financial performance.
I would go to your local credit union and take out a loan to cover your car loan for a 60 month time period. You will pay way way way less interest and have more month to month money to SAVE and invest.
Either you're misunderstanding, or your credit union is stupid. OP is the lowest tier borrower outside of bankruptcy. There's no way they're giving under him/her under 10%. Impaired credit != bad/no credit
Well if you can swing the $1,500 payments, which it seems you can, 0% is one heck of a lot better than 21%. 21% is basically credit card interest, so you should absolutely avoid paying that much if you're being given an opportunity to do so.
Edit: for clarity, assuming you never made any extra principal payments on the current loan, over 62 months, you will have paid about $16,166 in interest ALONE.
So...do everything in your power to make this deal work.
Thanks for the advice! I can manage the $1500 payments, and avoiding the high interest is a huge relief. Knowing I'd pay over $16k in interest really puts things in perspective. I'll do my best to make this deal work with my relative. Thanks again!
I don't know how old you are, but I assume you're just starting out. These next 16 months are going to suck, you'll need to be as frugal as reasonably possible.
But after that you'll be so happy that you don't have a car payment weighing you down. That's 5 years worth of car payments that you'll be able to spend on other things. Plus you will hopefully be able to drive this car for much longer than that.
Having the car fully paid off in that timeframe will really set you up for success because you will be able to run car payment free for years.
And you should. Try to keep that car running for as many years as you can.
Looks he wants the loan paid off in 16months. Maybe you can ask if he's willing to bump it up to a total 24 months. This will make the payments about $1050.
I highly disagree. Two things. One, the offer is insanely generous in the first place - frankly OP bought a car they couldn't afford. Second, it's not fair to the relative - they are already losing money by not charging at least inflation based interest and extending the time increases their risk and cost.
Increases the relativeās opportunity cost for sure. Riskā¦ not as much I donāt think. I guess itās a few more months where OP could lose their job or something.
But in any case, I agree, I wouldnāt try to haggle for better terms on a super generous offer like this either.
It's pretty clear the relative is doing this to help out. They are getting nothing from this. So OP can ask if the monthly payment would be too much for them
They're not doing it for financial gain obviously or they'd have never offered. That user is killing the family generosity portion in favor of some rigid ideology.
The rule of thumb is always if you can't afford to never get it back, don't loan money. I am sure the relative is quite comfortable.
> I guess itās a few more months where OP could lose their job or something.
or the vehicle could be stolen, totaled, or otherwise devalued. It's not just the credit profile of a borrower that increases a lender's risk.
I would only haggle if I really was gonna struggle to afford the $1500/mo. I would lay it out with my finances and explain what my mandatory expenses are. Show that even being super frugal it'll be tough. But if you can swing $1500/mo without struggling too bad, I agree don't haggle.
Being rigid and applying business rules to family is not as ethical as you make it sound.
There's a reason this relative offered to help a family member and it wasn't for business reasons, which seems to be where your ethical system lies.
It's really hard to say without knowing the relationship. If a mom said to her kids "Here's $20, you and your brother go see a movie" it'd be perfectly reasonable to respond "2 tickets will run us $25 nowadays".
Certainly haggling is bad. But so is having closed lines of communications. Maybe they don't recognize the hardship and are perfectly eager to go further. I would be insulted if someone didn't feel comfortable talking to me if I was to offer them a gift. It would imply that we are not as close as I thought.
Here's something that can be tried: offer to pay interest to lengthen the loan a bit. Relative takes the offer, and it's totally fair, relative decides to be more generous and lengthens the free loan: even better.
If doing this, I'd suggest offering a final additional two week payment both as a thank you and so it doesn't look like you're looking a gift horse in the mouth
> as a thank you and so it doesn't look like you're looking a gift horse in the mouth
another perspective: my grandmother taught me to never pay someone for a gift because it devalues the gift and gifter's intentions (as in, can insult the gifter by taking away their gift and turning it into a transaction).
I think the preferred thing is to perform some gift for them if you want to return the favor--like a nice dinner or something.
then again, my grandmother was born a hundred years ago and likely took etiquette classes as a young lady, which I doubt many people do these days anymore.
I'd say, "please and thank you I want the loan. I will definitely agree to your terms. Your comfort is most important but for mine, are you willing to let me pay over 24 months?"
It's fine if they say no but, you won't know if you don't ask.
I would still take the loan from your relative but this is very misleading. If you paid the extra 900 a month youāll be paying to your relative as a principle payment on the loan that would cut 3 years and 7 months off your loan and cut off $11,500 of the interest. Still a lot of saved interest but closer to $5000 total with the same payment.
Always do the math by multiplying your payment amount by the number of payments and then subtract the price before interest to see how much you are paying extra.
Pay cash if you can afford to.
Quick question - if I wanted to do this to help someone like this (pay off their car loan and have them pay me back), what all should I consider? Obviously there's the chance they won't pay me back. Could I get a lawyer to write up a simple contract? They're on the last 14k but interest is killing them.
Hmm, fair enough question (I had not done the $600 x 62 calculation). I'm wondering if OP put some money down, thus making the financed amount less than $25k.
I'm thinking that may be the case, because here is what a $25k loan at 21% interest looks like over 62 months:
https://www.calculator.net/amortization-calculator.html?cloanamount=25%2C000&cloanterm=&cloantermmonth=62&cinterestrate=21&cstartmonth=6&cstartyear=2024&cexma=0&cexmsm=6&cexmsy=2024&cexya=0&cexysm=6&cexysy=2024&cexoa=0&cexosm=6&cexosy=2024&caot=0&xa1=0&xm1=6&xy1=2024&xa2=0&xm2=6&xy2=2024&xa3=0&xm3=6&xy3=2024&xa4=0&xm4=6&xy4=2024&xa5=0&xm5=6&xy5=2024&xa6=0&xm6=6&xy6=2024&xa7=0&xm7=6&xy7=2024&xa8=0&xm8=6&xy8=2024&xa9=0&xm9=6&xy9=2024&xa10=0&xm10=6&xy10=2024&printit=0&x=Calculate#calresult
OP did also say "around" $600, which can mean different things to different people.
The math is:
$25,000 x 1.21^6 - 12 x $642.09 x (1.21^6 - 1)/.21 = $0
So to pay off a $25k loan at 21%, OP has to make monthly payments of $642.09 for 6 years (72 months), which comes to a total of $46k spent on a $25k car...
It could result in a he-said-she-said situation. āYou still owe $5000 more in interest.ā But you said no interest, blah blah. Or you actually owed me $26,000. Etc.
In writing means legal contract. Write the terms out.
Oral contracts are usually binding, but by definition an oral contract is a he/said situation. Putting everything in writing helps ensure parties to the contract understand the terms, and will help protect wronged parties if the deal goes bad. Words written in a contract usually supersede anything spoken prior to signing as well, as far as courts go.
Thereās really no downside unless youāre entering a deal in bad faith.
If I can add onto that - also make repayments in writing and donāt mix it with anything else. Ā If you go out to dinner and split the bill, settle that separately. Ā Make your monthly payments ācleanā - send a payment on the first of the month, memo car payment #x of y - so at the end, or if there is ever any question- you can see all the cancelled checks. Ā Never any funny business like āI paid you x at thanksgiving in cash and then at Christmas I got you three antique pocket watchesā¦ā. Ā
If you really can make the monthly payment, take it.
If not, then not. Could bring up unnecessary trouble with relatives.
But otherwise its always smart to pay stuff asap.
