Q&A: Getting out of a bad car loan can be tricky

Dear Liz: My car payment is $465 a month with a 22% interest rate. I need to get out of this car and into a lower car payment. My credit is poor. What is the best solution to go about this?

Answer: There are a number of solutions, most of which probably won’t work for you.

If you could do without a car for a while and owe less than this car is worth, you could sell it to pay off the loan. The fact you haven’t already done so indicates that you either need a car or have no equity, or both.

Fixing your credit could help you get a better deal, but that’s tough to do with an unaffordable car payment. You need to have enough free cash flow to put a down payment on a secured credit card or make monthly payments on a credit builder loan, which are two of the best ways to rehabilitate your credit. Your finances also have to be sound enough that you don’t miss payments on any credit obligation, including the car.

If you bought an overpriced jalopy from a “buy here, pay here lot,” or you were approved at a regular dealership but your rate got jacked up at the last minute, the dealer may have violated Truth in Lending laws that would allow you to get out of the deal. You’d probably need an attorney to help you pursue this option. You may luck out and find one that can help you at your local legal aid society. Otherwise, you could check with the National Assn. of Consumer Advocates to see if you can find affordable help.

Even if you were successful in getting out of this loan, of course, you still are likely to need a car and you’d still have bad credit, which means that you probably wouldn’t get a better deal on the next car than the bad one you have now.

If you can, the best option might be to get a second job or ask for overtime hours to pay this loan off as fast as possible. Then you could get a credit builder loan, which puts the money you borrow into a certificate of deposit you can claim after making 12 monthly payments. This small loan could be enough to significantly boost your credit scores and give you some cash to make a down payment on the next vehicle.

The best ways to build credit now

Once, building credit meant taking on debt — sometimes expensive debt like a car loan or a credit card with a high rate.

Today, it’s possible to build a good credit score in a year without a big chunk of cash upfront or a large debt at the end. You can make yourself look better to lenders while keeping more money in your pocket. In my latest for the Associated Press, how to build credit the right way.

Friday’s need-to-know money news

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How to Buy Your Kid a Good Credit Score for $200
Starting them off on the right foot.

Money, Safety and Privacy Keep Us Awake at Night
What we worry about when we try to sleep.

Low-Income Families Are Most Likely to Skip the Bank Account — and Pay the Price
Losing interest and protection.

5 Finance Lessons Baby Boomers Could Learn From Millennials
Taking advice.

Monday’s need-to-know money news

best-emv-chip-credit-cardsToday’s top story: How your credit score affects your mortgage rate. Also in the news: Why free shipping isn’t always free, how people are feeling about chip credit cards, and the four personal finance questions you need to ask yourself before retiring.

How Your Credit Score Affects Your Mortgage Rate
Borrowing at higher rates.

Why Free Shipping Isn’t Always Free
Building the price into your purchase.

How much do people really hate chip cards?
Not as much as you may think.

4 Personal Finance Questions You Need to Ask Yourself Before Retiring
Answers you need before taking the big step.

Friday’s need-to-know money news

o-CREDIT-REPORT-facebookToday’s top story: What you need to qualify for a credit card when you have bad credit. Also in the news: How to escape low-yield savings options, how one couple paid off $74,000 of debt in two years, and the building blocks that lead to smart money decisions.

What You Need to Qualify for a Credit Card for Bad Credit
Don’t fall for high fee offers.

How to Escape Low-Yield Bank Savings Options
How to get better returns without increased risk.

How One Couple Paid Off $74,000 in 2 Years
The success of the snowball method.

These Are the ‘Building Blocks’ That Lead to Smart Money Decisions
Teaching kids sound money practices.

Monday’s need-to-know money news

shutterstock_101159917Today’s top story: When and how much a Fed rate hike will cost you. Also in the news: The art of lowering your bills, how to become Social Security savvy, and why you should check your credit report after getting married.

Fed Rate Hike: When and How Much It Will Cost You
What to expect when the Fed pulls the trigger.

Ace the Art of Lowering Your Bills
Treat it like a science.

Are You Social Security Savvy?
What you know and don’t know.

Check Your Credit Report for Inquires After You Get Married
Checking for changes.

Tuesday’s need-to-know money news

money-under-mattress-istock-630x434Today’s top story: The high cost of being unbanked. Also in the news: What you need to ask when choosing a mortgage broker, how getting a car loan can affect your credit, and how your Facebook account can ruin your finances.

The Cost of Being Unbanked: Hundreds of Dollars a Year, Always One Step Behind
No more stuffing your money under your mattress.

4 Must-Ask Questions When Choosing a Mortgage Broker
Getting the important answers.

How Getting a Car Loan Can Affect Your Credit
For good or for bad.

How your Facebook account can slowly destroy your finances
The modern day Keeping Up with the Joneses.

Q&A: Free credit score? Be careful

Dear Liz: As a financial planner, I am surprised you pointed someone in the direction of paying for a credit score. Your score can be accessed at several credit sites for free. Why would you want your readers to pay for something they could get free? 

Answer: As a financial planner, you should understand that “free” is a squishy concept.

Some sites do offer free credit scores in return for your private financial information, including your Social Security number. Most of these sites are committed to protecting your information — the credit bureaus they’re working with insist on that — but the sites may use your data to market financial products and services to you. As the saying goes, if something on the Internet is free, then the product being sold is you.

Many people are comfortable with that trade-off. Others aren’t. The other and perhaps more important reason to buy your credit scores from MyFico.com is that you’ll be getting numbers created from the same FICO formulas that most lenders use. The sites handing out free scores typically offer VantageScores, which is a FICO competitor. This particular reader wanted to see the auto FICO scores his lenders would use, and for that the best source is MyFico.com.

Thursday’s need-to-know money news

dog holding a purse with money in its mouth. isolated on white bToday’s top story: How to save without using your savings account. Also in the news: Why you should have a separate bank account for your side jobs, the bad side to inactive credit, and how much it really costs to own a dog.

4 Ways to Save Without Your Savings Account
Under the mattress doesn’t count.

Why You Need a Separate Bank Account for Your Side Job
Keeping your money straight.

Inactive Credit: How Long It Takes, and How to Use a Credit Card to Prevent It
Not using credit can actually hurt your score.

This is how much it really costs to own a dog per year
Man’s best friend can get pretty pricey.

Q&A: Where to find FICO scores

Dear Liz: I’m looking to buy a car and I’d like to see the FICO scores that lenders use. I already visited MyFico.com, but I want another site that shows my real FICO scores for auto lending. If you could point me in the right direction, that would be great.

Answer: You were at the right site. When you buy one credit score for $19.95 from MyFico.com, you actually get several scores from the same credit bureau. Those include FICO 8, the most commonly-used score, as well as the FICOs that bureau typically supplies to mortgage, auto and credit card lenders. If you want to see FICOs from all three bureaus, you can buy them for $59.85 and get a total of 25 different scores.

The scores lenders actually use to price your loan may be somewhat higher or lower from the ones you’ll see because credit scores change all the time. But if you apply for a loan shortly after buying your scores, they should be pretty close to the ones you see.