Car Loan Qustions

[WharffRat]

We were discharge 22 months ago.

We just purchased a 2009 vehicle that was a previous car rental

$1250 down and financed $20k @ 16.25% for 72 months

I can pay off that amount with a 401k loan @ 3.25%
but want to repair my credit the best way possible

should I

a> pay off right away

b> make payments for 6 months then pay off

c> make payments for 12 months then pay off

or

d> any other suggestions you might have, and list them


Thanks

[Intoodeep80]

Paying it off right away will not help your credit much.

Creditors like to see payment history - a length of time (preferrably 12 months or more) that payments were made on time and in full.

If it were me, I'd make payments for 6 mo's to a year, just for the positive payment history. Good Luck!

[Brendon]

I wouldn't do a 401k loan. It really traps you if something goes wrong. Lose your job and all of sudden you are paying penalties and lots of taxes.. Did you shop around? 16.25% for 72 months is a LOT of intersest. I would pay it off as soon as possible, w/o borrowing retirement funds. There are other (cheaper) ways to rebuild your credit IMO.

[HakunaMatata]

If your end game is to rebuild credit, you will want to establish a positive payment history (as Intoodeep states). Of course, there is a cost to do this (interest). I hope you've scrutinized your credit reports to ensure all has been reported accurately post-BK. Personally, I wouldn't use 401K funds to purchase a car (although, I understand this may seem advantageous in the interest domain). Have you explored financing with a local credit union? You may be able to secure a better interest rate. Consequently, the rebuilding credit process will cost less. If I were you, my goals would be to find a reduced interest rate and submit larger than standard payments.

Congrats on the car!