This is a very generous offer, but that monthly repayment leaves you with little wiggle room in your budget. I would ask the relative if you could instead pay $1000/mo but do so at 5% interest. You are still saving a ton of money, the relative isn't losing out on potential earnings, and you still pay the loan off much sooner.
I'd take this deal in a heartbeat. Your relative is offering you one hell of an opportunity to not get screwed for 62 months. He is offering to get you out of a bad decision at his expense since he could make $1,250 a year just by letting that money sit in a HYSA.
I'd be grateful, say yes, and pay him back as quickly I could. Pay him the dividend of learning the lesson and don't get yourself into this situation again.
If you end up taking the relatives loan ensure you write a fair contract taking into consideration every possible circumstance. I.e. what happens with the loan when you 2 happen to fall out, how impossible that might seem.
Do NOT depend on their goodness, write a fair agreement for when you might need it. I.e.: in the case of job loss payments can be halted for X period, but interest would accrue.
DO realize that loaning money from friends/family, especially amounts like that, will often (forever) change the relationship. This doesn't have to be a bad thing per se of course.
Come on, The relative is taking all the risk by giving you an Interest free loan with no collateral.
If you want to have a FAIR contract, you should put in some thing like if you default on the loan, the relative can repossess your car. and you should offer at lest a 5% interest to match what they can get from bank saving account.
> Come on, The relative is taking all the risk by giving you an Interest free loan with no collateral.
In fact, they're technically losing money this way since they could put that money in a HYSA and get at least 5% APY that way.
A "fair" agreement would be paying the relative 7% interest, letting them put a lien on the car, and purchasing comprehensive insurance on the car. Anything less than that is basically a gift to OP and he should be thankful instead of "negotiating".
Your relative is saving you $16,000 in interest of the loan, with no benefit to them. That's a very nice relative. Be sure to thank them for their help, and don't miss a payment!
You shouldn't have taken a 21% loan on a car to begin with, 21% interest is financial napalm. But now that you're here, you should move heaven & earth to get rid of that loan.
If you really can pay $1500 a month, you can also send it to the finance company and get paid off early without risking your relationship with your relative.
Review the loan and make sure you're allowed to pay off early.
This is the winner. If they can pay $1500, pay it to the finance company. Thatās a lot of money for a relative to loan. Itās probably not worth the potential strain on the relationship. Also, considering OP got such a shit deal on APR, they probably need to boost their credit score. Taking the loan from the relative wonāt help with that. Paying it off faster and boosting their credit score is smart.
āI really appreciate your generous offer, but Iāve decided to keep the loan and pay the $1500 on the loan to raise my credit score.ā The end.
If OP doesnāt use this as a chance to improve their credit rating, they will continue to get bad deals. Keeping the loan and paying it off faster will help them save money in the future and not need the help of relatives.
**Review the loan and make sure you're allowed to pay off early.**
This. If you were inexperienced enough to pay 21%, you probably also have a early pay off clause, or they slipped that in too.
Relativeās offer seems to do two things:
Helping you pay off car without interest. (Theyāre losing a potential 5% HYSA interest, maybe 2k total over the 1.5 years)
Helping you learn to budget by forcing you to suffer a high payment.
Itās a good financial decision and a good behavioral decision. After youāve paid them back, continue to put away half or a third of that for your next vehicle.
People have already answered your question. But take this as a learning point. Start saving money for that next big purchase. No one should pay that high of interest.
Almost all auto loans are simple interest. If I were in your situation I would pay the $1500 monthly to the bank who holds the loan. That way youāre still building your credit but not paying nearly as much interest at the base payment. You will pay this car off very fast, Have built your credit and avoided potentially ruining a family relationship if things went south.Ā
You.... financed a car at 21% APR.... a monthly payment is irrelevant, the car salesman must have been so nice and happy as he foamed in the mouth in happiness.
Be glad you have a relative to bail you out, you got ultra scammed
While borrowing money from family is rarely ever a good idea, this may be an exception. 21% interest rate is borderline predatory. If you do choose to accept, I would recommend setting up the $1500 payment on some type of auto pay system to ensure your relative is always getting their payment to avoid any troubles with that relationship.
>However, I have a relative who is willing to lend me the full $25k so I can pay off the loan. In return, I would need to pay him $1500 a month with no interest.
How many months? $25,000 divided into $1500 month payments is 16 months with a $1,000 payment on month 17.
Now what if you paid $900 extra per month to the car? You would be done in 19 months.
So while 0% is better than 21%, if you just make the extra principal payments via your current loan then you have only 2 extra months to pay and you get the huge benefit of SAFETY. IE, for whatever reason you can't make the extra $900, then you can fall back to the original $600.
Something to consider....
Mathematically it makes sense. The real question is how much you can trust this relative. Sounds like they're trying to do you a solid with no strings attached but if they get in a financial jam are they going to come at you with it?
On the flip side, if this is a good relationship and you feel it's safe, why not ask them if you can do $1200 a month instead? They may have a good reason why it needs to be $1500, they might not.
If I was the relative reading this thread, I would be telling a lot of you to fuck off. He/She is already doing a big favor by offering at 0% - Iād be more than a little miffed if my relative would tried to ask for more concessions when Iām not obligated to offer jack shit to help out.
OP- take it and run if you can make the terms work for you. Do Uber for a year if you need the extra cash to make it work.
Having it paid off in 16 months with zero paid in interest is totally worth it because if you have a 6 year loan, you'll be paying just shy of 20k in interest.
If it is a 5 year loan, that's still 15k in interest.
And if you just live like a monk and spend all 2k every month on the car payment, it's still about 3400 in interest over the next 14 months.
21% is ridiculously (imo criminally) high. I think your numbers are off though. A $25k loan at 21% with monthly payments of $642 would be paid off in 72 months. That's $46k for a $25k car...insane!
Take your relative's offer and diligently pay them back. That is a very kind offer. Don't fail to pay them back, many families are torn apart over things like this. Once the loan is paid off, I recommend taking your relative to a really nice dinner as a thank you.
It's like you just lit $15k and you're asking us if you should go back in time and stop yourself. YES!
Take it! Try to sell the car, but if you can't, TAKE IT!
This person is basically saving you from a huge mistake. You just signed up to spend your down payment on a house in car payments, and an angel from heaven is granting you a do-over.
Just pay $1500 a month on your current loan and that will pay it off early with less interest. Don't get any friend or relative into your personal finances. That's just giving them control in something that you've already done by yourself.
I kinda agree with you. Paying $1500/month on the current loan is three months longer than paying the relative. Which yes does mean >$4500 more in interest than the relative. **But** with no risk in harming a relationship with a relative if they lose their job or have other financial hardship that prevents them from paying their relative back. Iāve seen enough judge Judy to know how this can go sideways irreparably.
Alternatively, they could just try to refinance the loan with an institution that isnāt totally reaming them out. They might be able to get 9-10% at a local credit union which is not only half their current interest rate, but ends up saving them more than half the total interest when considering the compounding. Then, they could up their payment to $1,000/month and still reasonably pay it off with a bit of interest. At 10% interest and $1k/month, theyāre paid off in 28 months instead of 62. And they have $500 more in their pocket per month for budgeting.
Verify that the lender will allow early payoff.
The total cost of the loan, from a quick basic calculator, is about $41k.
It makes sense to take them up on their offer, and it makes sense to figure out your financing otherwise to make ends meet.
But only if the lender allows for early payoff without some amount of fees or interest.
My calcualtions say paying off a $25K loan in 62 months at 21% is around $660/month. It is absolutelya no brainer financial decision if you can afford the cash flow. Paying nothing in finance costs versus paying what my rough calculation says is $16,000 in finance cost? Are you kidding? Thank the family member profusely.
