Auto Loan Planning

[JoMellow]

I would really appreciate some insight; please.  I'm planning on a new auto loan in one year from now when my current corporate lease ends - I'd like to be set up for a 0% rate or 0.9% rate.  Here's the situation, my spouse and I were in a financial mess a few years back, and have spent the last few years cleaning up and rebuilding our credit.  I've got one major baddie that will drop off in April 2015 from a judgement that I didn't have the sense to fight. Spouse has an old auto loan from 2009 that has several 30 day lates on it.  My most recent Fico Score Watch is 719. Two months ago my utilization was a staggering 91%, today it is just under 13%. (we sold my 2003 vehicle and used the bulk of that money to pay down debt)

With no auto credit in my file; way too many inquiries (2 very recent), 100% on time payment history, and an average age of 2.17 years - what steps can I make now that will put me in the best possible position to go into car loan mode with the best chances of a low low interest rate?  And when I get there - where do I start the auto loan process?  Thanks!

[ExplicitElicit]

Welcome to the forum!

As far as wanting 0%, I never recommend taking 0%, here's why. Dealerships offer you either 0% or rebates, generally the 0% sounds like a better option but you're leaving cash on the table and giving it right back to the dealer. The rebates are generally offer by the manufacturer of the car not he dealer, so when you choose the 0% you don't get the rebates but the Manufacturer has already granted them the money. If you think just because you have 0% and you wont pay interest so you'd be saving money, that's not the case either. Those rebates often take off enough from the principle balance that even taking a 2%-4% would still be cheaper than paying 0% on a bigger balance?

As far as getting your credit set up for a "favorable"position, even though your scores are higher you have no auto history.. I'm hoping that you have installment loan history either from a mortgage, personal loan, furniture. If a bank cannot match any installment loan history you will not qualify for a 0%, I'm certain you could still obtain financing due to your current history just not exactly what you're looking for. As far as the inq go I would look at sitting in the "garden" until you're ready to apply and let some of the age off, also continue to keep your utl down until then!

The rest is really up to you, do you have a good relationship with your current bank? If so you could look at financing with them, if you bank with someone like Chase, BoA, State Farm and you have no installment history it would be harder to obtain a loan through them as they like to see someone else take the risk on you first. A CU would be a great place to start for you, try DCU everyone seems to be having great success with them recently.

Good luck!

[Remember0]

Two caveats to the above which is generally true: With some manufacturers, you have to finance through them to get the rebate. My best example is Honda (where they often have $500 in flex cash that can only be had if you finance through American Honda Finance).But yes, many others, like Chrysler do the whole incentives or special APR deal. Keep in mind if they force you to finance through them at non-promo rates to get the rebates, just agree, come home, and refi to someone like DCU! (Obviously don't tell the dealer you're going to refi immediately as soon as you get home).

Also if you have no prior installment history, look to banks/CUs that care less about it. DCU is one example and if you have a 15% downpayment and 12 months+ with your current employers, Hughes FCU can be another. Further, if you're a prime (generally 720+ in auto imo) customer with a thick file (even if it's only credit cards), it shouldn't be hard to get financed with the captive lender or DCU or whoever. Do you have 3+ credit cards? If you have 3+ tradelines with a 2+ year AAoA and the 700+ you have, I predict you'll have no problems qualifying for the captive 0% rates or DCU's 1.24% rate (if that works out better given the rebates).

[JoMellow]

ExplicitElicit - Thanks so much for the insight.. I appreciate the heads up re: rebates vs finance rate.  I'll keep that in mind in 12 months when I'm ready to step up to the car buying challenge..

We do have a mortgage, opened in 2003, with a perfect paying record.. so hopeful that will help in the installment category. I'm not entirely sure what you mean by a "good relationship" with our banks? We have a joint checking account opened in 1996, but we've never had a loan or credit card with them. We also have a joint account at a local credit union where we also have an IRA account and a small savings account  (but again, no loan or credit card) 

Thanks again.. hope you have a fantastic day!

