Buying Used Car then getting Bank Loan Question

[scarfase99]

So i don't have a lot of big credit (never financed a house or car), so i'm thinking of buying a new car in CASH, and then going to a bank to get an auto loan for it...and then pay it off after 5 months so that it shows on my credit as paid off.

Thoughts? Concerns? I'm going to call banks tomorrow to see what if any fees there are for paying off early.

Is there any catch for doing this AFTER i buy the car? It seems odd to me, but i've never had a car of value to do this before.

Thanks as always my AT people.

 

[CRXican]

what if you can't get the loan?

 

[scarfase99]

i'm more than qualified for the loan, that's not my concern at all. And again, i have hte cash for the car, so that's not a big deal. This is all just a method to actually build some formidable credit line (since all my other loans like student/credit card have been small)

 

[woodie1]

When I was trying to establish credit for the 1st time I bought a car with 1/2 down and the balance in 18 monthly installments. In your situation I think you will more have trouble financing a car you already own but who knows.

 

[manimal]

Paying off in 5 months would have less of an effect then say banking that cash and paying off a 5 year loan every month on time with never a late fee for the entire time of the loan...

 

[scarfase99]

well a dealer buddy of mine told me that if i get the loan for X amount, and pay it off after like 5 months, that then that X amount of credit will stay on my report forever (and it looks good)

I should establish, i'm 30 years old, and have a credit score of 750.

Manimal, i re-read your post several times, and i'm not clear what exactly you're implying, whether it's a good or bad idea?

 

[drebo]

Finance the car before you buy it. It'll make it way easier.

If it's only five months, dealer financing should be sufficient. I've never seen a modern auto loan with a penalty for paying off early. And, most dealers give decent financing through promotions.

Also, I doubt that any bank will give you an auto loan on a car you already own. You may be able to get a personal loan using the car as collateral, but that's not the same thing. It may accomplish the same goal (build credit), but at a much higher interest rate.

Also, good credit is about long-standing accounts in good standing.

 

[Mike Gayner]

Why buy the car first? Why not just get a loan to buy the car?

 

[scarfase99]

Why buy the car first? Why not just get a loan to buy the car?

My fault for not including 2 facts:
1. This is a private party
2. How long does it take to get the loan check? I was looking at US Bank, and it's got a low rate of 2.99% and it's local offices....

Sorry if these questions are dumb, like i said i've never had more than a student loan

 

[Spikesoldier]

this thread makes my head asplode.

 

[scarfase99]

this thread makes my head asplode.

why?

 

[Mike Gayner]

2. How long does it take to get the loan check? I was looking at US Bank, and it's got a low rate of 2.99% and it's local offices...

Can't speak for US banks, but here a loan will be approved within the hour.

 

[scarfase99]

Can't speak for US banks, but here a loan will be approved within the hour.

But so many banks do it online, so then how would you get your payment then? Luckily US Banks has a branch nearby, more just curious about the process now...

 

[Pr0d1gy]

Manimal, i re-read your post several times, and i'm not clear what exactly you're implying, whether it's a good or bad idea?

Manimal is right, it is all about consistency with credit agencies. Anyone could have a good year and pay off a small car loan but not anyone could make that small payment year in and year out for 5 years. You're better off stretching out your payments when your credit isn't great.

 

[scarfase99]

but on a credit report, won't it just show "X dollar amount, 5 year loan. Paid in full on time"?

 

[edro]

As others have said... I doubt a 5 month loan would improve your credit score much.

The factors and how they count toward your credit score: payment history (35 percent); amount owed (30 percent); length of credit (15 percent); credit history (10 percent); and types of credit (10 percent).

You should stick with credit cards to build credit (over many years, with constant payments)
Types of credit is only 10% of your score, so I doubt adding an auto loan would do much.

 

[edro]

but on a credit report, won't it just show "X dollar amount, 5 year loan. Paid in full on time"?

No, it will say "Account active since 1/11/11. X dollar amount. Account paid in full. No late payments"

 

[Elganja]

i don't think you can get a car loan for a car you own 100% already. It would be considered a personal loan and those are MUCH harder to get

if you want to build credit, get a loan for it and pay it off as planned.

if you put like 20% down or something along those lines, it should be eaiser for you to get a loan. Just keep in mind, most banks require the loan to be greater than 6500 or so (i know there is a min, just not sure what)

 

[alkemyst]

i'm more than qualified for the loan, that's not my concern at all. And again, i have hte cash for the car, so that's not a big deal. This is all just a method to actually build some formidable credit line (since all my other loans like student/credit card have been small)

If you never had a big balance financed then how can you say you are more than qualified for the loan?

What you are considering is refinancing...it's a lot harder than getting the loan up front.

If you want to get a loan on the car, do it first...use the cash to pay it off after.

 

[alkemyst]

i don't think you can get a car loan for a car you own 100% already. It would be considered a personal loan and those are MUCH harder to get

It's an automobile refinance. Your car is the collateral so it's a lot different than a personal loan.

The problem is many banks won't do them and many are a lot stricter than a straight auto loan if they do.

 

[ElFenix]

why don't you... go to the bank and see if they even do this?

there are private party lenders out there. interest rate is going to be higher than 2.99% due to that. also, because you have no credit history the interest rate is going to be higher.

 

[kranky]

If you get a loan from the dealer, make sure the interest is calculated using "simple interest".
Avoid:
1. "Buy here, pay here". The dealer carries the loan, and who knows whether it will ever be reported on your credit.
2. Loans that reference "Rule of 78s" or "sum-of-the-years-digits" methods (this is an alternative to simple interest). It would be rare to find one of these, but for someone planning to pay off early, it could be a killer.

 

[Golgatha]

Manimal is right, it is all about consistency with credit agencies. Anyone could have a good year and pay off a small car loan but not anyone could make that small payment year in and year out for 5 years. You're better off stretching out your payments when your credit isn't great.

Yes, but his credit is 750, which is excellent. OP, just buy the car and keep using (and paying off each month) some credit cards. Your score can't get much better.

 

[HardcoreRobot]

you shouldnt pay interest just to build credit. wait till you need the credit. if you never do, then even better

 

[alkemyst]

you shouldnt pay interest just to build credit. wait till you need the credit. if you never do, then even better

When you need the credit and don't have the score/tradeline time to get it then what do you do?