Just whatever you do.. Pay. them. back.
Make it your life mission to pay them back. Do you know how lucky you are to have a relative to offer you a loan like that?
Itās a no-brainer. (21%? That financing company should be investigated),
My roommate had a credit card debt for 7 years. She was having trouble making a dent in it due to the high interest rate. I paid it off for her, no interest. She paid me back within the year.
Questions:
Have you already signed the Contract with the Loan Company?
If so, is there an Early Repayment Penalty? are you on the hook for the full contracted amount?
Has the relative given you a Repayment Period or schedule?
While they are saying No Interest, it doesn't mean other Fees and Charges don't apply.
Mixing money and family is never a great idea, would you consider just putting an extra $1000 per month on your payment towards principal? Sure you wonāt save the full interest, but should still be close to $10k savings without worrying about family headaches
Keep the existing loan and double up on your payments putting the extra money each month toward the principal only. I donāt like borrowing from relatives (or friends) because if it ends badly, then the relationship is ruined.
1. What is the length of the loan for the relative? is it really $1,500 until the $25,000 is paid off?
2. Is there no early termination penalty for the car loan?
3. Is the loan collateralized? (Is he going to take the car if you donāt pay?)
4. Is your relationship with them good and will them lending you money make family events awkward?
Most of the time I'd say "be wary of doing business with relatives", but jfc, 21%... you gotta do whatever you can to get out of that loan.
$25k/$1500 is just about 17 months. And you can afford it. Do it.
I've done this recently with my parents. I owed like $6500 on a private student loan that's variable interest. Was at 10.02%. Still had like 7-8yrs left on it.
So I asked my parents for a $6500 loan. They said sure, interest-free even. I'll pay them back over the next 2-3yrs. My new monthly payment increases by $50, but 1) I can handle that, no problem and 2) I'm not going to have to pay the extra thousands of dollars in interest, on top of the thousands I already paid to the bank in past years.
As long as you can handle the monthly, it's a no-brainer.
Another option is to see if you can refinance with a credit union. Make an account and get a loan through them. It will be like 5-7% interest and your payments can be much lower than 1500 and it will help that you have something on your credit still.
Paid off my car in December at 1.9%. I begged my credit union to extend the loan but that was a big NO so hubs had to buy his own. Heās at 7% but thatās better than most now. Take the relatives loan. You will have it paid off sooner with no interest. You can invest that amount after youāre paid up to save for your autoās maintenance. Good for you for buying your car!
> I recently purchased a car for $25k on finance. Since I have new credit with little history, they approved me but with a 21% APR for 62 months, resulting in a monthly payment of around $600.
That is not a $25,000 car. That is a $37,200 car (62 months x $600 per month) based on the financing. If there was no financing, you can get a much more expensive car for that money.
Youāll have that car paid off in a little over a year with the 0%. Absolutely do that and try to pay more each month if you can, just to get rid of that expense as fast as you can.
Hell of a good deal especially if itās something you can swing.
Also GET THIS IS WRITING. CANNOT STRESS THAT ENOUGH.
If you can pay $1500 to him then you can also pay $1500 to the monthly car payment. This will greatly reduce your interest. The 0% is better but it can complicate relationships when money is involved.
Your relative is doing you a solid. He's basically gifting you ~$1500 using today's savings interest rates (and saving you way more than that). Would be a great gesture to respond with a little gift when you're able to.
It sounds like this person is trying to help you out because other wise there is no benefit in it. Maybe you can ask if you can pay them $1,000 or $1,200 instead if you are concerned about not having the money for that.
21% apr is fcking insane! Why do people just jump willy nilly into massive financial decisions with zero knowledge. If you knew how terrible 21% apr was, you wouldnāt even let your relative finish their sentence before accepting the offer.
I had a female friend who was bragging about getting her first car loan at 21%. I told her "hon, no offense, but you're getting fucked--and not in a fun way."
The IRS mandates that any loan between family members be made with a signed written agreement, a fixed repayment schedule, and a minimum interest rate.Ā You can't do the zero percent thing--that's a gift, but the minimum interest rates are pretty low.
[Applicable Federal Rates | Internal Revenue Service (irs.gov)](https://www.irs.gov/applicable-federal-rates)
There also may be some costs associated with filing the appropriate liens on the vehicle, but none of these additional costs/complexities are anywhere near as expensive as 16K in interest payments.
If you do the paperwork right, you could theoretically refinance your family loan to a bank...before you've paid off the entire thing, paying your relative back, extending terms, and lowering payments.
"Dear bank, I have a binding 4.94% interest car loan I would like to refinance and extend the terms on..."
[https://www.debt.org/credit/loans/friends-family/](https://www.debt.org/credit/loans/friends-family/)
If you take the car loan, at the end of the loan period you would've paid an additional $12,200 in interest on the car.
Since you can swing the $1500 per month, take your relative's offer. They're doing you a solid.
Seems like you got your answer to this question.
If you haven't already just make sure you have a credit card you are paying in full every month to help build your history for the next time you need major financing.
Take the relatives offer. Put it in writing. See if you can extend it by 6 months to reduce your monthly payment a bit. Then ALWAYS pay them in full every month. After youāve finished paying them off, pay yourself the same amount into an emergency find, a retirement fund, or a savings and investment fund.
You need to check with the lender to make sure there are no early payoff penalties. Allot of time on these high risk/ high interest loans they penalize you for paying it off. Literally you are signed into those 6 years. Call them and ask for a payoff and look at your loan paperwork.
Take advantage of their offer. Work a part time job if necessary or live cheap and pay it off as soon as possible. Invest in yourself. If will improve your credit score to pay off early.
GET A CONTRACT WRITTEN!!!!
I know they're your relative, but for both of your safety, get a simple contract with terms of the loan clearly stated. Not saying they aren't trustworthy or anything, but there are too many stories of people getting screwed over on deals exactly like this one.
here is a wealth building tip if you decide to take your relatives 0% deal.
Once you are finished paying him off save that $1,500 a month. Thatās $18,000 in savings a year. Place those savings into an index fund and build some serious wealth.
If you can afford the basic double and a half payment per month then you won't be burning any money toward interest.
However if you fail to pay your relative on time every month you will burn that bridge.
Negotiate with relative and have it autopay from your account. Let them know you need money to live. Plus have it in writing youāre going to pay it back. Maybe this will be a comfort to them.
I am assuming you put about $5500 down to get that $500 month rate.
At 21% on a 62 month note that's roughly $43,000 that you will spend on that car.
Take the relative's offer. And have the car paid off in about a year, to a year and a half. Then after that, continue to save $1000 out of that $1500, then by the time your note would have expired, you will have a paid off car, and 35-40k saved in the bank.
Get the payoff amount and have the relative make a cashiers check payable to the finance company.
I would also make weekly payments \~$320/week ($25,000/78 weeks) to show my appreciation.
I wouldn't want a relative hanging over my head. Pay $1500/month to this loan, work on building your credit, and refinance in a few months.
Make sure you have savings and don't sacrifice them. Let's say you have $10k in the bank, and say oh wow let me put that to 21%. Cool you saved a few bucks. Then in a few months you are laid off and have no savings. Not good.
We can't just look at "21%" in a vacuum. Yes it's high, it sucks, pay it ASAP, but don't screw yourself over either.
That relative is incredibly kind. You might be financially uncomfortable with your 'buffer' in your budget for the short term, but he's turning 62 months into 16-17. Take the offer, with the caveat of, this is family, have the discussion of what happens if I need a month deferred, lose my job, etc. As long as it wont sink them to help you, or hurt your relationship, it's a no brainer. They're helping you save 20 grand.
