Would like a couple opinions to guide my 21 yr old son wisely. He just bought an older car through a dealership and could've paid cash in full. Dealership convinced him to get "in house finance discount" for 1K off their sticker price. And that its beneficial to his credit profile to show an auto loan. This is his first auto loan but dad had to coapp since son has insufficient regular income as a student. Son was already upper 700s being my AU for years and now has his own TCL ~20K averaging 5% utilization. I'm irritated this purchase caused him some HPs, but I do see the logic in an auto loan being added to his profile. APR is 10%, so how long should we keep this charade up before paying it off? Is this worth paying 10% APR? If so, for how long to be beneficial to his credit profile? There is no prepayment penalty through the lender. First payment coming up in a couple weeks. It kills me to hand over a penny of interest, Im a loud proponent of paying CC statement balances in full and driving cars into the ground after theyre paid off 😂 TIA!!
Good point to look at that. Would cost $630 after that 1K "dealer discount" is cancelled out which he would have had to pay on a cash sale anyway. Not sure at what point he will get his income going to look good for a refinance. Is there a rough number of payments you think earns one the 'gold star' on a credit report?
@PandaGirl77 wrote:Would like a couple opinions to guide my 21 yr old son wisely. He just bought an older car through a dealership and could've paid cash in full. Dealership convinced him to get "in house finance discount" for 1K off their sticker price. And that its beneficial to his credit profile to show an auto loan. This is his first auto loan but dad had to coapp since son has insufficient regular income as a student. Son was already upper 700s being my AU for years and now has his own TCL ~20K averaging 5% utilization. I'm irritated this purchase caused him some HPs, but I do see the logic in an auto loan being added to his profile. APR is 10%, so how long should we keep this charade up before paying it off? Is this worth paying 10% APR? If so, for how long to be beneficial to his credit profile? There is no prepayment penalty through the lender. First payment coming up in a couple weeks. It kills me to hand over a penny of interest, Im a loud proponent of paying CC statement balances in full and driving cars into the ground after theyre paid off 😂 TIA!!
you have access to NFCU, there is a shared secured loan specifically for this purpose of helping with the credit mix aspect/installment utilization percentage aspects of FICO scoring.
but what you could do:
you could refinance it with NFCU, I believe their auto loans will behave similarly to NFCU shared secured loans where the due date will be pushed back for the entire term of the loan if you make advance payments so you don't need to pay the APR on the entire balance. I would check this to make sure though.
having an installment loan is good, having a nearly paid off installment loan is great, having that loan also be an auto loan is even better because that will provide positive history with auto loans.
I refiance this with NFCU, I pay off 98% of the balance and I let the rest sit until I need to make another payment in 4-6 years. After making sure NFCU auto loans push back the due date like that.
0/6, 3/12, 10/24Thank you and to @pizzadude as well. I had no idea about this shared secured loan NFCU offers. NFCU had been our first choice to initially try and go in with his own financing. They rejected him for insufficient income and we didn't try again for the co app with them after the dealer pushed that in house finance discount . I heard that NFCU doesn't do another HP within 30 days. I will certainly look deeper at their loan products with my son. In general I have never been aware of options beyond a 'used auto loan'. Fortunately the last time I had to buy a car was in 2016!
I can confirm for a fact that pre-payment on NFCU auto loans will push back the due date... but then again I believe so do other lenders like Capital One.
I'd agree with checking the terms with the present lender before jumping into a refi.
The reason for the push towards in house financing is the "kickback" they get. Depending on who the loan is with, the loan would need to be established between 30-90 days for the dealer to get their money. It can be a very smart decision to use financing as a negotiation tool and then paying off the loan immediately at the dealer's expense. I'm not going to elaborate on refinancing and having a loan to establish a history as its already been done by others. You just have to figure out what makes fiscal sense. Just keep in mind that auto loans specifically can help with future auto loans versus having a shared secured.
@GreatLife Yes! I have helped him learn about how to control cards and not let them control you... now goals are to stay debt free, be a good saver, keep a good score and profile so he may buy a condo or starter home in a couple years.