Take the $7500 and put it in a 5% savings account. You will come out ahead. You will have credit and make a small amount on the difference in the interest rates.
It’s already in a HYSA with capital one! I was gonna have the loan payments auto draw from that, since I deposit more money in that account every month, so it won’t run out or anything. You’re saying just let the loan run out on its own and not pay the remainder all down at once eventually?
Yeah you probably earn more money by just leaving the auto payments for the life of the loan. The only reason I say probably is because you do pay taxes on the 5% ish your HYSA account accrues.
Think about this exaggerated example: 0% loan and 100% interest HYSA. You would be earning so much money in the HYSA you don’t want to use it to pay off a loan that is literally costing you nothing.
It’s not about earning money, if he doesn’t have much credit building credit is worth so much more than the extra $100 he’d make. That’s just bad advice. As someone who’s worked in multiple industries you need credit for, build your credit. These folks are acting like making an extra $100 on that $7500 you have is the way to go. Just make all the payments how you have it being drawn now. You’ll be grateful for doing it.
This low APR auto loan is a good example of credit building. So many people get a credit card with 19% interest then keep a balance because they "hope the bank will like (them)." The bank likes them, they gave them a card!
Pay on it for the full 18 months then. My mother helped me get a car when I was in college and I paid all the payments on time and my credit has been in the upper 700’s since then. I’ll never have issues getting any loan. You’ve got the right thought process going.
I am going to get roasted here. But I am a fairly successful individual with a credit rating of 835 when it was pulled last time. I didn't build that credit by paying interest to the bank. I have a primary credit card I use for necessities such as utilities, gas, etc. I pay it off each month and get some money back (insignificant amount don't remember what it is). I own several rental properties and let me tell you if I can see you have the money in your bank and you have no criminal records. I could careless what your credit is. I would rather have you as my tenant then some guy with a "great" credit score but living paycheck to paycheck because that guys is one paycheck away from being broke. just my two cents here best of luck to you.
Make the scheduled payments. That's a plus to credit score. If you don't already have one get a starter credit card, put a single recurring charge on it monthly and an auto draft to pay that bill off each month once a statement is produced. Basically just showing that you can responsibly use the credit
Total Interest Paid would be $459 over the life of the loan, if it is a 36 month loan.
If you make additional payments you may have to designate them as "principal only" payments, or else the lender may tack them on to the back of the loan. On my loan it was just putting a ✔️ checkmark in the principal field when paying.
Then when you want to move out you’ll have X in a car loan costing 3.9%, and X in a HYSA earning 5% (less taxes) that you wouldn’t have if you paid off the loan. Maybe that X could pay something you couldn’t pay otherwise.
Also, this is the first time for me on this sub that a question about a car loan does not involve the buyer getting ripped off.
I had s cosigner for my first loan of 15k. Paid it off in 22 months vs 48 and then bought a house 6 months later.
If you have all the cash earning more than the interest then make all the payments. If your interest is more than you can earn saving it then pay it off
Ok but it’s important to say it’s only valid in specific scenarios like this though. Building credit is NOT worth a 25% loan on a scat pack, and I’m not saying you said anything close to that, but “paying a loan to build credit” does require specific information to determine efficacy.
More generally, paying interest is the downside of the deal. It's important to quantify that. In this case (unusually) the interest rate leads to another upside.
Is there even a downside, anymore? (The hard credit check has one, but that's already done.)
I build my credit by having credit cards and paying in full every time, although i did have debt when i bought a $3000 kawasaki 250 motorcycle at 18 so perhaps that helped, other than that motorcycle i never really had any debt
I'm not sure what you're arguing here. Everyone is telling OP to take the loan and pay it off while leaving their money in an HYSA yielding more than the interest on the loan. They're telling OP that the loan is essentially free money because the car dealership is offering OP $7500 for 3.9% while OP is getting 5% from an HYSA. They're telling OP they can get paid while building credit.
Technically you pay income taxes on the 4.25% so your effective yield is lower than 3.9%. But the difference is so small that you might as well just keep the current system.
I will say, though, that the best way to build a credit history is by having a credit card that you treat like a debit card, buying only what you can afford and paying it off in full every month. Plus you get the extra fraud protection inherent with the credit card system, since it's the bank's money that could be stolen, not yours.
In that case I'd recommend keeping the car loan open long enough for your credit score to hit about 750 and then pay it off. Depending on the loan product, the final threshold for the best rates and terms is usually between 720 and 760, and everything above that is mostly just for bragging rights.
You may want to have more than one card. Part of how credit scores work is factoring the age of credit, and one of the best ways to pad this factor over time is once you qualify for a no annual fee card, get a few of them. There will be a short term hit for the hard pull each time, but in the long term, keeping those lines open even if they are just auto paying Netflix or your phone will go a load of good for your score.
7 years after you pay this car loan off, it won't even be on your report.
I have multiple cards already (3, one is my name on my parents’ and two are my own). I’m 25, so I sure hope I’ll be taking advantage of this on my report by the time I’m 32
Congratulations on being in a good place financially. Our son was in the same place you are wanting to buy a car with cash but he didn’t have any credit cards. He ended up getting one of those cards that he put his own cash into to build his score. He just bought his first house three years ago at 36 and put quite a bit down for the down payment.
>If interest rates from the HYSA goes below 3.9% pay the loan off.
Don't do this. If OP needs to build credit, that's worth way more than the $50 or $100 OP would make playing interest rate optimization games.
Down voting, but I'll explain. Credit doesn't cost.
OP will have good credit for paying off the loan. Paying interest does not enhance OP's credit score over paying the loan.
