cancel
Showing results for 
Search instead for 
Did you mean: 

Taking out Auto Loan to Subsidize MBA Loan

Estimate your FICO® Score range for free

FICO® Score Estimator

Auto Loans for ANY Credit Situation. Immediate Response.
Advertiser disclosure
Highlighted
New Member

Taking out Auto Loan to Subsidize MBA Loan

Hello,

 

I am going to pursue an MBA at an HSW school, which will require $200k+ in loans over the next two years. I'm planning on getting private loans since the terms (~6% interest rates with no origination fees) are better than the government loan terms (6.84% interest rates with 4.3% origination fee). I am going to buy a new car before starting and was wondering whether I should take out a $25k auto loan, since the interest rates will likely be lower than the student loan rates, or buy the car with cash that's already in my bank account. I'm not sure what the auto loan interest rate would be but I'm guessing that it would be between 2.5% - 5%. The benefit of an auto loan is that I could keep the $25k that's already in my bank account and use it to reduce the amount that I borrow for school (although some of that $25k that's already in my bank account would be used to make monthly auto loan payments).

 

However, I have the following concerns:

 

  1. I will likely add a credit inquiry to my credit report with my first year MBA loan. If I get an auto loan then I will have two inquiries. I'm concerned that a bank will recheck my credit score before issuing second year MBA loans and see a lower credit score due to the two inquiries on my credit report. Would this give me a higher interest rate or reduce my chances of acquiring a second year MBA loan / additional loans after graduation?
  2. Will the additional loan increase my DTI ratio and prevent me from getting second year student loans / additional loans after I graduate? I already have a mortgage and undergraduate / graduate student loans.

Would you recommend taking out an auto loan or should I play it safe and buy the car with cash?

Message 1 of 7
6 REPLIES 6
Community Leader
Legendary Contributor

Re: Taking out Auto Loan to Subsidize MBA Loan

Something appears flaky, at least to my non-MBA accounting......

 

If you take out an auto loan, the lendor will place a lien on (and likely hold) the title until it is paid.

As I understand the post, you intend to get an auto loan, and put it in the bank to then spend on something else (i.e., your education).

How are you going to then show the lendor that you bought an auto, such as by providing them the title upon which they will place a lien?

 

It appears that you are going to try to obtain a secured loan without then providing the property to secure it?

 

Message 2 of 7
New Member

Re: Taking out Auto Loan to Subsidize MBA Loan

I already have $25k in the bank , so if I took out a $25k auto loan then I would put $20k of the money in my bank account towards my MBA tuition and use $5k of the money in my bank account to make auto loan payments. 

 

In other words, I would take out a loan with a lower interest rate (auto loan) in order to use the money currently in my bank account to reduce the size of a higher interest rate loan (MBA loan). However, I'm concerned that the auto loan will increase the interest rate of my MBA loan to the point where it I'm better off paying cash for my car. 

Message 3 of 7
Frequent Contributor

Re: Taking out Auto Loan to Subsidize MBA Loan

I've never personally taken out an auto loan but I didn't think there was even a way to get the cash in your bank account. I thought the lender directly paid the dealership and you then paid the lender back in accordance with the loan terms. Maybe I just don't know what I'm talking about or your auto loan lender is willing to give you cash, but I didn't think this was even an option.

 

Anyway, assuming it is possible and that you're concerned about how the auto loan would affect your student loans, why not instead wait until you've secured the student loan. Then try for the auto loan. Based on your posts you seem to be okay with the possibility that an auto loan won't work out and can pay cash for the car instead. So if the student loan messes up the auto loan...no big deal. I'd definitely wait and finalize the student loan first since it seems to be a bigger priority.

Message 4 of 7
New Member

Re: Taking out Auto Loan to Subsidize MBA Loan

My original message was not clear so let me try to clarify it. I already have $25k in my bank account so I will: 

 

1. Buy the car with the $25k that's in my bank account

2. Take out an auto loan and have the lender pay the dealer directly. I will keep the $25k in my bank account and put the $20k of it towards my MBA tuition. In other words I am taking out an auto loan so that I can use cash that's already in the bank to pay down my MBA tuition (and avoid the 6% interest rate associatd with it).

 

I'm fine getting the student loans first but I will take out loans for both years and I'm concerned that the bank will run my credit twice (once for each year). If they do not then I may get the student loan first and then the auto loan. 

Message 5 of 7
Regular Contributor

Re: Taking out Auto Loan to Subsidize MBA Loan

Couple of things

 

1. I would highly recommend you stick with Federal loans vs Private Loans. You never know what the future holds and its much harder to deal with the private loans vs federal loans.

2. I would finance the car and spend the 20K towards your education. If your credit is good you should be able to finance the car for a lower interest rate. You will also have colateral at the end if something happen to offset some of the money you loaned. 

3. Are you going to be earning an income while attending school. Because the loans will definetly affect your DTI then.

 

Also think hard before taking on 200k+ graduate school. Does you think your current resume + the MBA will increase your earning enough to pay off that kind of debt?

Message 6 of 7
Moderator Emerita

Re: Taking out Auto Loan to Subsidize MBA Loan


@Cellice wrote:

Couple of things

 

1. I would highly recommend you stick with Federal loans vs Private Loans. You never know what the future holds and its much harder to deal with the private loans vs federal loans.

2. I would finance the car and spend the 20K towards your education. If your credit is good you should be able to finance the car for a lower interest rate. You will also have colateral at the end if something happen to offset some of the money you loaned. 

3. Are you going to be earning an income while attending school. Because the loans will definetly affect your DTI then.

 

Also think hard before taking on 200k+ graduate school. Does you think your current resume + the MBA will increase your earning enough to pay off that kind of debt?


^^^This.  I have seen student loan debt kill any reasonable expectation of getting a home loan. Not that the OP is talking about a home loan *now*. $200k in student loan debt is a huge amount to take on unless your income will increase substantially with the MBA and that additional income is not guaranteed in any way (from what I have seen)

Message 7 of 7
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.