topic Re: To Auto Loan or to not... in Auto Loans

To Auto Loan or to not...

tv4184 — Wed, 06 Oct 2010 16:07:59 GMT

So I have a dilemma... I am about to sell my condo and I'm not sure whether I should use that money to buy this car I want or use it to pay part of my student loan off. I just graduated in May 2010 in Pharmacy and am doing a residency right now. I recently did try to get a car loan and got denied because of my debt to income ratio probably factoring my student loans in (~70k) and credit card debt. DTI calculated is about 0.5. That was about last month and I have been able to bring it down to 0.36. Anyway with the sale of the condo I estimate getting about 50k back and I have three options.

1. Pay cash on the car and just make monthly payments on my student loans which I'd pay more than the minimum and pay it off within 2-2.5 years.

2. Pay down the loan to about 20k and try to apply for a full car loan again. I think I'd get denied for no down payment though.

3. Pay part of my loan and make a 20% down payment on the car and apply for the loan. I'd pay my student loan first and have that reflect on my CR before applying for the auto loan.

Right now I think options 1 and 3 are more feasible. Here are other snapshots of my CR. I have a score of 729. Average history of 4 years with the oldest being 7 years. 7 credit cards with 3 reporting balances. 2 are under 10% utilization and another has a high balance of 75% utilization. I had alot of things I had to pay for before my residency started so I am now able to pay it back. Total cc utilization is about 32%. I can probably get it down to 25% by the end of this month. So with that said any suggestions?

Re: To Auto Loan or to not...

Anonymous — Wed, 06 Oct 2010 16:34:47 GMT

Student loans are considered good debts - as long as pay on time. With 50K coming your way - I would say buy a nice used auto for like around 10K - take the rest of the money and stuff it into a nice CD - not because rates are great or anything - but because - it is always good to have a savings account - plus this will help you if you need to buy a house later on. Always have a savings - you said you will be able to pay off the SL by then - the 10K car should be running for atleast next 4-5 years and more so maybe you can get the car you WANT - once you are done paying off the SL.

Actually, if it were me, I would use the 10K get a secured loan and pay the car - this way my installment loan history is building while you pay of your SL - in 2.5 yrs when you are paid off and earning more money- you will be in great shape to get the car you want...

Re: To Auto Loan or to not...

tv4184 — Wed, 06 Oct 2010 16:56:26 GMT

I forgot to mention that this is actually not an essential car to buy. I already have an old 17 year old beater car and then a reliable 99 4runner I drive when I need to. This is going to be either for an M3 or RS4. Only reason why it would cost so much. As for the house purchase that's in my 5 year plan. Because I don't really want to settle where I am right now (Temple, TX). I am looking either at Austin or moving back to Houston. In any case I know what you mean as for looking at a lower cost car... Thanks for the suggestion so far though.

Re: To Auto Loan or to not...

Creditaddict — Wed, 06 Oct 2010 17:08:11 GMT

I would pay cash for the car unless you can get a special APR, think BMW it's .9% right now, then I would finance it all and apply cash to student loans if they are more than 5%. Your credit score is already good so I don't see the point of borrowing off your own money and paying interest, but also probably wouldn't spend 30-50k to get a car if you have any credit card debt.

Re: To Auto Loan or to not...

Anonymous — Wed, 06 Oct 2010 18:15:49 GMT

@tv4184 wrote:
I forgot to mention that this is actually not an essential car to buy. I already have an old 17 year old beater car and then a reliable 99 4runner I drive when I need to. This is going to be either for an M3 or RS4. Only reason why it would cost so much. As for the house purchase that's in my 5 year plan. Because I don't really want to settle where I am right now (Temple, TX). I am looking either at Austin or moving back to Houston. In any case I know what you mean as for looking at a lower cost car... Thanks for the suggestion so far though.

Nice!!!! Oh so you already have a car and you are not thinking about a house for another 5 years. I would say pay cash for the car - this will save you a lot of money in interest. You could most probably get the 0.9% from BMW for the M3 if you put down like 20K and then finance the rest. Take the remainder and pay off the SL's.

Good Luck

Re: To Auto Loan or to not...

tv4184 — Wed, 06 Oct 2010 18:45:32 GMT

Yeah I wouldn't get the car without paying my CCs off first of course. I don't owe that much more in CCs. I just needed to pick up speed on my weekend and daily work to crank in the big paychecks. When I first applied for the loans last month I didn't know that I should have some sort of down payment in hand. Would it look bad if I did like a 50% down payment and then kept the rest in the bank for a rainy day? The 0.9% for BMW is for a new car which I think a new M3 is out of my price range. I was looking at used cars and more likely to try Penfed for their rates. I have an account I opened last month with them but they were also the people who turned me down due to my DTI and how big my request was.

So it's better not to pay down the SLs first even if I don't buy a car anytime soon?

Re: To Auto Loan or to not...

Creditaddict — Wed, 06 Oct 2010 19:23:57 GMT

@tv4184 wrote:

So it's better not to pay down the SLs first even if I don't buy a car anytime soon?

