Bad Credit with Co-Signer that has Great Credit Car Loan Question

[disneysteve]

So I am going to update everyone with the information on what ended up happening.

I put down a down payment of $10,000 and left myself about $2000 in my savings acct. My dad DID co-sign for me.

Payments are 133.94/Month on a 48 month Loan

Thanks for the update. I often wonder if the folks who come here looking for advice actually take the advice given. Even though you chose not to follow our advice, I'm glad you told us what you chose to do instead.

[BostonMike]

You're gonna love the car. I love mine.

[Bades]

Actually, this might not be such a bad idea. Buy a car for no more than 10K. Put down 2K as a downpayment and borrow no more than 8K. Keep that 8K saved in a dedicated account and set up automatic payments from that account for the loan so you don't have to think about it and can't forget to pay or pay late. In fact, I'd set it up to pay the loan off early since you already have the cash, so if the loan is 36 months, set the payment amount so that you're paid in 24.

Ditto

[QuangSiicle]

So I am going to update everyone with the information on what ended up happening. Thanks for all of the advice and thanks for some of the somewhat rude comments.. no matter how realistic they are. I ended up finding the perfect 2008 Infiniti G35 Journey sedan with the upgraded premium package that I wanted. I was able to talk to the price of the vehicle down from 17448 to 14999 after taxes licenses and fees I was looking at about 16,400ish out the door.

I put down a down payment of $10,000 and left myself about $2000 in my savings acct. My dad DID co-sign for me.. let me add that I am asian and in my culture, our family ALWAYS helps each other out NO MATTER WHAT!(He wants me to help rebuild my credit especially because I want to purchase my first house within the next 5 years)...

I was able to get a 4.9% APR with his credit and mine. I thought my credit was 545 but it was actually 620(I know thats still bad but hey it was wayy better than I thought) My Payments are 133.94/Month on a 48 month Loan which I believe is wayy more than affordable. Also this vehicle ended up dropping my insurance costs by $37/ month. So between my car payment and my insurance I am paying $221.94/month. With my income of 2700/month I think that for both a car payment and insurance that is more than reasonable. I know that there could have been better options like everyone says and get a junk car that I am probably going to have problems with in the future but now I am happy!

In terms of my other bills I guess I forgot to leave out that I live with my BF and we make our bill payments together, at least in terms of rent/utilities/groceries/normal living expenses. I pay about $850/ month for all my other bills such as my rent/internet tv/cell phone/gas. So after taxes that leaves me still with about $1000/month for saving, food, and extra costs. Of course I had figured out all of these things prior to deciding whether or not purchase this vehicle. I know everyone has been telling me NO NO NO but i think with all this information it makes enough sense that I purchased this vehicle and that it will help me with my credit. I realize I could have bought a 10,000 car outright and saved $133.94 a month but cmon.... I probably would have spent that little by little every month on something else without even thinking about it anyway(Don't act like everyone doesn't see something on occasion where you think, " I guess i'll purchase that" within reason)

Now my Bf also has an income of $3700/month and of course like i said before he takes care of half of the bills and has a few of his own but I think we are doing fine for a young couple living on our own for the first time(its been almost 2 years that we've lived together)

Anyway sorry for the rant but i thought i should update with what has happened.. especially after all of the negativity that I've heard on here.

Thank you to all of the comments though.. especially the nice people who actually gave me information that I could use.

[Ramose]

Keep us updated on what you loan you get.

[snafu]

Since you are determined to buy a car you can't afford, be sure to get the figures for the sum you are borrowing plus fees & interest cost plus the sums for insurance, registration and plates/tabs.

[LuckyRobin]

I think you would be better off in the long run if you bought a serviceable used vehicle for around $3000, set aside $2000 for an emergency fund, and then started saving for the car you really want. If that car is $20,000 then save up until you have $18,000 just for it. Then get your own loan without your dad for the additional $2000 or $3000 you'll need on a one year loan. Even if the interest rate is high, you'll be building good credit, without involving your dad. Co-signing loans can ruin a relationship, not to mention the other person's credit. I know it can be hard to wait for what you want, but in this economy where nothing is a sure thing and jobs go away like that, I really think it would be a wiser move for you.

[SeanH]

Its probably pretty clear from the comments above, but the members of this forum strongly advocate paying for cars in cash, not having a car payment, and not purchasing a car you can't afford. A number of these ideas are ideas put forward by Dave Ramsey and other writers like... the Millionaires next door. I haven't read Millionaires, but I believe one of the examples cited in that book is that millionaires don't buy new cars. If you aren't familiar with these writers, a trip to Half Price Books would be money well spent.

If you've read this forum a bit you'll also notice that emergency funds are strongly advocated. I won't attempt to parse your words or probe into your finances, but if you are using every liquid dollar to your name to purchase this car you are making a financially unsound decision.

Car dealers wouldn't stay in business if they didn't know how to get you into a car. I'm told there's nothing they love more than someone who says "I can only afford a payment of $X" dollars. What do they do? They find a way to extend the time table out to get the payment down to something you can afford monthly. Always remember the bottom line and the total cost. If the only way you can afford a car is to extend the time table past a reasonable point then you can't afford the car.

Last of all - I am concerned that you are attempting to go for some sort of credit-double whammy, by trying to improve your credit and get a car. I would recommend separating these goals. You do not need to pay interest to build credit. Purchase a car you can afford. Use credit responsibly elsewhere - don't pay interest to rebuild your number. Consider a guaranteed credit car in which you back your credit balance with actual money.

[disneysteve]

Now that I am in a position where I have to get another car I figured now was a good time to get the car that I've been wanting.

Not if you can't afford it.

if the bank offers me a better rate than what the dealership does, can I use that loan to go to the dealership to purchase the vehicle?

