-
Auto loan question
I have never bought a car in my life, and now it’s happening. This website is where I discovered the FICO Auto Industry Option scores. Since I do not have an auto credit history, I would be assuming that it is pretty much as bad as bad auto history and will probably score low. Am I correct in assuming this?
I have enough cash at hand today for me to buy a decent used car without having to take out an auto loan. My FICO score is about 620. My question is, “Should I pay for the used car, in full with the cash that I have on hand or look for a new car (in the approximate $14,000 range) pay more than half of the cost of the new car as a down payment with the cash I was going to use for the used car and then take out an auto loan for the rest? Would it help with first of all my Auto FICO score, and do auto loans look good/help your regular FICO score? -
1 Reply
-
Welcome to the world of making a car purchase, and congratulations on taking the big step! It’s fascinating how you carefully consider your options. Let’s address your inquiries:
Clarifying FICO Auto Scores
No Credit History: With previous auto credit, the FICO Auto Industry Option scores can be sufficient since lenders review the history of past auto loans to assess the risk level. However, having a score does not mean you have a poor score. It just means your past experiences are nonexistent.
General FICO Score: A low general FICO score of Forty-Three tends to be viewed as the minority of lenders. However, it is only the end of a great deal for some.
Buying Options
Cash Payment For A Second-Hand Vehicle
Pros:
Zero Debt: Your only concern will be making monthly payments and having no interest.
Ease of Process: The entire process is quite simple. Additionally, you can get better deals when you have cash in hand.
Complete Ownership: From day one, you will own the car.
Cons:
No Impact on Credit Score: If anything, paying cash won’t benefit establishing or increasing the score associated with your auto purchase history.
Option B: Purchase a New Vehicle Through a Loan by Making a Down Payment
Advantages:
Securing a Credit History: People may take their first auto loan and gradually make timely payments, enabling them to start or improve their credit history and possibly increase their FICO score.
Cash Flow Utilization: If you make a hefty initial payment (more than 50%), the loan amount will be lowered, and the repayment amount will be significantly reduced.
Challenges:
Loan Interest Rates: The auto loan interest rates will be paid, increasing the overall purchasing cost of the vehicle.
Repayment Plan: A repayment schedule would also be an additional burden to monthly financial forecasts.
How it Affects FICO Rating
Taking Out an Auto Loan and FICO Rating: This would depend on whether or not payments were made on time. However, a loan would likely improve one’s general FICO Rating, as it adds to the types of credit one holds and is a form of responsible borrowing.
FICO Auto Score: Taking out an auto loan and paying it off well will allow you to build a good history of dealing with auto credit, which may be helpful later when you buy another car.
Recommendation
If you want to improve your credit history and feel at ease with monthly due dates, consider buying a new car, securing high cash payments, and taking out an auto loan to cover the rest of the payments. With this strategy, you can also open an auto credit account, which will help enhance your overall credit scores in due course.
If you wish to dodge any future payment plans and want an immediate, direct takeover, then yes, buying a used car is no dispute.
In summary, it is more of a personal issue. The best choice coincides with your financial position, loan level, and long-range plans. Always examine the advantages and disadvantages and decide on the most suitable course for your economic condition and future expectations. Happy shopping for the car!