Home |
Search |
Today's Posts |
|
#1
|
|||
|
|||
Taking out a car loan to reduce rates on a house?
Hello,
So one of my friends has a new job as a programmer and currently lives in an apartment. There is this car that he wants which he can buy if he waited a little. However, somebody told him that he should -take out a car loan on purpose- so that it will somehow boost his credit ratings so that when he eventually wants to buy a house, he will get lower rates and save money in the long run. Does this tactic work, or is it just a waste of money? Thanks |
#2
|
|||
|
|||
In article ,
alan wrote: So one of my friends has a new job as a programmer and currently lives in an apartment. There is this car that he wants which he can buy if he waited a little. That is a good plan--wait a little, and avoid going into debt. A new job can always be an iffy time in life. You can be let for for any reason or no reason. Best not to take too much risk right now. However, somebody told him that he should -take out a car loan on purpose- so that it will somehow boost his credit ratings so that when he eventually wants to buy a house, he will get lower rates and save money in the long run. Does this tactic work, or is it just a waste of money? If he has no credit history, it sometimes helps to do something to establish some credit. You can normally get a gas card or a store card, and then use it a few times. That is normally enough to get a Mastercard or Visa card. Use that a few times in a responsible manner, and you will have all the credit that that you will need. There is no need to pay tons of interest on a car to build credit. It does help to have an established credit record when you go to buy a house. But it helps even more to have a good cash flow position. Having a car payment will very much count against you since you are only allowed 38% of your income to go to pay for the house and your debt. A car payment will impact your ability to buy a house. The best bet is for your friend to visit a house lender today and do a thing called a "pre-qualify". That will let him know how his credit is doing, what he will likely be able to buy, and what he has to do in what timeframe in order to qualify for a house loan. -john- -- ================================================== ==================== John A. Weeks III 952-432-2708 Newave Communications http://www.johnweeks.com ================================================== ==================== |
#3
|
|||
|
|||
(Stupid isp.com dialup)
Ditto the above, I'd tell him to - a) Make a budget for what he spends now, like in Excel. b) Get a Visa or MC (not a secured one). May have to get a Shell card or an Amex first, but the goal is to wind up with a Visa or MC that pays a cashback bonus on groceries and stuff. Then run all his purchases through it. c) If he needs a car, buy the cheapest one that will suit his need, like a Corolla or Saturn. Not an Infiniti or a Yukon or whatever else you d*mn kids drive these days. ) Problem with cars is they depreciate like rocks and carrying car debt (or lease) ties up capital. d) With your cash flow positiv, enjoy life and save money. There's plenty of time to worry about a house. If he lives in a 'hot' area, we may be in a bubble. If he lives in Akron or Muncie, houses don't appreciate anyway. If he thinks he's gonna stay put in whatever town, he should consider buying a double and living in one half, rent the other. It's a bit of a hassle but the tenant may cover most of the house payment. |
#4
|
|||
|
|||
Thanks for the suggestions. I should have mentioned that he's in his
mid 20's and has been done with graduate school for a few years now. So he's already had a credit card (which he pays off the balance every month) and already has a car (he just wants a better one). The purpose of the car loan is not that he doesn't have enough money (coz his family can basically give him the money, or else he can pay back the loan pretty quick with his new income). The purpose of the loan is to boost his credit rating (or whatever rating lenders use) for a future home purchase. Is this possible? |
#5
|
|||
|
|||
In article ,
alan wrote: Thanks for the suggestions. I should have mentioned that he's in his mid 20's and has been done with graduate school for a few years now. So he's already had a credit card (which he pays off the balance every month) and already has a car (he just wants a better one). The purpose of the car loan is not that he doesn't have enough money (coz his family can basically give him the money, or else he can pay back the loan pretty quick with his new income). The purpose of the loan is to boost his credit rating (or whatever rating lenders use) for a future home purchase. Is this possible? First, you need to make a case that his credit is not good enough to buy a home. Second, you have to make a case that getting a car loan will make the difference. In my opinion, buying the new car is a bad financial move, and getting a loan on a car just makes it worse. He will be far better off going into the home loan process with no car payments and a healthy down payment that was saved up due to not wasting it on a car that only goes down in value. If you really want to know, check out the FICO score simulator at myfico.com. -john- -- ================================================== ==================== John A. Weeks III 952-432-2708 Newave Communications http://www.johnweeks.com ================================================== ==================== |
