22 Years old, assistance with first auto loan

[Anonymous]

Hi all, just looking for a couple questions to be answered as I am looking to get a loan on a car in the next couple months.

Looking to purchase $65,000 car (taxes and registration is included in that, new Tesla model 3 if that matters).

Note: I also already own a car, however, I bought that outright and didn't take a loan for it.

I can handle any type of down payment from $5000 to $25,000.

I currently work as an independent contractor during the summer and take home around $5000 a month (12 months, still including when im at school) (although that's the average, it usually just comes around in lump sums 3-4x a year, I'd assume I'd have to verify that with the bank by showing a paycheck or tax return).

I've heard about Debt to Income ratio being a factor to be approved.

I will not have anyone cosigning.

I currently operate 3 credit cards with a total $30,000 line of credit and have a FICO score of 780. No negative marks, 100% payment on time. Pay my cards off in full every month.

However, my only current debt would be

1. monthly rent (paid for with separate college savings account specifically for that which essentially makes it $0, rent is $400 if that matters).

2. Current car Insurance of $80 a month, (this will shoot to $200 a month with the addition of this car plus my current one. could also trade in current car for $14,000).

3. Minimum combined credit card payment of $100 (although I pay the full balance every month, roughly $300).

Questions:

What type of down payment should I prepare for?

Do you think banks would be willing to lend to me? (no real history of debt management)

Is a $5000 down payment possible? I could invest and grow the other $20,000 faster than the interest accrues on my loan.

Should I pay the loan off early? (within 2 years) or keep the loan for the full 4-6 year term and build credit history despite the $4000-$7000 in interest?

[pinkandgrey]

First off, congrats on your life lol.

Anyway, for a car that price, you’re going to want to put down a big down payment. Bigger down payment can help you get better terms on the loan. You say you don’t have much history of debt management. How long have you had the credit cards? Cards count toward credit history obviously.

With your income and on-time payment record, there will be no issue getting approved for a loan. If your history truly is short, though, the interest rate could be a little higher. 

Put down as large of a down payment as you can—ideally 14-15k or so. The loan will definitely help establish your credit, but whether you pay it off early is totally up to you. Lots of people hold onto loans for as long as they can to boost their scores, but personally I pay things off when possible. 

Good luck! 

[Anonymous]

Because you are new to car loans having some money to put down will aid the approval and likely get you more favorable terms.  Also despite what Elon says the Model 3 will depreciate like any other car so always maintaining a postive equity position on a car loan is a good thing IMHO.  The ideal number for a down is 10% but anything will help.  I am a big fan of credit unions, rarely are they beat by a regular bank or captive lender unless there is some factory incentive.  Penfed is easy to join and pretty consistantly the best credit union based on my experiance and observation.  

Let us know how everything goes.  The auto loan will strengthen your credit profile quite a bit so that is a good side benefit.

[Anonymous]

Sorry for the second post.  Forgot to address the idea of paying off the loan early.  Ideally you want to keep it the full term.  What many here do is make extra payments towards principle and pay the loans down to a few hundred dollars so they still report as an active loan (a good thing for your scores and profile). Minimizes interest and gives you better access to other loans in the future because you will have an installment loan reporting with a very low balance for all of those months or years.  

[Anonymous]

Thanks for the replies and the help!

As far as the credit cards go, one of them I am an autorized user on and that account has been active for 14 years.

The other two accounts are owned specifically by me and have both been open for around a year now.

[pinkandgrey]

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@Anonymous wrote:

Thanks for the replies and the help!

As far as the credit cards go, one of them I am an autorized user on and that account has been active for 14 years.

The other two accounts are owned specifically by me and have both been open for around a year now.

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Yeah, your credit may still be considered young and thin. But still, you have your income and sizeable down payment helping you out, so you won’t have any trouble. Good luck and enjoy that beautiful car! 

[Anonymous]

One final point.  With your scores you won't likely have to provide proof of income.  Generally lenders only require POI when scores are below the mid 600's (subprime).