I would try to refinance the car through a credit union or bank with a lot lower interest rate. It's nice that your relative wants to loan you money but the payments are high. Plus, I never borrow from relatives.
If you can afford paying $1500, then definitely go for it. But discuss beforehand on what happens if you become unemployed, etc. Since $25k isn't a small number, getting some sort of legal writing over this loan would be preferable.
I would ask them for a $1000 a month with the agreement you never miss a payment. Tell them the $1500 would negate their blessing as it would leave you unable to eat.
Not only are you saving a ton, the relative is setting you up to be able to pay cash for all future cars. When done paying them, save 1500 a month toward the next car.
Side advice, don't ever finance anything at such a high rate. You can't pay the gov 20 to 30 % and then sales tax and that interest rate and ever get ahead. Your relative is bailing you out - gain some financial education and make better decision. I know, sounds harsh, but it's good advice. The only think I have ever financed at a rate above 2% is my house - an appreciating asset. If I can't pay cash, I can't afford it. If you can't pay cash, you can't afford it.
Basically instead of paying $12,200 ($196 a month). in interest over 62 months. You will be paying them an extra $900 a month. If you paid an extra $900 a month now, the total interest you would pay is already far less (but not 0). If you can afford it, go for it. As others have said, if you can settle on something like 2 years for $1000 give or take, you will be a lot more comfortable.
You have $2k after paying for housing, food, gas, and everything else you absolutely need to live? Then take the deal, that's a big break for you. You'll still have $500 left for savings and entertainment. Don't mess with your relative, they are awesome. Pay it back faster if you can.
Next time you want a big ticket purchase, save instead of taking a loan. It's the same as paying back your relative, except your relative is you and you're paying yourself back before making the purchase.
21 percent is wild, but building your credit is something too. Take the relative's offer. Get a credit card, so your next financing thing is not 21 percent.
I honestly donāt know how employees of these companies sleep at night when they have a young kid come in and sign a car loan like that. Absolutely disgusting
Relatives and money in the same sentence usually equals a bad idea. But in this case I wouldn't be able to walk away for sure if I were in your situation.
Any discussion of what happens if you miss a payment? Late on payments?
do it to eliminate this debt if you can afford it. it seems they are trying to help you avoid those crazy rates. but please donāt take advantage of their goodwill
That is essentially saying you want to save and use a TV outright through time or go to Rent A Center and get the TV anyway, but now your paying Rent A Center a monthly tax? 0% interest means for however long that interest lasts (14-48... Forever) you pay what the car is worth -the taxes blah blah blah. Don't waste time if your intending to keep it.
Debtor is slave to the lender. Do not do this. Your relationship will change. Just focus on paying your debt and do not change the dynamic of your relavesā relationship with you. It will not end well.
That level of payment is likely going to become a problem before it's all done. If anything happens that you need a pile of cash in the next 16m your screwed. How about offer to pay a small amount of interest if they allow you to reduce/extend the payment, maybe 5% and $1000/m.
21% is ridiculous. Take the relative's loan.
Take it. That's a really nice relative
Yeah 21% is wild, I bought a car recently with 7% and I thought even that was high. Used market be that way though.
It really is wild. I was looking for a car for my girlfriend (now wife) and needed to finance. I know the conventional wisdom is "buy used because depreciation" but the higher interest on a used car made the math a bit more fuzzy. In the end, we bought the dealership's demo car, that was priced like it was used, but the interest rate was much lower than a vehicle listed as used. Then we got big promotions and Covid hit. We ended up trading that car in and getting something she really wanted. We got the new car before the shortages hit, but at the same time used cars were booming. We actually traded her car in for more than we bought it for, which was absolutely wild to me.
I had a coworker that crashed their used car (I think it was an accord), during the pandemic, and the total loss insurance payout was more than what they paid for it initially.
This is actually why a lot of auto insurance rates went up. Cars were insured for less than their current value, so insurance companies were paying out the ass for repairs/total losses.
Same thing happened to me. Bought a 16 Corolla right before the pandemic, paid like $13.7k I think. Total loss settlement was around $15k after driving it for a few years.
Yeah I was torn on what to buy. I wanted a sports car that was still a decent daily, was thinking of getting a Toyota gr86 brand new or a used Stinger or G70 so I could have 4 doors. Ended up settling on the used Stinger as it has super low miles, was extremely well maintained, and that 3.6l V6 was calling me. But tbh with new car rates being as low as they are I probably wouldn't be paying too much more on the brand new gr86 lol.
You really should not have taken 21%. I think I have a better rate on my credit card.
The downfalls of no credit. It is worse than bad credit. Companies have no way to evaluate you. 21% may seem high, but you have to realize cars are depreciable asset, a highly depreciable asset. In order to get the return they got to charge a high interest rate because they don't know if you're going to fail on it or not. You may not feel on yours, but the next one or the next two might and they have to cover their losses for all loans.
Funny, here we have a maximum percentage on a loan and everybody can still get car loans. 21% is taking advantage of people, big time
You really don't have a choice when you're no/low credit. Despite what people may assume, a dealership can't charge whatever they want for an interest rate. At most, they can add 2% to whatever the bank approved them at. Meaning, the bank gave them a 19% loan and the dealer added 2 to get to 21%. Unless there is a clerical error, OP is not getting a good auto loan rate from any bank if what they actually qualified for is 19-21%
You get a choice on your car price, though, which doesn't have to be $25k.
This is true. But as the person I was responding to did not mention price, I didn't either š
If you "don't have a choice" either get the cheapest, reliable car you can (which is WELL below $25k) or you save and pay cash/increase the down payment. I drive a car that costs half of what this guy paid, and I make more than double what he does. Buying that car was a bad decision, no two ways around it.
Hey I agree with you mostly. Up until recently where used car prices are finally going down, "cheapest" and "reliable" haven't typically been used together to describe a used car. (Note I said typically). Also, typically and not directly speaking of OP, people who qualify for such high APR aren't the best at managing money. All I was stating was that generally, people earn their APR either justly (not paying their legitimate bills) or unjustly (like unforseen medical bills). Kudos on being able to manage your finances responsibly š
No one should ever be buying a car with his kind of interest rates... It's sad how many people think this is ok.
Poor people need to get around tooā¦
True. But one doesn't need to spend 25k @ 21% interest to do it. Sometimes you gotta buy a starter car for 5-10k... And try to save up and buy private party cash. It will pay better dividends in the long run
Find a "starter car" for 5-10k that isn't going to be an absolute money pit in repairs and sure, but these really don't exist the way they did when we were getting our licenses. [The data says they don't](https://www.cargurus.com/research/price-trends#) and [it says it in multiple places](https://fred.stlouisfed.org/series/CUSR0000SETA02). The prices of used cars are *just* starting to return to a semblance of sanity, but the supply is still not meeting the demand.
Done. https://lasvegas.craigslist.org/cto/d/las-vegas-2008-honda-pilot-awd-ex-v6-91k/7759109764.html All it takes is a little effort and flexibility. If you wanna have money, you gotta make smart choices by not giving it away for no reason. Edit: and paying interest is the no reason.
On that point. Iāll concede. Guess the logic there would be 25k car isnāt gonna break down soon.
You can do a lot of repairs for $15k
Yeah but the point is you donāt have 15k āright nowā
And you wouldn't likely need it all for repairs "right now." You save the $300 difference in the note, and if you need it for repairs then you've got it. If you don't need it for repairs then you've got more money to put down on your next vehicle when you trade up. And you will earn interest instead of paying interest.