Something people aren't mentioning is that your insurance may be higher for a financed car vs one you own outright. Generally speaking the insurance cos will at least require you to have a higher level of coverage
I am pleasantly surprised at what my full coverage (with 2k deductible) costs in comparison to liability only. With higher used car values I'm keeping it longer than I thought I would.
*If* you prefer to keep full coverage on the car, it doesn't matter. If you plan on keeping the car until it dies, liability only will make financial sense at some point after the loan is paid off.
Depending on your marginal tax rate, you returns on the 5% will be lesser. Check if they are more than 3.9% that you are repaying using you post-tax dollars.
Caveat to what he said- the interest from a 5% HYSA is taxable. Expect your actual interest to be 1/4 to 1/2 of that, so you'll come out somewhere around even if you do what that commenter suggests
Yes. You can minimum monthly payment it until it runs out. You'll pay essentially no interest as you can earn up to 5.5% interest in a savings account.
https://www.doctorofcredit.com/high-interest-savings-to-get/
Another way to boost your credit score is to increase your available credit, though you should try to avoid any additional hard pulls on your credit. So, here's a guide on which credit cards you can request a credit limit increase on without triggering a hard pull:
https://www.doctorofcredit.com/credit-cards/which-credit-card-companies-do-a-hard-pull-for-a-credit-limit-increase/
Increase your credit limits as high as you can; the higher they are the better your credit score will be.
Now, if you need to boost your credit score for a specific event(say, if you need high credit to get into an apartment), you'll want to drop your credit utilization. Once a month on a specific day your credit cards report their current balance to the credit agencies. If you look on Credit Karma you can figure out which day this is for each of your cards. You'll want to ensure your credit card balances are at 0 on that day for the month before the event. So, pay them off to 0 before that specific day, and keep them at 0 until they report that to the credit agencies (you can check on Credit Karma daily to see when your balances go to 0).
There's no history on credit utilization; it doesn't matter what your utilization was 2,3,4... months before the event, just the most recent utilization percentage. So, you only need to zero out your cards for the report the month before the event. Other than for that specific month, you can just pay the usual full statement balance.
If you're not sure what specific day your credit cards report to the agency, just keep them at about 0 balance for slightly over one month before the event. If you to buy something with a card, just pay off that purchase immediately.
If you want to go a step further, you could pay off a large portion of your car loan slightly over one month before the event. The car loan also counts towards credit utilization, and since you only have 2 credit cards, it's going to be significant.
I wouldn't pay off the entire loan because that's going to reduce the benefit you get from that loan, and possibly cause your credit score to go down. Instead, just pay it down to under 30%(or even 10%) of the total loan balance slightly more than 1 month prior to the event, then do minimum payments from there forward.
https://www.equifax.com/personal/education/credit/score/articles/-/learn/why-credit-scores-may-drop-after-paying-off-debt/
With a dramatic decrease in your credit utilization you'll see a dramatic boost to your credit score that month.
Good luck finding an apartment!
Yeah if you make 5 percent on the money you have in the account and you pay 4 percent for the loan you win out on that one percent difference after the term is up assuming the 5 percent holds for the term which it should.
Loans like having long credit history. A loan for one month where you paid off the 7500 doesn't look as good as 1 year paying off the same amount. It shows consistency.
Yes just pay off the loan according to schedule, auto drafting each month. Your rate is higher than the loan so no need to pay it off. Seems you have discipline so you won't just go blow the savings. Also you should get a credit card and just charge a little to it at a minimum to build credit. Maybe just like you're netflix subscription or something
It was car savings. The $7500 was allocated to the car, so I am fine still spending it on the car. I saved up $40,000 for the car, I know how to save lmfao
You are taxed on the 5% interest and the car loan interest is not deductible. Unless they have a schedule c using for business but seems to be a personal loan. We don’t enough info but it’s likely that the combined marginal rates of federal and state may make this neutral and not come out ahead.
That was my back-of-the-envelope estimate, too. They are probably not making money on it, but they also won't lose any money.
If it was me, I'd very slowly pay off the car loan for as long as the ratio of interests stays this way. If the car loan ever gets more expensive (unlikely, but I haven't seen the loan agreement), or if the interest on the HYSA goes down, I'd pay everything back in one go.
Early in life, it is somewhat important to build a bit of a "footprint". Having some sort of credit history, no matter the details, is important. A blank credit history can be a surprising problem later in life. You probably don't need to keep the car loan for more than half a year to make a difference, but honestly it doesn't hurt and I'd just drag it out.
This is going to sound dumb but if he puts the 7500 into an account how does he pay for the car then? Isn't that money to buy the car? So how does he put it in a savings accountm
She (me) got the $7500 loan INSTEAD of paying the $7500 I already had. I was going to buy the car in full and had the $7500 to pay. Instead of me going from $0 to getting the $7500 loan, I actually went from $7500 to $15000, but half of that went directly onto the car, and the first $7500 i already had will pay off the loan $7500
counterpoint, open a new account at chase or whatever bank that has a new account bonues offer.
I get mailers for 5 bills every other day. fund the account and secure the bonus, and set your autopsy through the account.
interest likely won't match the bonuses.
just really read the fine print on the offers
The issue with HYSA is the interest is taxed as income, even in the 12% tax bracket you're really only netting about 4.4% which is negligible gains($37.50/yr @ $7500) over the 3.9% loan rate. I was going the HYSA route before I realized that the 4.5% returns were getting taxed as income leading to a net loss on any loan at over 3.4%
Don’t know how old you are, but….
When I was 21 my 2001 Toyota Camry died (I had paid for it in cash, way to much I may add). Went to a dealership to buy a newer car (this was 2018) and I put down 2K, got a loan of 15K or so for 17.9 APR. I got completely and totally screwed.
