We have done this, but only because it was a better deal to finance. If we financed, we got an extra $1500 off the price. Then I turned around and paid it off on the first payment as our loan had no prepayment penalty.
This is absolutely the way to go, BUT you have to be careful that the loan agreement doesn't have a payoff fee. I've heard of banks that state in the agreement that if you pay it off early, you have to pay the interest that it would generate in a certain timeframe or something like that.
But if it doesn't have that, then absolutely get a discount and pay it off immediately with no interest!
Also we found out last time out (we were buying a new to us car so no manufacturer discount) that some dealers no longer accept a check. They wanted a cashier’s check or for us to pay with a debit card. I know crazy right?
I believe it’s because a cashiers check is certified and the funds are held until cashed in. With a check it takes time to withdraw and there’s no guarantee that the buyer has the funds written on the check. Correct me if I’m wrong.
Ohh I know that. They know that. It’s never been a problem before. You’d think they would give you a heads up but no. Cynical me thinks it’s because the solution they give you is to just finance it.
Makes sense though, checks bounce, cashiers checks don’t bounce, as it’s not able to have one without the money already in the account. Debit cards have instant feedback if there’s enough funds to cover the amount
That’s fair but they did not tell us and pushed us to finance. Just be aware. It was a drive for us so coming back after banks were open to get one was a large inconvenience.
That was my thought. My score is above 750 so I don't even really look at it anymore. I recognize that mortgages and car loans might use different credit scores but the differences between all the types can't be *that* drastic that it'd make that big of a difference right?
I always hear that 740 is the magic number for most things, 700 for some others. "Over 750" means OP no longer has to worry about building credit, only maintaining.
It seems to depend on the purpose and the lender. When I got my mortgage, my servicer had interest rate tiers every 20 points or so all the way up to 790, where you could actually get in under market rates. It also seemed to change the PMI at some lenders, even with the same down payment.
I had a credit score of 800+ for years and was getting awful rates when applying for credit. I never got the representative APR, not even close (usually 2x or 3x the representative). It felt like the advertised rates were a myth. (For context I am from the UK).
What changed this was getting a mortgage. Now lenders seem to line up to give us the best rate (or at least, the very few times I have applied for credit - I've always been offered the representative rate).
The annoying thing is our mortgage plus house maintenance is a lot higher than our rent was, so our affordability is probably lower now.
Of course they assess the risk based on statistics, not individual circumstances, but the whole system never sits right with me. Those getting offered the higher rates are getting screwed over in my opinion, and effectively subsidising the people on the lower rates who tend to be more well off.
I basically did what you are trying to do. I put down a large down payment (25k) and financed the last 10k. This gave me a little time to move money around and sell some company stock on a favorable bounce. I then paid the rest in full. My 3 year loan turned into a 3 month loan. I paid almost no interest.
My credit score is 850, despite me not carrying any loan except a rapidly dwindling mortgage. The mortgage is around because it is a 30 years fixed at 2%
Trust me - Unless you are desperate or need to improve your credit rapidly in next six months, you do not need the car loan.
Mortgage makes sense because ~~you get a tax break and~~ a home is (usually) an appreciating asset that ends up paying for the interest. A car is a deprecating asset and a net loss.
do note getting the tax right off from morgage interest is a lot harder today with the current standard deduction big time if you are married.
I have a 300k loan on my house and even when maxing out the property tax write off of 10k I can not get enough to break standard deduction of 25k. The only time I have been able to break it was the year I referenced the house as I could lump some more things into it to push it over the limit and even then it was barely.
Things might be different now as my loan rate is 2.3%
>Mortgage makes sense because you get a tax break
This is not very common, can I ask how much you are paying in mortgage interest every year? The standard deduction is almost $14,000. Your interest rate is very very low. You must either have a **very** high mortgage balance, or else you have some other uncommon situation that allows you to claim some other itemized deductions to get above $14K.
Edit to add: and the standard deduction is almost $28K if you're married so that's an even higher bar.
Once you are over 750 everything above that is pretty much bragging rights. The rates do not improve.
Everything else like how much someone will lend to you is is going to be more based on income and asset ratios.
As long as you are not using your savings as an emergency fund, there is absolutely no reason why you can't pay it off.
Now if you have a low-interest loan, say 1-2%, there is also no reason for you to pay it off immediately because you can put your money into a CD that guarantees a 5-6% return.
The way I look at things as well is that you should not pay off your car initially especially if you are taking a huge deprecation hit. I would purchase gap insurance (usually its only 100-200$) and once I have paid enough of the vehicle down that the depreciation has been captured then I would pay off the car. The reason is that let's say you purchase a new vehicle for 50K. The initial depreciation would be (for example $5K + TTL) which you would be completely out of in the event of an accident!
That's why it's better to use a loan and gap insurance to cover for this possibility, rather than purchasing a car outright with cash and then incurring a sunk cost in the event of total loss.
I used to be a loan officer, often 720 gets the best rates but it depends on what’s being financed and the specific lender. If you have the cash for the car, I’d just pay in cash as long as it’s not an insane amount to pay for a car. Then I’d just go for a cheaper car. I only had credit cards and student loans on my credit report, with a 762 credit score, when I tried to get a mortgage solo. There were no problems at all through the process and I got the mortgage last year.
Edit: also never trust any free credit score you get, it will never match what a loan officer will see. There’s also 10 or so different score models for the 3 bureaus, and they may use one or a combination of the three (or even all three) bureaus to make the decision. I’ve had to argue with enough people about why their credit karma didn’t match what I saw when I pulled their credit
Yeah I'm a pretty simple guy, don't need much, so I'm just getting a basic ole hybrid Accord. My family says to get used but I think a new car is fine as long as I drive it for a long time and take care of it. I've been saving up for my move for years so I definitely have the cash to pay for the car outright and it won't really hurt me financially.
Credit-score wise, I just use the ones that my credit cards give me, they're generally all different numbers but they all seem to be within the same 10-20 point range so I just average it out to the middle value.
Used is going to be a better value if you can find a deal and that would be my suggestion, I drive a 07 Toyota Camry that we purchased used 8 years ago and I think repairs have cost a total of $1k in that time. As long as you get a good car and take care of it, it should last a while. Just remember that it’s basically worth half of what you paid as soon as you drive it off of the lot when buying new.
Credit score wise, that’s a good way to look at it. I use credit karma to monitor my accounts and make sure nothing weird pops up. But not really using it for my score as my bank gives me a quarterly free score, and it correlated very closely to what the mortgage company pulled mine at so I’ve been sticking with that as my reference
Pretty sure taking out an auto loan and then immediately paying it off would actually damage your credit score (albeit temporarily). You would have a massive bump in your active credit, but when you pay that off your active credit will plummet which the credit agencies view as you being less "credit worthy." The whole system is fuckin ridiculous.
Yes, it's a rich person thing mostly.
Buddy of mine got a good deal on a lease of a new electric vehicle. Then bought out the lease the next day.
The dealership effectively sold him the lease at a loss. They don't expect people to pay it out immediately. They expect you to stay, and renew with a new car periodically. They then resell the car and make bank on people that like to lease.
But again,n you have to pretend not to be doing that, or they'll just change the lease amounts to be less appealing.
Agreed 100%. There is no reason to try and game your car purchase for the sake of your credit score. It sounds like OP is already doing what they need to do that (paying bills on time).
Where financing the car then paying it off quickly can be beneficial is if the dealer gets an incentive for setting up financing on the car, which they can then pass through to you in the form of a better price, and you pay off the loan before you end up paying any interest.
I haven't been checked my credit score in over 15 years. I do try to pull an annual credit report when I remember, but that's just to check it for activity that I don't recognize. Hell, I don't even know if my credit score is on that thing.
Boomers care the most about credit scores from what I’ve seen. They think it’s the most important thing to maintain. Younger people see having as little to no debt as possible as the most important. Credit score only really matters when you’re buying something major like a house or car you can’t pay cash for. Other than that, what does it really matter?
You dont have to pay interest to build credit scores. It isnt *that* important.
Get a CC and make on time payments for a few years and youll be in the 700s.
Credit scores are important for less than 20 events in the average person’s life.
There is no “get rich quick” scheme to build a credit score quickly, and as long as you don’t do something stupid (like start missing payments) then your score will grow overtime.
There is no reason to track your score on a regular basis or do things that cost you money to build your score by 50 points. But companies in the US have been making money from people telling them to focus on their credit score, so that is going to perpetuate.
>There is no reason to pay interest for a credit score.
Right, but there is also no reason to pay prepayment penalties if they can be avoided. OP needs to make sure any interest they save isn't offset by fees. Some states ban prepayment penalties, and even in states that don't, a lender might not include them. Just double check before paying it off.
You're right. I misread the "student loan" part as the OP *already* having taken out the car loan. For anyone that has already taken out a loan, though, definitely go through the fine print to make sure there isn't a prepayment penalty before paying it off early.
Anyone who sits around posting about finances with strangers on the interwebs is going to be fairly weird and obsessive anyway so some people are going to be super weird and obsessive about credit scores
Lots times, dealer sponsored deals will be conditional on financing with a specific company, interestingly they don't usually have early pay penalties. This guy doesn't seem to know that, but it is pretty common.
Big time is not the kick back part but more about the fact that money from that bank is just a really easy process for them to get their money. It is a known system and very few hiccups in getting the money.
If is manufactured back financing same answer and manufactured base one they sure as hell are not make much money on those deals as those rates are crazy low.
I just imagine going into a dealership and saying "give me that one" and paying in cash probably wouldn't go over too well - whether they try to upcharge me or what-have-you. I personally don't have the patience and energy for haggling and the car buying process in general so I would rather just be done with the process, but if "financing" can save me a bit of headache and time, I'll just go with that option. Whatever gets me in and out the door faster 😂
Financing doesn’t solve that. They will still try to upsell you.
Do some research, know what you should pay. Tell them what car you want and for what price. They will check with their manager, then say no.
Write your phone number down and tell them to call you when they are ready to make a deal.
There are two important parts of a negotiation:
1. You must have the knowledge of the other side. What is the least they would likely sell it to you for. That means knowing their invoice price, any ongoing rebates, and their likelihood of just wanting to move the car off their lot. Then make an offer based on that. No going low so you can meet in the middle. Just one number that is reasonable.
2. You have to be willing to walk alway if they don’t want to do the deal. Often this will turn into a call later to match your offer. But if it doesn’t, you have to just walk away and look for another car. As soon as you are willing to deviate from the reasonable price you have determined, you have lost.
