Approved for used car loan 6 years ago, paid it off 1 year early. Ok so now i have good credit, right? Now i go to a dealer and want a New car! But the loan interest went from 2.9% to 12.9% because they said even though I have good credit, I don't have any credit cards to give me the revolving credit to get better interest rate. WHAT??? I thought it was good in life not to have any credit cards or debt of any kind. Want to know why I am being penalized for not having credit card, but good credit??? Any thoughts???? or ideas on this one???? Can't afford the car now with that kind of interest rate!!!
Simply put: You need credit to get credit. Anyone issuing you credit wants to know that you can, and have already obtained some credit and have it in good standing (i.e., pay your bills). This makes you credit worthy and low risk. Not having credit cards is actually a bad thing. Having them and using them wisely is a good thing.
Yep. Have you tried financing through the credit union? If you want to get a credit card you should get a prepaid or very low limit card and only charge 10% of your balance and pay it off each month. That's the best way to build credit quickly.
You should always keep 3-4 different credit cards open at any time. And you should try to use at least one of them at least once a month. Pay it off each month. It's a great way to get free stuff as well. I use one card for food shopping and gas and pay it off every month, I get points with Choice hotels. After a year I generally have enough points for a free vacation. So I never carry a balance and never get charged any interest. Don't open and close cards often, the best thing is to keep cards open for as long as possible. My longest is over 10 years, my shortest is 4 years. Pay everything on time, and never miss a payment. If you can't make a payment, call the credit card company and explain the situation, don't just not make a payment. Take this advice from someone with an 800+ credit rating.
Try PenFed. They have great rates, and are great to work with. Plus you can negotiate for more dealer incentives if you don't need their financing.
Just because you have paid off a loan doesn't mean you have good credit as far as lenders go! There is a separate auto FICO score and if your score isn't over at least 700 it can make getting a prime interest rate hard on a new vehicle. Lots of factors go into determining a credit score. Debt to income ratio, time at residence and job, what type of credit the individual has previously had and how long they paid on it, etc. In most cases you won't even know what your auto FICO is because the dealer is usually told not to disclose it to the customer because of agreements with the reporting agency. You can always try another manufacturer, not all of them have the same requirements as far as credit goes. But remember this. Every time a credit report is pulled on you it effects your credit score. The more inquiries, the lower your score. Is it fair, absolutely not, but that's just the way it is. If you have a personal relationship with your banker you may want to see them if for no other reason to explain exactly what you could do to improve your score.
same thing happened to me, over Thanksgiving....dealership "couldn't get me a rate less than 14%".... went to the credit union...4.75% approved in minutes (and I only have one credit card).
Good point. SECU doesnt offer "Risk Based" loans. In other words, if you qualify for a loan, you get the same rate whether your credit score is an 800 or a 550. It's not always the best deal, especially for the folks with higher credit scores when rates are down like they are currently. It is usually a better deal for borrowers who do not qualify for those crazy low dealer incentive rates.
Learned this little bit of info from a Banker. The Credit agency as well as lenders expect you to have roughly 30% of outstanding debt. This to them, says good creditor. I agree with you. No debt should be better, but I guess they think no debt, no one wanted to take the chance on you. But anything more than 30% and you get swindled with high interest rates. If you are a member of a Credit union, you can usually get a very low rate on a new car. My first car, I bought from the dealer, within 2 weeks refinanced the entire thing, saved 4% on interest, and when they wrote the loan payoff note, they misquoted it as being $500.00 cheaper than it should have been. So saved a ton. I wouldn't worry if you know you can get a loan from someplace else with cheaper terms. Try getting preapproved since you know now what you want and how much it is. good luck
Thank You all for the tips and stories! I have just learned alot that I didn't know. I did actually think that not having credit cards and no debt was a good thing!!! But now I will tell my kids to get credit cards and buy themselves a few nice things, so that when they need a necessity, it won't be that hard to get!!!
First of all, NEVER finance through a dealership. The dealership makes money off of you using their financing, at least 2%. So, with that in mind - know that you can get at least 2% less securing your own financing. Sometimes though, dealer rates can be lower. Just depends. I second going the credit union route. If you are not SECU qualified, try Coastal. I have financed with both. Prior military, USAA - I have financed with them as well. Another option, is borrowing from yourself - via 401k. Secure your financing BEFORE you step foot on the lot. Get everything in writing, go in informed and educated (NADA, Edmunds, KBB), and don't be afraid to walk away. They'll call, esp if you have cash (check) in hand. And my last bit of unsolicited car buying advice, promptly remove any dealership plate holder and stickers, they already got your money - you don't need to advertise for them too!
Not necessarily true at all. Manufacturer supported financing such as the advertisements you see for example 1.9%, etc carry no incentives for the dealer other than getting more people in the doors. In fact quite a lot of the financing provided to dealers by banks carry very little incentives to the dealer at all. Sometimes they get nothing back, just the added sales avail by advertising the rates and sometimes they will get a flat rate from the lender of say $100 for each contract. On the other hand there are some dealers out there that will add 3% or more to your finance rate if you allow them to. As stated, be prepared and know what you can qualify for prior to going shopping. Kind of like shopping for a credit card. If you get one that charges you say 15% on unpaid balances! shame on you. Same goes with the auto loan.
Watch out for a Lender that uses the Rule of 78's I haven't financed a vehicle in a long time so this method of financing may not be as common, but GMAC, Toyota Motor Credit, etc, used to use the Rule of 78's. In a nutshell, if you end up paying a car off early you will pay more than if you had a standard "simple interest" loan even if the rates are the same. The term "Rule of 78's" will be printed somewhere in the loan documents so look the paperwork over carefully. http://www.bankrate.com/brm/news/auto/20010827a.asp http://en.wikipedia.org/wiki/Rule_of_78s
The dealership loan was 2.9% which was awesome to us, but after the viewing of the credit report, and not having a credit card, that where the trouble came in for us. But they worked with us and we got 9% interest and they took more off the new car and gave us more for the trade in, so we pay per month alittle more than we would have liked, but not too bad a deal.
Do you have any type of early payoff penalty? I would make a few payments on the car, get a credit card to boost your credit score, and refinance to a lower rate via a credit union or PenFed. 9% is pretty high for a car loan, especially right now.
I'm glad you're happy with your deal, but 9% is ridiculously high in today's market. Unless you had a recent bankruptcy or otherwise your credit is in the tank, they took you for a ride. Quite honestly, if this is the best they could do, I would have found a different dealer. I would definitely refinance with a reputable financial institution soon.
How about saving up and paying cash? $400 car payment x 12 months = $4800+ your trade. You can get a decent vehicle for $6000-$7000. Save up another year and you have $4800+ maybe $5000 for your trade = About $10,000 vehicle. When life happens and your income is compromised ... there is no stress and worry of having your vehicle repossessed when it is paid for.
