So I think I'm stuck at the moment but wanted to share what I have and maybe someone can point me in the right direction. I bought a car back in May of this year and put $2,000 down and have made $1,750 in payments ever since on time each month. It's a 2009 Lincoln MKZ and I have 34,750 miles on it. The car was my first credit purchase and I have a 6% financing rate right now and my payments are $350 per month. Since purchasing the car my credit rating has went up. The car is awesome for me, it's the right size and has all of the ammenities that I want but I would like a little better fuel economy in the city. 2009 Lincoln MKZ's get 18 mpg in the city. That's pretty shitty when you work on a pretty large Army post and the speed limit is 25 mph most of the time. So my question for the forum is should I refinance my car now for 60 instead of 72 months or wait a few more months to let my credit score get a little higher or should I save money for a few months and pay some money down towards a car with better fuel economy? My payoff is $19,631 (bought it for $19,500) and I know it really takes about 39 months for you to even break even when you are financing something after putting only 10% down. So with that said I've clearly got some negative equity in the ballpark of 5-10k.
I would like something like a 2010 Mercury Milan Hybrid eventually, but I'm also open to some other options. I just know that I'm 5-8k out of that kind of price range right now and need a little advice.
Unless you drive a
tonyou won't be making up that negative equity. However, that said you lose money on cars no matter which way you slice it. One point I'd make though, is to get your credit report and score. Generally, you cannot fix credit overnight - at least to the tune of qualifying for 0-2% interest rates where you were in the ok-good range before. Assuming you have perfect payment history, the problem is you need large open to buy/equity and older accounts to bump your credit into the higher 700s. So basically, unless you have a mortgage trade, you need high limits on credit cards with no balances. If you
don'thave those right now, opening all of them (even if you don't use them) will cause your score to go down for about a year with all those inquiries and new accounts.
So before you spend energy making plans, find out about your credit situation - there are some score estimators out there that can help too (ie, if you input all your info, you can select 'pay off this loan' or whatnot to see what happens to your score). Even so, I kind of doubt you are going to come out ahead buying a different car. As for refinancing, unless you are getting super super low interest rate, all you are going to do is pay more interest to another lender all over again just to lower your monthly payment due to where you are in your payment schedule - on a 6% loan your first year is basically the lion's share of the interest.
EDIT: OH, did you actually mean first credit purchase ever? In that case, no, your credit is not going to increase that much this quickly. You have no history there, much less the open trade lines. If you are not going to be in the housing market soon, I would start by getting a few credit cards and paying them off every month. Store cards are great for increasing credit score, because they still give you freebie credit line increases whereas almost all bank cards now require a hard credit pull for an increase. I bought some furniture last year at Ashley's and put it on a promo on their card, paid it all off in interest free period and I just looked and they bumped me to 10K from 3K even though I haven't made a purchase in forever...
The problem with auto loans (categorically: installment loans) is that as soon as you pay it off - you basically lose that credit history as far as it affects your score. Rent, cell phones, medical - none of that typically hits your credit unless you fail to pay so no bueno there either.