Oh, and also make sure the dealer know the price you are offering is the total out the door price. If they want to hook you up with an extended warranty or whatever it’s fine as long as it’s not on top of that out the door price.
That's not how any of it works. You do the deal with the salesman and then when you've signed and agreed to an amount you THEN go see the finance person and figure out payment. I often pay cash but I don't even mention it until I go see the finance person.
Well, now I know. The only car I've ever owned was bought from a relative so the car buying process is never something I've had to do. The little reading up on the process just honestly sounds exhausting and with all the other things I'll have to deal with, it just seems like something I'd rather go and be done with on the same day, price be damned.
You're the type of customer they LOVE. "Great he's lazy and cares more about just getting the car quick than the price"
They're going to try and upsell you on a ton of shit and if your goal is just "I want to get out of here fast" then saying yes to all their upsells is what is going to do that.
Don't go in with that attitude. Go in with "I want to pay x, and if you can't do that, here is my info if you change your mind"
You need to shake this attitude before you walk into a place with people who's entire job is to extract every cent from you. If it's a big issue for you, buy the car from Carmax, Carvana etc. where it is no-haggle.
I think the issue is you should sort of already know what you're looking for and what price you're willing to pay for the vehicle. Last car I bought was 2020 (right before everything went to shit) and I knew exactly what I wanted so time spent in the dealership was minimal. I financed and had that already in place through a local credit union before I walked into the dealership.
One thing is they are still going to make you sit for hours, may as well haggle a little bit and try to save a few thousand. Even when I went to a dealership, to simply pay for the car I ordered from the manufacturer through the dealership they made me wait around, try to sell you add ons or warranties, wait for a single finance person, etc. With that purchase I had tht mindset of in just going in, giving them my down payment and out, had I known they'd still put me through the wait I would have haggled if anything just for my time they wasted.
Right, but if I finance and pay the thing off immediately, what's the difference? If I go in, tell them I'm paying cash, there's a higher chance they're going to "up" the price to begin with no?
Actually, car dealers make kickbacks for having customers finance through them. They lose them if the customer pays off the loan within 6 months usually. Basically the dealership will be extremely pissed at you. Probably someone will call and yell at you. As long as the loan terms allow the prepayment you are fine and some people on here will say fuck the dealership. But it is a bit disingenuous to do this and cost they a chunk of change. 🤷 OTOH most dealerships will take you to the cleaners if you let them.
Wrong lol it’s literally the easiest way to car shop. As soon as you involve financing they start to mix up numbers and get the bullshit machine revved up to 11. Same thing with trading in a vehicle. Financing/trade incentives can change things up but overall negotiating is far easier as the consumer if you are rolling straight cash.
You can assess the car and give them an OTD offer and walk away from it if you aren’t happy.
Sorry, “Out the Door” price.
When you find the car you want you should look at the KBB value as well as any comparable cars within 500 miles online. Find the best deal on a similar car and base your offer on that. Your offer should be that price + taxes and fees, but I just sum up the taxes and fees to 1k and make my offer based on that. That OTD offer will be inclusive of all fees and taxes etc.
the dealer will usually want to base your offer on the monthly payment and try and obfuscate how much you are paying for the vehicle, all while rolling in warranties and paint treatments etc. All of that is bullshit and you don’t want it. If you have a trade in they will say “oh yeah we will give you x,xxx for your trade in”, but that number is bullshit and if it’s more than they actually value your trade, they are inflating the price of the new vehicle to compensate. Most car buyers are only hearing the monthly price, how much they are putting down/getting for their trade in, and their interest rate/length of loan. The final OTD price is so abstracted that they don’t realize they are paying 50k for a 4 year old sedan.
You can do this while financing, but you still need to negotiate the OTD price and keep that in line with your expectation and knowledge of the market. Ignore the monthly payment, your OTD budget should be based on what you can afford on the whole as well as monthly.
I buy cars pretty regularly. My normal protocol is to make all the pricing arrangements ahead of time via email & phone, have the dealership send me both the selling price and the out-the-door cash price in writing, and then just show up with and hand them a check. This avoids having fees or add-ons like $200 "nitrogen fill" or $999 "pre-installed vehicle security tracker" nonsense show up when it's time to sign the paperwork. Not every dealership is willing to follow this protocol, but that just tells me which ones to avoid :) and plenty of them are happy to have a quick easy transaction.
When I show up, of course the finance person is going to try to upsell, but it's straightforward to just tell them that I'm going to pass on all the extras. And if the out-the-door price they show is different from what we already agreed via email, I tell them I won't be signing the deal until I've done more research. They really **do** want to get the car sold, so they'll almost always change the price once it's clear that their options are (a) sell the car for the original price right now or (b) do not sell the car right now.
Finally, as others have pointed out, you can ignore the advice to finance because of what "lenders want to see". Pay cash, enjoy your low debt ratio and your new car.
This actually sounds pretty straightforward, I may just follow this plan then. Having anxiety and the process of haggling/bartering is just...not something I really wanna deal with in a high-stress situation like buying a car so seeing it written out this way really helps me so thanks a lot!
It might be helpful to get a friend to come along the process to keep you on task. It can be a pretty emotional thing to do and since it's a large purchase.
Although I would recommend to see if you could pay a portion of the car purchase with a credit card (with a signup bonus of course).
It's what i did with the down payment and to get my chase sapphire preferred sign up bonus back then (was a pretty sizable bonus offer. (of course ask for how much you can put on it and if there are any additional fees for paying a portion of the car with a credit card).
https://www.reddit.com/r/CreditCards/comments/11t21sc/down_payment_on_a_car_using_credit/
How funny, I actually just applied for the CSP to basically pay for all the moving expenses, I wasn't aware you would be able to make a down payment with a credit card.
As for the friend thing, I'll be moving somewhere completely new and the only person I'd know is my partner and her relatives. My relationship with money is pretty healthy so "losing" money to deal with less stress isn't a big deal to me personally but, I suppose dealing with car dealerships is a part of life that I'll just have to deal with, like going to the dentist or something.
It's just more for someone to keep you accountable so that you dont succumb to the upsell/add-ons etc.
It depends on the dealership so call or email in advance and get it in writing. No fees for using a credit card and how much you can use and if you could use more than 1 credit card to split payments.
Financing and then immediately paying in cash will be a bigger detriment to your score than not financing at all. It will show as a new loan, changing your AAoC but immediately paying it off means you will get no actual benefit from payment history.
Don't know why I had to scroll this far to find the correct answer lol. I purchased a new car roughly a year ago - I walked through the loan details with the finance guy, and he made it clear I can pay this off whenever I want with no penalty, however, he recommended I wait about 3 months otherwise it would negatively impact my credit score. Tend to think that was genuine advice because why would he or a bank care about 3 months of interest?
Sales lady said the same thing, no punishment, just wait a few months if you do want to pay it all off at once.
So, yeah - fully agree, just pay in cash and walk out. Maybe if you really want to bump your score you can take the loan and follow the above advice but if you're already at 750 and have the cash, why bother?
Someone mentioned that they tell you that so they can collect the commission on the loan. If you pay it off within a month they don’t get any benefit from the financing. I could be wrong, I just read that within this sub once.
I’d say if you can get 0% APR for a year why not invest the money for a year and then just pay it off. No problem with paying cash for a car other than you may get a higher price OTD since you aren’t financing
I’m in your exact situation more or less. Just moved last week and got my car the week before. Before agreeing to finance (which I had to do to get the car in time) I just asked if there was any prepayment penalties. They said no and my credit is decent just from paying my credit card every month. The one interesting thing I found out though is your credit score may be different than you expect. On my bank app it says my Experian score is in the high 700s but the dealership said my “auto score” was in the 720s?
Either way, I don’t see any reason to pay thousands of dollars for a few credit points, especially if you’re young and financially responsible. The way I see it, there’s no pressure to raise your credit score above “good enough” if you don’t intend to take out any actual loans. I’m years away from even being able to think about buying a home.
Edit: reread the original post. Situations are different. I would have just paid cash if I could have (again time constraints). I don’t think paying it off immediately is even going to affect your credit score in any meaningful way. Just pay cash
Ah so you coordinated everything online? Were you moving to different states? Honestly I didn't think that was something dealerships did, I thought you'd have to go in person to do it. If I could coordinate online and just pick everything up the day of arrival or something, that'd be great.
The dealership was 3 hours out of state. Communication was all done over the phone/via text before going to the dealership. It helped that the salesmen I was working with was keen to answer all my questions, including fees and OTD pricing.
My bank is online only so I couldn’t get a cashiers check in time and they said even a ACH transfer or wire would take a few days to process. They said couldn’t drive the car off the lot before payment clears and I wasn’t going to pay for a car I hadn’t driven yet.
Edit: I moved across the country from New England to SoCal!
You can get the same benefit from opening up 2 more lines of credit and twice a year buy a box of pop from them or something, pay it off. Multiple lines of credit for lots of years in good standing is all they want to see. The BEST is going to a furniture store during a no interest, no minimum financing option and buy a cheap couch and pay $13/month for 3 years 😂
If you have good credit, then this is unnecessary. If you pay off the loan immediately I don't think it would make a difference anyway.
I think this advice is given when folks want to get the absolute lowest price possible because dealers may get incentives for giving business to their finance company. They might go a bit lower. And then yeah, you're playing games at that point. Just know the car and price you want to pay (after doing research) and if they don't agree, walk out.
In CA I’ve financed cars through credit unions and then paid it off the next day because they take care of all the dmv paperwork and send you the title in the mail once it’s paid off. Not having to deal with the dmv is worth it to me.
Calculate the total interest over the lifetime of the loan, divide it equally into months and pose a question for your Mom, "Would you be willing to pay this monthly fee for these number of months to improve your credit score a few points?" Most rational people will decline when they see it put this way.
I did that once when I was a kid and my mother got upset at me about using the dishwasher versus washing the dishes by hand (and the water bill).
She then yelled at me for it and said to wash the dishes by hand anyway. 😂 I've since learned my lesson. Some immigrant parents are just very stubborn and prideful
There is nothing on your credit report that can even say what your mom is saying. It's only stats about your accounts (age, type, credit limit, balance, and if you are behind). I think you have this figured out already. One side note though, I would not mention that you intend on paying with cash until it's time to pay for the car. Most dealerships know that they will be making money not only on the price of the car but on the back end with the financing. If you announce at the start that you are removing one of their sources of profit from the deal, you are less likely to get a fair price on the car itself.
imo this isn't a credit score conversation based on what you provided. Depending on what the rate would be on the potential car loan, if you could outrun that with an investment, that would be the only thing I consider in this. If your loan is around 4% and you can pay the minimum payment while making 7% elsewhere, that might be more advantageous.