> Poor people need to get around tooā¦. Poor folks shouldn't be levering up for $25,000 cars.
Not in a $25k car.
That interest is very high, but that payment is going to make you car poor. Cash management is important to a sustainable financial performance. I would go to your local credit union and take out a loan to cover your car loan for a 60 month time period. You will pay way way way less interest and have more month to month money to SAVE and invest.
I mean it would make him cash poor, but only for 16 months, then heād have the title free and clear. That seems worth the sacrifice.
Thereās absolutely no way the credit union is gonna give him a much better rate than 21%.
My credit union lists their "impaired credit" rate for auto at a max of 9.49% right now. It's certainly possible on that income.
Either you're misunderstanding, or your credit union is stupid. OP is the lowest tier borrower outside of bankruptcy. There's no way they're giving under him/her under 10%. Impaired credit != bad/no credit
Well if you can swing the $1,500 payments, which it seems you can, 0% is one heck of a lot better than 21%. 21% is basically credit card interest, so you should absolutely avoid paying that much if you're being given an opportunity to do so. Edit: for clarity, assuming you never made any extra principal payments on the current loan, over 62 months, you will have paid about $16,166 in interest ALONE. So...do everything in your power to make this deal work.
Thanks for the advice! I can manage the $1500 payments, and avoiding the high interest is a huge relief. Knowing I'd pay over $16k in interest really puts things in perspective. I'll do my best to make this deal work with my relative. Thanks again!
I don't know how old you are, but I assume you're just starting out. These next 16 months are going to suck, you'll need to be as frugal as reasonably possible. But after that you'll be so happy that you don't have a car payment weighing you down. That's 5 years worth of car payments that you'll be able to spend on other things. Plus you will hopefully be able to drive this car for much longer than that.
Don't pay relative cash, make sure you give them a check! Keep track of payment!!!!!!@
Having the car fully paid off in that timeframe will really set you up for success because you will be able to run car payment free for years. And you should. Try to keep that car running for as many years as you can.
Looks he wants the loan paid off in 16months. Maybe you can ask if he's willing to bump it up to a total 24 months. This will make the payments about $1050.
I highly disagree. Two things. One, the offer is insanely generous in the first place - frankly OP bought a car they couldn't afford. Second, it's not fair to the relative - they are already losing money by not charging at least inflation based interest and extending the time increases their risk and cost.
Increases the relativeās opportunity cost for sure. Riskā¦ not as much I donāt think. I guess itās a few more months where OP could lose their job or something. But in any case, I agree, I wouldnāt try to haggle for better terms on a super generous offer like this either.
It's pretty clear the relative is doing this to help out. They are getting nothing from this. So OP can ask if the monthly payment would be too much for them
Yeah thatās true, they could ask, Iād just want to pay them back ASAP personally if someone was doing that for me
They're not doing it for financial gain obviously or they'd have never offered. That user is killing the family generosity portion in favor of some rigid ideology. The rule of thumb is always if you can't afford to never get it back, don't loan money. I am sure the relative is quite comfortable.
> I guess itās a few more months where OP could lose their job or something. or the vehicle could be stolen, totaled, or otherwise devalued. It's not just the credit profile of a borrower that increases a lender's risk.
I would only haggle if I really was gonna struggle to afford the $1500/mo. I would lay it out with my finances and explain what my mandatory expenses are. Show that even being super frugal it'll be tough. But if you can swing $1500/mo without struggling too bad, I agree don't haggle.
Fair.
Or the relative can be loaded and just want to help out. Nothing is wrong with asking.
We apparently have different ethics. It'd be wrong for me.
Being rigid and applying business rules to family is not as ethical as you make it sound. There's a reason this relative offered to help a family member and it wasn't for business reasons, which seems to be where your ethical system lies.
It's really hard to say without knowing the relationship. If a mom said to her kids "Here's $20, you and your brother go see a movie" it'd be perfectly reasonable to respond "2 tickets will run us $25 nowadays". Certainly haggling is bad. But so is having closed lines of communications. Maybe they don't recognize the hardship and are perfectly eager to go further. I would be insulted if someone didn't feel comfortable talking to me if I was to offer them a gift. It would imply that we are not as close as I thought.
Here's something that can be tried: offer to pay interest to lengthen the loan a bit. Relative takes the offer, and it's totally fair, relative decides to be more generous and lengthens the free loan: even better.
If doing this, I'd suggest offering a final additional two week payment both as a thank you and so it doesn't look like you're looking a gift horse in the mouth
> as a thank you and so it doesn't look like you're looking a gift horse in the mouth another perspective: my grandmother taught me to never pay someone for a gift because it devalues the gift and gifter's intentions (as in, can insult the gifter by taking away their gift and turning it into a transaction). I think the preferred thing is to perform some gift for them if you want to return the favor--like a nice dinner or something. then again, my grandmother was born a hundred years ago and likely took etiquette classes as a young lady, which I doubt many people do these days anymore.
I'd say, "please and thank you I want the loan. I will definitely agree to your terms. Your comfort is most important but for mine, are you willing to let me pay over 24 months?" It's fine if they say no but, you won't know if you don't ask.
I would still take the loan from your relative but this is very misleading. If you paid the extra 900 a month youāll be paying to your relative as a principle payment on the loan that would cut 3 years and 7 months off your loan and cut off $11,500 of the interest. Still a lot of saved interest but closer to $5000 total with the same payment.
Just ask if 1250 is okay just to be a little more flush with cash. But if you can do 1500 even better as you'll pay it off sooner
Always do the math by multiplying your payment amount by the number of payments and then subtract the price before interest to see how much you are paying extra. Pay cash if you can afford to.
> subtract the price veggie interest Those veggies donāt look appealing to meā¦?
Autocorrect is weird sometimes.
Quick question - if I wanted to do this to help someone like this (pay off their car loan and have them pay me back), what all should I consider? Obviously there's the chance they won't pay me back. Could I get a lawyer to write up a simple contract? They're on the last 14k but interest is killing them.
How? If car/loan was $25k and the 62 payments add up to $37.2, where is the 16k in interest?
Hmm, fair enough question (I had not done the $600 x 62 calculation). I'm wondering if OP put some money down, thus making the financed amount less than $25k. I'm thinking that may be the case, because here is what a $25k loan at 21% interest looks like over 62 months: https://www.calculator.net/amortization-calculator.html?cloanamount=25%2C000&cloanterm=&cloantermmonth=62&cinterestrate=21&cstartmonth=6&cstartyear=2024&cexma=0&cexmsm=6&cexmsy=2024&cexya=0&cexysm=6&cexysy=2024&cexoa=0&cexosm=6&cexosy=2024&caot=0&xa1=0&xm1=6&xy1=2024&xa2=0&xm2=6&xy2=2024&xa3=0&xm3=6&xy3=2024&xa4=0&xm4=6&xy4=2024&xa5=0&xm5=6&xy5=2024&xa6=0&xm6=6&xy6=2024&xa7=0&xm7=6&xy7=2024&xa8=0&xm8=6&xy8=2024&xa9=0&xm9=6&xy9=2024&xa10=0&xm10=6&xy10=2024&printit=0&x=Calculate#calresult OP did also say "around" $600, which can mean different things to different people.
The math is: $25,000 x 1.21^6 - 12 x $642.09 x (1.21^6 - 1)/.21 = $0 So to pay off a $25k loan at 21%, OP has to make monthly payments of $642.09 for 6 years (72 months), which comes to a total of $46k spent on a $25k car...
