About building my credit with auto loan

[Anonymous]

Hi everyone, so I’m 19 years old and have no credit history. My credit score is at around 530 combined and according to a credit company online, my APR if I were to buy a car would be around 20%. So there’s no way I’m buying a new car with that rate. I know like most normal people the smart thing to do would be buy a cheap used car and pay it off and watch my credit raise! So I was wondering, since I got my eyes on a used car that’s around $10K, with about $1K down, how much would I have to pay monthly? I know there’s online calculators but they’re always cheaper than the actual real payments. So it’s not very accurate. I’m just wondering how much it would be every month so I have an idea if I need to go even lower (like cars that costs around $4-5K) I’ve read on this forum that around $10K would be a good range for new car buyers looking to build their credit. My local dealer even approved me for cars under or around $15K without even having to pay down payment but I know the monthly payment is gonna be crazy. So I’m just trying to optimize here. Thank you!

[Medic981]

Welcome, @Adz123 to the myFICO forums!

The first question is, does the car dealer carry the loan or are you going through a financial institution? If you are going to purchase a car from a "we tote the note" or "buy here, pay here" car lot, you will most likely not have the loan reported to the three credit bureaus to build credit. 

Second question, over what period of time are you going pay back the loan and at what interest rate? This information, along with how much is being financed is needed to calculate your monthly payment.

[Anonymous]

Hi, thank you for replying. I’m financing through an actual dealership, and the car is the same brand as the dealership only it’s preowned instead of new. And like I said in the original post, according to an online credit company my APR would be around 20%, I don’t know how accurate it is but it’s probbaly around that range since I have no credit history and my credit score is only around 530-540. Depends on which credit bureaus. But that’s my average credit score. I’d rather think my APR higher than lower this way it’s safer when it comes to monthly payments.
So in conclusion:
Total amount financed: $10K
Down payment: around $1K, can be more if needed. But I really would like to spend money elsewhere haha.
Interest rate/APR: around 20%
Finance term: 72 month (I will definitely try to pay it off before it gets to 72 month lol, I know the longer the term the more interest paid but it lowers the monthly payment, which is why I’m looking at super cheap cars, and like I said, even cheaper if needed)

Thank you for your reply!

[Medic981]

A loan of $10,000 financed at 20% over 72 months would give you payments of $239.53 a month, costing you $17,246.16 over the 72 months.

[Anonymous]

Great. Just what I needed. Somewhere around the mid 200 ballpark. Thank you very much for the reply. Really helped.
Oh by the way I think you forgot about the $1K down payment. Do you think maybe that can lower the monthly payments by maybe $20?

[Medic981]

Is the loan for $10,000 or $9,000?

[Anonymous]

Since I’m planning on putting $1K down, I’d say the loan is $9,000. Sorry about the confusion!

[Medic981]

A loan of $9,000 financed at 20% over 72 months would give you payments of $215.58 a month, costing you $15,521.76 over the 72 months.

If I understand you correctly, the dealership is going to find you financing?

[Anonymous]

Yes I’m planning on financing at the dealership. I know banks and credit unions give a much better rate but I think with my credit standing dealer might be the only way to go, unfortunately...

[Medic981]

A few thoughts:

First, negotiate the out the door price of the car before you look into financing. Never talk about what you can afford to pay a month. 

Second, most loans I know of that are 72 months are for cars that are $35,000 or better. I don't think you are going to get financing for $9,000 from a sub-prime lender the dealership is going to find for you for 72 months.

Finally, as your FICO scores improve as you pay down your loan, you should think about refinancing your loan for a better interest rate.

Good luck in buying your car.