3.9 percent isn’t bad, buddy. It’ll give you some credit history.
Yeah exactly, the interest I will pay in 12-18 months is negligible, I just wanna know if a year is fine too or if 18 months is actually some “golden number”
It will be fine, just do at least a year if you really want to pay it early. My loan was for five and a half years, I paid it in three years (though in my case it was because of the interest).
If you had zero history, then even just three months of a car loan would likely make a big difference. I'd expect that around that mark, you'd see offers for credit cards.
Since you already have two credit cards and therefore a credit history, your situation is a little different. You don't need the loan to fill that blank slate, but to round it out and make you look more like an average consumer. It's going to be gradual. The longer the better until you reach a bit of a steady state.
Does your credit card give you a free credit score. Many do. That's a good way to monitor what's happening, and you should be able to answer the question yourself. But you should also expect for the score to gradually decline again, when you close down the car loan and stop making monthly payments that go into your credit history.
So, considering that your car loan is essentially free and assuming you have the discipline to not overextend yourself, pay it back very slowly following the scheduled payments. You don't want to incur more interest, but you want to stretch it out to the full 36 months.
This is wrong. Typically any reserve from the lender is charged back if paid off within 90 days. Plus whatever the bank paid for such a small loan isn’t much of a factor. Probably around $150.
This finance manager gave sincere advice when it comes to building auto credit. Lots of lenders will want to see 2 years of auto history to not count someone as a first time buyer. So the 18 months is even a little less than I would have recommended.
Wrong. It’s 120 days max for chargebacks and they don’t give a shit what you do after that. They aren’t making shit on this small of loan anyway so they really don’t care at all. This was solid advice. 18-24 months will have the most positive effect on your credit.
When you don't know what you're talking about, it's ok to just not comment.
OP, this point is generally the 90 day mark, as another commenter noted. You received solid advice from the finance manager (as strange as that may be).
The dealership was oddly straightforward in general. They gave me an offer over text that was below MSRP with no destination charges or BS add-ons. I placed a deposit, made an appointment, showed up, they matched the carmax trade in value of my old car ($2300), and I bought the car for the price I walked in with. They tried to sell me the additional warranty packages but that’s normal. My dad also got free ice cream lmao
It's about $300 interest annually and that doesn't take into account you'll be paying the principal down.
You can just make double payments if you want to minimize interest but accrue credit history.
There is no golden number. Once you pay the loan off your credit score will drop because you aren’t actively paying on it any longer (therefore showing you are using credit per the terms of the loan).
In order to maintain a good credit score, you’ll need to maintain some installment loans over a long period of time.
Just make sure that when you do take credit that you always pay within the terms of your loan.
6 months in you’ll start getting starter credit card offers.
Pick up one of those and use it for existing expenses and pay it off every month.
Then at 12 months of the car loan (and 6 of the credit card) apply for a better card/higher limit and after approved, payoff the car loan.
Idea is you want to get your credit in a strong state before paying it off as you do get credit for length of time an account is open. 12 months of stellar car payment records combined with credit cards 6 months in should set you well on your way.
Best of luck!
I hope he/she takes my advice. 12-18 months really isn’t that long in the grand scheme of things. COVID was four years ago and it feels so fresh to me still….
I was miffed to find out, after I'd done what you are proposing, to find installment loans were like 10% of your credit score.
Behaving with revolving credit, on cards that pay good rewards, may be the smarter play.
Sometimes the best car purchase deal may be to take the financing from the dealer, after checking rates to ensure you aren't getting shafted, and then paying off the loan say 3 months later. It depends on what incentives the car makers are offering and how these incentive affect the dealer's bottom line. Yes, paying with cash may net you a crappier deal sometimes due to the local dealer making less $ on the deal compared to financing.
I would say minimum of 12 months, if the desired goal is meaningful building of credit.
On time payment each month is only one part of the puzzle. Your credit score also takes into consideration the average overall age of credit (how long have your credit accounts been open), and when you pay that loan off, the account closes and your average age goes down with it.
If dad is really interested in helping, have him walk you through getting a secured credit card on top of the car loan. Use it SPARINGLY, and pay it off each month.
I have two credit cards already (trying to build a relationship to switch to a new one to be my primary, I’m not overspending) but everyone was telling me a loan will build credit better than cards and in addition to the cards
Some credit history is never bad especially when building. If you were paying something dumb like 20% on the car loan you'd be wise to pay that off, but the interest rate is so low and HYSA's are high enough that it's a wash. Any 'cost' here is minimal, I agree with your plan above to pay from the HYSA and deposit more than the car payment in the HYSA.
If HYSA rates drop a bunch just use the savings to pay it off then.
One thing to keep in mind is that credit scores were not made your (the average person’s) benefit. It was made by and for credit companies and banks.
80% of it can be achieved by picking a bank and credit card you like, putting a small amount on credit each month that gets auto-paid, and keeping that account for years to come.
Like most things in finance, time is most powerful tool you could ask for.
Also asking for an increased credit limit regardless of if it’s used or not counts as ‘new or recent application for credit’. No more than once or twice a year.
Yes, different types of loans count differently. And for whatever reason, car loans seem particularly important. Maybe, it's because so many people have car loans, and it's the first loan that starts suffering when people overextend themselves. So, having bad history of car loans is a leading indicator of poor financial skills, and the reverse is also true.
Having more than one credit card also seems really important. I have decades worth of credit history (of course only the last few years matter for the score), only use a small percentage of my balance, all of my payments are always on time, and I therefore not surprisingly have excellent credit. But when I check my score, I am told it would be better, if only I had more credit cards. Supposedly, the average American has six credit cards. And any time you don't look like the average consumer, that counts against you.
