Car loan?

lifeonthehill · November 2014

H and I will be looking for a new car next winter/spring 2016. I have been debating whether we should be buy in cash or give a large down payment and have H take out a loan for credit purposes. I have great credit from CCs and SLs but H has just SLs and nothing else.

We would have no problem saving the 12k(ish) we would want to spend for the car but would it be worth getting a loan and making the payments for credit purposes?

ETA: For numbers sake we will say... In March of 2016 we have $7,500 to put down on the car and then took another $5,000 out on a loan in H's name.

Knottie37373131 · November 2014

That could be a possibility. I would try to get a loan from a bank though and not a car lot. By getting a loan at a bank you can generally get a loan between 3-7% whearas a car lot is likely to be 24.99%. I would go to the bank, get a loan for the smaller amount, and then go to look at cars.

Xstatic3333 · November 2014

I definitely don't think a car loan is the worst thing your situation, but I'm not sure that I'd do it just for the sake of the credit score. Though I still have debt myself, once we don't anymore I'll plan to maintain my credit score for emergencies by using a CC for work reimbursement and getting points. I know a lot of people who will also just charge a tank of gas a couple of times a year and pay it right off.

I would look at a car loan if doing so would, say, allow you to use the excess cash to max out Roth IRAs for the year or something similar. H and I are trying to pay off our car loans early because our cash flow is tighter than we'd prefer (really fine, but we have a lot of hobbies and want to travel) but from what you've shared about your financial information I bet it wouldn't really be a huge problem for you guys. I think the three year payoff rule is good to follow, as is getting a car that will hold it's value.

dragonstarjk · November 2014

As long as the payments are easily managed and you know you could pay it off whenever, I would think it's not a bad idea. I work at a bank, and it's surprising how many people don't have bad credit, but just plain don't have enough credit to qualify for things such as buying a home. What we do a lot in my department (personal banking) is give a loan, have the customer put the money in savings, and then just pay the loan automatically from that savings account. It helps them build their credit so they are ready to purchase a home.

I would try a credit union; in my area, banks are between 4-9% but credit unions are typically under 4%.

I would only do this though if he needs to build up his credit. If he already has a decent credit score, it's probably not necessary, although I am not as debt-averse as a lot of people on MM.

Sisugal · November 2014

First - check to see what his credit score is. IF it needs improving - then finance for no longer than 3 years at lowest interest rate available.

hoffse · November 2014

Check Pentagon Federal Credit Union for their rates. We financed ours for 3 years at 0.99%.

Erikan73 · November 2014

I have to agree with PP to see the current status of his score & then shop around for interest rates. If his credit score needs help and you can find a good low interest rate, then go for it. But if he has a good solid credit score, then just pay it off in full if you can & not have to pay interest on it.

Wulfgar · November 2014

I agree with others, I would see what your husband's credit score is and since you can afford it, I would get only a 2 year loan for the car then pay it off as quickly as possible.

Rainzzzy · November 2014

Mortgage lenders often want to see trade lines, not just credit score. You can have a great score but still be rejected due to a lack of trade lines (too few lines, too recent, or not a high enough limit), so if can get a low interest car loan I would do it. You might not plan on buying a home in the near future, but the length of the trade line history matters so it's good to think about this several years in advance.

The PP's suggestion about setting the cash aside in a dedicated account is a good idea, that way the payments are coming from that account and the funds are dedicated to that purpose instead of being mixed with your other household funds.

lifeonthehill · November 2014

Rainzzzy said:

Mortgage lenders often want to see trade lines, not just credit score. You can have a great score but still be rejected for lack of trade lines (too few lines, too recent, or not a high enough limit), so if can get a low interest car loan I would do it. The PP's suggestion about setting the cash aside in a dedicated account is a good idea, that way the payments are coming from that account and the funds are dedicated to that purpose instead of being mixed with your other household funds.

We aren't concerned with mortgages at all at this point and probably wont be for another 15 years at least.

I do like the idea of the seperate account dedicated to paying the loan off

als1982 · November 2014

alyssa32713 said:

Rainzzzy said:

Mortgage lenders often want to see trade lines, not just credit score. You can have a great score but still be rejected for lack of trade lines (too few lines, too recent, or not a high enough limit), so if can get a low interest car loan I would do it. The PP's suggestion about setting the cash aside in a dedicated account is a good idea, that way the payments are coming from that account and the funds are dedicated to that purpose instead of being mixed with your other household funds.

We aren't concerned with mortgages at all at this point and probably wont be for another 15 years at least.

