Is this loan a good idea?

Question

We have 3 credit cards: Balance of 530 with 19.8%, 1640 and 1738 both at 29.99%. My hubby had cosigned for his older brother a car and we had to take it from him. It was in a wreck (hit and run) and did not have coverage (his brother lied). We are waiting on the police report. We were going to take the car and sell it but now that it is damaged we must fix it first. We do not have the money. We have been approved for a $6k loan at 28.33% (I assume it is an unsecured loan) with a term of 60 mos and the payment will be 188 a month. In april we will move into a cheaper house to free up some cash and we plan on paying the loan off long before the 60 mos. Does this sound like a good plan? Any advice?

PS Please no lectures about what we should not have done. We know and what's done is done, just trying to fix the mess we are in. Thank you!

The credit cards are literally frozen in my freezer--not to be used again!

Answer 1

Doesnt seem terrible seeing as though the interest rates on 2 of your cards were 29.99%, I'd say go for it and refinance the loan after six months of on time payments for a lower rate, even if you are going to pay it of before 5 years. Its definitely an unsecured loan if you didnt use any collateral to secure the loan.

Answer 2

You should first of all cut up the cards. No cards = no temptation. The car repairs are an extra, and at the moment, unnecessary cost. You may actually make more for the car if you sell the components that survived the crash. You should talk to someone at a wrecking yard, and also ask some mechanics for advice. These people work in the industry and might be able to give you some good advice on where to sell it. If you sell the parts individually, you may very easily make more money than you would if you just sold the car. You would also avoid the expense of having the car repaired, which is an unnecessary cost you simply cannot afford.

A lot of wrecking yards buy old damaged cars for scrap. Considering the minimal outlay, (as opposed to taking a six thousand dollar loan at the unbelievable rate of 28.33%) this would be a better option.

Now, I will deal with the problems associated with the loan. 28.33% is way too high, and here is why.
Your minimum interest each week on a loan for six grand will be $326. A WEEK. That is just keeping the interest under control, not paying any of the loan off. Your actual repayments could be a lot higher.

I don't earn that kind of money and I'm on minimum wage (Australian). You would be looking at weekly repayments of about $354 just to cover the loan. It's because the interest rate is ridiculously high. DO NOT TAKE THE LOAN, you will never ever pay it back.

How does paying $188 a month pay back a six grand loan over 5 years? You would be paying back $11280 for a $6000 loan (that's five grand more!) but by my calculations, $188 wouldn't even cover a week's payment, let alone a month. Something sounds very dodgy. I strongly advise you not to take the loan. You have a chance right now to dig yourself out of debt, but this is a very very bad idea, taking this loan.

As for the cards, see if you can get them consolidated into one cheap loan with a very low interest rate. Go see a mortgage or loan broker. You may be able to save thousands of dollars by doing this, because most of what you are paying will be interest, not the amount you actually owe, on the cards. Otherwise, pay the cards off with the highest interest rate first. Be stingy. No luxuries. Your priority is to get out of debt and not be declared bankrupt.

There are plenty of resources and books for people to get out of debt. Try your local library.

DON'T TAKE THE LOAN! You are already up to your eyeballs in credit card debt. This will only make it much much worse. Imagine what your credit report will look like with that many cards and a loan at that rate? Something tells me your credit rating isn't so crash hot already, because 28.33% is pretty damn high.

For some budgeting tips, feel free to email me. I am great with money, and there's a few simple things you could do that could save you thousands with minimal pain.

You can get out of this mess. You just have to take control now.

Answer 3

Shifting your debt to another loan is a bad idea. All too often once the credit cards are paid off, folks run them right back up. You really are not getting much of a break on that interest rate and you will be dragging it out for 5 years. You'll probably end up paying more in interest overall.

Better idea is to sit down and set up a very strict budget. Get rid of all the extras -- cell phone, eating out, new clothes, premium cable and internet, etc. Take every penny you can squeeze out of that budget and put it on the highest interest rate credit card, while paying mininums on the rest. When the highest rate card is paid off, move to the next till it is all paid in full.

Look for other ways to bring in cash. Have a garage sale, collect alum cans, get a second job.

As to the car, have you checked to see what the fair market value of the vehicle is versus the loan payoff? Even if you fix the car, you might not get enough to pay off the outstanding loan balance. If you put money into the vehicle, you want to be sure the sale price will increase more than just what you spend.

You may have to talk to the car lender to work out some kind of unsecured loan to cover the balance of that loan when you sell.

Answer 4

Perhaps, you might try to work something out with your husband's brother, to have him help you pay to get the car fixed. I don't know if he was the person who was driving the car when it was in the accident, but if he was this might be an idea. I hope that I have helped you. By the way, Happy New Year!!

Answer 5

it seems like a good plan since you are moving that would free up some income.i would use what ever money left over to pay down you credit cards. i guess it all depends on how much damage has been done to the car. we have been where you are at. i would sell the car and get it off your hands

Answer 6

The only thing I can recommend is to stay away from that high interest loan.Everyone says they will pay it off early.Please don`t go that way.

Answer 7

Sounds to me like you guys are in survival mode. You need to do what best for you guys if this will lower your month and keep you above water go for it.

Now you just turned a new leaf and it's a new year make the best of it and work on that debt. You know how to do it you said so your self.

Good Luck I know you can do it.

HAPPY NEW YEAR!!!