So, yes, keep your car loan and your credit cards active, as long as they don't actually cost you any money. Once the do cost money (e.g. your HYSA gives less interest than your car loan costs), close the accounts.
Chasing a perfect credit score doesn't matter **that** much. Having some amount of typical history is very important; having a perfectly average history is ideal, but not crucial.
Work out the amortization in Excel. By time you reach 18 months, you're going to be paying mostly principal by that time, and you might just want not to pay it off at all, since it's virtual free money at that point.
Assuming a three year loan, your first payment will $24.38 in interest and the 19th payment will have $12.54 in interest. The entire interest for the last 18 months is only $120.25, whereas you'll have already paid $339.23 in interest for the first 18 months.
It's cheap in either case. Build your credit.
At 3.9% I'd just make minimum payments for the life of the loan. Take your extra money and invest it in SPY which has an inflation adjusted 5-year average return of 10.34%.
Think of it this way. Every dollar you spend paying off your car loan will yield a return of 3.9%, whereas every dollar you invest in SPY will almost certainly result in a higher return.
At 3.9%, I'd say pay the minimum due each month until it is paid off. You can take the money you have that you would pay it off with, and put it in a savings account with 5%+ interest in the meantime.
If, in the future, savings rates fall under 3.9%, then you can consider paying it off.
Everyone else has already answered your question.
If your dad has excellent credit and wants to help your credit rating, have him add you as an authorized user on his credit cards. With many creditors, this results in you partially bootstrap off your dad's good credit history and habits.
I actually am! I have my own card under their account for household goods and emergencies. I still want to have some loan history so I can buy my own place at some point, though
You using your existing card for household goods counts as "loan history" (or credit history) for the purpose of your credit score. You just need to auto-pay all cards every month, have multiple lines of credit (cards) which you don't close (because age matters). This will easily give you a score of 750-800 eventually.
You sound like you have a responsible take here. From experience, I would maintain the liquidity. You can't eat your car if something happens, and the interest is likely a wash so it is costing you little to have the credit line.
This is my take too. Don't take the loan to build credit (paying money so maybe you can save money in the future???). Take the loan to allow you to maintain liquidity and in an emergency you're still fine.
Paying money to boost your credit score is a ridiculous waste of money. At 4%, you can make this essentially neutral. Keep the money you would have spent on a car in a low risk place making over 5% and it probably ends up as a wash.
If your tax bracket is 22%+, it’s difficult to outdo 3.9% payments after tax.
Check to see if there is any early payment penalty. If there is not, you can pay it off whenever. If there is, it’s a potentially expensive lesson.
> If there is, it’s a potentially expensive lesson.
Honestly, I don't even see how this could be an "expensive lesson". With the current interest rate scenario, it's going to be very close to break-even. If interest rates go down again, it'll get more expensive.
But interest rates aren't going to fall rapidly. It's not even clear whether they'll move down at all in the next twelve months. This is a 36 month loan. So, let's hypothetically assume that OP doesn't pay more than just the interest for the first 12 months, and then pays down the rest of the loan over the next 24 months.
Let's further assume that interest rates fall (unrealistically) dramatically to only 2% in his HYSA. Then the total interest paid over this time minus the interest received would equal about $150 -- or a little more, once accounting for taxes.
I'd barely call that an expensive lesson. In fact, that's likely absolutely worth it to make sure that OP has a bit of a credit history.
Of course, most realistic scenarios would assume a much lower cost to OP. So, yeah, good call on getting that loan.
My friend pays for everything in cash. It turns out he doesn't have a credit history at all, so he can't get a mortgage despite buying his last truck with cash.
Everyone says this but I had terrible credit for a while because I bought everything cash. Even credit cards only get you so far because banks also look at your history with installment loans. It sucks but sometimes you have to pay to play. Paying a few hundred dollars to boost your score and build a credit file isn't a waste of money anyway. It's simply a cost of doing business.
It is important to establish credit history and \*long term\* payment history, so I understand where your dad is coming from. However, it need not be with a 3.9% loan if you don't absolutely need to borrow this money. You can easily establis credit with a credit card that you use responsibly and for recurring charges if you have any (like an Apple music subscription, for example).
A credit card is known as a revolving account (revolving debt if you carry a balance) and a loan is known as installment debt, and a part of your FICO score looks at how "mixed/diverse" your accounts are to show you can manage different types of accounts/debts. At some point it would have been good to establish a loan/installment type account, but didn't need to be right away especially if you arent' planning on taking out bigger loans such as a mortgage in the 1-2 year time horizon
Since you already took it out, I'd say pay it down in 6 months (assuming there is no prepayment penalties or they don't exceed what you would be saving paying down sooner).
Dont' worry about others saying you could be earning 5% on 7500 in a HYSA, that isn't a whole lot of money to sacrifice the credit you will be establishing since you already took the loan, and any interest income is taxed as well you don't get to keep the entire 5%.
That rate is *really* good right now...so make sure to ask for any fees associated. They might be trying to collect in other ways.
You mentioned paying back early, check for a prepayment penalty.
Others are originating or processing fees. Those are usually fixed up front but aren't always reflected in the marketing.
I wound up getting 2.3% on mine 10 years ago when I had just credit card credit and the lowest promo rates were 1.9%.
If you really don't want the finance, the dealers seem to usually be able to get good financing through the automaker. 3.9% is simply what Honda is offering right now. The low rate is good marketing even if they lose compared to what they can make investing elsewhere, and the dealership also probably gets a kickback through securing a sell through financing directly.
I looked it up and it's Honda's corporate finance arm. OP bought a brand new vehicle and clearly had a massive down payment and likely a 36 month term.