I do like the idea of the seperate account dedicated to paying the loan off

Then what "credit purposes" are you talking about?

Personally, I would just save what you need and pay for it in full, in cash.

lifeonthehill · November 2014

als1982 said:

alyssa32713 said:

Rainzzzy said:

Mortgage lenders often want to see trade lines, not just credit score. You can have a great score but still be rejected for lack of trade lines (too few lines, too recent, or not a high enough limit), so if can get a low interest car loan I would do it. The PP's suggestion about setting the cash aside in a dedicated account is a good idea, that way the payments are coming from that account and the funds are dedicated to that purpose instead of being mixed with your other household funds.

We aren't concerned with mortgages at all at this point and probably wont be for another 15 years at least.

I do like the idea of the seperate account dedicated to paying the loan off

Then what "credit purposes" are you talking about?

Personally, I would just save what you need and pay for it in full, in cash.

I am a product of a #*&! happens life. Not working on credit because in an ideal world we wouldn't need a house until retirement doesn't seem very smart to me. I say 15 years for a house because that is H's plan as of now.

ETA: We work in a private boarding school. The trend is to utilize campus housing and then put more to retirement and build or buy a small home with your retirement later on. I see this as a great option for us but if we decide to leave this career path we would want to buy a home so not working on credit at all seems like a poor choice.

Xstatic3333 · November 2014

alyssa32713 said:

als1982 said:

alyssa32713 said:

Rainzzzy said:

Mortgage lenders often want to see trade lines, not just credit score. You can have a great score but still be rejected for lack of trade lines (too few lines, too recent, or not a high enough limit), so if can get a low interest car loan I would do it. The PP's suggestion about setting the cash aside in a dedicated account is a good idea, that way the payments are coming from that account and the funds are dedicated to that purpose instead of being mixed with your other household funds.

We aren't concerned with mortgages at all at this point and probably wont be for another 15 years at least.

I do like the idea of the seperate account dedicated to paying the loan off

Then what "credit purposes" are you talking about?

Personally, I would just save what you need and pay for it in full, in cash.

I am a product of a #*&! happens life. Not working on credit because in an ideal world we wouldn't need a house until retirement doesn't seem very smart to me. I say 15 years for a house because that is H's plan as of now.

ETA: We work in a private boarding school. The trend is to utilize campus housing and then put more to retirement and build or buy a small home with your retirement later on. I see this as a great option for us but if we decide to leave this career path we would want to buy a home so not working on credit at all seems like a poor choice.

Would occasional-pay-it-right-off CC use be an option for you guys or are you uncomfortable having CCs?

lifeonthehill · November 2014

Xstatic3333 said:

als1982 said:

alyssa32713 said:

Rainzzzy said:

Mortgage lenders often want to see trade lines, not just credit score. You can have a great score but still be rejected for lack of trade lines (too few lines, too recent, or not a high enough limit), so if can get a low interest car loan I would do it. The PP's suggestion about setting the cash aside in a dedicated account is a good idea, that way the payments are coming from that account and the funds are dedicated to that purpose instead of being mixed with your other household funds.

We aren't concerned with mortgages at all at this point and probably wont be for another 15 years at least.

I do like the idea of the seperate account dedicated to paying the loan off

Then what "credit purposes" are you talking about?

Personally, I would just save what you need and pay for it in full, in cash.

I am a product of a #*&! happens life. Not working on credit because in an ideal world we wouldn't need a house until retirement doesn't seem very smart to me. I say 15 years for a house because that is H's plan as of now.

ETA: We work in a private boarding school. The trend is to utilize campus housing and then put more to retirement and build or buy a small home with your retirement later on. I see this as a great option for us but if we decide to leave this career path we would want to buy a home so not working on credit at all seems like a poor choice.
Would occasional-pay-it-right-off CC use be an option for you guys or are you uncomfortable having CCs?

H is VERY uncomfortable with CCs. I have them and use two and use them for gas. Each once a month. He wont even use my credit card if I give it to him to put gas in the car.

I know his parents had HUGE issues with them and even now he still struggles to keep his spending in check with the debit card and tries to be cash only.

Xstatic3333 · November 2014

alyssa32713 said:

Xstatic3333 said:

alyssa32713 said:

als1982 said:

alyssa32713 said:

Rainzzzy said:

Mortgage lenders often want to see trade lines, not just credit score. You can have a great score but still be rejected for lack of trade lines (too few lines, too recent, or not a high enough limit), so if can get a low interest car loan I would do it. The PP's suggestion about setting the cash aside in a dedicated account is a good idea, that way the payments are coming from that account and the funds are dedicated to that purpose instead of being mixed with your other household funds.