Yes.

[QuangSiicle]

Sounds like this is your first big purchase? While I agree with the responses given, I wanted to try and go a little further into it.

1. If your dad did cosign with good credit, the rate could be anywhere between 0%-15%. With a private party and carmax, neither would offer 0%, so you are looking at probably 3-10%.

2. Absolutely you and your dad should look around for the loan - my credit unions are offering less than 4% right now for up to 60 months. If your dad has a relationship with them, that's the first step. Before you even buy the car, arrange the financing.

3. For payments, google "auto loan calculator" - that will help you break it out. Ideally, you shouldn't buy if you can't pay it off in 3 years or less (here, people say immediately pay it off, with cash you have on hand, but that's not always possible). Think about it this way - if your car cost $12k and you did a 5 year loan (60 mo), that would be $200 per month. If you streatched it out to 6 years (72 mo), that would be $168 per month. So $32 cheaper. Of course that's the quick and dirty, use the calculators for more info. Shorter is better.

4. Your dad and you will be equal co-signers. That means BOTH of you take responsibility for the loan. Of course, your dad would hope you pay it, but if you don't make a payment one month, he has to. The flip side is that it will impact both your credit reports - for you that would be good if payments are always made on time. For him, if a payment is missed, it would mess up his credit badly (less so for you).

5. As you mentioned in the next post - yes, this would help your credit equally with your dad's, see #4 above.

My thoughts? Don't buy this car - I know it's really cool and fantastic and looks great...but you can't afford it right now on your own so you can't afford it period. A used Honda Civic would be in your price range and would last you fine for several years while you saved up for another car. And also improved your credit. You should never ask someone to co-sign and you shouldn't put yourself in a position of needing someone to do that.

Best of luck to you.

Thanks for the response!

This is my second big purchase but first big purchase with my actual name on the loan lol. I payed for half of my first brand new car, a 2005 Scion TC back in 2004, with my dad when I was 17. Actually I left out that I totaled this vehicle(not my fault) and I am waiting on my check from the insurance company which is about $8000. I already have about $4000 saved up which I had been saving so that I could use towards the purchase of a new car. Now that I am in a position where I have to get another car I figured now was a good time to get the car that I've been wanting. (I also just found one for $17,444)

I know that I've had an account with Safe Credit Union since 1993 and my dad has been banking there for even longer. Would it be wise to use them as our first option? And how does it work ? Do I just walk in with my dad and ask for a loan for a certain amount? And if I were to be approved but with an interest rate that I didn't like can I change my mind ? I'm not sure how this works exactly.

Same with the car dealership. If they were to offer me a rate that was less than acceptable can I turnaround and say no?


And lastly, if the bank offers me a better rate than what the dealership does, can I use that loan to go to the dealership to purchase the vehicle?

Sorry for all the simple questions, but like I said, with my first big purchase all I did was give my dad $8500 and he helped get me my car.

Thank you !

[disneysteve]

Why shouldn't she find a used, cheaper car, and still take the loan w/cosigner (for interest purposes) so she can start showing positive credit behavior in an attempt to rebuild her score? It'll cost her more than just paying cash, but in the end it could save her money by giving her independent access to better interest rates.

Actually, this might not be such a bad idea. Buy a car for no more than 10K. Put down 2K as a downpayment and borrow no more than 8K. Keep that 8K saved in a dedicated account and set up automatic payments from that account for the loan so you don't have to think about it and can't forget to pay or pay late. In fact, I'd set it up to pay the loan off early since you already have the cash, so if the loan is 36 months, set the payment amount so that you're paid in 24.

[papa_squat]

Thanks, Steve. I thought that sounded high. I was confusing the 20% downpayment with the 10% monthy payment. Time to update my Financial Rules of Thumb doc. I'd be lost without my friends at Savings Advice .

[disneysteve]

determined to finance something, the repayment term should be no longer than 36 months and the month payment should not exceed more than 20% of YOUR monthly take-home income

I agree with everything you said except this.

You car payment shouldn't exceed 10% of your income, not 20%.

[siggy_freud]

Why shouldn't she find a used, cheaper car, and still take the loan w/cosigner (for interest purposes) so she can start showing positive credit behavior in an attempt to rebuild her score? It'll cost her more than just paying cash, but in the end it could save her money by giving her independent access to better interest rates.

[papa_squat]

Sorry, but I agree with bjl584 and DisneySteve: you most definitely cannot afford that car.

I'm surprised your father is actually willing to cosign on a car that expensive with you, because it's setting him up for you not to pay for it, which could damage his credit. If he's doing it for any reason, it would be to help your credit by making the payments for you, in which case wont help you learn any real lesson on how to pay for it yourself.

You would be much better off looking for a reliable-model used car at about $8-10k and pay for it in cash. Not having a car payment each month will allow you to build your savings back up so you won't turn to credit cards the next time an emergency or large expense comes up. I would consider this your only option if you still have any credit card debt hanging around so you can focus on paying that off.

However, if you have paid off all consumer debt and you are determined to finance something, the repayment term should be no longer than 36 months and the month payment should not exceed more than 20% of YOUR monthly take-home income, not your father's. Anything outside of these numbers means you are setting yourself up to fall back into debt, plus you will be overpaying for the car, which deprecitates in value anyway.

Co-signing with your father may be a foolish thing for him to do, but if he's willing to take on the risk, it will give you a better interest rate and could help your credit as long as the payments are made on time. However, is that worth disappointing and burdening him if something happens to your income and you suddenly can afford the payment? You have to weigh those odds yourself.

If you really are considering the financing and want more advice, you should probably provide a budget so we can see what you can really afford. Based on the info you've given, I think you should find a cheaper car.