Financing a car after BK

[Junes]

I have a quick question. Would it be better to apply and get a car loan to rebuild some credit for buy a car outright cash? Please keep in mind my 2 year goal is to buy a home and was thinking about financing a car and putting half down and pay the remaining off in 6 months or so to build some credit. Ant feedback is greatly appreciated.

[RichM]

I have a quick question. Would it be better to apply and get a car loan to rebuild some credit for buy a car outright cash? Please keep in mind my 2 year goal is to buy a home and was thinking about financing a car and putting half down and pay the remaining off in 6 months or so to build some credit. Ant feedback is greatly appreciated.

Not a horrible idea from a credit-building point of view. Paying cash won't help your credit any. It also depends on what kind of car you want to buy and the cost of insurance where you live. If it's an old car that no sane person would carry collision and comp insurance on, then you might be better off paying cash and saving on the insurance. But if you would be carrying the collision and comp anyway, then that's a moot issue.

Another option would be to finance the whole amount (or most of it), and then make a huge first payment in the amount of half the loan. That would show as a larger loan, eventually paid in full as agreed. Banks may not want to do this because of the lack of a down payment, though. Credit unions are more likely than banks to lend you the full amount based on a handshake promise to pay off a big chunk of the loan off on the first payment. (My credit union routinely cuts car loan checks for the full purchase price.)

Other options that could help you start building credit immediately would be secured credit cards, or a share-secured personal loan from a credit union. The CU would lend you the money, and then hold the money they just lent you in a share account as collateral for the loan. So it's secured, but it doesn't show up that way on your credit report. (It's purely a credit-rebuilding maneuver, but credit unions tend to be okay with that sort of thing.)

-Richard

[Junes]

Awesome thank you for the feedback

[chubbs]

Installment loans only account for 10% of your Fico score. Fico score isn't everything. Underwriters like seeing loans paid on time, I would think a timely paid auto loan could be a great help to you when you app for the mortgage. If it was me, I'd leave as much money in the bank as possible just in case and pay the installments as agreed. I could be wrong but a two year history of on time payments would be more valuable to a mortgage seeker than a paid in six months loan.

Best of luck to you!

[ksgirl38]

I think it would all depend on what the interest rate on the loan would be. If it's a higher interest rate then I'd say put half the money down and try to get a loan for 1-3 years to build credit. I think it's going to take at least 6 months of regular on time payments to see a change reflected in your credit score. In the meantime you can put that money in savings and earn some interest off it. If you can't get a loan under 4.9% I'd probably be more inclined to pay cash.

Don't have any of the dealerships run your credit until you are absolutely sure you found the car you want. The hard pulls will lower your score just a little and there's no point in having every dealership do it. You should be able to get a ballpark figure on what the interest rates are like from the salesman. Also, you might consider going to a dealership you've worked with in the past. I know from experience that Toyota Finance is good to their repeat customers. Some dealerships are the same way.

[mijd]

Two things to keep in mind on the other side of the coin is that banks do look for installment loans history on your credit report. I had a friend apply for a line of credit with GE and was denied because of a lack of installment loan history. He has a good job, good credit history with his credit cards and no BK. However it has been more than 7 years since he has had an installment loan (car payment) and his installment loan history has dropped off his CR. Mortgage companies are definitely going to look for this. Also depending on your income, you may have a harder time qualifing for a mortgage with a higher car payment with a year or more left to pay on the loan. Just my 2 cents. Best of luck with a future mortgage. Seems like you are on the right track.

[tobee43]

mijd, i really hope you are correct about what they look at to approve a mortgage after bk. we have been toying with buy another home near family due to my d/h being so ill. so this week we decided we have to do that.

as luck would have had it our old car had problems so we decided to get a new car, i thought should we pay all cash? we got approved from cap one for 36k, i used 33k of it and put a bit over 12k down. our first payment was last week and i paid 3 months in advance and 22k towards the principle of the 33k loan. leaving a balance of just under 11k. i'm thinking apply 2k towards the principle for the net 5 months and then the loan would be paid in full and maybe help to get a small mortgage. so now we decide due to our family illness resurfacing, that we should get closer to family...now back to the house. i'm thinking we will try with a large down payment and try and finance just a very small amount we could put us in a mother daughter type home and that would be such a big help for us. so i guess we will be seeing in about a month now if these installment payments helped or not. plus we have a perfect payment record the past 3 years plus on cc's. hope that will help it!!

[mijd]

I hope it will help too Tobee. Sounds like you are on the right track. I'm in the car business... although I'm not a saleman. I can only speak from our experience with customers that want to sell us their vehicles. There have been a few that are less than a year into a 30k plus car loan or lease with 6 or 7 hundred dollar a month payment who need to sell at the advice of their mortgage brokers. From what you've written that car is going to paid off real soon. Well done!

[tobee43]

I hope it will help too Tobee. Sounds like you are on the right track. I'm in the car business... although I'm not a saleman. I can only speak from our experience with customers that want to sell us their vehicles. There have been a few that are less than a year into a 30k plus car loan or lease with 6 or 7 hundred dollar a month payment who need to sell at the advice of their mortgage brokers. From what you've written that car is going to paid off real soon. Well done!

funny thing about the dealership kept asking us if we wanted to use our old car as a trade in. but we ended up only having to put less than $500 in it so we are keeping it for a back up car plus i am forever and a day putting trees and plants and dirt in my car so it will good for that also.

one never knows how a lender will react. i'm thinking if we have a really large down payment...let's use an example of a house for 300k but we put 250k on it and finance the other 50k. (example numbers). but that jump in price really matters when looking for the "right" house for our needs right now. we figured it could or would end up helping our credit more in the end. really i always said it really didn't matter to us, but now, all of a sudden, it does so you never know.

[basketsbears]

funny thing about the dealership kept asking us if we wanted to use our old car as a trade in. but we ended up only having to put less than $500 in it so we are keeping it for a back up car plus i am forever and a day putting trees and plants and dirt in my car so it will good for that also.

one never knows how a lender will react. i'm thinking if we have a really large down payment...let's use an example of a house for 300k but we put 250k on it and finance the other 50k. (example numbers). but that jump in price really matters
when looking for the "right" house for our needs right now. we figured it could or would end up helping our credit more in the end. really i always said it really didn't matter to us, but now, all of a sudden, it does so you never know.

I am sorry to hear about your DH health. Keeping you all in my prayers.