They said 62, but maybe it's supposed to be 72
Maybe they've been paying for 10 months, and there's 62 remaining?
Yeah something is off. It the relative is giving them 25k, presumably that is what the loan was for though.
Make sure you put something in writing with the relative.
That's advice for the relative, not for this person. They'd be better off not having anything in writing!
Yep. Once that check clears and the car is paid off, all the risk falls to the lender.
Cannot stress this enough. Youāre entering into a contract with them, so please put it to paper in terms you both agree on.Ā
Can you articulate the risk to OP if they don't get it in writing?
It could result in a he-said-she-said situation. āYou still owe $5000 more in interest.ā But you said no interest, blah blah. Or you actually owed me $26,000. Etc. In writing means legal contract. Write the terms out.
Oral contracts are usually binding, but by definition an oral contract is a he/said situation. Putting everything in writing helps ensure parties to the contract understand the terms, and will help protect wronged parties if the deal goes bad. Words written in a contract usually supersede anything spoken prior to signing as well, as far as courts go. Thereās really no downside unless youāre entering a deal in bad faith.
Ya - a contract and a big thank you card.
If I can add onto that - also make repayments in writing and donāt mix it with anything else. Ā If you go out to dinner and split the bill, settle that separately. Ā Make your monthly payments ācleanā - send a payment on the first of the month, memo car payment #x of y - so at the end, or if there is ever any question- you can see all the cancelled checks. Ā Never any funny business like āI paid you x at thanksgiving in cash and then at Christmas I got you three antique pocket watchesā¦ā. Ā
If you really can make the monthly payment, take it. If not, then not. Could bring up unnecessary trouble with relatives. But otherwise its always smart to pay stuff asap.
> its always smart to pay stuff asap well, not if the rate is super low. Or tax benefits maybe. But usually, yes.
This is a very generous offer, but that monthly repayment leaves you with little wiggle room in your budget. I would ask the relative if you could instead pay $1000/mo but do so at 5% interest. You are still saving a ton of money, the relative isn't losing out on potential earnings, and you still pay the loan off much sooner.
That's a reasonable request imo. It works out (almost exactly) to $1,000/month for 27 months.
I'd take this deal in a heartbeat. Your relative is offering you one hell of an opportunity to not get screwed for 62 months. He is offering to get you out of a bad decision at his expense since he could make $1,250 a year just by letting that money sit in a HYSA. I'd be grateful, say yes, and pay him back as quickly I could. Pay him the dividend of learning the lesson and don't get yourself into this situation again.
Absolutely take the loan. 21% is atrocious.
If you end up taking the relatives loan ensure you write a fair contract taking into consideration every possible circumstance. I.e. what happens with the loan when you 2 happen to fall out, how impossible that might seem. Do NOT depend on their goodness, write a fair agreement for when you might need it. I.e.: in the case of job loss payments can be halted for X period, but interest would accrue. DO realize that loaning money from friends/family, especially amounts like that, will often (forever) change the relationship. This doesn't have to be a bad thing per se of course.
Come on, The relative is taking all the risk by giving you an Interest free loan with no collateral. If you want to have a FAIR contract, you should put in some thing like if you default on the loan, the relative can repossess your car. and you should offer at lest a 5% interest to match what they can get from bank saving account.
> Come on, The relative is taking all the risk by giving you an Interest free loan with no collateral. In fact, they're technically losing money this way since they could put that money in a HYSA and get at least 5% APY that way.
Thanks, i will consider it and discuss everything before hand.
Don't just discuss, write up something on paper, doesn't have to be war and peace, but have something written down.
A "fair" agreement would be paying the relative 7% interest, letting them put a lien on the car, and purchasing comprehensive insurance on the car. Anything less than that is basically a gift to OP and he should be thankful instead of "negotiating".
Your relative is saving you $16,000 in interest of the loan, with no benefit to them. That's a very nice relative. Be sure to thank them for their help, and don't miss a payment!
You shouldn't have taken a 21% loan on a car to begin with, 21% interest is financial napalm. But now that you're here, you should move heaven & earth to get rid of that loan.
If you really can pay $1500 a month, you can also send it to the finance company and get paid off early without risking your relationship with your relative. Review the loan and make sure you're allowed to pay off early.
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This is the winner. If they can pay $1500, pay it to the finance company. Thatās a lot of money for a relative to loan. Itās probably not worth the potential strain on the relationship. Also, considering OP got such a shit deal on APR, they probably need to boost their credit score. Taking the loan from the relative wonāt help with that. Paying it off faster and boosting their credit score is smart. āI really appreciate your generous offer, but Iāve decided to keep the loan and pay the $1500 on the loan to raise my credit score.ā The end. If OP doesnāt use this as a chance to improve their credit rating, they will continue to get bad deals. Keeping the loan and paying it off faster will help them save money in the future and not need the help of relatives.
**Review the loan and make sure you're allowed to pay off early.** This. If you were inexperienced enough to pay 21%, you probably also have a early pay off clause, or they slipped that in too.
Relativeās offer seems to do two things: Helping you pay off car without interest. (Theyāre losing a potential 5% HYSA interest, maybe 2k total over the 1.5 years) Helping you learn to budget by forcing you to suffer a high payment. Itās a good financial decision and a good behavioral decision. After youāve paid them back, continue to put away half or a third of that for your next vehicle.
This. Get used to paying that much, then put it towards emergency fund, retirement savings, and your next car once you are done.
People have already answered your question. But take this as a learning point. Start saving money for that next big purchase. No one should pay that high of interest.
Almost all auto loans are simple interest. If I were in your situation I would pay the $1500 monthly to the bank who holds the loan. That way youāre still building your credit but not paying nearly as much interest at the base payment. You will pay this car off very fast, Have built your credit and avoided potentially ruining a family relationship if things went south.Ā
You.... financed a car at 21% APR.... a monthly payment is irrelevant, the car salesman must have been so nice and happy as he foamed in the mouth in happiness. Be glad you have a relative to bail you out, you got ultra scammed
While borrowing money from family is rarely ever a good idea, this may be an exception. 21% interest rate is borderline predatory. If you do choose to accept, I would recommend setting up the $1500 payment on some type of auto pay system to ensure your relative is always getting their payment to avoid any troubles with that relationship.
>However, I have a relative who is willing to lend me the full $25k so I can pay off the loan. In return, I would need to pay him $1500 a month with no interest. How many months? $25,000 divided into $1500 month payments is 16 months with a $1,000 payment on month 17. Now what if you paid $900 extra per month to the car? You would be done in 19 months. So while 0% is better than 21%, if you just make the extra principal payments via your current loan then you have only 2 extra months to pay and you get the huge benefit of SAFETY. IE, for whatever reason you can't make the extra $900, then you can fall back to the original $600. Something to consider....
Mathematically it makes sense. The real question is how much you can trust this relative. Sounds like they're trying to do you a solid with no strings attached but if they get in a financial jam are they going to come at you with it? On the flip side, if this is a good relationship and you feel it's safe, why not ask them if you can do $1200 a month instead? They may have a good reason why it needs to be $1500, they might not.
If I was the relative reading this thread, I would be telling a lot of you to fuck off. He/She is already doing a big favor by offering at 0% - Iād be more than a little miffed if my relative would tried to ask for more concessions when Iām not obligated to offer jack shit to help out. OP- take it and run if you can make the terms work for you. Do Uber for a year if you need the extra cash to make it work.
I would suggest never mixing money and family. The potential for disaster outweighs any perceived upside.