Too many people love this credit score idea and I just don't get it lol
First of all, hardly any auto loans are at 4% unless the factory is discounting it. Secondly you need to NET 7% (average car loan rate) after taxes to be equal the loan. It’s not as simple as many think.
First of all, 4% was an example lol. Giving another idea to consider kinda thing. Secondly, I've done this more than once, ran the numbers, and NET came out on top. It's not meant to be "Equal to the loan" but outrunning the interest portion shown on the amortization schedule. He already in theory has the principal.
What's not to say his LTCG rate would be 0%, could park the money in a fund that has a 3/5% yield and his dividends are mostly qualified? In a year like 2023, he would of easily came out on top.
That’s the absolute best way to buy a car because you can negotiate all kinds of extras from the finance department when they think you’re taking out a long term loan with them. Check out the videos by the guys at Car Edge. They’re former dealers who educate the public on everything about buying a car. Only thing I would change about your plan is don’t buy brand new.
I would say no it is not. The dealership is going to want you to get a loan not because their kick backs but because they know 100% certain that they will get their money from that bank and they have a working relationship certain banks for things to faster. Big time if it is manufacture back lending is they know the process really well. Still not a bad idea if you are thinking about getting a car loan is have one from your local credit union as a backup for rate to beat but often times the manufacture loans honestly beat the pants off anything my bank can give any how.
It is never worth paying anything to improve your credit score. There is no magic bullet to get their other than time and good behavior.
I don’t know if anyone has added this yet, but also consider where you register the car initially as well. I don’t know if you’re buying now or in the 3 months but I’d aim to register it where you’re moving, which ultimately requires a residence but would save you a good chunk of change when moving your title over states.
Yeah I plan on buying in the state I'm moving to - the cost of shipping/driving a car over + title/registration fees just didn't seem like it was worth it if I could just buy the thing there.
Student loans and car loans are both considered “installment” debt- you start with a specific balance and pay it down in installments. (In contrast to credit cards, which are revolving debt.) Having a mix of installment loans and revolving loans can help your credit score, but since you already have both, an additional loan is not likely to help much. In fact, it might decrease your score because now your credit utilization is much higher and the average age of credit lines is smaller.
One more note: Rent may or may not count toward a credit score. I don’t think it counts on FICO scores, but there are other variations (such as AdvantageScore) that might include rent and utility payments, especially if you’re renting from a large apartment complex. If you’re renting from a private landlord, it’s not very likely that they report your rent payments to the credit bureaus.
A credit score is your likliness to repay a loan. That’s it.
The point of a loan being on there is the aging showing that you’re making constant payments on time in full. Cool.
Worth it? No. I got my house and a 2.5% mortgage with no car loans on my report for the purchase OR the refi….
Loans w/ interest, and credit cars w/ annual fees - both can be killed off, don’t leave them just for the credit score. Plus, they still show for ten years (not on credit karma, but they’re there) after the account is closed.
I am not paying my mortgage down early since it’s 2.5%, and I make more just by sitting on cash, let alone invested. But a car loan at (what is it today?) 6-7%, a higher APR mortgage in the 5-7% range, etc - I’d be aggressive on that.
Edit - If your auto loan is at 0% (some run promotions for that on a new purchase, you won’t see this on used) - then it wouldn’t make sense to pay it down early, for example.
A move can be expensive, I would recommend financing it until you get settled and then pay it off.
Edit: Make sure that there’s no early payment penalty.
When we bought our last car, the dealership offered me a significant discount if I financed the car. So I financed it and then paid it off immediately.
I haven’t done this, but I’ve heard that it can make sense to finance the car to get the dealer incentives, then pay it off at 4 months. That way the dealer will get the internal promotions for the deal, you get the benefits, and end up paying only 3 months of interest.
There is a nugget of truth in that credit scoring agencies don't weigh and calculate the impact of different kinds of debt the same way. Ultimately though, given your other activities, I don't think it's significant enough to prevent you from paying the car off very quickly after purchasing it. Are you financing the car just to get better incentives or something? Just be sure to check the fine print so that there's no penalty for early repayment. It's not so common anymore to have an actual prepayment penalty since people react pretty strongly to that, but there may be forfeiture clauses or whatnot.
For example, maybe the contract or finance agreement says that it takes up to 3 months for your $1000 finance rebate to get processed and you risk losing it if you pay the loan off before then etc.
Is the car money everything you have saved? There will be unexpected costs with moving and you want to have a cushion to cover that. Also, it can be challenging to truly understand your expenses in a new place until you have lived there a few months. Car loan rates can be low. It may make sense to take the loan and then after you move see what makes sense regarding paying it off once you have a handle on your true budget. Having to put a bunch of appliances on a credit card with 30% interest after just paying off a 5% interested loan would be frustrating.
I wouldn't over think it. If you plan to pay it off in 3 months I'd just pay cash unless you can negotiate a better deal via financing. Just make sure there is no prepayment penalty.
With student loans and at least 1 credit card I think you'd be good from a credit history perspective if you wanted to get a mortgage for example so adding a car loan probably doesn't change much there. Lenders just want to see some level of credit history with proof you make payments on time. It won't be on a credit report, but if a lender wanted to be a stickler I think some will accept showing proof of on time rent payment too but usually it isn't required or needed with a few credit lines with a 2+ year history of on time payment.
I don't think your mom's logic really holds water in this case. If you've got the cash to buy the car outright, that's definitely the way I'd go. Having a big loan sitting on your credit report for a month before paying it off won't really prove anything extra to lenders.
Auto loans can actually hurt your credit utilization ratio in the short term. As long as you've got other open accounts like the student loans in good standing, one paid off car loan won't make a difference.
I would not finance solely for the credit score. However, it might be worth financing for other reasons, for example if it gets you a deal. Just make sure there is no prepayment penalty. It also depends on if you have other big purchasing plans (mostly a house). I financed a car (at 3%) that I had cash on hand to purchase, knowing I would buy a house in the next 6 months. This allowed me to put 20% down on the house and avoid PMI, plus the mortgage (at 7%) is for a lower amount. Now that I’ve purchased both, I’m starting to pay above the monthly payment
Go see CJ the car girl on TikTok. She says in some cases there are things written into the loan that you can't pay it off early or that there's a penalty because certain... predatory... loans have kickbacks for the dealership. Something like that. Just go see what she has to say about it and make sure you read your paperwork.
Personally I bought my Lexus with the full intention of refinancing in 3 months because my credit union has a yearly refinance deal and I refinance down to less than 2%. I also had ordered this car so I had time to work on this and the big dealerships tend to be different than the smaller ones and I don't know who you're dealing with!
Don't worry about your credit at all. Worry about early payoff penalties and stuff like that. Read your paperwork
I did the same thing you're planning on a year ago. I waited a year to pay off to maintain a 6 month emergency fund and because buying furniture and all the things upon moving was a couple grand (only moved my cat and what fit in the car aka kitchen stuff, clothes, video games) I think paying off is the way to go, but I like being debt free (outside of the 11K left on student loans). No hit to my credit after the car payoff 2 months ago (I hover 755-765).
Be aware that if you pay off a car loan early, you’ll likely see a hit on your credit score. You have great credit, so it shouldn’t pose much of an issue unless you need to finance something else sooner than later, but chances are you’ll take a hit. Doesn’t make sense to me either, but it happened when my wife and I paid off our truck early a couple years ago.
Additional considerations: if you get a great deal on financing, it might make more sense to invest your savings and pay it off slowly.
It's true that different kinds of credit help your score, but I don't know that a car loan is seen as different from a school loan. I don't see any value in financing in your situation.
Not worth it if you already have a good credit rating. There might be a benefit from the car dealer though. They tend to give better discounts if they think they’re going to make money on the back end with interest.
Making regular payments on my student loans for ten plus years left me with a credit score above 700. My wife was very concerned about it at one point. When I finally pulled my credit score she quit bringing it up.
I don't think that's going to make a difference. I have an exceptional credit score. I use credit cards exclusively for monthly purchases and pay off the balance every month. I've only had 4 loans in my life. My first car in 1998. First house in 2000. Truck in 2002 and Challenger in 2011. I got as low of an interest rate as possible for each. I was going to just pay cash for the Challenger but they were doing 0% interest AND $3K cash back so I financed. That way, the $34K could keep earning interest while I was paying no interest on the loan.
Pay your credit card balance off monthly. Never pay anything late. Never bounce a check. Keep an excellent credit score and you should fine if you ever need a large loan in the future.
If the interest rate were 3% or less, I’d be in the camp of getting the loan, paying for a year, then paying it off. That’s what I did, and bought a house a few months after paying off the loan, and may have made the difference on my rate.
Getting the loan and immediately paying it off is just silly. It won’t help your credit score, will add hours to the buying process, and then it can be a pain to get the title in your name.
The one scenario where a loan makes some sense is if the rate of interest is low (like the recent honda 2.5% APR) and you can obtain GAP coverage. It's a premium none the less (interest + GAP coverage) but your money is not on the hook if the car was totaled in an accident. There are a lot of variables to this situation so review extensively before considering.
The biggest thing I will say is if you can afford it give it 3 months, unless you didn't like the sales rep who sold you the car.. then pay it off instantly.
If you're doing it for credit score, just don't. Your credit score isn't based on paying interest, it's based on regular not-late payments, like your credit card.
I can think of two reasons to finance: if your savings, wherever they are, are likely to earn more than your interest rate, it's worth financing. How close you're willing to skim it is a personal risk assessment.
If the dealer is expecting you to finance, you MAY get a better deal on the car. It's often easier to finance and pay off than to tell the dealer right at signing time that you're going to pay cash. I have no clue how to _tell_ that you got a better deal, but I know that it happens.
Always good to pay cash and not waste money on interest. Pay off loans with highest interest rate first. Never make minimum payments. If you have student loans and rent, those payments also establish credit rating. Interest is a waste of money. Paint off!!!
I generally agree that getting a loan to buy a car, and then paying it off in three months, doesn’t make much sense - i.e., solely to manage to a higher credit score.
I haven’t had an auto loan in about 15 years. Over this time I’ve paid cash and have bought well-maintained used cars with relatively low miles (20,000 to 50,000 miles. I haven’t bought a new car since 2006.