This was just part of Suze Orman episode this past week. I would have rainy day fund, maybe even the whole 8 months if you could but above and beyond that she said there is no point having the cash on hand earning 1% in a savings account when your paying 5%+ on student loans.

Re: To Auto Loan or to not...

tv4184 — Wed, 06 Oct 2010 19:32:27 GMT

The other detail I forgot to disclose is that all of my student loans have a 6.8% interest rate. I think its compounded quarterly. I'm not 100% sure. In any case you guys have made some good insight into this. I'll definately rethink my planning at the moment. I look forward to any other suggestions I can get since I am still new to obtaining other forms of credit aside from credit cards and student loans.

Re: To Auto Loan or to not...

Creditaddict — Wed, 06 Oct 2010 19:34:14 GMT

you should check into Alliant... I believe they were offering a Student loan for like 3 or 4% fixed... possible consolidation of what you don't pay off!

Re: To Auto Loan or to not...

tv4184 — Wed, 06 Oct 2010 21:00:28 GMT

Thanks for the tip I'll look into that. It'd be awesome to get them lower than what they are now. Then I can take my time paying whatever is left back.

The other thing I was thinking about is. Doesn't student loans even if they are considered good debt...count towards your DTI especially since mine are going into repayment in a few months. I am also wondering if they aren't considering my employment history of 3 months a down fall to my risk for a loan as well. Since I am a recent grad and all.

Re: To Auto Loan or to not...

monkeywre — Wed, 06 Oct 2010 21:44:50 GMT

I'm going make an alternate suggestion.

Keep your used car until you pay off your student loans or purchase a used car with cash to the tune of about 10k.

Congrats on making a profit on your condo, and after all those years of school I know it would feel great to buy a shiny new to you BMW. However you need to keep in mind this purchase is purely a luxury item, and buying the nice car will get old as soon as the huge payments start coming. Another poster suggested purchasing a nice 10k used car with cash, and paying off your student loans with the rest. This is a fantastic idea, coming from a beater a 10k car will be amazing and you won't have any payments on a car that you would have otherwise been underwater in. I know that student loans are percieved as good debt, but I would disagree on this point. They are good to the effect that they will allow you to go to school and get an education you might not otherwise have had access to, but they are still debt that you must pay back, and keeping them around forever just makes Sallie Mae rich. To the poster that said student loans are 3-4% intrest I would like to know where you got your student loans from, 5.5-10% is more realistic. I would have to suggest paying off your loans first, the BMW dealership will still be there in 2 years when everthing is paid off, and if you buy your bimmer in cash you will enjoy it that much more because you can just enjoy it without worrying about how much you're paying for it. Please whatever you do, just keep your car purchase in perspective, reliable transportation is a must, but a 30-50k car is not, and it's excessive as well as damaging to your financial health if you can't afford to pay for it.

Re: To Auto Loan or to not...

tv4184 — Wed, 06 Oct 2010 22:08:43 GMT

Well I went from a 2004 Honda S2000 to a 1993 Maxima and then added on a 1999 4runner which is my reliable car. I also have a 1993 Accord which is replacing my Maxima so I think that I am pretty good as for transportation. I just wanted to pick up the RS4 as it is a rare comodity to come across (only 1900 imported to the U.S. with only 25 in the color I was looking for). I came from a 2007 TSX before the 2004 S2000, which went to my parents since I didn't want to hold on to it. And after that I am pretty set on getting either something I'd want to hold on to for 10+ years or just waiting. Thanks for the recommendation on a 10k used car and I am all for used cars since someone else has taken the depreciation hit for you. That's why I am looking at the used RS4 or used M3. However obviously I am on this board to make sure I am making the right financial decision at this time.

As for the student loans I didn't intend on holding on to them for more than 2 years at most. In all reality I make enough to even pay it all off within this year if I wanted to but that leaves me with eating ramen noodles on a daily basis with no spending money on the side. Maybe I should pursue that route and pay it off in six months after applying whatever I get from the condo sale. I may consider saving some of it for a rainy day fund but I do have pretty good job security being in the medical field so I don't have to worry about looking for a job at least for 9 - 21 more months. Look forward to more financial advice though. I haven't been out long enough to know as much as you guys do.

I'm still puzzled at where my fico score is right now though...

Re: To Auto Loan or to not...

Anonymous — Thu, 07 Oct 2010 14:20:06 GMT

@Creditaddict wrote:
you should check into Alliant... I believe they were offering a Student loan for like 3 or 4% fixed... possible consolidation of what you don't pay off!

CA, this was a great suggestion. I should have like 30K in SL when I am done at 6.8% as well and I thought let me do this - I called up Alliant and inquired about their private SL's - they are actually variable at Prime + 0.5% - I dont know about variable. I also asked if I could consolidate my current SL's with them and they said no . Its only for new school year. Do you know of any other lender that would do private SL's fixed at a low rate and disburse to me so I could pay the other ones off?

Re: To Auto Loan or to not...

tv4184 — Fri, 08 Oct 2010 02:19:33 GMT

Yeah I wish I could refinance my loans for that much. I'm stuck at 6.8% until I'm done paying them off next year.