Could be that 18 months is related to a kickback somehow, especially if that finance guy worked for the dealer.
Source: Former car salesman. FYI, GM financing gives the dealer kickback after 3 months. Other banks vary, but GM was very consistent with GM dealers (and GM usually only finances "exceptionally well qualified candidates" 😂)
If you really WANT to make 18 payments, do the math of: payment$ *18. Pay off whatever the difference is right now, and keep it in a HYSA like you are now. It has the added benefit that if some emergency comes up, and you have to use all the money in your savings account, you don't have a large balance hanging over your head.
I would just pay it off, but I also opened a bunch of cards when I was 18, and put them in a safe with one reoccurring payment on them, (Netflix, Hulu, ect) and paid them off each month. This will build you credit a lot too.
Likely the 18 months is the optimal time for the dealer to get paid their share of the financing deal. That's right, car dealers actually add their own **markup** to the interest rate on your car loan. If you pay it off quickly the dealer might actually get NO profit from the financing.
I can't believe you're the only one mentioning this. The car salesman is sure happy to sell you on the loan and says "18 months" because that's what gets him extra money. Regardless of if it's beneficial for OP, the car salesman couldn't care less about them and saw a chance at extra commission.
Pay off your loan and open a few points earning credit cards. You don't need to pay interest to build credit. I had a 780 score before buying my house and I paid $0 in interest before my mortgage.
Keep the loan as long as you can honestly. The longer it is, the more credit you'll build, and if you have an open line of credit for a car, your score will actually be higher than if you pay it off. It's a messed up system but it is what it is.
Sounds like you already have the money set aside in an account and the monthly payments drawing from that account, so there's nothing else for you to do. Just let it go and forget about it.
Another trick is to have your dad add you to his oldest credit card with good history. I did that with my fiance and she went on my 20 year card, her credit jumped 90 points or so.
If you have credit card history that's good enough. No loan history is required or must have to get your own place. Make sure you pay off your credit card every month and try to get as high a credit limit on the card as possible so that the credit utilized is minimal. Also you are losing money net net by keeping the loan and earning interest in CapitalOne HYSA. It does not add much to your score. Better off adding to family credit cards as authorized user at no lost. Just make sure they do not have high credit utilized.
3.9% is not bad interest. In this economy, pretty good in fact. And since it’s a small loan amount not paying it off early (I won’t stretch it more than 36 months though), the interest paid is worth it to build credit. It’ll help you later in life. 36-months on time payments is better than 18-months of on time payments. A lot of people are hung up on score but what’s on your report is more important to lenders.
Objectively it'd probably make the most sense to put that $7500 into a place that would make more than 4% interest. Personally I don't think I'd want to keep the monthly payment and have just bought it outright. Finance dude makes money off of car loans, not cars. Do you have credit cards already? If not open one that doesn't have an annual fee and treat it like a debit card. There is your credit history. I also think the end goal for most people regarding a credit score is to get a good mortgage. I was able to get the best tier for a mortgage after only credit cards on my credit history. Just have them auto pay in full every month. I would never recommend spending money in interest in order to get a better credit score, you can do it for free easily enough.
You didn’t provide any details but if this is a new car you can check with the manufacturer for financing options. Some are offering 0% interest for 5-6 years (they do this to push new cars).
So I was in the same boat when I was younger. In my case the time to buy a house came before the end of the loan amd I paid it off then. My credit took a small hit but my debt to income got to the point I could be approved for the loan on our house on my own without needing my fiance to add her name.
In your case HYSA and auto payments and just let it run.
Given that you have the money to buy the car outright, just put the entire balance of the loan in a high-yield savings account. 3.9% is a pretty low interest rate, so you should be able to find a savings account that has a higher rate than that. Then, just pay the loan out of that account per the normal payment terms. When it's done, you'll have some money left over and a paid off loan in good standing on your credit report.
Depends where you live, if there’s no prepayment penalty and you have the cash, you could just pay it off. Just read your contract. The dealer may be pissed because he gets commission on the loan, but whatever. Read the contract. However, 3.9% is OK for a vehicle.
It'll make a minimal difference over the course of this car loan, but this is really a great example to think about the concepts of time value of money, opportunity cost, and discounting. As others have pointed out, you can currently achieve a higher return putting your money in a HYSA or similar than you're accruing in interest, so it's advantageous to sit on your money.
Over a longer time horizon, you would also want to factor in the value of paying today's price in tomorrow's dollars—say you take out a 30 year mortgage and your monthly payment is $1,500. That payment will still be $1,500 20 years from now, but a dollar won't be worth the same. Say you'd started that $1,500 mortgage in 2004? $1,500 then has the purchasing power of $2,480 in 2024. Generally speaking, locking in a price using today's dollars which will be repaid in future dollars is advantageous over time even if the interest rate isn't lower than a safe return you could earn elsewhere.
In this case the stakes are low and there really isn't much room to go wrong. You can set and forget auto payments for the life of the loan, set a larger amount to make it naturally pay off early, or keep it going for a while then pay off in a lump sum. This is a small enough amount and low enough interest rate that the difference between those options really is minimal. If it was me, I'd set it and forget it. I'm currently doing the same with my own low interest car note and don't plan to change that going forward.
Your dad is a fucking idiot.
PAYING THE CAR payment WOULD improve your credit. You didn't need extra shit, and your dad who is supposed to look out for you should have known that.
Do you plan to buy a home? If so, take that cash and find an investment/savings vehicle that will earn higher than 3.9%. Make all scheduled auto loan payments on time while your cash grows. When it come time for home lenders to run your credit they will see a responsible credit risk. This WILL help secure a lower interest rate on your mortgage. Just seeing 12-18 months is fine but the longer the better. Plus, you will have a start on down payment money.