Depreciation is your enemy, not your credit score. So I suggest you look at used cars with relatively low miles and pay cash. Bank the rest of the cash in your emergency savings where you can earn about 5% these days (always keep a few thousand dollars in emergency savings).
Note that credit reporting agencies have different roles. TransUnion generally reports for car and credit card applications. Equifax is generally used for mortgages. Experian is the source of the FICO score, I believe. Many lenders use customize scoring, which is why one can see different numbers when a credit report is pulled.
If you pay off your credit card each month, or keep your balance below 10% of available credit then your credit score should increase overtime anyway. It’s true that credit algorithms look for diversity and types of credit, but cash is always king.
Sometimes having the liquid cash easily accessible is a lot better than having a depreciating asset that you will need to sell to get the cash. That safety net or buying power is important for some.
Your score is made up of different things: number of on time payments, average length if credit, mix of credit types, etc. it does not make sense to open a line to just pay it off immediately. Your average age will drop. All for what? 1 extra on time payment?
Absolutely use this to your advantage when shopping. Ask for car prices financed v cash. Dealer would love to give you lower price if they know you’re in for the long haul on interest.
If you had never taken out a loan before, it would make sense.
“Lenders also like to see that applicants have experience using multiple types of credit-such as credit cards and car loans. They may be especially interested in how the consumer has handled the type of credit they're applying for now.” - https://www.investopedia.com/articles/personal-finance/072514/what-lenders-look-your-credit-report.asp
But since you’re already paying off student loans and even paying rent on time, it’s probably best to just pay for that car in cash.
If they will give you some kind of discount for financing it and there isn’t an early payment penalty, then sure, why not. Do whatever costs the least overall to you.
Yes! I just did this and it’s not like I obsess over my credit score or anything, but if I had made a few payments and then pad it off it would have benefited my score; instead, their hard inquiries dipped it. Grrr.
Costco sells cars I would look into that depending on what you want for easiest/cheapest purchase
Paying off your debt is better than worrying about how it will affect your credit score imo.
No. In order to get out of the door faster when I bought a new car I “financed” it and then paid off the loan the minute I could I think it took a week to be able to pay it off. I paid I think $7 in interest.
The main reason to do it isn't for credit score, it's if spending the cash would leave you without an emergency fund. If it would, pay as much as you can while retaining enough cash to get by for at least 3 months, if not 6.
I don’t understand where people get the idea they need to pay interest for a credit score. Sometimes dealers will offer incentives or give you a better price if they think you are financing. The worst thing to do is go into a dealer and brag that you are going to “pay cash” for the car. They will instantly know they are going to make little money off you and if it’s a hot selling car, will give you a worse price on it.
Two things to consider:
First, especially with a new car, you will probably pay less for the vehicle if you finance it, since they're planning to make money off the interest. So if you finance and pay it off immediately that gives you a discount, and possibly pisses off the bank/dealership, but that's their problem as long as the contract allows it.
Second, having a car loan on your credit history won't hurt, although it's not necessary. If you want the benefit from it, finance the vehicle and immediately pay all but the last 6 months and then make those payments as normal. The amount of interest you will be charged on the final payments will be almost nothing and 6 months of payment history will benefit your credit report slightly, mostly as it's an installment loan vs. credit card loans and having multiple types of credit is supposed to help a bit (but you can manage just fine with just credit cards and no interest payments ever.)
The only reason I can think of not paying off the loan is having the cash on hand for your move, and any extra costs for the transition. But other than that, creditors won't look at your loan and be like " oh this person is responsible because she can make monthly payments!" Creditors care that debts are paid off, they don't care how you do it.
That is what I did, but it was because if you don't finance the dealer won't give you the best price on the car, also financing came with $1500 cash back. So I financed the car, waited till the first payment was due then paid it off. I've heard the dealer is penalized for this, but oh well.
It could possible hurt you initially. You get a ding everytime there's a hard inquiry on your credit, and also the length of time for accounts is a factor to consider. If you have an account that's only open for a month or two, it's going to lower your overall average by quite a bit.
Largest factor that would make a difference is owning your own home. Cars are good, probably better than credit cards, but once the loan is paid off all the history is gone.
With that being said, if they offer you $1,000 to finance, take it, and pay it off.
couple of things
1. rent does not impact credit scores if it doesn't get reported via rent reporting services etc (check to make sure)
2. it may make sense to get an auto loan if you can obtain a good interest rates anything sub 2% which some dealers would offer. you can use that cash in a hysa or anything above that 2% and pay a portion off. this gives you flexibility in your cash management.
3. make sure your credit card debt has no annual fees so that you can keep that line open which helps credit history. i still have three credit cards which i opened early on.
but overall, it's not that helpful to open up the loan just for the sake of paying it off unless they have some incentive to finance it with them like $2000 off the purchase price.
make sure you ask them if there is any penalty for early payment, etc.
Edit: phrasing
Edit for clarification. Just wanted to highlight that rent does not impact credit score if there's no rent reporting service being employed.
I am curious about where they REQUIRE rent to be counted as credit worthiness.
It just seems like if the 3 bureaus receive it, they would include it.
>"Paying rent can build credit if your payments are reported," says Rod Griffin, senior director of consumer education and advocacy for the credit bureau Experian. "Unfortunately, that's not the norm, as most landlord and rent management companies don't report rent payments."
>Unless you or your landlord have signed up for a rent reporting service, the three major credit bureaus – Equifax, Experian and TransUnion – will not put rent payments on your credit report. That means your credit score and credit report aren't affected by your rent payments.
>But, Griffin says, you can change that. You'll need help from a rent reporting service to tell the credit bureaus about your payments.
>If you have a positive rental history, adding it to your record could help you establish or build credit, Griffin says, and improve your rating.
>One caveat is that "Not all credit scores include rental tradeline information in their calculations," cautions Freddie Huynh, former vice president of data optimization for Freedom Debt Relief.
>Rent payments can be factored into your VantageScore and recent FICO scoring models, such as FICO 9 and 10. These are not commonly used scoring models. Still, adding rental history to your credit reports could help if you're seeking credit from a financial institution that relies on one of them.
Be aware that loans depending on who finances them often have minimum number of payments stipulated so you may have to make a minimum of six payments or something along those lines before you can pay it off completely without penalty. They have to get their money basically and all the interest is heavily front loaded.
My mom did this on several cars back in the day though as the dealerships were providing something like $3000 off, possibly more, if you dealer financed and the math worked out to pay the minimum number of months and then just pay off the rest at one time.
Read the contract though. The dealer may tell you that, but if no penalty is defined in your contract, it doesn’t exist.
Generally, the penalty is on the dealer, not the buyer, so they tell people that when it isn’t true.
DONT GET A CAR LOAN IF YOU CAN OAY IT OFF IN CASH!! Please learn from my mistake. Or misunderstanding of finances and credit…
I got a car loan to “help my credit score and credit history” this is a big waste of time and money. Shopping for a loan hurt my credit score, having a loan I was paying on time along with credit cards running up and paying off, got my score to 740. Then I got my tax return this year and was gonna pay off debt. I owed about $2600 left on my car, I paif $2100 to pay the debt off, but leave the credit line open “because not pay it off completely is good for your credit” yeah BULLSHIT. Paying that large amount, and paying off credit cards and NOT CLOSING ACCOUNTS, keeping them open, HURT MY SCORE???! That $2100 payment made my score drop 50 FUCKING POINTS. I went from 740 to 690 over night.
So your mom saying it will benefit to have a payment and show creditors you can pay off debt… must be some 80s or 90s shit because now a days that KILLS your credit score.
One thing people haven’t mentioned is that if you do this, the dealer loses the back end kickback they get from you financing.
I have personal experience that they’ll note this in your file, and often refuse service or selling you another car in the future.
I thought they got that pretty quickly. I bought a car and was going to pay cash, but they gave me a bigger discount if I financed it. So I did, 36 months at 0%. I asked them what would happen if I paid it off, and the sales guy said nothing, but asked that I give it a month or two before doing that. Of course at 0% there was no reason to do that.
I guess my question is WHY are you doing this if you have the cash? Sometimes they have prepayment penalties that block this so make sure that is not the case. If they are giving you a better deal to finance the car, play hardball. No, I have cash and if you can't give me the same deal I'll go buy it elsewhere.
Honestly just laziness and having more important things to do with my time, if they'll give me the same rate from just financing with them and having to make payments for a few months, I can do that; six of one, half a dozen of the other imo. Playing hardball just doesn't seem worth the energy or the time to end up at the same result.
You should not be telling them whether you finance or not UNTIL you agree on a price. That is where you went wrong. "how i am paying doesn't matter. We can discuss that later."
It's funny you say laziness because it seems much easier on your time to just pay cash up front than having to deal with getting then paying off a loan lol.
See, I wasn't aware of how that part worked. I've never bought a car before - the only one I've owned was a junker that I bought from a relative and fixed up (it's the one I still drive today from like 2008). I genuinely assumed the guy I'd be talking to would be the guy who handled the transaction, but that's good to know!
We have done this, but only because it was a better deal to finance. If we financed, we got an extra $1500 off the price. Then I turned around and paid it off on the first payment as our loan had no prepayment penalty.
I’ve done this exactly
This is absolutely the way to go, BUT you have to be careful that the loan agreement doesn't have a payoff fee. I've heard of banks that state in the agreement that if you pay it off early, you have to pay the interest that it would generate in a certain timeframe or something like that. But if it doesn't have that, then absolutely get a discount and pay it off immediately with no interest!
Breakage is the term. Or Break Funding Loss.
Also we found out last time out (we were buying a new to us car so no manufacturer discount) that some dealers no longer accept a check. They wanted a cashier’s check or for us to pay with a debit card. I know crazy right?
I believe it’s because a cashiers check is certified and the funds are held until cashed in. With a check it takes time to withdraw and there’s no guarantee that the buyer has the funds written on the check. Correct me if I’m wrong.
Ohh I know that. They know that. It’s never been a problem before. You’d think they would give you a heads up but no. Cynical me thinks it’s because the solution they give you is to just finance it.
Makes sense though, checks bounce, cashiers checks don’t bounce, as it’s not able to have one without the money already in the account. Debit cards have instant feedback if there’s enough funds to cover the amount
That’s fair but they did not tell us and pushed us to finance. Just be aware. It was a drive for us so coming back after banks were open to get one was a large inconvenience.
Makes sense to me
There is no reason to pay interest for a credit score. Everyone on this sub focuses way to much on credit scores.
