It was a tough decision, since I worked so hard to get approved for financing on my new car in November 2010. Part of the reason I got that car was because I needed it, and part of it was because I wanted to have an installment loan reporting to my credit reports, instead of just my two secured credit cards and my Fido cell phone bill. It’s been recommended to have a variety of types of credit instead of just one type, like revolving credit on a credit card.
Another reason I got the car loan was just for the feeling of accomplishment that I was able to obtain a car loan from a mainstream lender just two years after being discharged from bankruptcy, without any co-signer. And especially in this tough economy with super strict and ever-increasing credit requirements. And it was a nice present to myself. Nothing high end, but it was a fully loaded and sporty, and very fuel-efficient 2010 Toyota Corolla S.
My circumstances changed and I was paying a lot for a car I hardly ever drove
But, since I moved, I got a job that provides me a company van that I take home with me every day. Fuel is paid for by the company, and I am allowed to use the van for personal use on the way home, as long as it’s not too far out of the way. About 9 times out of 10, that works out just fine for me. For the remaining 10% of the time, I would need to use my own vehicle to go do personal errands or visit friends and family that did not happen to be on the way home. I also have an older (gas guzzling) minivan that’s fully paid for. So when I needed to go out, I had my choice of my old minivan or the Corolla. Usually I took the Corolla. And I also work from home on my own business. So between working from home and having a company van that has the gas paid for, I really wasn’t using the financed Corolla much.
I realized just how little I drive it. In 15 months, I had only logged 12,000 kilometers, and that included a 5000 kilometer round trip to Florida and three round trips from the Toronto area to Montreal (1200 kilometers each round trip). Since those long road trips are out of the ordinary, realistically I had only driven the car about 4000 kilometers in 15 months for routine daily driving. The cost of the monthly car payment and the mandatory fully comprehensive insurance that a financed car must have, cost me about $530 a month. Most months I used the car so little, that one tank of gas would often last a whole month! Sometimes less, sometimes more. I decided that $530 a month was a bit too much to paying for the car.
When I got the car, I was living in the suburbs of Montreal, and needed a reliable and fuel efficient car to get to work, do my errands and drive to the Toronto area to visit family. Then due to a family emergency, I had to move to Ontario. Then I got the job with the company van.
And I still have my older, fully paid for, and less stylish minivan. So, I made the decision to sell the financed Corolla. The minivan is holding up well. And yes it’s a gas guzzler, but I only use about one tank of gas a month on average, so it’s cheaper to pay $80 to fill the tank so it can slurp the gas at a thirsty 15 MPG (also about 15 liters per 100 kilometers), rather than keeping paying out $530 a month to keep the seldom-driven Corolla. Even if I have to fill it up 2 or 3 times in a month it’s still cheaper than the car payment and insurance for the Corolla which cost me $530 a month. And that’s without gas!
The car may be sold, but the benefits of the after-bankruptcy loan will live on
I figured that since I’ve been diligently making the payments for 15 months, even if I sell the car, it will show as positive credit on my credit reports. It was credit established after bankruptcy, paid on time every month, and the loan was paid out in full, so it was closed on good terms. So when I go to apply for credit, which will likely be a mortgage next time I apply for any credit, having that credit from my car loan reporting to my credit report will undoubtedly look good for me. It would have been nice to keep the car a bit longer, maybe two years so that the loan could have been for a longer term, but I just couldn’t justify putting out another $5000 for that.
Despite the logic involved, from an emotional standpoint, it was a tough decision to make. It was a nice car and I had worked so hard to get it. But from a financial standpoint, it just didn’t make sense to pay over $500 a month for a car I hardly used. That money is now going towards more productive uses.
Challenges in selling a financed car privately
Incidentally, it was a bit of a challenge to sell a financed car privately. First, I happend to list the car for sale at a time when the value of the car was close to it’s current loan payout (and this is winter, historically a bad time of year to sell a car). Good thing I didn’t wait longer, or I could have been “upside down” on my car loan – meaning I would owe more on the car than it was worth. It would not be fun selling the car and having to bring thousands of dollars of my own money to the table in order to settle the loan.
Second of all, I discovered that a lot of people were nervous about buying a car that was still financed because there’s lien on it. People would call me and ask me to pay out the loan first, so the lien would be released and then they would buy the car. Well… I didn’t have that kind of money available, so it was not an option to pay out the loan first, then sell the car. Of course once the loan is paid out, the lien can come off in a few days, or within a few hours if you request it. So, someone would have to pay for my car in full so I could go to TD Canada Trust and pay out my loan in full. Then wait for the lien to come off. Until then, they would have paid for a car that had a lien on it, and that makes many people nervous. And rightly so, I would probably be nervous if it were the other way around.
But luckily, I found a buyer who realized that it was just a simple matter of paying the loan, briefly waiting for the lien to come off, and he has a nearly new car with a clear title. And to sweeten the deal, I included my winter tires and rims. He got a great deal on a virtually brand new car, and I got out of my loan obligation. I had to act quickly. Each month I waited, it cost me $530 for the car payment and insurance, and the value of the car kept dropping.
I still have 3 other streams of credit reporting to the credit bureaus
I’m sure that having that after-bankruptcy installment loan, from a mainstream lender, on the car for 15 months helped boost my credit score and credit report overall. Only time will tell just how beneficial it was. In order to keep my FICO credit score high, I want to avoid unnecessary hard credit inquiries. The next time I plan on applying for credit is when I apply for a mortgage.
Until then, I keep paying my bills on time and keep my credit report as immaculate as possible. I’ve still got two secured credit cards and my Fido cell phone bill reporting to my Equifax and TransUnion Canada credit reports every month.