Author Topic: I need a car loan {Cringe}  (Read 6158 times)

Mike Key

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I need a car loan {Cringe}
« on: June 04, 2012, 11:25:48 AM »
I haven't been around for awhile, as new friends and new job got me slightly side tracked and have kept me busy.


My wife and I are hoping to break into real estate and stop renting within the year, and we're also saving about 18K for a downpayment on a 90,000 or less home.


The problem is, while my credit is at 780 several lenders have told us, we need a car loan to show credit worthiness for the mortgage. Which I don't understand honestly. I had 2 personal loans that I used to bring up my credit and the idea of another stupid car loan annoys me. For one, we don't need another car.


I suppose one annoying option would be to sell our current vehicle and treat this like I treated my personal loans to improve my credit. Dump the money into a savings account, and ask for a vehicle loan in the same amount, and then pay it off over the course of 9-12 months. 9 is the minimum amount of time you need something to be on your credit to improve your score, fyi.


But this is a lot of hassle. Has anyone encountered this problem before?

adam

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Re: I need a car loan {Cringe}
« Reply #1 on: June 04, 2012, 11:33:50 AM »
I'd look for a different lender.  Or tell them to do a manual underwriting (I think thats what its called).  In other words, instead of looking at your credit score you want them to actually do the research behind your debts and your income, something like that.  Dave Ramsey talks about it sometimes.

Umm.. here: http://www.daveramsey.com/mobile/truth-about-detail/storyID/the-truth-about-your-credit-score/
Quote
Getting a Mortgage Without a Credit Score
Let’s go back a few years, though—back before you paid off that mortgage. How can you get a mortgage without a credit score in the first place? Isn’t this magic number your key to the world of mortgages and homeownership?

Actually, no, it isn’t. You can get a mortgage without a credit score. How so? Manual underwriting.

Not every lender is going to do manual underwriting—which is basically when they use a little common sense and look at factors like your income and not just your credit score. Churchill Mortgage is the lender we recommend for manual underwriting.

Now, this doesn’t mean that just anyone can walk into a bank or mortgage lender and walk out with a home loan using manual underwriting. Remember, this is the way weird people do it, so there are some requirements you’ve got to live up to. Specifically, you must:

Put at least 20% down on your home.
Choose a 15-year, fixed-rate conventional mortgage.
Have a strong employment history and personal income to support the loan.
Demonstrate 4–6 trade lines that span 18–24 months. These are just regularly recurring expenses such as rent, electric bills, water bills, cell phones, etc.
Also, your old credit history has to be in good shape. Even if you have a zero score, the old history is still there and impacts the loan decision. If you have an old history of late or missing payments, then you could have some problems.

Take it with a grain of salt I guess, but explore other options.

velocistar237

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Re: I need a car loan {Cringe}
« Reply #2 on: June 04, 2012, 11:38:06 AM »
That doesn't make any sense. I bought a house without a car loan, as I'm sure countless other people have. Do these people know your credit score? I assume with that kind of credit score, you'd have a sufficient credit history.

Diane C made a post about doing this. The one downside I can think of is that most car loans will require you to get comprehensive insurance. If you normally self-insure, it would be an extra expense. If you already meet the insurance standards, it's nothing more than a small amount of paperwork.

Jamesqf

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Re: I need a car loan {Cringe}
« Reply #3 on: June 04, 2012, 12:45:34 PM »
Same here.  I've never had a car loan, or indeed any kind of loan other than student loans & mortgages.  One credit card, which is always paid in full every month.  Had no problems getting original mortgages.  A bit of hassle with the refinance a couple of years ago, but that's because I went to full self-employment and they wanted all sorts of income verification.

smedleyb

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Re: I need a car loan {Cringe}
« Reply #4 on: June 04, 2012, 12:59:31 PM »
First off, welcome back!  I was wondering where in the hell you went.

And second, welcome to the twilight zone of creditworthiness.  A portion of your "creditworthiness" hinges on the variety of types of credit you've taken out over the years.  I don't know your exact situation, but I do know that the guy who's gotten a car loan and paid it off will be considered a better loan candidate than the one who has never had a car loan.  As far as it being the deal breaker on getting a mortgage?  That's weird but logical based on the components of your credit score.

Mike Key

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Re: I need a car loan {Cringe}
« Reply #5 on: June 04, 2012, 01:32:59 PM »
I think the other factors are time/credit types. I really avoided this stuff for years, until recently. So my credit was pretty much non-existent up until recently when I decided to start working on it in 2009. I already have two cards which I use lightly, I follow a 18% rule and pay them off each month. But 3 different lenders have mentioned the lack thereof of a previous or current automobile loan as a reason.