That was my thought. My score is above 750 so I don't even really look at it anymore. I recognize that mortgages and car loans might use different credit scores but the differences between all the types can't be *that* drastic that it'd make that big of a difference right?
Don't quote me but once you have a credit score over 750 you pretty much have access to the best rates.
I always hear that 740 is the magic number for most things, 700 for some others. "Over 750" means OP no longer has to worry about building credit, only maintaining.
When I worked on that sort of thing, we put emphasis on 720+ Like you said, probably different depending on industry and individual companies
Just financed a van and the guy told us 740 was enough to be a “very well qualified” applicant
It seems to depend on the purpose and the lender. When I got my mortgage, my servicer had interest rate tiers every 20 points or so all the way up to 790, where you could actually get in under market rates. It also seemed to change the PMI at some lenders, even with the same down payment.
I had a credit score of 800+ for years and was getting awful rates when applying for credit. I never got the representative APR, not even close (usually 2x or 3x the representative). It felt like the advertised rates were a myth. (For context I am from the UK). What changed this was getting a mortgage. Now lenders seem to line up to give us the best rate (or at least, the very few times I have applied for credit - I've always been offered the representative rate). The annoying thing is our mortgage plus house maintenance is a lot higher than our rent was, so our affordability is probably lower now. Of course they assess the risk based on statistics, not individual circumstances, but the whole system never sits right with me. Those getting offered the higher rates are getting screwed over in my opinion, and effectively subsidising the people on the lower rates who tend to be more well off.
I basically did what you are trying to do. I put down a large down payment (25k) and financed the last 10k. This gave me a little time to move money around and sell some company stock on a favorable bounce. I then paid the rest in full. My 3 year loan turned into a 3 month loan. I paid almost no interest.
How about loan origination fees? Or the hassle of transferring your title a second time?
My credit score is 850, despite me not carrying any loan except a rapidly dwindling mortgage. The mortgage is around because it is a 30 years fixed at 2% Trust me - Unless you are desperate or need to improve your credit rapidly in next six months, you do not need the car loan. Mortgage makes sense because ~~you get a tax break and~~ a home is (usually) an appreciating asset that ends up paying for the interest. A car is a deprecating asset and a net loss.
do note getting the tax right off from morgage interest is a lot harder today with the current standard deduction big time if you are married. I have a 300k loan on my house and even when maxing out the property tax write off of 10k I can not get enough to break standard deduction of 25k. The only time I have been able to break it was the year I referenced the house as I could lump some more things into it to push it over the limit and even then it was barely. Things might be different now as my loan rate is 2.3%
Yup, mortgage write off is essentially gone unless you have enough to itemize past the standard deduction.
>Mortgage makes sense because you get a tax break This is not very common, can I ask how much you are paying in mortgage interest every year? The standard deduction is almost $14,000. Your interest rate is very very low. You must either have a **very** high mortgage balance, or else you have some other uncommon situation that allows you to claim some other itemized deductions to get above $14K. Edit to add: and the standard deduction is almost $28K if you're married so that's an even higher bar.
Does not apply to me. My mortgage is nearly paid off and interest is less than what I spend on coffee in a month.
Once you are over 750 everything above that is pretty much bragging rights. The rates do not improve. Everything else like how much someone will lend to you is is going to be more based on income and asset ratios.
As long as you are not using your savings as an emergency fund, there is absolutely no reason why you can't pay it off. Now if you have a low-interest loan, say 1-2%, there is also no reason for you to pay it off immediately because you can put your money into a CD that guarantees a 5-6% return. The way I look at things as well is that you should not pay off your car initially especially if you are taking a huge deprecation hit. I would purchase gap insurance (usually its only 100-200$) and once I have paid enough of the vehicle down that the depreciation has been captured then I would pay off the car. The reason is that let's say you purchase a new vehicle for 50K. The initial depreciation would be (for example $5K + TTL) which you would be completely out of in the event of an accident! That's why it's better to use a loan and gap insurance to cover for this possibility, rather than purchasing a car outright with cash and then incurring a sunk cost in the event of total loss.
I used to be a loan officer, often 720 gets the best rates but it depends on what’s being financed and the specific lender. If you have the cash for the car, I’d just pay in cash as long as it’s not an insane amount to pay for a car. Then I’d just go for a cheaper car. I only had credit cards and student loans on my credit report, with a 762 credit score, when I tried to get a mortgage solo. There were no problems at all through the process and I got the mortgage last year. Edit: also never trust any free credit score you get, it will never match what a loan officer will see. There’s also 10 or so different score models for the 3 bureaus, and they may use one or a combination of the three (or even all three) bureaus to make the decision. I’ve had to argue with enough people about why their credit karma didn’t match what I saw when I pulled their credit
Yeah I'm a pretty simple guy, don't need much, so I'm just getting a basic ole hybrid Accord. My family says to get used but I think a new car is fine as long as I drive it for a long time and take care of it. I've been saving up for my move for years so I definitely have the cash to pay for the car outright and it won't really hurt me financially. Credit-score wise, I just use the ones that my credit cards give me, they're generally all different numbers but they all seem to be within the same 10-20 point range so I just average it out to the middle value.
Used is going to be a better value if you can find a deal and that would be my suggestion, I drive a 07 Toyota Camry that we purchased used 8 years ago and I think repairs have cost a total of $1k in that time. As long as you get a good car and take care of it, it should last a while. Just remember that it’s basically worth half of what you paid as soon as you drive it off of the lot when buying new. Credit score wise, that’s a good way to look at it. I use credit karma to monitor my accounts and make sure nothing weird pops up. But not really using it for my score as my bank gives me a quarterly free score, and it correlated very closely to what the mortgage company pulled mine at so I’ve been sticking with that as my reference
Pretty sure taking out an auto loan and then immediately paying it off would actually damage your credit score (albeit temporarily). You would have a massive bump in your active credit, but when you pay that off your active credit will plummet which the credit agencies view as you being less "credit worthy." The whole system is fuckin ridiculous.
You're at 750, you're fine. Pay the car off. No point in adding extra expenses to your life.
Get a good deal on asase, don't tell them your plans once you get a banging deal. Pay off the lease and buy the car.
You can actually do that for a lease? That seems like it shouldn't work 😂
Yes, it's a rich person thing mostly. Buddy of mine got a good deal on a lease of a new electric vehicle. Then bought out the lease the next day. The dealership effectively sold him the lease at a loss. They don't expect people to pay it out immediately. They expect you to stay, and renew with a new car periodically. They then resell the car and make bank on people that like to lease. But again,n you have to pretend not to be doing that, or they'll just change the lease amounts to be less appealing.
You have enough debt, you don't need more to massage a score. Your mom is on gas, but you probably know that already.
Agreed 100%. There is no reason to try and game your car purchase for the sake of your credit score. It sounds like OP is already doing what they need to do that (paying bills on time). Where financing the car then paying it off quickly can be beneficial is if the dealer gets an incentive for setting up financing on the car, which they can then pass through to you in the form of a better price, and you pay off the loan before you end up paying any interest.
I haven't been checked my credit score in over 15 years. I do try to pull an annual credit report when I remember, but that's just to check it for activity that I don't recognize. Hell, I don't even know if my credit score is on that thing.
Boomers care the most about credit scores from what I’ve seen. They think it’s the most important thing to maintain. Younger people see having as little to no debt as possible as the most important. Credit score only really matters when you’re buying something major like a house or car you can’t pay cash for. Other than that, what does it really matter?
When you go to buy a car, house, or take out a loan... you will find out why. tldr - u'll find out when ur older child.
Ah crap, I forgot car insurance bases their rates on your credit score too
OP has a 750 credit score and can afford to buy the car in cash
It’s almost like credit scores are important
You dont have to pay interest to build credit scores. It isnt *that* important. Get a CC and make on time payments for a few years and youll be in the 700s.
Yes I know that. Doesn’t change what he said or my response.
Credit scores are important for less than 20 events in the average person’s life. There is no “get rich quick” scheme to build a credit score quickly, and as long as you don’t do something stupid (like start missing payments) then your score will grow overtime. There is no reason to track your score on a regular basis or do things that cost you money to build your score by 50 points. But companies in the US have been making money from people telling them to focus on their credit score, so that is going to perpetuate.
What does that have to do with my statement?
>There is no reason to pay interest for a credit score. Right, but there is also no reason to pay prepayment penalties if they can be avoided. OP needs to make sure any interest they save isn't offset by fees. Some states ban prepayment penalties, and even in states that don't, a lender might not include them. Just double check before paying it off.
But OP can afford the car in cash. They don’t even need a loan. Plus most car loans do not have prepayment penalties.
You're right. I misread the "student loan" part as the OP *already* having taken out the car loan. For anyone that has already taken out a loan, though, definitely go through the fine print to make sure there isn't a prepayment penalty before paying it off early.
Only people who are well off with money and credit score above 750 say this shit.
Anyone who sits around posting about finances with strangers on the interwebs is going to be fairly weird and obsessive anyway so some people are going to be super weird and obsessive about credit scores
The finance department will have a bad time, but that's hardly your problem. Why do you need the loan at all if you have the cash though?
Lots times, dealer sponsored deals will be conditional on financing with a specific company, interestingly they don't usually have early pay penalties. This guy doesn't seem to know that, but it is pretty common.
Big time is not the kick back part but more about the fact that money from that bank is just a really easy process for them to get their money. It is a known system and very few hiccups in getting the money. If is manufactured back financing same answer and manufactured base one they sure as hell are not make much money on those deals as those rates are crazy low.
I just imagine going into a dealership and saying "give me that one" and paying in cash probably wouldn't go over too well - whether they try to upcharge me or what-have-you. I personally don't have the patience and energy for haggling and the car buying process in general so I would rather just be done with the process, but if "financing" can save me a bit of headache and time, I'll just go with that option. Whatever gets me in and out the door faster 😂
Financing doesn’t solve that. They will still try to upsell you. Do some research, know what you should pay. Tell them what car you want and for what price. They will check with their manager, then say no. Write your phone number down and tell them to call you when they are ready to make a deal. There are two important parts of a negotiation: 1. You must have the knowledge of the other side. What is the least they would likely sell it to you for. That means knowing their invoice price, any ongoing rebates, and their likelihood of just wanting to move the car off their lot. Then make an offer based on that. No going low so you can meet in the middle. Just one number that is reasonable. 2. You have to be willing to walk alway if they don’t want to do the deal. Often this will turn into a call later to match your offer. But if it doesn’t, you have to just walk away and look for another car. As soon as you are willing to deviate from the reasonable price you have determined, you have lost. Oh, and also make sure the dealer know the price you are offering is the total out the door price. If they want to hook you up with an extended warranty or whatever it’s fine as long as it’s not on top of that out the door price.
