Finance, Cash or Charge

[RKBAGUY]

Howdy, folks.

I'm still in the rebuilding period, having just been approved for a Wells Fargo 'Cash Rewards' card in early October.  I'm planning on the AZEO method, with the intent of applying for a car loan in the spring sometime.

Unfortunately, my pellet stove - the primary heating source in my home - just took a dump and I'm looking at a $3100 replacement.  My question is how to maximize my buying strategy.  Obviously my impuse would be to seek the least cost option.  But there's also the consideration of using this as a 'blessing in disguise' to rebuild my credit.

 Here are the options.  I'd appreciate your input.

Finance

I was approved for up to $6,000 financing on the inside of an hour, with the options of 6%-9%APR (depending on repayment period) or 0%APR but with the 'retroactive penalty' of 19% if I miss a payment.  What annoys the crap out of me is that there is a $200 fee that the dealer passes along to the buyer for the application for financing, no matter what option is selected.  Call me crazy, but the idea of paying a bank for the privilege of giving them more of my money doesn't sit well, but I'd do it if there's a benefit to my credit rebuilding.

Charge (Visa)

As stated above, I have a Wells Fargo Cash Rewards card.  They give me 1.5% back on purchases and 0%APR for the first year, so theoretically I could charge it, pay it off monthly (or in full), and get $45 in my pocket.  However, this would shoot the AZEO strategy to hell if I were to carry the balance at 0%.

Cash

Fortunately, I have some liquidity, so I could just go in and buy the thing cash to avoid the $200 financing fee, but that doesn't do anything for my score.  Or, as suggested above, I could charge it, and then use the cash to pay off the card to maintain the AZEO strategy.

The one thing that occurs to me is that if I was approved so quickly for this item, then perhaps my concern over approval for auto financing may not be a problem.

Thanks in advance!

[Anonymous]

If your DTI isnt already prohibitively high (such as owing more than half of what you make a year, not including any mortgage) id finance it.

Miss no payments and for a decade youll have a solid installment loan showing.

If you owe a lot of money already, cash.

I dont really like the idea of charging 3100 to a credit card, unless you have a limit in the 15k or more range, youre going to take a huge hit on utilization.

[EAJuggalo]

Utilization has no memory. Whenever it gets paid down you'll get all the points back.  Which would you rather do: Pay a company $200 for the privilege of them charging you interest or have the bank pay you $45 to use their card for something you need to buy?

[RKBAGUY]

Thanks for the feedback, guys.

I agree that paying an outfit $200 on top of an APR (if I decide on that plan) is an affront.  I guess the question is: what would that $200 buy me in terms of improved credit scores?

In my case, I have a 'thin profile' with only one card in my name and another that I'm an AU on, so it was recommended that I have an installment loan of some sort to show regular payments as part of the rebuilding strategy, opposite the AZEO method on everything else.  My (real) FICO 8 scores are presently: 745EQ 737TU 754EX.

So, with the idea that I'm looking to get into a car in the spring, would it really be worthwhile to finance?   I'm inclining to just paying for the thing in cash and being done with it.  That would be no help to my portfolio, but at least it'd be in the rear view mirror.

[Revelate]

There's a good chance that the finance route is going to be counted as a Consumer Finance Account, which is a straight FICO negative on all versions of the algorithm.

It's not enough to keep people out of high scoring buckets (see siggy), but the only credit decision I regret after deciding to improve my credit was taking a stupid installment loan.

End of the day you can sort a lack of an installment loan with a share secured loan and then prepay most it if back (Method:
http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Adding-an-installment-loan-the-Share-Secu...) and not go through the rigamarole on this one if you are just looking to tack on a quality installment loan.

I'm likewise in a cash flush situation, I won't use silly financing ever again unless there's a clear financial win in doing so... and paying a 3% transaction fee?  Bleck.

[Anonymous]

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@EAJuggalo wrote:

Utilization has no memory. Whenever it gets paid down you'll get all the points back.  Which would you rather do: Pay a company $200 for the privilege of them charging you interest or have the bank pay you $45 to use their card for something you need to buy?

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I agree. My advice would be to charge it to the card and pay it off immediately. That way you get your $45 and pay no interest, and your score doesn't take a hit for util. 

Finance - you're absolutely right, there is no good reason to pay the bank $200 on top of APR. And as other have said, probably won't actually help your credit anyway. 

Cash - definitely a better option than financing, you just don't get any real benefit (other than a new heater for your home)

Charge - if you charge and treat it like it was a cash transaction, I see a few benefits. First, the high balance on your card might go up and give you better chances for a CLI in the future, and making a hefty $3k payment will also increase those chances. Plus, it's like a free $45. 

Like I said, if it were me I would definitely charge, then pay it back immediately (doesn't hurt your AZEO method)

[RKBAGUY]

Ok, fellas.  There's a new wrinkle.

First, I just remembered that I actually do have a good installment loan.  Back in '09 I paid off my car (early) and the finance company closed the account in good standing.  Theoretically, that should still appear and count for me, yes?

Secondly, I got a notification from myFICO that there's been a new credit account opened, and sure enough, it was the finance company.  I have decided to NOT pay them $200 for the privilege of borrwing money from them and opted for an outright purchase.  However, now this appears on my credit report and I took a 3 point hit.  No big deal in the grand scheme of things, but I guess this should be a case where I have to call them and tell them to close the account, yes?

SYNCB/HOME DSN OUTDR L

Account Type

New Bank/Credit Card

Open Date

11/22/2017

Amount

$0.00

Credit Limit

$6,000.00

[EAJuggalo]

That auto loan is a good closed installment account, but does not count for credit mix since that has to be an open installment loan.  That doesn't show on your report as an installment account anyway.  It's showing as a retail card backed by Synchrony Bank.  I'm really surprised they are trying to add a $200 charge to a Sync account.  I wouldn't bother calling them to close it, it will continue to appear on your credit report as an open credit card, which would give you three, which is the minimum necessary for prime FICO scoring.  The $6,000 SL is also good utilization padding.

[RKBAGUY]

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@EAJuggalo wrote:

That auto loan is a good closed installment account, but does not count for credit mix since that has to be an open installment loan.  That doesn't show on your report as an installment account anyway.  It's showing as a retail card backed by Synchrony Bank.  I'm really surprised they are trying to add a $200 charge to a Sync account.  I wouldn't bother calling them to close it, it will continue to appear on your credit report as an open credit card, which would give you three, which is the minimum necessary for prime FICO scoring.  The $6,000 SL is also good utilization padding.

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Annnnnd THIS is the reason why we ask questions on this forum to get advice from those-in-the-know.  Great point!   Thanks for that.  Screw it, I'll leave it open and count it among my AZEO accounts.

[Anonymous]

Hello I'm new here but not new to credit clean up etc and have enjoyed reading many of your posts. I would do an Alliant loan or such and pay it down as soon as I was able to get the score boost from the installment trick.