April 2012 Moms
Loans: Putting your CAR up as collateral?! Huh?!
We're trying to get financed for a camper. It's dumb because we're already spread way too thin. DH went to the bank today and they said the best options were an RV loan (IR goes up the longer you get the loan) or some kind of loan that puts my paid off car (2006 Matrix) up as collateral?
I've never heard of such a dumb thing.
Experiences?
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Re: Loans: Putting your CAR up as collateral?! Huh?!
I don't have any personal experiances but I would avoid any loans where the interest rate goes up. Putting up your car as collateral wouldn't be such a bad idea, just that if you don't pay the loan back they will repossess your car of course.
Can you get a basic loan at your local credit union?
The rates were way higher with a personal loan.
This thing just seems so odd to me!
My H is a manager at a loan company. They are like a Beneficial or a Citi kind of place. So higher rates but people who can't get a loan at a regular bank, can get loans there. They use vehicles as collateral for money loans.
I worked at several banks and we never did that. But as long as you KNOW you can pay the loan back, I see no harm. Better than an increasing rate.
If you are already spread to thin I would be weary of putting your car up for collateral. If you are sure you are okay making the payments on the loan then I would go for it! It is a lot better than having a ridiculously high IR.
I think she mentioned that they can get a loan on the RV but it's an adjustable interest rate. Not the way to go in my opinion.
yeah, DH said "the longer you have the loan, the higher your IR is". i'm not totally sure what that meant. but he said the IR for a 36mo RV loan is higher than a 36mo loan where i put my car up as collateral.
yeah, i definitely think i'm going to have to break it to DH that i dont' think it's a good idea right now. we can definitely make the payments. but is it worth it? i'm not sure.
right now, i'm putting about $1600/mo into savings. and buying this RV would cut into that. i don't think the rv is a priority to me at the moment.
but, still, i never heard of putting an old clunker up as collateral!
j/k. it's actually a very awesome car. but i don't think it's worth what they are saying it is!
Not sure what kind of RV you are buying but of course your car would have to be comparable to its value, or else you will need to make up the difference. They will be doing some sort of appraisal on it I'm sure.
The bank told him it's worth $9K in "average" condition. Which is accurate as far as condition. But I only paid $16K for it and now it's 6 years old!
The camper is for sale for $8,900, but we'd be financing $8,000.
Sounds like your finances are separate, so probably need to have a conversation. Cause if you both want an RV and you're able to save $1600/month, and it's an $8K total, you could pay cash for it in less than 6 months of savings and pay no interest at all.
I'll admit that I'm pretty biased against debt. I hate it - even for things that "make sense" like school loans and mortgages. I hate the fact that if I sign a piece of paper today, it means that I have to pay $100/month for the next 12 months. Who knows how I want to spend my money a year from now? What if I want to stay home? What if I want to move somewhere? What if a medical crisis happens? What if someone dies and I need money to bury them? I totally get that debt is a part of life, but I'd minimize it at all costs - just cause I like the flexibility of telling my money want to do.
We follow Dave Ramsey's Financial Peace University plan, but not everyone likes that philosophy.
yeah, we COULD pay cash for it in 6mo. but it's a used RV from CL. and i doubt the guy would hold it that long
our savings is REALLY low because of maternity leave. i really don't think it's a good idea for us to use any of the savings (or potential savings) to buy a luxury item. EVEN IF it's a super good deal. which it is at almost $3K less than others we'd been looking at.
I agree, I'm probably overly careful with money, but if I felt even remotely stretched thin I wouldn't spend on something big and recreational.
Yeah, I hear ya. I don't know what interest rate you'd be getting, but if it's 5% and you'd finance $8K of it, you'd pay:
-$218 in interest if paid off in a year at $685/month payment
-$423 in interest if paid off in 2 years at $351/month payment
-$632 in interest if paid off in 3 years at $240/month payment
-$843 in interest if paid off in 4 years at $184/month payment
Anyway, there are some stats to give your DH to find out how much it's really worth to you guys and how great of a deal you're getting now (once in a lifetime deal?) vs. if you saved for it and didn't have to pay interest. I also don't know what insurance would cost you. If you did cancel your gym membership (as in another post), you could dedicate that $145/month to this payment and get rid of it all the quicker or build your emergency fund back up faster...depends on your priorities.
Bankrate.com probably has calculators, but I used one found at my bank's website: https://www.firstnational.com/001/html/en/personal/resource_center/calculators.html#autofinancing
ETA: I'm super anxious about financial issues. Dave Ramsey says that women have a security gland that makes us prettier. When we feel anxious about money, our face tends to tense up, making us uglier! So if men want a prettier wife, help give them financial security as much as possible! I know I'm prettier to live with when I'm not anxious!
Thank you so much for that! It really puts it into perspective. I'll let you guys know how it goes.
I didn't cancel the membership yet. DH and I are going to talk about it tonight when the kiddos go to bed.