take out used car loan or pay cash?

[Anonymous]

(I originally posted this under "Rebuilding Your Credit," but a helpful person pointed me toward the mortgage forum, as what I really care about is getting my credit in good shape to take out a home loan. I'm not too adept at linking, etc, so apologies for reposting below.)

Hi all,

I have a dilemma and could use your advice. I want to improve my credit score before my DH and I try to buy a house next spring (around 6 months from now). My scores are below. Unfortunately my car has decided this would be a good time to give out. We've found a $16,000 dependable used car that we'd like to buy. My question is, should we pay cash or take out a loan? We'd prefer to save the cash, because it's really set aside for a house down payment, and if there would actually be time for the loan to improve my credit, so much the better. So I guess I'm most specifically worried about the loan actively hurting my credit. Do you think that is a possibility, and what would you all do in a similar situation?

Additionally, if you think we should take out a loan, do you think it should be in both our names? DH has circa-800 scores and a very good DTI.

Also want to say, I'm a newcomer and have learned so much from all of you. Thanks for your help.

EQ=689, EXP=686, TU=766 (wha?)

[Anonymous]

I am by no means an expert, but I would think with a 6-month time frame it may not be a bad idea to take out the loan. In theory your score would take a slight drop in the beginning, but by the time 6 months has gone by I would think it would be better off than it is now.

I would also think it would be a good thing to have the loan in both your names for one reason. You would more than likely be able to get a better interest rate therefore lowering your payments and having less of an effect on your DTI. One again in 6 months time I cannot see anything except your credit scores going up as long as you make all payments on time. Especially if you don't have anything on your credit except revolving accounts.

One other thought would be to pay half in cash as a DP any finance the rest. This way you would be able to either pay off the loan sooner or lower your payment considerably. Like I said though, I am by no means an expert and still learning as I go, but hopefully someone with a tad more knowledge will be able to point you in the right direction.

Message Edited by JR2475 on 09-23-2008 12:42 PM

[Anonymous]

In my opinion I would do the car loan if you can get the monthly payment to a point where it won't affect your DTI and cause you to have to buy less house then you were planning.

Cash is King, especially during this time.

[Anonymous]

Update: Well, we've taken out the auto loan; I'm posting the details in the auto section, but we took out a loan for $17k w/ USAA in both our names. I'm excited about the car!

And I'm determined to take some steps to up my score before we look for houses. A friend of a friend who works in mortgages said that my scores could stop us from getting a jumbo mortgage, or at least raise our rate. (We don't benefit from the temporary increases in conforming loans, because the county where we live has a low median house price, but in town close to our jobs it's hard to get anything for less than $550-600k.) So I'm glad to have the car dilemma resolved and hoping to get over 700 mark in the course of 6 months.

Thanks for all your help!



EQ=689, EXP=686, TU=766 (wha?)