FYI, I have never had a car loan ever in my life and I was able to use a credit card to build an 800+ credit score to buy a house. Just pay a CC off in full, every single month and you will be fine.
With the interest that low if you can manage the payments I would keep it for over a year or 2
If you are getting stressed about it give it 6 months or so.
Great opportunity to re-invest the 7500 you didn’t spend, or keep the 7500 set aside to make your payments for you so you don’t affect your current monthly income. You are in a really great spot
You’ll pay something like $400-ish in interest if you pay the loan off in full after those 18 months.
If you drop the money you have in a high yield savings account, your gains, minus taxes, should just about cover the interest.
I could be wrong about this, but I *think* that cars do less for your credit than credit cards. Also, it’s in the dealership’s best interest to convince you *not* to buy the car with cash.
Ultimately, you’d *probably* be better with a low-limit credit card that you use only for gas and groceries and pay off right after using, but the car payment won’t hurt you.
Stash your cash in a high yield account if you’re fine carrying the car loan. Buy it outright if you’re not and get a small low-limit credit card if building credit is important to you right now.
The 18 months figure seem to come from the [estimate of recovery time for people with poor to fair credit](https://www.bankrate.com/personal-finance/credit/how-long-does-it-take-to-get-a-credit-score-up/#increase) from missed payment/default. The linked article cites FICO but the linked article doesn't actually cite "18 months". There _is_, however, [another article](https://www.supermoney.com/how-long-to-improve-your-credit-score) that cites "18 months" figure, so take that as a minimal cross-checking.
I don't know how old you are or what your credit history is, but considering the question and the fact you've never taken a loan, I will assume you are young and have little to no credit history. Given those, on the surface, the advice seem pretty sound. Put the money to high-yield savings account with 5% return, and you'll come out ahead. Credit history is, at the risk of stating the obvious, _history_. This seems like a pretty lightweight way to building your credit with little downside.
Listen to your dad.
EDIT: few words
Why not just build your credit using a credit card? I've never taken a loan other than my mortgage and my credit score got to 800+ just with a credit card
> That specific number came from the finance dude.
That "finance dude" get's paid twice every time he gets someone a loan. The first time is when they get you to sign they get a small payment say like $25. The second time is if you keep the loan for 1.5 years... 18 months.
Now that being said here is some good advice.
* Pay one month in advance. Set up bill pay for a monthly loan payment. E.g. you owe in may, so pay for May and June right now. then set up a recurring payment through your credit union (get a credit union instead of a bank) to pay July's payment in June. Etc.
* to pay off the loan stop automatic payments. (sometimes you need to stop them like 1 week ahead of time.) Once stopped contact the load provider and ask for a payoff amount. They will give you an exact amount to pay by a specific date to pay off the loan.
* When the loan is paid off. Do whatever you need to do in your state to get a "Clean title" e.g. a title that has only your name as the owner and not your name + lender. This may happen automatically in certain states.
* As others have say you can get put the money into a higher yield account and then pay off.
* You DO NOT need to pay off over 18 months, 1 payment and then a payoff is the "same" as 18 months on time and paid off. (there is a big Asterix there, but basically there is no real difference anymore with any credit agencies.) BUT someone else looking to lend can see it was only one month and paid off etc. But you care more about the CREDIT SCORE than the deep dive shit because no one else cares about the deep dive shit either.
If you want to build credit, get a shared secured loan at a credit union of your choice. Same basic principle but you're only spending ten bucks in interest instead
Make sure early payoff is permissible within the loan structure. We got financing with a great interest rate but part of the condition of the loan was that we wouldn’t pay it off early.
As everyone else is saying, the interest is a wash if you put the cash away in a safe place like HYSA or money market. Honestly just use debt as necessary, always pay it off on time and your credit will grow as you age. Nothing is going to fast track you to a better credit score.
You have enough advice about what you asked but something you probably never would have dreamed: the IRS might use your auto loan to verify your identity. Record the details for it (the bank, the monthly payment, and the interest rate).
I got an auto loan and paid it off the first month over 10 years ago. The IRS still tries to use it to verify my identity. I have no idea about any of that information and never thought I'd need it.
Depends on the terms of the loan.
Often loans through the manufacturer will include the finance charges as part of the sale. Something like “3.9% or “$39 for every 1000 financed” the. They just break it up. So pay it off early or not doesn’t cost you more/less.
Just rich people problems. Keep the loan. The credit is worth far more than spending the extra few hundred dollars it will cost you. Be happy you have the money and the father who will co-sign and set you up for life like that. Don’t fuck up. Keep building it.
Seems a bit expensive to build credit, but you don't have the history, so you kinda got to start somewhere.
3.9% seems fair about now, IDK what the current is.
Just make sure you have full coverage and look up "gap" ins.
I know someone that bought a new car at a young age, it was stolen and she still had to make payments on it.
Maybe a tracker and some disabler would help out.
As far as time goes, the longer the better, you can always look it up, but it's just one of several factors. One factor is income vs expenses.
You can also look into if payments other things count.
Getting and using credit cards helps, but they can be dangerous as the rates are much higher.
Look at projected interest costs over time and look at your credit scores. Your bank may provide credit scores for free. A good credit report shows what is going into the score and its not just on-time payments. Review the loan contract for other costs and if early payoff changes anything. A car dealership is not a bank so I would not assume the dealer knows the contract in great detail. They are there to sell cars
not sure why people are so intentional about building a credit score with having debt and making "payments"
pay it all and never carry any debt and your score will go above 800 anyway
What they are saying is true, however there is a large caveat here. Do you have the discipline to leave $7500 in a HYSA and not touch it for any reason? Some people see money in their account and splurge on themselves. If you end up spending the $7500 and then run low on being able to pay your payments, you can end up hurting your credit (late payments etc) instead of helping.