Having it paid off in 16 months with zero paid in interest is totally worth it because if you have a 6 year loan, you'll be paying just shy of 20k in interest. If it is a 5 year loan, that's still 15k in interest. And if you just live like a monk and spend all 2k every month on the car payment, it's still about 3400 in interest over the next 14 months.
21% is ridiculously (imo criminally) high. I think your numbers are off though. A $25k loan at 21% with monthly payments of $642 would be paid off in 72 months. That's $46k for a $25k car...insane! Take your relative's offer and diligently pay them back. That is a very kind offer. Don't fail to pay them back, many families are torn apart over things like this. Once the loan is paid off, I recommend taking your relative to a really nice dinner as a thank you.
It's like you just lit $15k and you're asking us if you should go back in time and stop yourself. YES! Take it! Try to sell the car, but if you can't, TAKE IT! This person is basically saving you from a huge mistake. You just signed up to spend your down payment on a house in car payments, and an angel from heaven is granting you a do-over.
Just pay $1500 a month on your current loan and that will pay it off early with less interest. Don't get any friend or relative into your personal finances. That's just giving them control in something that you've already done by yourself.
I kinda agree with you. Paying $1500/month on the current loan is three months longer than paying the relative. Which yes does mean >$4500 more in interest than the relative. **But** with no risk in harming a relationship with a relative if they lose their job or have other financial hardship that prevents them from paying their relative back. Iāve seen enough judge Judy to know how this can go sideways irreparably. Alternatively, they could just try to refinance the loan with an institution that isnāt totally reaming them out. They might be able to get 9-10% at a local credit union which is not only half their current interest rate, but ends up saving them more than half the total interest when considering the compounding. Then, they could up their payment to $1,000/month and still reasonably pay it off with a bit of interest. At 10% interest and $1k/month, theyāre paid off in 28 months instead of 62. And they have $500 more in their pocket per month for budgeting.
Verify that the lender will allow early payoff. The total cost of the loan, from a quick basic calculator, is about $41k. It makes sense to take them up on their offer, and it makes sense to figure out your financing otherwise to make ends meet. But only if the lender allows for early payoff without some amount of fees or interest.
Yes you would be $16,166.33 better off or $19,164 if it's actually 72 months.
My calcualtions say paying off a $25K loan in 62 months at 21% is around $660/month. It is absolutelya no brainer financial decision if you can afford the cash flow. Paying nothing in finance costs versus paying what my rough calculation says is $16,000 in finance cost? Are you kidding? Thank the family member profusely.
Just whatever you do.. Pay. them. back. Make it your life mission to pay them back. Do you know how lucky you are to have a relative to offer you a loan like that?
Itās a no-brainer. (21%? That financing company should be investigated), My roommate had a credit card debt for 7 years. She was having trouble making a dent in it due to the high interest rate. I paid it off for her, no interest. She paid me back within the year.
Questions: Have you already signed the Contract with the Loan Company? If so, is there an Early Repayment Penalty? are you on the hook for the full contracted amount? Has the relative given you a Repayment Period or schedule? While they are saying No Interest, it doesn't mean other Fees and Charges don't apply.
Mixing money and family is never a great idea, would you consider just putting an extra $1000 per month on your payment towards principal? Sure you wonāt save the full interest, but should still be close to $10k savings without worrying about family headaches
Keep the existing loan and double up on your payments putting the extra money each month toward the principal only. I donāt like borrowing from relatives (or friends) because if it ends badly, then the relationship is ruined.
1. What is the length of the loan for the relative? is it really $1,500 until the $25,000 is paid off? 2. Is there no early termination penalty for the car loan? 3. Is the loan collateralized? (Is he going to take the car if you donāt pay?) 4. Is your relationship with them good and will them lending you money make family events awkward?
Most of the time I'd say "be wary of doing business with relatives", but jfc, 21%... you gotta do whatever you can to get out of that loan. $25k/$1500 is just about 17 months. And you can afford it. Do it.
I've done this recently with my parents. I owed like $6500 on a private student loan that's variable interest. Was at 10.02%. Still had like 7-8yrs left on it. So I asked my parents for a $6500 loan. They said sure, interest-free even. I'll pay them back over the next 2-3yrs. My new monthly payment increases by $50, but 1) I can handle that, no problem and 2) I'm not going to have to pay the extra thousands of dollars in interest, on top of the thousands I already paid to the bank in past years. As long as you can handle the monthly, it's a no-brainer.
Yes. See if they would accept $1,000. Let them know $1500 is a tough stretch, but you could make $1,000
Another option is to see if you can refinance with a credit union. Make an account and get a loan through them. It will be like 5-7% interest and your payments can be much lower than 1500 and it will help that you have something on your credit still.
Paid off my car in December at 1.9%. I begged my credit union to extend the loan but that was a big NO so hubs had to buy his own. Heās at 7% but thatās better than most now. Take the relatives loan. You will have it paid off sooner with no interest. You can invest that amount after youāre paid up to save for your autoās maintenance. Good for you for buying your car!
> I recently purchased a car for $25k on finance. Since I have new credit with little history, they approved me but with a 21% APR for 62 months, resulting in a monthly payment of around $600. That is not a $25,000 car. That is a $37,200 car (62 months x $600 per month) based on the financing. If there was no financing, you can get a much more expensive car for that money.
Youāll have that car paid off in a little over a year with the 0%. Absolutely do that and try to pay more each month if you can, just to get rid of that expense as fast as you can. Hell of a good deal especially if itās something you can swing. Also GET THIS IS WRITING. CANNOT STRESS THAT ENOUGH.
If you can pay $1500 to him then you can also pay $1500 to the monthly car payment. This will greatly reduce your interest. The 0% is better but it can complicate relationships when money is involved.
62 * 600 = 37,200. IDK. How much do you care to save $12,000? Personally, I recommend you never pay interest you don't absolutely have to.
If you don't take it, I will take your relative's deal.
Your relative is doing you a solid. He's basically gifting you ~$1500 using today's savings interest rates (and saving you way more than that). Would be a great gesture to respond with a little gift when you're able to.
It sounds like this person is trying to help you out because other wise there is no benefit in it. Maybe you can ask if you can pay them $1,000 or $1,200 instead if you are concerned about not having the money for that.
Take the loan, free and clear in less than a year and a half. Then you'll be all gravy.
21% apr is fcking insane! Why do people just jump willy nilly into massive financial decisions with zero knowledge. If you knew how terrible 21% apr was, you wouldnāt even let your relative finish their sentence before accepting the offer.
Take the loan from the family member and do everything you can to make it work.
Take the offer from the relative immediately and post a yelp review of this dealershipās predatory practices. 21% interest is absolutely criminal
Take the relative's loan. They're also more flexible if you end up having some kind of emergency
Unpopular opinion: ya'll shouldn't be buying $25k cars on finance with a bad credit score
Take the loan and NEVER take out a loan like that again. You're getting a do-over this time, but this was a terrible decision.
I had a female friend who was bragging about getting her first car loan at 21%. I told her "hon, no offense, but you're getting fucked--and not in a fun way." The IRS mandates that any loan between family members be made with a signed written agreement, a fixed repayment schedule, and a minimum interest rate.Ā You can't do the zero percent thing--that's a gift, but the minimum interest rates are pretty low. [Applicable Federal Rates | Internal Revenue Service (irs.gov)](https://www.irs.gov/applicable-federal-rates) There also may be some costs associated with filing the appropriate liens on the vehicle, but none of these additional costs/complexities are anywhere near as expensive as 16K in interest payments. If you do the paperwork right, you could theoretically refinance your family loan to a bank...before you've paid off the entire thing, paying your relative back, extending terms, and lowering payments. "Dear bank, I have a binding 4.94% interest car loan I would like to refinance and extend the terms on..." [https://www.debt.org/credit/loans/friends-family/](https://www.debt.org/credit/loans/friends-family/)
If you take the car loan, at the end of the loan period you would've paid an additional $12,200 in interest on the car. Since you can swing the $1500 per month, take your relative's offer. They're doing you a solid.