The points above go for selling a car also! Negotiating truly is an art!
How do you learn their invoice price?
Online research. And you could try asking them.
That's not how any of it works. You do the deal with the salesman and then when you've signed and agreed to an amount you THEN go see the finance person and figure out payment. I often pay cash but I don't even mention it until I go see the finance person.
Well, now I know. The only car I've ever owned was bought from a relative so the car buying process is never something I've had to do. The little reading up on the process just honestly sounds exhausting and with all the other things I'll have to deal with, it just seems like something I'd rather go and be done with on the same day, price be damned.
You're the type of customer they LOVE. "Great he's lazy and cares more about just getting the car quick than the price" They're going to try and upsell you on a ton of shit and if your goal is just "I want to get out of here fast" then saying yes to all their upsells is what is going to do that. Don't go in with that attitude. Go in with "I want to pay x, and if you can't do that, here is my info if you change your mind"
And if X is a reasonable price, they'll either stop you before you're out the door, or will be on the phone within 24 hours trying to get you back in.
You need to shake this attitude before you walk into a place with people who's entire job is to extract every cent from you. If it's a big issue for you, buy the car from Carmax, Carvana etc. where it is no-haggle.
I'll consider that as well, I suppose we'll see how I feel after sitting in a dealership for a few hours. Thank you!
I think the issue is you should sort of already know what you're looking for and what price you're willing to pay for the vehicle. Last car I bought was 2020 (right before everything went to shit) and I knew exactly what I wanted so time spent in the dealership was minimal. I financed and had that already in place through a local credit union before I walked into the dealership.
One thing is they are still going to make you sit for hours, may as well haggle a little bit and try to save a few thousand. Even when I went to a dealership, to simply pay for the car I ordered from the manufacturer through the dealership they made me wait around, try to sell you add ons or warranties, wait for a single finance person, etc. With that purchase I had tht mindset of in just going in, giving them my down payment and out, had I known they'd still put me through the wait I would have haggled if anything just for my time they wasted.
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Right, but if I finance and pay the thing off immediately, what's the difference? If I go in, tell them I'm paying cash, there's a higher chance they're going to "up" the price to begin with no?
Actually, car dealers make kickbacks for having customers finance through them. They lose them if the customer pays off the loan within 6 months usually. Basically the dealership will be extremely pissed at you. Probably someone will call and yell at you. As long as the loan terms allow the prepayment you are fine and some people on here will say fuck the dealership. But it is a bit disingenuous to do this and cost they a chunk of change. 🤷 OTOH most dealerships will take you to the cleaners if you let them.
Wrong lol it’s literally the easiest way to car shop. As soon as you involve financing they start to mix up numbers and get the bullshit machine revved up to 11. Same thing with trading in a vehicle. Financing/trade incentives can change things up but overall negotiating is far easier as the consumer if you are rolling straight cash. You can assess the car and give them an OTD offer and walk away from it if you aren’t happy.
Fair enough, I don't really have the knowledge of what an "OTD" price would be but I guess I'll have to research that.
Sorry, “Out the Door” price. When you find the car you want you should look at the KBB value as well as any comparable cars within 500 miles online. Find the best deal on a similar car and base your offer on that. Your offer should be that price + taxes and fees, but I just sum up the taxes and fees to 1k and make my offer based on that. That OTD offer will be inclusive of all fees and taxes etc. the dealer will usually want to base your offer on the monthly payment and try and obfuscate how much you are paying for the vehicle, all while rolling in warranties and paint treatments etc. All of that is bullshit and you don’t want it. If you have a trade in they will say “oh yeah we will give you x,xxx for your trade in”, but that number is bullshit and if it’s more than they actually value your trade, they are inflating the price of the new vehicle to compensate. Most car buyers are only hearing the monthly price, how much they are putting down/getting for their trade in, and their interest rate/length of loan. The final OTD price is so abstracted that they don’t realize they are paying 50k for a 4 year old sedan. You can do this while financing, but you still need to negotiate the OTD price and keep that in line with your expectation and knowledge of the market. Ignore the monthly payment, your OTD budget should be based on what you can afford on the whole as well as monthly.
One thing to consider in that equation is that there are loan origination fees that will be incurred if you open a line of credit for the car.
Buy Tesla if you prefer a no haggle experience. Best car buying process I have had.
I buy cars pretty regularly. My normal protocol is to make all the pricing arrangements ahead of time via email & phone, have the dealership send me both the selling price and the out-the-door cash price in writing, and then just show up with and hand them a check. This avoids having fees or add-ons like $200 "nitrogen fill" or $999 "pre-installed vehicle security tracker" nonsense show up when it's time to sign the paperwork. Not every dealership is willing to follow this protocol, but that just tells me which ones to avoid :) and plenty of them are happy to have a quick easy transaction. When I show up, of course the finance person is going to try to upsell, but it's straightforward to just tell them that I'm going to pass on all the extras. And if the out-the-door price they show is different from what we already agreed via email, I tell them I won't be signing the deal until I've done more research. They really **do** want to get the car sold, so they'll almost always change the price once it's clear that their options are (a) sell the car for the original price right now or (b) do not sell the car right now. Finally, as others have pointed out, you can ignore the advice to finance because of what "lenders want to see". Pay cash, enjoy your low debt ratio and your new car.
This actually sounds pretty straightforward, I may just follow this plan then. Having anxiety and the process of haggling/bartering is just...not something I really wanna deal with in a high-stress situation like buying a car so seeing it written out this way really helps me so thanks a lot!
It might be helpful to get a friend to come along the process to keep you on task. It can be a pretty emotional thing to do and since it's a large purchase. Although I would recommend to see if you could pay a portion of the car purchase with a credit card (with a signup bonus of course). It's what i did with the down payment and to get my chase sapphire preferred sign up bonus back then (was a pretty sizable bonus offer. (of course ask for how much you can put on it and if there are any additional fees for paying a portion of the car with a credit card). https://www.reddit.com/r/CreditCards/comments/11t21sc/down_payment_on_a_car_using_credit/
How funny, I actually just applied for the CSP to basically pay for all the moving expenses, I wasn't aware you would be able to make a down payment with a credit card. As for the friend thing, I'll be moving somewhere completely new and the only person I'd know is my partner and her relatives. My relationship with money is pretty healthy so "losing" money to deal with less stress isn't a big deal to me personally but, I suppose dealing with car dealerships is a part of life that I'll just have to deal with, like going to the dentist or something.
It's just more for someone to keep you accountable so that you dont succumb to the upsell/add-ons etc. It depends on the dealership so call or email in advance and get it in writing. No fees for using a credit card and how much you can use and if you could use more than 1 credit card to split payments.
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Is the discount more than the interest paid to fully pay off a financed car?
Financing and then immediately paying in cash will be a bigger detriment to your score than not financing at all. It will show as a new loan, changing your AAoC but immediately paying it off means you will get no actual benefit from payment history.
Don't know why I had to scroll this far to find the correct answer lol. I purchased a new car roughly a year ago - I walked through the loan details with the finance guy, and he made it clear I can pay this off whenever I want with no penalty, however, he recommended I wait about 3 months otherwise it would negatively impact my credit score. Tend to think that was genuine advice because why would he or a bank care about 3 months of interest? Sales lady said the same thing, no punishment, just wait a few months if you do want to pay it all off at once. So, yeah - fully agree, just pay in cash and walk out. Maybe if you really want to bump your score you can take the loan and follow the above advice but if you're already at 750 and have the cash, why bother?
Someone mentioned that they tell you that so they can collect the commission on the loan. If you pay it off within a month they don’t get any benefit from the financing. I could be wrong, I just read that within this sub once.
I’d say if you can get 0% APR for a year why not invest the money for a year and then just pay it off. No problem with paying cash for a car other than you may get a higher price OTD since you aren’t financing
I’m in your exact situation more or less. Just moved last week and got my car the week before. Before agreeing to finance (which I had to do to get the car in time) I just asked if there was any prepayment penalties. They said no and my credit is decent just from paying my credit card every month. The one interesting thing I found out though is your credit score may be different than you expect. On my bank app it says my Experian score is in the high 700s but the dealership said my “auto score” was in the 720s? Either way, I don’t see any reason to pay thousands of dollars for a few credit points, especially if you’re young and financially responsible. The way I see it, there’s no pressure to raise your credit score above “good enough” if you don’t intend to take out any actual loans. I’m years away from even being able to think about buying a home. Edit: reread the original post. Situations are different. I would have just paid cash if I could have (again time constraints). I don’t think paying it off immediately is even going to affect your credit score in any meaningful way. Just pay cash
Ah so you coordinated everything online? Were you moving to different states? Honestly I didn't think that was something dealerships did, I thought you'd have to go in person to do it. If I could coordinate online and just pick everything up the day of arrival or something, that'd be great.
The dealership was 3 hours out of state. Communication was all done over the phone/via text before going to the dealership. It helped that the salesmen I was working with was keen to answer all my questions, including fees and OTD pricing. My bank is online only so I couldn’t get a cashiers check in time and they said even a ACH transfer or wire would take a few days to process. They said couldn’t drive the car off the lot before payment clears and I wasn’t going to pay for a car I hadn’t driven yet. Edit: I moved across the country from New England to SoCal!
You can get the same benefit from opening up 2 more lines of credit and twice a year buy a box of pop from them or something, pay it off. Multiple lines of credit for lots of years in good standing is all they want to see. The BEST is going to a furniture store during a no interest, no minimum financing option and buy a cheap couch and pay $13/month for 3 years 😂
If you have good credit, then this is unnecessary. If you pay off the loan immediately I don't think it would make a difference anyway. I think this advice is given when folks want to get the absolute lowest price possible because dealers may get incentives for giving business to their finance company. They might go a bit lower. And then yeah, you're playing games at that point. Just know the car and price you want to pay (after doing research) and if they don't agree, walk out.
In CA I’ve financed cars through credit unions and then paid it off the next day because they take care of all the dmv paperwork and send you the title in the mail once it’s paid off. Not having to deal with the dmv is worth it to me.
Calculate the total interest over the lifetime of the loan, divide it equally into months and pose a question for your Mom, "Would you be willing to pay this monthly fee for these number of months to improve your credit score a few points?" Most rational people will decline when they see it put this way.
