Can I get an auto loan?

[hardworkpaysoff]

Hey everyone!

My current car, a 2003 Hyundai, is slowly dying on me and I am going to need to look into obtaining a new car in the next few years. Right now, I am a 19 year old college student, just finished freshman year. I work full time currently and take home approximately $19K before taxes, and put about $900 per month of that directly into savings. I currently have a 733 TU FICO score, up from a 721 TU FICO in December of 2012. I have 4 revolving credit card accounts, current average age is 7 months with a combined credit limit of $1,300, no negatives, just a large amount of hard pulls (7). I have no student loans, and will likely never have student loans if everything works out correctly.

I will be in the market for a new car in August of 2014, as my commute will get a bit bigger as I move into 4-year university from my local community college. I genuinly would like to purchase a new Ford Mustang during that time, and I am curious if I can get approved for an auto loan.

In August of 2014 my goal is to have my FICO score at ~750. I do not plan to add additional accounts between now and then, and instead want to increase my current average age of accounts to increase. By this time period my average age of accounts should be around 2 years. I estimate having about $15,000 liquid assets available during this time to put toward my car, which right now run about $22,000. I plan to put down a down payment of $12,500, and using $2,500 for all the fees/taxes/registration. This puts the amount I would need a loan for at about $9,500.

Should it be possible I can get approved for this? 

[SamsungHDTV]

I think you stand a good chance. Of course nobody can be sure until you pull the trigger next year. 

Here's the way I see your situation:

By next year your AAoA should be 2+ years which is plenty. Your hard pulls will no longer be recent so that shouldn't be a big factor. Your fico should be stronger than it already is. You'll be able to show strong work history. Most creditors like 2+ years at same job.

Your game plan should be:

Keep the savings up, you're doing good. No hard pulls so dont apply for nothing until then. Try a strategy to raise your credit limit. Like nearly maxing a card (if your expenses allow), and paying off in full every month to avoid interest. Hope for automatic credit limit increase. But be sure to stop this a couple of months before you apply for auto loan. You want 1-9% utilization showing on your credit reports at time of application.

Honestly, I think you might be able to get approved for a higher loan amount. So consider your options. For instance, say you put $10,000 down payment, $2,500 towards fees, and have $2,500 reserve. Your reserve should last you about 12 months worth of payments of about $225 assuming you get approved for $11,500 loan @ 5% or better for 60 months. Keep in mind creditors like seeing terms 60 months or less and usually better rates than 72 months. 

Hope this helps.

[hardworkpaysoff]

5%! That would be awesome. I am running ammortization calculators at 10% for 72 months for the $9,500, so if I can do better that would be great. When I hope to get the car I will actually be 20 so my insurance will be around $120-$130/month or so (even without student discount!). I'd like to stay under ~$400 a month loan + insurance so that leaves about $270 left.

$9,000 @ 10% for 36 months is $291 (@ 5%, $270)

$11,500 @ 10% for 60 months is $245 (@ 5%, $217)

If I can get financing aroung 5% that would be good news!

[joeblow2]

What AAoA does a car dealer need to be able to get someone a loan ?

[SamsungHDTV]

I don't think you will have trouble getting 5%. I think you'll be able to get around 3% actually. I'm a banker for chase bank, one of my tellers has the credit profile you will have next year. She was approved for about 3% borrowing $15,000. Her income was probably about the same as yours. 

[hardworkpaysoff]

Wow that is great to hear! I realized I made a huge mistake when calculating my monthly income, and forgot to include my overtime pay! This moves my schedule ahead about 3 months, so I should be in the market for the car in April of 2014 now instead of August. Just in time for my birthday actually, that works really well.

[webhopper]

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@hardworkpaysoff wrote:

Wow that is great to hear! I realized I made a huge mistake when calculating my monthly income, and forgot to include my overtime pay! This moves my schedule ahead about 3 months, so I should be in the market for the car in April of 2014 now instead of August. Just in time for my birthday actually, that works really well.

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By the way I wanted to welcome you to the myFICO forums!

I love your user ID because it is so true and I love the thought and care that you have put into saving for this huge purchase.

Best of luck to you as your begin a very successful future!

[hardworkpaysoff]

Thank you for the comments! The people in the personalfinance sub-reddit tend to not agree with my plans, saying I should save and invest my money, but, I have wanted a mustang since I was a child, and I have worked so hard, and will continue to do so until and after I get it. I very infrequently put my mind to something, but when I do I have success. I knew, before I turned 18 I needed credit, and fast. Build credit fast when you're young... look at me now. Just turned 19, over 720 FICO, easy. I dream everyday for the next year about how I can't wait for the day to come where I can buy my first muscle car haha.

[webhopper]

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@hardworkpaysoff wrote:

Thank you for the comments! The people in the personalfinance sub-reddit tend to not agree with my plans, saying I should save and invest my money, but, I have wanted a mustang since I was a child, and I have worked so hard, and will continue to do so until and after I get it. I very infrequently put my mind to something, but when I do I have success. I knew, before I turned 18 I needed credit, and fast. Build credit fast when you're young... look at me now. Just turned 19, over 720 FICO, easy. I dream everyday for the next year about how I can't wait for the day to come where I can buy my first muscle car haha.

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Its definately true that investing early is a great way to build real wealth, but as long as your stick to your budget, you'll be fine. When you enter the work force as a full time employee, you'll have good opportunities to save and invest... besides, if you really love a car, you keep it longer, which makes your total transportation costs cheaper in the long run... Besides, its not as though you're wanting to buy a luxury car.  I think a 22k muscle car is reasonable for a young person who has worked hard and has saved a significant down payment.

I took on a 11.5k loan when I was 20 to purchase a used mazda 626... my only regret is that I didn't do it sooner.  I listened to my parents and sunk 3k of my own hard earned cash into a clunker car that didn't last more than a year and was very unreliable. It broke down, my family was no where around (they were out of state) . I paid to have it towed to a friend's mechanic, who said that the head was cracked. By the time I had some family around to help me get the car back or actually do something with it, the mechanic said he was going to keep it for storage costs.  It was a shady deal all the way around...

The 3k car was a lemon that lasted less than a year.

The 11.5k car was a reliable car that lasted 6 years and was sold for 4k when I accepted a full time job which offered a company car.   The math speaks for itself.

This was a tough lesson learned, but my daughter will benefit from my experiences.  There's no way I'll push her into purchasing a junker with her own money, I'd rather her use that cash as a down payment on something that will last

[hardworkpaysoff]

I wish I had started saving earlier, it would have been amazing to have 6 or 7 thousand now and only have to save for half a year.