Car purchase for college, financing and loan payoff

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FinFit
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Car purchase for college, financing and loan payoff

Post by FinFit »

Have been reading for a long time, first time posting. I have a question regarding purchasing a used car for my daughter. Initially, inspired by Dave Ramsey, I thought that paying cash for the car is the only way to go. After visiting dealerships this weekend to find a good value on a used 2020 Nissan Altima, we discovered, that the best deals are available if we finance. Cash purchase will be at least $1k more per the information from dealerships. So, now I am thinking that it might be indeed a good idea to finance the purchase. Since we are considering financing now, maybe it is also good to start building credit history for my daughter who is 20. I was thinking that I will finance the car and co-sign with her and after making three required payments ( per Nissan financing), just pay off the balance. But, how will that impact my daughter’s credit score? Would her score then drop because she did not keep the loan for the whole duration? Any tips for this situation are greatly appreciated!.
Pandemic Bangs
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Re: Car purchase for college, financing and loan payoff

Post by Pandemic Bangs »

FinFit wrote: Wed Jan 20, 2021 1:33 pm I was thinking that I will finance the car and co-sign with her and after making three required payments ( per Nissan financing), just pay off the balance.
Only did this once and will never do this again. Rather than paying cash for a new car in 2016 or so, we had committed to keep a loan going for six months or something so the seller would not lose their loan kickback (it has a more palatable industry-insider name). This (oddly) let us lock in a better price than we could get in cash. I planned to immediately decrease the loan balance with prepayments and then let a much lower balance ride for six months. Lender online interface (maybe Chase?) would not let me pre-pay anything. Got so fed up we just paid off the whole thing maybe a month after purchase.
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Hector
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Re: Car purchase for college, financing and loan payoff

Post by Hector »

I don't know how co-sign and credit score works.
But credit score algorithm favors multiple types of debts. And score should drop after the loan is paid off.

I took car loan once. Per my credit card (credit card checks score on TransUnion), for the last 6 months of loan, my score was in 840 - 850 range. Credit cards and car loan were my credit mix. After the last payment, it dropped 40s points because my credit mix changed from credit cards and car loan to credit cards.
Last edited by Hector on Wed Jan 20, 2021 3:42 pm, edited 1 time in total.
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eye.surgeon
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Re: Car purchase for college, financing and loan payoff

Post by eye.surgeon »

FinFit wrote: Wed Jan 20, 2021 1:33 pm After visiting dealerships this weekend to find a good value on a used 2020 Nissan Altima, we discovered, that the best deals are available if we finance.
The means of paying for a used or new car should be discussed only after a price is negotiated and agreed upon. I always deflect any questions on cash vs financing simply stating that I am flexible when it comes to paying. Paying cash therefore costs me nothing and it shouldn't cost you anything either.
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hightower
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Re: Car purchase for college, financing and loan payoff

Post by hightower »

FinFit wrote: Wed Jan 20, 2021 1:33 pm Have been reading for a long time, first time posting. I have a question regarding purchasing a used car for my daughter. Initially, inspired by Dave Ramsey, I thought that paying cash for the car is the only way to go. After visiting dealerships this weekend to find a good value on a used 2020 Nissan Altima, we discovered, that the best deals are available if we finance. Cash purchase will be at least $1k more per the information from dealerships. So, now I am thinking that it might be indeed a good idea to finance the purchase. Since we are considering financing now, maybe it is also good to start building credit history for my daughter who is 20. I was thinking that I will finance the car and co-sign with her and after making three required payments ( per Nissan financing), just pay off the balance. But, how will that impact my daughter’s credit score? Would her score then drop because she did not keep the loan for the whole duration? Any tips for this situation are greatly appreciated!.
Take their financing offer then pay it off in full immediately when the first bill comes. Never tell a dealer you're a cash buyer. They won't negotiate with you as much.
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Hector
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Re: Car purchase for college, financing and loan payoff

Post by Hector »

hightower wrote: Wed Jan 20, 2021 3:40 pm
FinFit wrote: Wed Jan 20, 2021 1:33 pm Have been reading for a long time, first time posting. I have a question regarding purchasing a used car for my daughter. Initially, inspired by Dave Ramsey, I thought that paying cash for the car is the only way to go. After visiting dealerships this weekend to find a good value on a used 2020 Nissan Altima, we discovered, that the best deals are available if we finance. Cash purchase will be at least $1k more per the information from dealerships. So, now I am thinking that it might be indeed a good idea to finance the purchase. Since we are considering financing now, maybe it is also good to start building credit history for my daughter who is 20. I was thinking that I will finance the car and co-sign with her and after making three required payments ( per Nissan financing), just pay off the balance. But, how will that impact my daughter’s credit score? Would her score then drop because she did not keep the loan for the whole duration? Any tips for this situation are greatly appreciated!.
Take their financing offer then pay it off in full immediately when the first bill comes. Never tell a dealer you're a cash buyer. They won't negotiate with you as much.
When I was shopping for a new car, I decided on a car. Then went to a local dealer and emailed all the dealers in 100-mile radius to get the price. Went with the one who offered the lowest price. No one asked how was I going to pay till I went to the dealership to buy the car. At the time of buying, price did not change regardless I was financing it or not.
Jack FFR1846
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Re: Car purchase for college, financing and loan payoff

Post by Jack FFR1846 »

You're buying your daughter a brand new car for college?

I suppose if she's going somewhere like Clarkson where there are as many bears as people, then maybe. Otherwise, look into zip car at her college. My son received a free subscription because of being at the college. He would reserve a car when needed and use it for the number of hours needed. Waaaaaaaaay cheaper than buying a car. When a student at college has a car, what's that mean? It means that when her friends need to go get groceries, go to the bus station, go anywhere, they'll be bothering her to either drive them or to borrow the car.

If you're going to do it anyways, she'll have a slight downward bump when the loan starts, then her credit score will rise because the payments are being made on an installment loan. When you pay it off, it'll drop to where it started.
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zag00
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Re: Car purchase for college, financing and loan payoff

Post by zag00 »

Pandemic Bangs wrote: Wed Jan 20, 2021 2:58 pm
FinFit wrote: Wed Jan 20, 2021 1:33 pm I was thinking that I will finance the car and co-sign with her and after making three required payments ( per Nissan financing), just pay off the balance.
Only did this once and will never do this again. Rather than paying cash for a new car in 2016 or so, we had committed to keep a loan going for six months or something so the seller would not lose their loan kickback (it has a more palatable industry-insider name). This (oddly) let us lock in a better price than we could get in cash. I planned to immediately decrease the loan balance with prepayments and then let a much lower balance ride for six months. Lender online interface (maybe Chase?) would not let me pre-pay anything. Got so fed up we just paid off the whole thing maybe a month after purchase.
Immediately refinance and pay off with no prepayment penalty is the way to go. Did so on my '13 f150 when new. Im not sure if there is prepayment penalties even from the manufacturer finance programs.
jmw
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Re: Car purchase for college, financing and loan payoff

Post by jmw »

It's fine to pretend to be an auto loan customer. You don't need to tell them you're really a cash buyer.

You're getting the loan to make it easier to get the best deal possible with the side effect of giving your daughter some positive credit history. Let your daughter optimize her credit herself instead of you babying her around by keeping the auto loan open. Pay the loan off ASAP. You don't need something hitting your own DTI. You might need it someday.
Topic Author
FinFit
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Re: Car purchase for college, financing and loan payoff

Post by FinFit »

Thank you so much for all the replies! Appreciate all the insights and different points of view. It gives me food for thought and opportunity to make a better decision. The collective wisdom of this forum is invaluable!
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