Financing a Vehicle

[Anonymous]

I'm 20 years old, so my credit history has been pretty short-term.  It'll be coming up on 3 years of good history this July when I turn 21.  So I financed a new car in Sept. 2006 with a FICO score of around 615.  I had several major credit cards, including 2 MCs, 1 Visa, and 1 AMEX.  They've all been in good standing from the start with utilization well under 30%.  I was shopping around for the best financing options, and the best I could land was a 12.95% car loan for 5 years since my history hadn't hit the "3 year mark" yet.  When I received my loan of $28,000, my FICO dropped to about 568-575.  So as of today, my score has gradually increased and it varies in the mid 600s.  I'm doing everything right in my opinion, but it's hurts to see my score that low.  Anyway, last week my sister needed help purchasing a used vehicle.  Practically, she needed a co-signer since she hadn't established any credit.  She is responsible and I have no worries about her handling the responsibility.  So I figured it'd be better (less expensive) for me to finance the vehicle and have her as the co-signer.  When I was shopping around for financing, the best I could find with my score fluxuating around the 650-660 range, was in the ballpark of 17%.  Why is that the best I can find?  It's ridculous.  At first I was thinking it's because my income would be hendered due to a car payment already, but I make decent money for age and my car payment is roughly a hair under 10% of my monthly income.  What gives?

[Tuscani]

You are still very young and can't expect yourself to be able to co-sign someone elses loan at 6%. You should be lucky you got your own financing at your age. You need to remember that your scores are not everything when determining approvals and rates.

[Anonymous]

I understand that, but technically, I financed the second vehicle with a co-signer under me.  I didn't expect a great rate, but that sounds fairly high to me.  I understand scores aren't everything, but my income is very good, my credit history has been perfect, and the amounts of money I have in my bank accounts are also decent.  The only thing I have working against me is my age...

I understand that most people wouldn't have the luck I did with financing at my age, but it wasn't that hard to get a deal and I don't really consider it "luck" by any means.  I work hard for what I get.

[Tuscani]

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UnderEstimated wrote:

I understand that, but technically, I financed the second vehicle with a co-signer under me.  I didn't expect a great rate, but that sounds fairly high to me.  I understand scores aren't everything, but my income is very good, my credit history has been perfect, and the amounts of money I have in my bank accounts are also decent.  The only thing I have working against me is my age...

I understand that most people wouldn't have the luck I did with financing at my age, but it wasn't that hard to get a deal and I don't really consider it "luck" by any means.  I work hard for what I get.

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I wasn't trying to come off harsh.. I am a realist. Regardless.. 17% does seem a bit high.. have you tried a credit union?

[Anonymous]

No, I haven't.  I have an account with a local credit union, but they only offer financing on new vehicles.  This would have to be a pre-owned vehicle.

Regardless, it's not a huge deal because even though at 17% on a ~ $10,000 car loan isn't too bad, in terms of paying interest.

Here's a question though...  Most of my cards I received where opened just weeks after my 18th birthday.  I keep hearing all this talk about the "3 year mark".  Can I hope to see an increase in scores when those accounts hit 3 years very shortly?

[Anonymous]

You might have trouble getting a good deal on the second car loan because of the amount of your available credit.  The way the lender sees it, your utilization might be low on the day your scores are pulled, but with 3 CCs and a charge card, you have the ability to charge up a lot of debt.  Having a co-signer doesn't help you because in the car lender's eyes, you are potentially solely liable for the loan.

Having 3 years of credit history will help, but don't expect a meteoric increase.  You might even have a score decrease.  It's the pond problem -- you've graduated into a pool of people who have histories that are substantially longer than 3 years.

Keep up the good work on your credit -- you've done great for your age.  Many posters here were busy making big mistakes when they were in their younger years.

[Tuscani]

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UnderEstimated wrote:

No, I haven't.  I have an account with a local credit union, but they only offer financing on new vehicles.  This would have to be a pre-owned vehicle.

Regardless, it's not a huge deal because even though at 17% on a ~ $10,000 car loan isn't too bad, in terms of paying interest.

Here's a question though...  Most of my cards I received where opened just weeks after my 18th birthday.  I keep hearing all this talk about the "3 year mark".  Can I hope to see an increase in scores when those accounts hit 3 years very shortly?

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I am not aware of any magical "3 year mark". But age is certainly your friend!

[Anonymous]

I'm sure the one reason why the second rate was around 17% is because you are already are financing a $28,000 car loan and are now are looking to finance another.   This is going to lower your debt to income ratio and are going to be considered stretched, add to that your young credit history and the fact you have  4 credit cards,  you are going to be considered risky.

I would just have your sister get her financing on her own.   There are soo many dealerships that can get people approved with bad credit, no credit, BK etc.   Co-signing is very very risky and if you want to reverse the financing where you are the Primary person on the loan that  is very risky for you personally down the road plus usually when someone co-signs the co-signer in most regards is the one with the better credit history and such.

I would just have her shop around and find a dealership that adverstises in bad credit , no credit BK auto loans.  

[Anonymous]

That makes more sense to me.  I understand it's risky, but we've tried at dealerships that finance with bad credit/no credit and they end up wanting several thousands down for a car that's $9000-$10000.  I'll see what I can do, but I just want to lend a helping hand.  After all, once those debts are consistantly paid on-time, won't that reflect as a good thing?

...Credit/FICO scores remind me of an endless game.  It's not just about playing well, it's about making great calls and using credit as an advantage.

[Kevin5974]

If you finance the car with you as the second signer and not primary, you should get lower. Since you have a solo car at $28,000 and then the finance company is running you as a primary signer on the second, they hold you more responsible (and more liable) to make the 2nd payment where as if your the secondary signee, they see that the monthly debt more than likely won't be made by you. I'd expect somewhere around 14% if you try this but inform your sister, we all have to do it on our first car loan. Mine was 14.99% when I first financed with Ford Credit. My advice is to sign and pay for about a year, year and a half and I'm sure both of you can refinance at a lower rate seperately... Best of luck to ya