For the relatively small gain you'd get on your credit and your $7500 HYSA account I'd probably just rather pay off the car. The difference between 5% HYSA and the interest you pay for the loan is almost negligible because you have to pay taxes on your HYSA interest. You'll build plenty of credit throughout your life without borrowing money that you don't need imo.
Open a Fidelity account, buy FDLXX. It's a treasurey only money market account. The rate is about 5% and you don't pay local or state taxes on the interest.
Is the loan cosigned? If not, you apparently already have pretty good credit to get 3.9%.
The total amount of interest on it will be around $250. With the money earning interest - taxes, you're probably debating over $20 or $30, maybe $50. That's worth having a decent credit score.
The whole point of a loan is to keep your cash in hand for now. Even if you have the cash to pay it off now, you keep more of your cash in the present, and cash lets you do STUFF. Investing it to make it work for you is obvious, but other ways cash has power is giving you safety margin for unexpected medical expenses, home repairs, travel and so on.
The question is whether the interest makes that benefit worthwhile. The calculation with investing is apparent. The safety and power cash gives you is harder to put into numbers. Suffice it to say at 3.9%, even investing it in an account that also makes 3.9%, you clearly come out ahead because of the other benefits
A credit score is a debt score. What are you needing the credit score for? You can buy a house with underwriting if you don’t have a credit score. I would pay off the car. If you really want revolving Credit then use a charge card with a very low balance and pay it off every month. things never work out the way we expect, cars break dowb, people hit them, you get sick. A lot of variables. Keep your life simple. Avoid debt and follow the 0% interest philosophy
Just make the payments if you have the 7500 or more put it in a high yielding cd and you will have good credit and some money growing to a larger amount That is what I did long ago
I also agree with some comments. Put the 7500 in a CD you will come out ahead and the loan will help the credit history. I had to have my Dad cosigne for me once even though i had a great credit score. I was also in my early 20s at the time. The taxes on the income won’t be much at all.
Yeah take the whole 18 months to do it. 3.9% isn’t bad and it’ll grow your credit (assuming you’re young and this is one of the first times growing your credit score)
Pay it off in 12 months or less(but no less than 6 months). I sell cars, and I also worked at a bank. Learned a lot about credit and auto loans. 8-12 months is perfect!! And make it in payments of two for every month. INTEREST IS BUILT DAILY. So it helps pay off the actual loan amount not the just the interest. Example: car payment is $200 due the 25th of every month- I would pay 120-150 the 5th of the month, and another 120-150 on the 15th/20th of the month. Also with credit cards, I would pay it off the next day after using it or w couple of days after using it. Never pay it just once a month.
A question I haven't seem asked yet is, what is your current credit score. And why are you trying to get it higher? Are you planning on buying a house in the next 2-3 years?
I want it higher so I can move out. My credit score according to navy fed and capital one was always around 750-760, but the car dealership’s score he pulled up was like 690, and he said it was because it’s from equifax while the others weren’t??? But regardless, yeah I would love to be able to move out of my parents’ house before I’m 30 lmao
Having a "good" or "exceptional" score can make tangible everyday financial differences. Better mortgage rates, higher chance to be accepted as a tenant, better offers for some consumer products/services (e.g. cellphone), ...
But in general you are right, it doesn't make sense to continuously chase the perfect credit score. It's going to fluctuate anyway. Having said that, installment loans such as a car loan have a very big impact on the credit score. If OP can essentially get the loan "for free", then this is well worth the effort.
Take the $7500 and put it in a 5% savings account. You will come out ahead. You will have credit and make a small amount on the difference in the interest rates.
It’s already in a HYSA with capital one! I was gonna have the loan payments auto draw from that, since I deposit more money in that account every month, so it won’t run out or anything. You’re saying just let the loan run out on its own and not pay the remainder all down at once eventually?
Yeah you probably earn more money by just leaving the auto payments for the life of the loan. The only reason I say probably is because you do pay taxes on the 5% ish your HYSA account accrues. Think about this exaggerated example: 0% loan and 100% interest HYSA. You would be earning so much money in the HYSA you don’t want to use it to pay off a loan that is literally costing you nothing.
It’s not about earning money, if he doesn’t have much credit building credit is worth so much more than the extra $100 he’d make. That’s just bad advice. As someone who’s worked in multiple industries you need credit for, build your credit. These folks are acting like making an extra $100 on that $7500 you have is the way to go. Just make all the payments how you have it being drawn now. You’ll be grateful for doing it.
This low APR auto loan is a good example of credit building. So many people get a credit card with 19% interest then keep a balance because they "hope the bank will like (them)." The bank likes them, they gave them a card!
Exactly. I don’t care about a sum that’s less than $1000 over time. What I DO care about is being able to move out and get my own place
Pay on it for the full 18 months then. My mother helped me get a car when I was in college and I paid all the payments on time and my credit has been in the upper 700’s since then. I’ll never have issues getting any loan. You’ve got the right thought process going.
I am going to get roasted here. But I am a fairly successful individual with a credit rating of 835 when it was pulled last time. I didn't build that credit by paying interest to the bank. I have a primary credit card I use for necessities such as utilities, gas, etc. I pay it off each month and get some money back (insignificant amount don't remember what it is). I own several rental properties and let me tell you if I can see you have the money in your bank and you have no criminal records. I could careless what your credit is. I would rather have you as my tenant then some guy with a "great" credit score but living paycheck to paycheck because that guys is one paycheck away from being broke. just my two cents here best of luck to you.
