Auto financing strategy

[Anonymous]

I'm in the market for a new (to me) car and wanted some advice on how to boost my credit score in the process. I'm looking to spend $10-15k, and have the cash on hand to do so. However, I've never had an installment loan so now seems like a good time to get one and boost my credit score. My question is this: how much should I put down, how much should I finance, and how quickly should I pay off the loan to maximize my credit score increase and also avoid paying interest? I also have a new CSR card that I'd like to hit the sign up bonus on in the process. Thanks in advance for your help!

[pinkandgrey]

 Put AT LEAST 20% down, preferably 25-30%. (Personally, if I had that much cash, I would buy the car outright.) If you’re deadset on financing for the sake of your credit mix, then finance for as few years as possible I’d say. 36 month would be good. You can probably put some or all of your down payment on that new card to hit the SUB. I’ve put down payments on cards more than once. Good luck and enjoy the car! 

[Anonymous]

Thanks! If I do finance I'm planning on paying off the loan in a matter of months, just wondering the implications on my credit of different loan amounts and repayment timelines. I've also run into a lot of cars that have rebates in the thousands of dollars for financing through the dealer or manufacturer. Thanks for the reply!

[pinkandgrey]

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@Anonymous wrote:
Thanks! If I do finance I'm planning on paying off the loan in a matter of months, just wondering the implications on my credit of different loan amounts and repayment timelines. I've also run into a lot of cars that have rebates in the thousands of dollars for financing through the dealer or manufacturer. Thanks for the reply!

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Paying off the loan in a couple months really won’t do much to help your score. Either way your score will take a small hit from the inquiries and then the new account. And then after you pay it off, you’ll likely take another small ding. Personally I wouldn’t worry about the number/score so much and think more about the finances. It sounds like you are fine with regards to money though. If you’re looking to get the rebates, though, definitely go through the dealer. Good luck!

[Anonymous]

You may want to explore the idea of paying the loan almost off but not entirely, and then keeping it open for the full term of the loan.  That will add 30-35 points to your score.

[Anonymous]

My suggestion would be to join a credit union, finance the car if you can get a decent rate.  Chances are you can get a decent rate and if you go with a 48 month or shorter loan your not going to have much interest cost.  Of course you have the cash on hand to pay the car off so you can afford the car.  An installment loan may not have a big impact on your score in the short term but it will give you a more complete credit profile.  If you cannot get a decent interest rate however I probably would not finance the car at all.  Penfed is a great source for car loans at good rates so I would look there first.  

[KLEXH25]

Try to get the lowest rate possible (obviously). I'd also suggest a large down payment (at least 20% or more). The more you put down up front, the less interest you'll pay. Also choose a short term. From what I've read, you'll see a score boost once the loan is paid down to 8.9%, HOWEVER I think the point of even doing an installment loan in the first place is to show a good payment history. I'm guessing if you pay it all down immediately though, you won't have that payment history to go with it (someone please correct me if I'm wrong). Either way, once it's down to 8.9%, you'll see an increase in your scores. If it's done early, the loan will stay open until the payment schedule catches up and then you can pay the rest of it off on time.

[Anonymous]

Thanks everyone for the replies, that's exactly what I'm looking for... I think I'll pay 50% up front, then all but a little bit for the remainder of the loan term. Looking at 24 months. Also, I see you have a mazda3... That's the exact car I'm looking at. Are you happy with it?

[KLEXH25]

Yes!!! I love my Mazda3. I have only ever driven Honda before and never thought I’d get something different, but my SO has one and encouraged me to check it out. It was basically between a Civic or the Mazda3, but you get so much more for your money with the Mazda. So far I’m very happy with it and she’s pretty to look at too lol. Good luck!