Car down payments/financing questions.

[Skyline]

This Saturday I'm going to be basically buying a car by financing it. I will be co-signing it with my mom so I can get an extended period so it can count as a big expense for when I buy my house. I'm aiming for 60 months for a $15-16k deal, not including tax, which would be around $300~ a month.

I know there is interest but I'm not sure how much it would be. The guy said 10%-15% but I looked up rates for my state and the highest was 4.6% for a 60 month plan.

Is there anything I should know when buying and financing a car?

 

[backseatjuan]

Yes. It's a total scam. You over paying for a car basically, which depreciates in value. Besides financing, you going to have to get full coverage insurance, plus they will convince you into signing a plan for a totaled vehicle, which will pay you difference of what insurance will cover and the real value of your vehicle. Total scam. Don't go that route. You can't even buy a good ass hauler for that money, and you want to over pay for it.

Besides that stuff you need to consider servicing your vehicle, there is 10k mile, 20k mile, 30k mile etc servicing that has to be done to your new vehicle. If you think you don't have to do anything to a new car, you are wrong.

You better off going onto craigslist and finding a good car for the price that you can afford to pay right away. Examples 1, 2, 3

A used car is better value than a new one.

 

[Skyline]

Well the car that I am buying has two previous owners, about 10k miles each I'm guessing they rented, and I checked the Carfax and it still has 40k more miles on the warranty. I've already done the math in regards to upkeep and insurance so don't worry about that. But I am worried about hidden fees like that totaled insurance stuff, never heard about that...

Normally I would agree with you on the buying a used one on Craigslist or even EBay but I plan on buying a house when I'm around 25 and it would be very beneficial to have a long term big purchase in my credit history.

The car is a 2014 Mitsubishi Lancer GT. I know this car is rapidly losing value over the years, because Mitsubishi is getting their butts kicked in the sedan market, but that doesn't make it any less of a good car. Plus the parts are going to be dirt cheap in the future.

I personally don't care about reselling the car for equal or greater value because I plan on holding onto it for a while especially since parts are going to be cheap. It's kind of a double edged sword in regards to value.

 

[Bible_Belt]

I used to be a mortgage broker. Don't spend $15k on a car just to improve your credit. You would be much better off in getting the mortgage if you had that $15k in cash.

Here's a tip for someone in your situation, assuming you live with your mom. Create a paper trail that shows you paying rent in an amount that is similar to the mortgage payment you think you will have. That will go a lot further than having a car payment on record.

By the way, the car payment works against you in a huge way when debt rations are analyzed in your mortgage app. Debt ratios are different than credit scores. The car helps your credit, but kills your ratios. Underwriters will limit the amount of your monthly income that you can spend on debt service. It's often limited to 30% of your gross toward a mortgage and 50% toward all debt combined. If your number for either is higher than that, you're not getting the loan.

 

[Skyline]

Let's say 3 years pass by and I have more than enough money to pay off the loan. Would I be able to pay it all off in one go despite the 60 month plan? And if so, what would that do to my debt ratio?

 

[Bible_Belt]

Sure, there is always a payoff amount on any loan. Cash is king. They are always happy to take your money. And yes, that would help your ratios a lot.

When you have a lot of cash on hand, you can do things like get a credit card, max it out on stuff you would buy anyway, carry the balance one month, and then pay it off the next month. Then ask the card company to increase your limit. They will be happy to do so. Keep repeating that process, and you will have an excellent credit score.

 

[Skyline]

Alright so I think I have a plan. I'm gonna do the $15k finance for 60 months and co sign it with my mom. Our debt ratio will basically be all messed up up until I pay it all off when I become a cop at 21. But during that time, I'm gonna set up my bank account to so it deposits half of the payment into my moms account so me and her can both build positive credit and then I throw the one big coin drop(about $9,000), from when I become a cop, so our ratio goes back to normal with better credit than we started.

Then I'll set up my bank account so I pay half of the bills and then open up another bank account for another line of credit. Would this work just as well as that paper trail you were talking about?

The drawback to this is if I miss a payment or don't pay it off I can seriously fvck me and my mom's credit and all of that. But if all goes right, I can get good scores for my house and even help dig my mom out of some of her debt.

What are your thoughts on this plan?

 

[Bible_Belt]

The paper trail to Mom is to make it look like you are paying rent. There is another factor the underwriters consider, especially for first time home buyers, called "payment shock." Going from paying nothing a month to paying a mortgage payment can be a big deal for some people. But if you were already paying $400-500 a month in rent, then there would be no payment shock in going from that to a $500 a month mortgage payment.

30/60/90 days are the magic numbers for being late on debt payments. If you are 29 days late, nothing happens to your credit. As soon as you hit 30 days past due, they mark it on your credit for as long as the account continues to show up.