I'm wondering if my current employment length is an issue as well. When I was self employed the first time I tried getting a loan, they wanted to see a tax return to prove that I made what I said I made.

skyrefuge

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Re: I need a car loan {Cringe}
« Reply #6 on: June 04, 2012, 01:36:22 PM »
That doesn't make any sense. I bought a house without a car loan, as I'm sure countless other people have. Do these people know your credit score?

Yep, add me to the list of those who have never had a car loan, and had no issues getting a mortgage.  Seems like a requirement that only the laziest and least-interested of mortgage lenders would have.  I mean, what if you don't even drive?  In the car poll, 52.7% of Mustachians have *never* had a car loan, and this is this first time I've heard of someone being locked out because of that.

Lending standards could have changed (I guess they have, at least for the lenders you've talked to, and admittedly my loan was pre-crash when they were handing them out like candy), but it still seems like there *must* be a lender out there who actually uses a bit of brainpower to determine who to lend to, rather than filtering everyone through a mindless one-size-fits-all computer script.   I say you go to the lenders you've already spoken with, punch them in the face, and tell them "it's easier for me to pay you your money back if I *don't* have car payments, you dumbass!"

Mike Key

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Re: I need a car loan {Cringe}
« Reply #7 on: June 04, 2012, 03:27:12 PM »
I'm thinking it's a you're credit history wasn't very diverse deal. We haven't spoken with to many lenders just yet. And I have a friend who is a mortgage broker I'm going to talk to. We're still very much in the early stages here. But when that came up, I was like, WTF???

gooki

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Re: I need a car loan {Cringe}
« Reply #8 on: June 04, 2012, 04:36:12 PM »
Are you actually trying take on a mortgage now, or are you just putting out some feelers?

arebelspy

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Re: I need a car loan {Cringe}
« Reply #9 on: June 04, 2012, 06:57:08 PM »
I haven't been around for awhile, as new friends and new job got me slightly side tracked and have kept me busy.

Mike Key, we missed ya, buddy!   You stopped posting the week you got your new job, I assumed it's been quite a busy time.

Did you end up figuring out a system for biking to work / carpooling with the wife?  How about a life update? 

Back on topic...

Add me to the (large and growing) list of those who have never had a car loan but have had no trouble getting mortgages. 

Here's what very likely happened: Every time you get a credit score, it tells you "potential factors" on why your score isn't higher.  Even when you have an 800+ score, it tells you.  If you have a bad score it tells you stuff like "late payments" and "bankruptcy" and stuff.  Likely your high score told you things like "length of credit history" and "lack of diverse accounts".   Your lender then relayed this on to you, and offered suggestions on how you could raise your score.

The thing is, yes, maybe it would raise your score a tiny bit, however you don't need a higher score.  750+ = you're in the top bracket.  So don't sweat it.  Skip the car loan, for sure.
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Dicey

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Re: I need a car loan {Cringe}
« Reply #10 on: June 05, 2012, 01:02:23 AM »
Hi Mike Key,
I'm a newbie to the the forums since you were here last, apparently. I noticed you have a couple of smart comments over at the mothership, so I'm not surprised to discover you're a mustache wearin', forum readin' hombre.

I did post a question on this topic and got a boatload of mostly great imput. Briefly, here's what I did: Took the pink slip on my paid-for car to my local credit union. Got a loan for half its value at 2.19%. Did need to provide POI, but that was easy. Blah, blah, blah...The rest of the details are over at the thread. Velocistar237 kindly provided the link: http://www.mrmoneymustache.com/forum/ask-a-mustachian/should-i-take-out-a-small-car-loan-just-to-boost-credit-score/

I have purchased four properties so far and have never had a car loan at the time I applied for a mortgage. Hell, most of my career I've had a company car, which counts as no car and no loan. (Lender math.) I would be less surprised if a potential lender wanted you to pay off a car loan than prefer that you had one. Please allow me to emphasize that the linked scenario involved getting a loan on a car I already owned. Do not sell your car (assuming it's a good one) and buy another, as you will incur too many costs. The sales tax alone would be a stupid amount of money. Also, there is a good chance that if you did buy a different car, you will wind up with a lender who wants you to pay off the car loan prior to closing. At which point you could just go ahead and shoot yourself in the other foot.

Unless of course this post isn't about mortgages at all, but a sly way to scratch an itch for a new car ;-)
Nah, didn't think so. Welcome back!

Dicey

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Re: I need a car loan {Cringe}
« Reply #11 on: June 05, 2012, 01:12:54 AM »
Well, duh! I hadn't seen your other forum question when I replied to this one. Oh, well. Still some great comments on that other thread. Best of luck with your decision(s).