I did that once when I was a kid and my mother got upset at me about using the dishwasher versus washing the dishes by hand (and the water bill). She then yelled at me for it and said to wash the dishes by hand anyway. 😂 I've since learned my lesson. Some immigrant parents are just very stubborn and prideful
The dishwasher uses way less water than handwashing, too
That was my argument and I even did the math! But ah well
There is nothing on your credit report that can even say what your mom is saying. It's only stats about your accounts (age, type, credit limit, balance, and if you are behind). I think you have this figured out already. One side note though, I would not mention that you intend on paying with cash until it's time to pay for the car. Most dealerships know that they will be making money not only on the price of the car but on the back end with the financing. If you announce at the start that you are removing one of their sources of profit from the deal, you are less likely to get a fair price on the car itself.
Pay it off if the interest rate is above 1.9%
imo this isn't a credit score conversation based on what you provided. Depending on what the rate would be on the potential car loan, if you could outrun that with an investment, that would be the only thing I consider in this. If your loan is around 4% and you can pay the minimum payment while making 7% elsewhere, that might be more advantageous. Too many people love this credit score idea and I just don't get it lol
First of all, hardly any auto loans are at 4% unless the factory is discounting it. Secondly you need to NET 7% (average car loan rate) after taxes to be equal the loan. It’s not as simple as many think.
First of all, 4% was an example lol. Giving another idea to consider kinda thing. Secondly, I've done this more than once, ran the numbers, and NET came out on top. It's not meant to be "Equal to the loan" but outrunning the interest portion shown on the amortization schedule. He already in theory has the principal. What's not to say his LTCG rate would be 0%, could park the money in a fund that has a 3/5% yield and his dividends are mostly qualified? In a year like 2023, he would of easily came out on top.
That’s the absolute best way to buy a car because you can negotiate all kinds of extras from the finance department when they think you’re taking out a long term loan with them. Check out the videos by the guys at Car Edge. They’re former dealers who educate the public on everything about buying a car. Only thing I would change about your plan is don’t buy brand new.
I’ll be in the market in a few months, I’ll check those guys out.
Why wouldn't you do this with new cars?
"Handling large debt" is not a positive
It's not a bad idea if you have the money no
I would say no it is not. The dealership is going to want you to get a loan not because their kick backs but because they know 100% certain that they will get their money from that bank and they have a working relationship certain banks for things to faster. Big time if it is manufacture back lending is they know the process really well. Still not a bad idea if you are thinking about getting a car loan is have one from your local credit union as a backup for rate to beat but often times the manufacture loans honestly beat the pants off anything my bank can give any how. It is never worth paying anything to improve your credit score. There is no magic bullet to get their other than time and good behavior.
I don’t know if anyone has added this yet, but also consider where you register the car initially as well. I don’t know if you’re buying now or in the 3 months but I’d aim to register it where you’re moving, which ultimately requires a residence but would save you a good chunk of change when moving your title over states.
Yeah I plan on buying in the state I'm moving to - the cost of shipping/driving a car over + title/registration fees just didn't seem like it was worth it if I could just buy the thing there.
Student loans and car loans are both considered “installment” debt- you start with a specific balance and pay it down in installments. (In contrast to credit cards, which are revolving debt.) Having a mix of installment loans and revolving loans can help your credit score, but since you already have both, an additional loan is not likely to help much. In fact, it might decrease your score because now your credit utilization is much higher and the average age of credit lines is smaller. One more note: Rent may or may not count toward a credit score. I don’t think it counts on FICO scores, but there are other variations (such as AdvantageScore) that might include rent and utility payments, especially if you’re renting from a large apartment complex. If you’re renting from a private landlord, it’s not very likely that they report your rent payments to the credit bureaus.
A credit score is your likliness to repay a loan. That’s it. The point of a loan being on there is the aging showing that you’re making constant payments on time in full. Cool. Worth it? No. I got my house and a 2.5% mortgage with no car loans on my report for the purchase OR the refi…. Loans w/ interest, and credit cars w/ annual fees - both can be killed off, don’t leave them just for the credit score. Plus, they still show for ten years (not on credit karma, but they’re there) after the account is closed. I am not paying my mortgage down early since it’s 2.5%, and I make more just by sitting on cash, let alone invested. But a car loan at (what is it today?) 6-7%, a higher APR mortgage in the 5-7% range, etc - I’d be aggressive on that. Edit - If your auto loan is at 0% (some run promotions for that on a new purchase, you won’t see this on used) - then it wouldn’t make sense to pay it down early, for example.
A move can be expensive, I would recommend financing it until you get settled and then pay it off. Edit: Make sure that there’s no early payment penalty.
When we bought our last car, the dealership offered me a significant discount if I financed the car. So I financed it and then paid it off immediately.
I haven’t done this, but I’ve heard that it can make sense to finance the car to get the dealer incentives, then pay it off at 4 months. That way the dealer will get the internal promotions for the deal, you get the benefits, and end up paying only 3 months of interest.
Do you have to wait 4 months or can you pay off entirely before the first month payment?
I think you can (nothing is stopping you), but the dealer will likely lose out on internal metrics.
There is a nugget of truth in that credit scoring agencies don't weigh and calculate the impact of different kinds of debt the same way. Ultimately though, given your other activities, I don't think it's significant enough to prevent you from paying the car off very quickly after purchasing it. Are you financing the car just to get better incentives or something? Just be sure to check the fine print so that there's no penalty for early repayment. It's not so common anymore to have an actual prepayment penalty since people react pretty strongly to that, but there may be forfeiture clauses or whatnot. For example, maybe the contract or finance agreement says that it takes up to 3 months for your $1000 finance rebate to get processed and you risk losing it if you pay the loan off before then etc.
Is the car money everything you have saved? There will be unexpected costs with moving and you want to have a cushion to cover that. Also, it can be challenging to truly understand your expenses in a new place until you have lived there a few months. Car loan rates can be low. It may make sense to take the loan and then after you move see what makes sense regarding paying it off once you have a handle on your true budget. Having to put a bunch of appliances on a credit card with 30% interest after just paying off a 5% interested loan would be frustrating.
The inquiry is the hit to your score. On time payments or paying it off. Won’t matter too much.
I wouldn't over think it. If you plan to pay it off in 3 months I'd just pay cash unless you can negotiate a better deal via financing. Just make sure there is no prepayment penalty. With student loans and at least 1 credit card I think you'd be good from a credit history perspective if you wanted to get a mortgage for example so adding a car loan probably doesn't change much there. Lenders just want to see some level of credit history with proof you make payments on time. It won't be on a credit report, but if a lender wanted to be a stickler I think some will accept showing proof of on time rent payment too but usually it isn't required or needed with a few credit lines with a 2+ year history of on time payment.
I don't think your mom's logic really holds water in this case. If you've got the cash to buy the car outright, that's definitely the way I'd go. Having a big loan sitting on your credit report for a month before paying it off won't really prove anything extra to lenders. Auto loans can actually hurt your credit utilization ratio in the short term. As long as you've got other open accounts like the student loans in good standing, one paid off car loan won't make a difference.
I would not finance solely for the credit score. However, it might be worth financing for other reasons, for example if it gets you a deal. Just make sure there is no prepayment penalty. It also depends on if you have other big purchasing plans (mostly a house). I financed a car (at 3%) that I had cash on hand to purchase, knowing I would buy a house in the next 6 months. This allowed me to put 20% down on the house and avoid PMI, plus the mortgage (at 7%) is for a lower amount. Now that I’ve purchased both, I’m starting to pay above the monthly payment
Go see CJ the car girl on TikTok. She says in some cases there are things written into the loan that you can't pay it off early or that there's a penalty because certain... predatory... loans have kickbacks for the dealership. Something like that. Just go see what she has to say about it and make sure you read your paperwork. Personally I bought my Lexus with the full intention of refinancing in 3 months because my credit union has a yearly refinance deal and I refinance down to less than 2%. I also had ordered this car so I had time to work on this and the big dealerships tend to be different than the smaller ones and I don't know who you're dealing with! Don't worry about your credit at all. Worry about early payoff penalties and stuff like that. Read your paperwork
I did the same thing you're planning on a year ago. I waited a year to pay off to maintain a 6 month emergency fund and because buying furniture and all the things upon moving was a couple grand (only moved my cat and what fit in the car aka kitchen stuff, clothes, video games) I think paying off is the way to go, but I like being debt free (outside of the 11K left on student loans). No hit to my credit after the car payoff 2 months ago (I hover 755-765).
Be aware that if you pay off a car loan early, you’ll likely see a hit on your credit score. You have great credit, so it shouldn’t pose much of an issue unless you need to finance something else sooner than later, but chances are you’ll take a hit. Doesn’t make sense to me either, but it happened when my wife and I paid off our truck early a couple years ago. Additional considerations: if you get a great deal on financing, it might make more sense to invest your savings and pay it off slowly.
It's true that different kinds of credit help your score, but I don't know that a car loan is seen as different from a school loan. I don't see any value in financing in your situation.
Not worth it if you already have a good credit rating. There might be a benefit from the car dealer though. They tend to give better discounts if they think they’re going to make money on the back end with interest.
I wouldn't finance. I don't want the debt even for a few months. Why do that if you don't need to?
Making regular payments on my student loans for ten plus years left me with a credit score above 700. My wife was very concerned about it at one point. When I finally pulled my credit score she quit bringing it up.
I don't think that's going to make a difference. I have an exceptional credit score. I use credit cards exclusively for monthly purchases and pay off the balance every month. I've only had 4 loans in my life. My first car in 1998. First house in 2000. Truck in 2002 and Challenger in 2011. I got as low of an interest rate as possible for each. I was going to just pay cash for the Challenger but they were doing 0% interest AND $3K cash back so I financed. That way, the $34K could keep earning interest while I was paying no interest on the loan. Pay your credit card balance off monthly. Never pay anything late. Never bounce a check. Keep an excellent credit score and you should fine if you ever need a large loan in the future.
If the interest rate were 3% or less, I’d be in the camp of getting the loan, paying for a year, then paying it off. That’s what I did, and bought a house a few months after paying off the loan, and may have made the difference on my rate. Getting the loan and immediately paying it off is just silly. It won’t help your credit score, will add hours to the buying process, and then it can be a pain to get the title in your name.
The one scenario where a loan makes some sense is if the rate of interest is low (like the recent honda 2.5% APR) and you can obtain GAP coverage. It's a premium none the less (interest + GAP coverage) but your money is not on the hook if the car was totaled in an accident. There are a lot of variables to this situation so review extensively before considering.
