Auto Loan APRs Advantages, Tax Credit, and Credit History/Score

[Anonymous]

Hello,

This is my first post and I'm just finally trying to get my financial life in order and make some purchases.  Currently I have decent credit and was recently approved for Toyota's 0% APR.  However I'm contemplating other options such as a Hyundai.  A friend of mine recently bought a Hyundai and mentioned how great the dealer was, and also what he told her as they were buying it.  I thought it made sense, but this is before I started to think about it.  Since then I found this site, and I've got all of you to help me out. 

So this is what happened:

- My friends family had a price in mind for the car

- The dealer gave a low (guess no haggle) price, and my friend was quite pleased

- Initially the idea was to go for the 2010 0% APR, but when the dealer showed the 2011 model (3.9% APR), she loved it

Now here is what the dealer said that I need analyzing:

- Dealer says, its better if you take the 3.9% financing (vs the 0.0% financing) b/c its will look better on your credit history (and maybe he said it will improve credit score)

- He said you will get money back on your taxes

My questions:

- Is any of this true?

- An auto loan is an auto loan, right?  No matter if its 0.0% apr or 15% apr, as long as you make the payments for say $20k both are weighed equally.  Right?

- Can you take any deductions, or get any cash back for the 3.9% finance?  Was this maybe in regards to buying a fuel efficient car will allow you to get a tax credit?

- How do auto loans effect your credit history/score?

Any help would be appreciated, as I potentially will be buying from this same sales manager, and before the end of this month (April).

Thanks!

[llecs]

Welcome to the forums!

I'd suggest reading the following:

Common Abbreviations

Credit Scoring 101 - great for knowing what is in your credit score and to see how your score is impacted.
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Anything to sell a car, right? I bet $5 that the salesman would have received more of a commission on 2011 model vs. the 2010.

You are right. It doesn't matter if the APR is at 0% or 30%, the impact per your FICO score and your credit is the exact same.

Tax refund or deduction? Depends. Most cars are not deductible, but in the past (and maybe or maybe not extending into 2010) some hybrid or alternative fuel vehicles, like electric are deductible. Also, some state or excise taxes through 2009 may have also been deductible. If your friend is a business owner and uses that car solely for business then that's also deductible. As always, she should talk to an accountant. Unless for business, any interest paid on a car loan isn't deductible per the IRS.

Any new account can impact your CR in the following ways:

1) Mix of credit. If your CR lacks other installment loans (e.g. mortgages, SLs, car loans, etc.), and depending on your scoring bucket, you could see a very minor score change, in either direction, when adding your first installment TL.

2) Inquiry. Inquiry damage is very minor. Per auto and mortgage loans, any inquiry pulled within a 14 to 45 day period, depending on the CRA and FICO score used, count as one single inquiry. So, for example, if you apply for 20 car loans and get 20 inquiries on EQ, let's say, FICO will only ding you for one of those 20 inquiries and will ignore the rest. Of course, not every lender uses a classic FICO score.

3) New credit. Most of the damage to your score occurs when you add a new account. On average, I have lost 20 or so points with each new account being added and most, if not all, of those points have returned within a year.

4) AAoA hit. If your AAoA decreases by a year or more due to the new credit, then you could see an additional hit in score.