Ha! You really do need to scratch a car itch after all.

arebelspy

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Re: I need a car loan {Cringe}
« Reply #12 on: June 05, 2012, 06:40:25 AM »
Thanks for linking to your post Diane. I was going to link to it, then I got sidetracked while posting my reply.

I did think this comment from the OP of this post was interesting, in relating to your experiment:
Dump the money into a savings account, and ask for a vehicle loan in the same amount, and then pay it off over the course of 9-12 months. 9 is the minimum amount of time you need something to be on your credit to improve your score, fyi.

Since now that you have prepaid a bunch you won't have it for 9 months.

Where did you get that 9 mo. figure, Mike Key?
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menorman

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Re: I need a car loan {Cringe}
« Reply #13 on: June 05, 2012, 08:43:23 AM »
Is the car in both names or just one? If it's in hers, you might be able to "buy" it from her and take a loan to fund part of it. She would of course get the loan money from the bank then could just use it to pay it back to the bank. I've seen some banks offering impressively low rates these days, so you might even be able to get a rate lower than inflation.

Mike Key

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Re: I need a car loan {Cringe}
« Reply #14 on: June 05, 2012, 11:59:04 AM »
I did think this comment from the OP of this post was interesting, in relating to your experiment:
Dump the money into a savings account, and ask for a vehicle loan in the same amount, and then pay it off over the course of 9-12 months. 9 is the minimum amount of time you need something to be on your credit to improve your score, fyi.

Since now that you have prepaid a bunch you won't have it for 9 months.

Where did you get that 9 mo. figure, Mike Key?

I don't recall, once upon a time I heard that 9 months is a good length of reporting history. Especially since some things aren't reported for the first 3 months.

What I meant was if I sold a car and took that cash, put it in the savings, and borrowed the same amount, and paid the amount back with the savings.

Mhem... no car loans for me.

Consider this a closed topic.

Dicey

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Re: I need a car loan {Cringe}
« Reply #15 on: June 05, 2012, 11:31:44 PM »
"Thanks for linking to your post Diane. I was going to link to it, then I got sidetracked while posting my reply. " Don't thank me ARS, that link was kindly provided by Velo237. All I did was cut and paste his link. He's much better at that sort of thing than I and deserves credit for his effort.

I'm not sure if the second part, "Since now that you have prepaid a bunch you won't have it for 9 months." was directed at my situation, but if so, it was also covered on the other thread, I think. I got a two year loan and then paid half of it back after the first payment, creating in effect, a one-year loan. I am shooting for a loan of about 9-12 months with below 50% loan utilization asap. This may well be a mixed metaphor, but since the purpose of the loan was an attempt to massage the credit score system just a bit, I figured it wouldn't hurt. Bottom line is, it won't cost much and I may learn something useful. The total interest could amount to less than a single month's cable (in my area, and if I actually had cable), just to put it in perspective. BTW, I never took any loan proceeds out of the credit union. I just set up a sub-account with auto payment. I won't know my final cost until the last payment is made. I will probably wait at least six months before I pull my score to see if there is any change.

velocistar237

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Re: I need a car loan {Cringe}
« Reply #16 on: June 06, 2012, 06:07:11 AM »
For what it's worth, I took out a car loan recently, and before I applied to refinance my home mortgage last night, I checked my credit score only to see that it had fallen 30 points. The mortgage application still went through, but I was worried that it would cost me a half-point or so. The reason my score fell is that I don't have many credit accounts open, and the new loan decreased my average account age. I wasn't aware that people with great credit have 10-15 accounts, and that they've held them for a long time.

smedleyb

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Re: I need a car loan {Cringe}
« Reply #17 on: June 06, 2012, 10:08:15 AM »
For what it's worth, I took out a car loan recently, and before I applied to refinance my home mortgage last night, I checked my credit score only to see that it had fallen 30 points. The mortgage application still went through, but I was worried that it would cost me a half-point or so. The reason my score fell is that I don't have many credit accounts open, and the new loan decreased my average account age. I wasn't aware that people with great credit have 10-15 accounts, and that they've held them for a long time.

I opened 10 credit card accounts within 6 months and watched my score drop 40 points.  In the past 4 months it's crept up another 20 points (780), and the average age of my accounts is less that 10 months, which is awful -- I mean bottom 5 percentile in that category awful -- but hardly an obstacle to obtaining credit.  In fact I just got 2 new cards and the credit lines are 20-30% greater than what I was getting a year ago.

I've been a credit user for about 15 years.

Oh, and congrats on the refi.  Nice to get that over with, I'm sure.