We aren't concerned with mortgages at all at this point and probably wont be for another 15 years at least.

I do like the idea of the seperate account dedicated to paying the loan off

Then what "credit purposes" are you talking about?

Personally, I would just save what you need and pay for it in full, in cash.

I am a product of a #*&! happens life. Not working on credit because in an ideal world we wouldn't need a house until retirement doesn't seem very smart to me. I say 15 years for a house because that is H's plan as of now.

ETA: We work in a private boarding school. The trend is to utilize campus housing and then put more to retirement and build or buy a small home with your retirement later on. I see this as a great option for us but if we decide to leave this career path we would want to buy a home so not working on credit at all seems like a poor choice.

Would occasional-pay-it-right-off CC use be an option for you guys or are you uncomfortable having CCs?

H is VERY uncomfortable with CCs. I have them and use two and use them for gas. Each once a month. He wont even use my credit card if I give it to him to put gas in the car.

I know his parents had HUGE issues with them and even now he still struggles to keep his spending in check with the debit card and tries to be cash only.

Gotcha. That makes sense given the family history. I think a low-interest car loan makes sense then. Despite DR's protests, a credit score makes life easier. We just needed a credit check to switch cell phone carriers, of all things.

lifeonthehill · November 2014

Xstatic3333 said:

Xstatic3333 said:

als1982 said:

alyssa32713 said:

Rainzzzy said:

Mortgage lenders often want to see trade lines, not just credit score. You can have a great score but still be rejected for lack of trade lines (too few lines, too recent, or not a high enough limit), so if can get a low interest car loan I would do it. The PP's suggestion about setting the cash aside in a dedicated account is a good idea, that way the payments are coming from that account and the funds are dedicated to that purpose instead of being mixed with your other household funds.

We aren't concerned with mortgages at all at this point and probably wont be for another 15 years at least.

I do like the idea of the seperate account dedicated to paying the loan off

Then what "credit purposes" are you talking about?

Personally, I would just save what you need and pay for it in full, in cash.

I am a product of a #*&! happens life. Not working on credit because in an ideal world we wouldn't need a house until retirement doesn't seem very smart to me. I say 15 years for a house because that is H's plan as of now.

ETA: We work in a private boarding school. The trend is to utilize campus housing and then put more to retirement and build or buy a small home with your retirement later on. I see this as a great option for us but if we decide to leave this career path we would want to buy a home so not working on credit at all seems like a poor choice.
Would occasional-pay-it-right-off CC use be an option for you guys or are you uncomfortable having CCs?

H is VERY uncomfortable with CCs. I have them and use two and use them for gas. Each once a month. He wont even use my credit card if I give it to him to put gas in the car.

I know his parents had HUGE issues with them and even now he still struggles to keep his spending in check with the debit card and tries to be cash only.
Gotcha. That makes sense given the family history. I think a low-interest car loan makes sense then. Despite DR's protests, a credit score makes life easier. We just needed a credit check to switch cell phone carriers, of all things.

Yup. My moms credit was in such rough shape from bankruptcy Verizon wouldn't let her get an account. H and I have a family plan that includes her and my younger brother. It has been a couple of years with no issues splitting up the bill so we have left it as is. I understand why but it is crazy credit scores can prevent you from something like that.

brij2006 · November 2014

My personal opinion is that you guys worked so hard to get out of debt, why would you take out a loan and put yourself in debt again? Just for a credit score that you don't need.

Save up the money, pay cash for the car, and don't worry about credit scores. They aren't needed when you're paying cash for things anyways.

formerlyGDaisy09 · December 2014

It sounds like the only reason you H would need to work on a credit score would be for a mortgage, so part of your decision should center around when, if ever, the two of you might want to purchase a house. one thing that does ding a credit score is "lack of credit history"....I've been paying on student loans since I was 18 (9 years) and "lack of credit history" still occasionally appears on my credit report as a reason my score isn't higher (and I'm fairly open here that I've purchased cars with credit, and use CCs for points).

Most car loans I've seen through credit unions have extremely reasonable rates. Because our most recent car purchase was pretty unplanned (I literally got fed-up one day that we were pouring $600++ every 6-8 weeks into fixing H's car and 2 weeks later we had a new-to-us nice car that we plan to drive for the next 8-10 years) we took out a fairly substantial loan on it and it's financed through a credit union at a 0.99% interest rate (so it's low on our priority list of things to pay off compared to our SLs that average 6% interest)

Car loan?

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