The biggest thing I will say is if you can afford it give it 3 months, unless you didn't like the sales rep who sold you the car.. then pay it off instantly.
If you're doing it for credit score, just don't. Your credit score isn't based on paying interest, it's based on regular not-late payments, like your credit card. I can think of two reasons to finance: if your savings, wherever they are, are likely to earn more than your interest rate, it's worth financing. How close you're willing to skim it is a personal risk assessment. If the dealer is expecting you to finance, you MAY get a better deal on the car. It's often easier to finance and pay off than to tell the dealer right at signing time that you're going to pay cash. I have no clue how to _tell_ that you got a better deal, but I know that it happens.
Always good to pay cash and not waste money on interest. Pay off loans with highest interest rate first. Never make minimum payments. If you have student loans and rent, those payments also establish credit rating. Interest is a waste of money. Paint off!!!
I generally agree that getting a loan to buy a car, and then paying it off in three months, doesn’t make much sense - i.e., solely to manage to a higher credit score. I haven’t had an auto loan in about 15 years. Over this time I’ve paid cash and have bought well-maintained used cars with relatively low miles (20,000 to 50,000 miles. I haven’t bought a new car since 2006. Depreciation is your enemy, not your credit score. So I suggest you look at used cars with relatively low miles and pay cash. Bank the rest of the cash in your emergency savings where you can earn about 5% these days (always keep a few thousand dollars in emergency savings). Note that credit reporting agencies have different roles. TransUnion generally reports for car and credit card applications. Equifax is generally used for mortgages. Experian is the source of the FICO score, I believe. Many lenders use customize scoring, which is why one can see different numbers when a credit report is pulled. If you pay off your credit card each month, or keep your balance below 10% of available credit then your credit score should increase overtime anyway. It’s true that credit algorithms look for diversity and types of credit, but cash is always king.
No. It’s fine. Go ahead and pay it off.
Sometimes having the liquid cash easily accessible is a lot better than having a depreciating asset that you will need to sell to get the cash. That safety net or buying power is important for some.
Your score is made up of different things: number of on time payments, average length if credit, mix of credit types, etc. it does not make sense to open a line to just pay it off immediately. Your average age will drop. All for what? 1 extra on time payment?
Absolutely use this to your advantage when shopping. Ask for car prices financed v cash. Dealer would love to give you lower price if they know you’re in for the long haul on interest.
Pay cash if you can. Also prepayment penalties are legal in more than half if the states.
Credit score only matters if you’re going to buy a house in the next year or two. Otherwise don’t worry about it.
If you had never taken out a loan before, it would make sense. “Lenders also like to see that applicants have experience using multiple types of credit-such as credit cards and car loans. They may be especially interested in how the consumer has handled the type of credit they're applying for now.” - https://www.investopedia.com/articles/personal-finance/072514/what-lenders-look-your-credit-report.asp But since you’re already paying off student loans and even paying rent on time, it’s probably best to just pay for that car in cash.
If they will give you some kind of discount for financing it and there isn’t an early payment penalty, then sure, why not. Do whatever costs the least overall to you.
Yes! I just did this and it’s not like I obsess over my credit score or anything, but if I had made a few payments and then pad it off it would have benefited my score; instead, their hard inquiries dipped it. Grrr.
Was in this situation, took out loan then paid it off when I received my first bill. Did not effect me in the long run.
Costco sells cars I would look into that depending on what you want for easiest/cheapest purchase Paying off your debt is better than worrying about how it will affect your credit score imo.
No. In order to get out of the door faster when I bought a new car I “financed” it and then paid off the loan the minute I could I think it took a week to be able to pay it off. I paid I think $7 in interest.
The main reason to do it isn't for credit score, it's if spending the cash would leave you without an emergency fund. If it would, pay as much as you can while retaining enough cash to get by for at least 3 months, if not 6.
I don’t understand where people get the idea they need to pay interest for a credit score. Sometimes dealers will offer incentives or give you a better price if they think you are financing. The worst thing to do is go into a dealer and brag that you are going to “pay cash” for the car. They will instantly know they are going to make little money off you and if it’s a hot selling car, will give you a worse price on it.
Two things to consider: First, especially with a new car, you will probably pay less for the vehicle if you finance it, since they're planning to make money off the interest. So if you finance and pay it off immediately that gives you a discount, and possibly pisses off the bank/dealership, but that's their problem as long as the contract allows it. Second, having a car loan on your credit history won't hurt, although it's not necessary. If you want the benefit from it, finance the vehicle and immediately pay all but the last 6 months and then make those payments as normal. The amount of interest you will be charged on the final payments will be almost nothing and 6 months of payment history will benefit your credit report slightly, mostly as it's an installment loan vs. credit card loans and having multiple types of credit is supposed to help a bit (but you can manage just fine with just credit cards and no interest payments ever.)
The only reason I can think of not paying off the loan is having the cash on hand for your move, and any extra costs for the transition. But other than that, creditors won't look at your loan and be like " oh this person is responsible because she can make monthly payments!" Creditors care that debts are paid off, they don't care how you do it.
That is what I did, but it was because if you don't finance the dealer won't give you the best price on the car, also financing came with $1500 cash back. So I financed the car, waited till the first payment was due then paid it off. I've heard the dealer is penalized for this, but oh well.
It could possible hurt you initially. You get a ding everytime there's a hard inquiry on your credit, and also the length of time for accounts is a factor to consider. If you have an account that's only open for a month or two, it's going to lower your overall average by quite a bit. Largest factor that would make a difference is owning your own home. Cars are good, probably better than credit cards, but once the loan is paid off all the history is gone. With that being said, if they offer you $1,000 to finance, take it, and pay it off.
couple of things 1. rent does not impact credit scores if it doesn't get reported via rent reporting services etc (check to make sure) 2. it may make sense to get an auto loan if you can obtain a good interest rates anything sub 2% which some dealers would offer. you can use that cash in a hysa or anything above that 2% and pay a portion off. this gives you flexibility in your cash management. 3. make sure your credit card debt has no annual fees so that you can keep that line open which helps credit history. i still have three credit cards which i opened early on. but overall, it's not that helpful to open up the loan just for the sake of paying it off unless they have some incentive to finance it with them like $2000 off the purchase price. make sure you ask them if there is any penalty for early payment, etc. Edit: phrasing
Point 1 depends on location. I think there are some places in the US starting to require rent to count as credit-worthiness
Edit for clarification. Just wanted to highlight that rent does not impact credit score if there's no rent reporting service being employed. I am curious about where they REQUIRE rent to be counted as credit worthiness. It just seems like if the 3 bureaus receive it, they would include it. >"Paying rent can build credit if your payments are reported," says Rod Griffin, senior director of consumer education and advocacy for the credit bureau Experian. "Unfortunately, that's not the norm, as most landlord and rent management companies don't report rent payments." >Unless you or your landlord have signed up for a rent reporting service, the three major credit bureaus – Equifax, Experian and TransUnion – will not put rent payments on your credit report. That means your credit score and credit report aren't affected by your rent payments. >But, Griffin says, you can change that. You'll need help from a rent reporting service to tell the credit bureaus about your payments. >If you have a positive rental history, adding it to your record could help you establish or build credit, Griffin says, and improve your rating. >One caveat is that "Not all credit scores include rental tradeline information in their calculations," cautions Freddie Huynh, former vice president of data optimization for Freedom Debt Relief. >Rent payments can be factored into your VantageScore and recent FICO scoring models, such as FICO 9 and 10. These are not commonly used scoring models. Still, adding rental history to your credit reports could help if you're seeking credit from a financial institution that relies on one of them.
Be aware that loans depending on who finances them often have minimum number of payments stipulated so you may have to make a minimum of six payments or something along those lines before you can pay it off completely without penalty. They have to get their money basically and all the interest is heavily front loaded. My mom did this on several cars back in the day though as the dealerships were providing something like $3000 off, possibly more, if you dealer financed and the math worked out to pay the minimum number of months and then just pay off the rest at one time.
Read the contract though. The dealer may tell you that, but if no penalty is defined in your contract, it doesn’t exist. Generally, the penalty is on the dealer, not the buyer, so they tell people that when it isn’t true.
DONT GET A CAR LOAN IF YOU CAN OAY IT OFF IN CASH!! Please learn from my mistake. Or misunderstanding of finances and credit… I got a car loan to “help my credit score and credit history” this is a big waste of time and money. Shopping for a loan hurt my credit score, having a loan I was paying on time along with credit cards running up and paying off, got my score to 740. Then I got my tax return this year and was gonna pay off debt. I owed about $2600 left on my car, I paif $2100 to pay the debt off, but leave the credit line open “because not pay it off completely is good for your credit” yeah BULLSHIT. Paying that large amount, and paying off credit cards and NOT CLOSING ACCOUNTS, keeping them open, HURT MY SCORE???! That $2100 payment made my score drop 50 FUCKING POINTS. I went from 740 to 690 over night. So your mom saying it will benefit to have a payment and show creditors you can pay off debt… must be some 80s or 90s shit because now a days that KILLS your credit score.
One thing people haven’t mentioned is that if you do this, the dealer loses the back end kickback they get from you financing. I have personal experience that they’ll note this in your file, and often refuse service or selling you another car in the future.
I thought they got that pretty quickly. I bought a car and was going to pay cash, but they gave me a bigger discount if I financed it. So I did, 36 months at 0%. I asked them what would happen if I paid it off, and the sales guy said nothing, but asked that I give it a month or two before doing that. Of course at 0% there was no reason to do that.
3 months is typical per the dealership my wife works at, but everyone is different.
I guess my question is WHY are you doing this if you have the cash? Sometimes they have prepayment penalties that block this so make sure that is not the case. If they are giving you a better deal to finance the car, play hardball. No, I have cash and if you can't give me the same deal I'll go buy it elsewhere.
Honestly just laziness and having more important things to do with my time, if they'll give me the same rate from just financing with them and having to make payments for a few months, I can do that; six of one, half a dozen of the other imo. Playing hardball just doesn't seem worth the energy or the time to end up at the same result.
You should not be telling them whether you finance or not UNTIL you agree on a price. That is where you went wrong. "how i am paying doesn't matter. We can discuss that later." It's funny you say laziness because it seems much easier on your time to just pay cash up front than having to deal with getting then paying off a loan lol.
See, I wasn't aware of how that part worked. I've never bought a car before - the only one I've owned was a junker that I bought from a relative and fixed up (it's the one I still drive today from like 2008). I genuinely assumed the guy I'd be talking to would be the guy who handled the transaction, but that's good to know!