#6
|
|||
|
|||
On Sun, 13 Mar 2005 14:06:48 -0800, someone wrote:
he's already had a credit card (which he pays off the balance every month) and already has a car (he just wants a better one). The purpose of the car loan is not that he doesn't have enough money cut ...The purpose of the loan is to boost his credit rating (or whatever rating lenders use) for a future home purchase. What a crock of ****. Is there something WRONG with his credit now? Why does it need to be boosted? Yeah if someone never had any credit, they should go out and get some - but NOT by buying a new car! What, did a car salesman tell him this? Now, plenty of car loans have very very low rates so its not like he would be losing a "ton" in interest like people are saying (as long as he takes a short loan). But does he plan on buying the house while the loan is outstanding? 'Cuz (as others have mentioned) the monthly payment will HURT his ability to borrow as it counts against his capacity ability to make monthly payments. The folks who chime in how stupid it is to buy a new car because it is a bad investment are bringing in an irrelevancy. If he likes cars (like I do) and wants a new one, then its his money to spend. He should buy theatre tickets, a trip to Jamaica, a boat, a diamond ring, what instead? Its his money to spend. Let's keep it to the Q. He should not take out a car loan FOR THE PURPOSE OF getting a mortgage. He should take it to buy a car IF HE WANTS TO, knowing it has a negative effect on his ability to buy a house. People who feel its smart of them to buy used cars should keep their mouths shut about it, because the more people who buy new cars, the better the used car supply. If "everybody" took their advice, there wouldn't be used cars to buy! Regards, -v. Reply to NG only - this e.mail address goes to a kill file. |
#7
|
|||
|
|||
v wrote:
On Sun, 13 Mar 2005 14:06:48 -0800, someone wrote: he's already had a credit card (which he pays off the balance every month) and already has a car (he just wants a better one). The purpose of the car loan is not that he doesn't have enough money cut ...The purpose of the loan is to boost his credit rating (or whatever rating lenders use) for a future home purchase. What a crock of ****. Is there something WRONG with his credit now? Why does it need to be boosted? Yeah if someone never had any credit, they should go out and get some - but NOT by buying a new car! What, did a car salesman tell him this? Now, plenty of car loans have very very low rates so its not like he would be losing a "ton" in interest like people are saying (as long as he takes a short loan). But does he plan on buying the house while the loan is outstanding? No. He probably won't buy a house for at least a few years. He can pay off the car loan in a few months. This "other person" told him that it will help if he can "show that he can take out a loan and pay it off". 'Cuz (as others have mentioned) the monthly payment will HURT his ability to borrow as it counts against his capacity ability to make monthly payments. The folks who chime in how stupid it is to buy a new car because it is a bad investment are bringing in an irrelevancy. If he likes cars (like I do) and wants a new one, then its his money to spend. Yeah, he actually wants the car. A pre-OBD2 M3, if I recall correctly. He should buy theatre tickets, a trip to Jamaica, a boat, a diamond ring, what instead? Its his money to spend. Let's keep it to the Q. He should not take out a car loan FOR THE PURPOSE OF getting a mortgage. He should take it to buy a car IF HE WANTS TO, knowing it has a negative effect on his ability to buy a house. People who feel its smart of them to buy used cars should keep their mouths shut about it, because the more people who buy new cars, the better the used car supply. If "everybody" took their advice, there wouldn't be used cars to buy! Regards, -v. Reply to NG only - this e.mail address goes to a kill file. |
Reply |
Thread Tools | Search this Thread |
Display Modes | |
|
|
Similar Threads | ||||
Thread | Forum | |||
Am I getting Scammed.. ROYALLY? Putting an offer on a house | Home Ownership | |||
more fun with air conditioning | Home Repair | |||
bath along or across joists? (further stories from the house fromhell) | UK diy | |||
house rebuilt year | Home Ownership | |||
Your changing tax life: Owning a home | Home Ownership |