[Anonymous]

This is a wonderful guide that may help you a lot:

Guide to Financing, Leasing, and Refinancing a Car

Also, if you are willing to go over 0% you probably have good enough credit to get the top tier auto financing from DCU. (Digital Credit Union) I have found them to be an incredible place to work with for auto financing. Right now they have an offer for 1.24% if you open a checking account with them, and 1.74% if you do not. You need about a 680 score to get that rate.

[JoMellow]

Hi Remember0, thank you also for the input.  I'm very keen on the Honda Crosstour, so advanced knowledge on Honda is a big tip..plus, I never would have thought of sneaking in on their financing then doing a re-fi.. brilliant idea on that. 

We both have long employment history, 13 years for me and 9 for him. I have 18 open trade lines (plus the 2 approved for this week, Discover and Amex) and he has 9 including the new Chase account, some of them are individual and a few we have each other as AU. 

I'm not very educated on credit matters, yet - but with the wealth of knowledge around here I feel like I'm heading in the right direction. On that note - I dipped down to 714 since the Discover inquiry hit and I guess I'll get another ding in a few days when the Amex inquiry hits; so I'll be camping in garden mode for the time being. 

Thanks again..!! 

[JoMellow]

Thank you Fancy - I've added that to my morning reading list..

Re: DCU, would I be better to go ahead and open an account with them now, while I'm waiting for the next 12 months to go by?  I read through the gardening thread and I'll be joining that group shortly.

Have a good day. 

[Anonymous]

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@JoMellow wrote:

Thank you Fancy - I've added that to my morning reading list..

Re: DCU, would I be better to go ahead and open an account with them now, while I'm waiting for the next 12 months to go by?  I read through the gardening thread and I'll be joining that group shortly.

Have a good day. 

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That is up to you. The one bad part about opening an account with DCU is that they do a hard pull on your credit report for everything. They will place an inquiry on your report when you join up with them / open a checking account, and then a new inquiry when you apply for a loan/ CC? Etc. That being said, for me personally, I found it to be worth it. I would say it's all up to you.

The garden is a very supportive, helpful place to be.
While there you can expand on what your goals are for the next 12 months. Looking at your scores and such though, perhaps you don't need to worry about a credit union or any of that. In 12 months, so many things can change for the positive (and negative if not careful)

You're doing great things by inquiring early, giving yourself time to make improvements, and doing research. I'm sure that by the time you're ready, you will be certain that you're armed with everything you need to get the best rates, deals, and rebates available!

[Remember0]

Personally, I'd wait to apply to DCU. But that's just me: I'm a little INQ phobic haha. If you're okay with another INQ, apply now for the checking. Whatever, won't matter for approval. BTW having a good relationship means a longstanding account/a relationship with a banker at a local bank/CU (ie they know you, you know them). It's not necessary that you have had a loan from them per se, but that helps. Since you're prime (720+ FICO for auto), it doesn't even matter that much. I'll note your spouse may not be prime due to the lates on his auto loan which auto enhanced FICO will  penalize harder. But as long as you have income and are willing to be the sole one on the loan (or at least primary), it won't matter.

You're doing fine, seriously! You have nothing to worry about imo...if you don't get Honda top rates, I'd be shocked. Plus since you're looking at Honda, I think at the end of the day you'll finance through the captive. Honda doesn't take away promo rates for rebates 99% of the time. In fact with Honda to get the rebate (often only the $500 flex cash), you NEED to finance with AHFC (and yes, you can qualify for the 0% or 0.9% rate with them and get the $500).

In 12 months or whenever you buy, pick a bank/CU like 1 or 2 weeks before you go to the dealer just to get the pre-approval so there's no way they screw you. Also try and see if you can't negotiate online (the methodology is in the guide linked above)!

[JoMellow]

Thanks for the great advice again - I think I will wait and apply closer to the time I'm ready to buy.  And for now I'll just tend to my little garden and cruise the boards.

Rebember0 - I read your car buying guide (twice) and its really full of amazing information - If you don't mind I'll probably hit you up at buy time...

Thanks everyone for being so helpful to a newbie.  I'll be in garden mode til June 2015.