Seems like you got your answer to this question. If you haven't already just make sure you have a credit card you are paying in full every month to help build your history for the next time you need major financing.
Take the relatives offer. Put it in writing. See if you can extend it by 6 months to reduce your monthly payment a bit. Then ALWAYS pay them in full every month. After youāve finished paying them off, pay yourself the same amount into an emergency find, a retirement fund, or a savings and investment fund.
Take the relative's offer. And after you paid off, you should throw him/her one heck of a BBQ because he saved you way over 10K in total.
You need to check with the lender to make sure there are no early payoff penalties. Allot of time on these high risk/ high interest loans they penalize you for paying it off. Literally you are signed into those 6 years. Call them and ask for a payoff and look at your loan paperwork.
Take advantage of their offer. Work a part time job if necessary or live cheap and pay it off as soon as possible. Invest in yourself. If will improve your credit score to pay off early.
GET A CONTRACT WRITTEN!!!! I know they're your relative, but for both of your safety, get a simple contract with terms of the loan clearly stated. Not saying they aren't trustworthy or anything, but there are too many stories of people getting screwed over on deals exactly like this one.
Yes you should! 25k loan at 21% for 60 months= 40,580.04 total paid so 15,580.04 is your loss due to interest.
here is a wealth building tip if you decide to take your relatives 0% deal. Once you are finished paying him off save that $1,500 a month. Thatās $18,000 in savings a year. Place those savings into an index fund and build some serious wealth.
If you can afford the basic double and a half payment per month then you won't be burning any money toward interest. However if you fail to pay your relative on time every month you will burn that bridge.
Also do the math for repaying extra 900 per month towards the financing. To compare. No. headaches / complications with the relative
Honestly donāt take the money- like dave Ramsey says āthat turkey dinner taste a lot different if you miss a paymentāā¦..
Negotiate with relative and have it autopay from your account. Let them know you need money to live. Plus have it in writing youāre going to pay it back. Maybe this will be a comfort to them.
I am assuming you put about $5500 down to get that $500 month rate. At 21% on a 62 month note that's roughly $43,000 that you will spend on that car. Take the relative's offer. And have the car paid off in about a year, to a year and a half. Then after that, continue to save $1000 out of that $1500, then by the time your note would have expired, you will have a paid off car, and 35-40k saved in the bank.
Get the payoff amount and have the relative make a cashiers check payable to the finance company. I would also make weekly payments \~$320/week ($25,000/78 weeks) to show my appreciation.
I wouldn't want a relative hanging over my head. Pay $1500/month to this loan, work on building your credit, and refinance in a few months. Make sure you have savings and don't sacrifice them. Let's say you have $10k in the bank, and say oh wow let me put that to 21%. Cool you saved a few bucks. Then in a few months you are laid off and have no savings. Not good. We can't just look at "21%" in a vacuum. Yes it's high, it sucks, pay it ASAP, but don't screw yourself over either.
That relative is incredibly kind. You might be financially uncomfortable with your 'buffer' in your budget for the short term, but he's turning 62 months into 16-17. Take the offer, with the caveat of, this is family, have the discussion of what happens if I need a month deferred, lose my job, etc. As long as it wont sink them to help you, or hurt your relationship, it's a no brainer. They're helping you save 20 grand.
You would be done with this loan less than 17 months (so less than 1.5 years), vs the other loan which is more than 5 years long
I would try to refinance the car through a credit union or bank with a lot lower interest rate. It's nice that your relative wants to loan you money but the payments are high. Plus, I never borrow from relatives.
Take the relativeās loan, just donāt forget to pay them back. 0% is better than 21%
Renegotiate with the relative for a longer term with 6% interest.
If you can afford paying $1500, then definitely go for it. But discuss beforehand on what happens if you become unemployed, etc. Since $25k isn't a small number, getting some sort of legal writing over this loan would be preferable.
I would ask them for a $1000 a month with the agreement you never miss a payment. Tell them the $1500 would negate their blessing as it would leave you unable to eat.
Not only are you saving a ton, the relative is setting you up to be able to pay cash for all future cars. When done paying them, save 1500 a month toward the next car.
Side advice, don't ever finance anything at such a high rate. You can't pay the gov 20 to 30 % and then sales tax and that interest rate and ever get ahead. Your relative is bailing you out - gain some financial education and make better decision. I know, sounds harsh, but it's good advice. The only think I have ever financed at a rate above 2% is my house - an appreciating asset. If I can't pay cash, I can't afford it. If you can't pay cash, you can't afford it.
Normally, I would say donāt take money from family, but with an interest rate like that, you kinda have to.
Basically instead of paying $12,200 ($196 a month). in interest over 62 months. You will be paying them an extra $900 a month. If you paid an extra $900 a month now, the total interest you would pay is already far less (but not 0). If you can afford it, go for it. As others have said, if you can settle on something like 2 years for $1000 give or take, you will be a lot more comfortable.
You have $2k after paying for housing, food, gas, and everything else you absolutely need to live? Then take the deal, that's a big break for you. You'll still have $500 left for savings and entertainment. Don't mess with your relative, they are awesome. Pay it back faster if you can. Next time you want a big ticket purchase, save instead of taking a loan. It's the same as paying back your relative, except your relative is you and you're paying yourself back before making the purchase.
21 percent is wild, but building your credit is something too. Take the relative's offer. Get a credit card, so your next financing thing is not 21 percent.
Very generous relative, just make sure you donāt mess up the trust. Eat dirt if u have to pay that 1500/month back
I honestly donāt know how employees of these companies sleep at night when they have a young kid come in and sign a car loan like that. Absolutely disgusting
Relatives and money in the same sentence usually equals a bad idea. But in this case I wouldn't be able to walk away for sure if I were in your situation. Any discussion of what happens if you miss a payment? Late on payments?
$600 monthly payment and 21% APR -- for how many years is the loan?
Does your monthly expenses include food? People like to leave out food as if itās not a need
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Don't put AI-generated comments here. They are so often wrong and are prohibited.
Well uh, you should have never taken the loan in the first place. But yes. You should take their offer.
do it to eliminate this debt if you can afford it. it seems they are trying to help you avoid those crazy rates. but please donāt take advantage of their goodwill
Think of it like this, if your relative has an investment opportunity that returned over 20%, would you take it? Yes, take it!
That is essentially saying you want to save and use a TV outright through time or go to Rent A Center and get the TV anyway, but now your paying Rent A Center a monthly tax? 0% interest means for however long that interest lasts (14-48... Forever) you pay what the car is worth -the taxes blah blah blah. Don't waste time if your intending to keep it.
Debtor is slave to the lender. Do not do this. Your relationship will change. Just focus on paying your debt and do not change the dynamic of your relavesā relationship with you. It will not end well.
Maybe they believe you can manage the$1500 a month and tying up any excess money will stop you from making another bad decision
That level of payment is likely going to become a problem before it's all done. If anything happens that you need a pile of cash in the next 16m your screwed. How about offer to pay a small amount of interest if they allow you to reduce/extend the payment, maybe 5% and $1000/m.
Your relative is doing you a huge solid
Another optionā¦you obviously need to build your credit. Maybe take half, and refinance through a credit union.