0% interest auto loan

[villemiami]

My FICO score 8 is 730. I'd like to improve it and I saw that what is hurting in my case is no loan activity.

In 6 months, I'll have enough cash to buy a car. I want to buy a 2 year old minivan. I'd like to apply for my first auto loan in order to improve my FICO score but I don't want to pay interest on my used car. Is there a way to do that? 

I read that one can easily do that with new cars, but it's not my case.

[Medic981]

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@villemiami wrote:

My FICO score 8 is 730. I'd like to improve it and I saw that what is hurting in my case is no loan activity.

In 6 months, I'll have enough cash to buy a car. I want to buy a 2 year old minivan. I'd like to apply for my first auto loan in order to improve my FICO score but I don't want to pay interest on my used car. Is there a way to do that? 

I read that one can easily do that with new cars, but it's not my case.

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0% interest used car loan? Not likely. 0% new car financing is typically offered by the car manufacturer through their captive lender to sell cars. I have never seen a 0% financing offer on a used car loan.

[Anonymous]

Yea your not gonna get a 0% interest loan on a used car. However I suggest you do not go take out a loan simply to boost your credit score. If you can afford the van cash and it won't hurt your savings and month to month lifestyle then go ahead and do that. Your credit score improves with time. What's in your report is more important than the score. And you typically don't even really need to be concerned with the score unless your getting ready to finance a large purchase. Just keep the report clean and accurate and that score will go up.

[Loquat]

OP I agree with others here...getting a 0% loan on a used car just doesn't happen.  And I'll also echo that I wouldn't take out an auto loan for the sake of increasing a credit score either.  A good credit score will come with age...you certainly don't have to buy it (take out an unncessary loan).

[villemiami]

OK, thank you

[marmaladepie]

I wish 0% existed for used autos too.

OP, some food for thought:
Getting a secured loan for low rate of about 2% rate for 60mo and payoff most of the (90% off loan) in the first month then let the balance ride out so you have an installment loan in your file. I’ve read some people doing so for $500 shared loans to build credit.

I actually did this a few months ago at PenFed. Not to rebuild credit but had medical expenses that I didn’t want to borrow at 6-9% via personal loans or use straight from savings. It was the lowest rate I could find and being a good happy medium. Moved 15k into a savings there borrowed against myself at 2.05% (interest to the lender) and payments I made freed up the “frozen” amount in savings. Been making 4x min monthly payments so I’m ahead and prob will have it paid off in a year.

[Anonymous]

Techincally speaking, you can get 0% on a used vehicle. Some dealer's will advertise that, and what they do is pre-pay the interest on the loan..but ultimately the cost of the pre-paid interest is passed on to the customer in the form of a higher price for the vehicle.

If I were in your situation I would just pay cash for the vehicle and not spend unncessary money to improve your score.

[villemiami]

Thanks. So let say, I find a car loan with 2% interest. 

Let say the minivan is $27,000. I would pay $26,000 the fist month. Do I have to tell that to the car dealer? then for how long would I pay the remaining $1000? Is 1 year good enough? I never had a loan in my life. I'm from France and there, studies are almost free (except business schools and private schools).

[marmaladepie]

Just sent you PM bc it was a lengthy response!

[CCrew]

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@villemiami wrote:

Thanks. So let say, I find a car loan with 2% interest. 

Let say the minivan is $27,000. I would pay $26,000 the fist month. Do I have to tell that to the car dealer? then for how long would I pay the remaining $1000? Is 1 year good enough? I never had a loan in my life. I'm from France and there, studies are almost free (except business schools and private schools).

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If you take the loan for $27,000, and pay $26,000 you'll still have to pay the regular monthly payments as if it was a $27,000 loan. So lets say you finance the $27,000 at 2% for 48 months you'll end up with a payment right around $586. In Month 3 ($26k + $586 + balance of loan) you'll have paid off a 4 year car loan. Paying only a small amount of interest. And there's no need to tell the dealer you're doing that.