Secured Car Loan Advice, CS 610

[Anonymous]

Aloha Fico friends!

I am currently rebuilding my credit and I think a small car loan/personal loan would help my revolving credit lines and give me a push. Any success stories with a 610 credit score and a LOW APR??!! Good OR bad I want to hear it!

[Revelate]

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@Anonymous wrote:

Aloha Fico friends!

I am currently rebuilding my credit and I think a small car loan/personal loan would help my revolving credit lines and give me a push. Any success stories with a 610 credit score and a LOW APR??!! Good OR bad I want to hear it!

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If you're just looking for installment loan history, I'd suggest just doing a small secured personal loan.  A car loan, unless you actually need a new car, is a non-trivial investment of money... I suppose you could take out a title loan if you already own a vehicle as well. 

[Anonymous]

Well my car is payed for but I could use another. Kind of old. Could I use the car I own as collateral or maybe sell it and make a nice down payment?

[Anonymous]

Whatever would look best to future lendors. My goal is to purchase a home. As is everyone else's lol

[StartingOver10]

Having a car loan does NOT help in obtaining a mortgage.

If fact, for many people it is a hindrance because they buy too much vehicle and their payments are so high they actually reduce the amount of mortgage that the borrower can obtain. I have actually seen, in some cases, where the potential new homebuyer has two vehicle loans and student loans on their CR and they can't buy a home at all (not enough left for mortgage payments). Remember, for a mortgage you have to qualify with both front and back end ratios. The back end ratio is your total debt. If it is too high, it reduces what you can spend on the front end. I see this very frequently - especially with first time home buyers.They are literally driving their mortgage payments!!!

So, if your entire idea is to prep yourself for a mortgage, then stay far away from a vehicle loan.

If you want to have an installment loan on your cr report for the mix, then go to your bank or CU and get a small installment loan as mentioned above.

If you actually need a vehicle and you have the cash to pay for one - pay cash.

[Anonymous]

Thank you for your input! I plan on spending , maybe 5 or 6 grand on a truck and paying the loan almost completely before I apply within the next year. In my eyes it would look good to a lender seeing that I am a few payments away from paying off a loan?

[StartingOver10]

The lender still has to figure in the payment amount into your ratios as long as you have a payment.

It does vary from lender to lender, some will exclude the payment if they see you have less than 6 payments remaining. But over the past few years most of the lenders have tightened up and will continue to count the payment in your back end ratio until the car is fully paid. Of course, if you  have the funds set aside to pay off the car loan and still have enough for your down payment and closing costs (plus reserves if applicable) then you can pay the vehicle off if your car payment negatively impacts your housing ratio.

[webhopper]

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@Anonymous wrote:
Thank you for your input! I plan on spending , maybe 5 or 6 grand on a truck and paying the loan almost completely before I apply within the next year. In my eyes it would look good to a lender seeing that I am a few payments away from paying off a loan?

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I would rather see you save and pay cash for the truck.  If you want an installment loan, I suggest taking the secured loan option, as its cheaper, and the payment is low, so it won't affect your DTI ratios that much.

For more information on the mortgage process:

 I highly recommend that you check out the MyFico Mortgage Loan forum.

Below is a short list of helpful mortgage loan related links that may help you prepare for the process:

Guide to Common Abbreviations - Barry

Mortgage Acronyms & Abbreviations (what does PITI mean?) - ShanetheMortgageMan

Good Faith Estimates Explained - ShanetheMortgageMan

The Mortgage Pre-Approval Process - ShanetheMortgageMan

Evaluating Conventional vs. FHA (VA & USDA)- ShanetheMortgageMan

Definately feel free to post any questions you have about DTI and Pre-Approval Odds over there!  Best of Luck to you!

[Anonymous]

Thank you very much, webhopper!

[maiden_girl]

I agree with the other posters. A car loan is not a good option if you are planning on buying a home within the next year or two. If you are trying to boost your credit, take out a small installment loan at a bank around 500 to 1,000 and pay it back over time. Getting a car loan with your current FICO will be hell. Your APR will be something ridiculous. And they an go as high as 25%! Probably even higher!