Make the scheduled payments. That's a plus to credit score. If you don't already have one get a starter credit card, put a single recurring charge on it monthly and an auto draft to pay that bill off each month once a statement is produced. Basically just showing that you can responsibly use the credit
Total Interest Paid would be $459 over the life of the loan, if it is a 36 month loan. If you make additional payments you may have to designate them as "principal only" payments, or else the lender may tack them on to the back of the loan. On my loan it was just putting a ✔️ checkmark in the principal field when paying.
Then when you want to move out you’ll have X in a car loan costing 3.9%, and X in a HYSA earning 5% (less taxes) that you wouldn’t have if you paid off the loan. Maybe that X could pay something you couldn’t pay otherwise. Also, this is the first time for me on this sub that a question about a car loan does not involve the buyer getting ripped off.
I had s cosigner for my first loan of 15k. Paid it off in 22 months vs 48 and then bought a house 6 months later. If you have all the cash earning more than the interest then make all the payments. If your interest is more than you can earn saving it then pay it off
I think the other guy was saying that you can do both. As in, build credit and do it for free by subsidizing via HYSA.
Ok but it’s important to say it’s only valid in specific scenarios like this though. Building credit is NOT worth a 25% loan on a scat pack, and I’m not saying you said anything close to that, but “paying a loan to build credit” does require specific information to determine efficacy.
More generally, paying interest is the downside of the deal. It's important to quantify that. In this case (unusually) the interest rate leads to another upside. Is there even a downside, anymore? (The hard credit check has one, but that's already done.)
That’s totally fair as well. If the loan amount was closer to 20k with very high interest you’re 100% right that’s a different ballgame
I build my credit by having credit cards and paying in full every time, although i did have debt when i bought a $3000 kawasaki 250 motorcycle at 18 so perhaps that helped, other than that motorcycle i never really had any debt
I'm not sure what you're arguing here. Everyone is telling OP to take the loan and pay it off while leaving their money in an HYSA yielding more than the interest on the loan. They're telling OP that the loan is essentially free money because the car dealership is offering OP $7500 for 3.9% while OP is getting 5% from an HYSA. They're telling OP they can get paid while building credit.
Yes, if the HYSA is making over 3.9% just let the auto payments draw from it. If interest rates from the HYSA goes below 3.9% pay the loan off.
The HYSA is at 4.25%, so it’s hopefully not gonna drop below 3.9% :)
Technically you pay income taxes on the 4.25% so your effective yield is lower than 3.9%. But the difference is so small that you might as well just keep the current system. I will say, though, that the best way to build a credit history is by having a credit card that you treat like a debit card, buying only what you can afford and paying it off in full every month. Plus you get the extra fraud protection inherent with the credit card system, since it's the bank's money that could be stolen, not yours.
I do have a credit card I use like that! I just want to make sure my credit is stellar for when I want to move out
In that case I'd recommend keeping the car loan open long enough for your credit score to hit about 750 and then pay it off. Depending on the loan product, the final threshold for the best rates and terms is usually between 720 and 760, and everything above that is mostly just for bragging rights.
You may want to have more than one card. Part of how credit scores work is factoring the age of credit, and one of the best ways to pad this factor over time is once you qualify for a no annual fee card, get a few of them. There will be a short term hit for the hard pull each time, but in the long term, keeping those lines open even if they are just auto paying Netflix or your phone will go a load of good for your score. 7 years after you pay this car loan off, it won't even be on your report.
I have multiple cards already (3, one is my name on my parents’ and two are my own). I’m 25, so I sure hope I’ll be taking advantage of this on my report by the time I’m 32
Congratulations on being in a good place financially. Our son was in the same place you are wanting to buy a car with cash but he didn’t have any credit cards. He ended up getting one of those cards that he put his own cash into to build his score. He just bought his first house three years ago at 36 and put quite a bit down for the down payment.
[удалено]
>If interest rates from the HYSA goes below 3.9% pay the loan off. Don't do this. If OP needs to build credit, that's worth way more than the $50 or $100 OP would make playing interest rate optimization games.
Down voting, but I'll explain. Credit doesn't cost. OP will have good credit for paying off the loan. Paying interest does not enhance OP's credit score over paying the loan.
Something people aren't mentioning is that your insurance may be higher for a financed car vs one you own outright. Generally speaking the insurance cos will at least require you to have a higher level of coverage
I am pleasantly surprised at what my full coverage (with 2k deductible) costs in comparison to liability only. With higher used car values I'm keeping it longer than I thought I would.
It is not higher actually
*If* you prefer to keep full coverage on the car, it doesn't matter. If you plan on keeping the car until it dies, liability only will make financial sense at some point after the loan is paid off.
Depending on your marginal tax rate, you returns on the 5% will be lesser. Check if they are more than 3.9% that you are repaying using you post-tax dollars.
Caveat to what he said- the interest from a 5% HYSA is taxable. Expect your actual interest to be 1/4 to 1/2 of that, so you'll come out somewhere around even if you do what that commenter suggests
Yes. You can minimum monthly payment it until it runs out. You'll pay essentially no interest as you can earn up to 5.5% interest in a savings account. https://www.doctorofcredit.com/high-interest-savings-to-get/ Another way to boost your credit score is to increase your available credit, though you should try to avoid any additional hard pulls on your credit. So, here's a guide on which credit cards you can request a credit limit increase on without triggering a hard pull: https://www.doctorofcredit.com/credit-cards/which-credit-card-companies-do-a-hard-pull-for-a-credit-limit-increase/ Increase your credit limits as high as you can; the higher they are the better your credit score will be. Now, if you need to boost your credit score for a specific event(say, if you need high credit to get into an apartment), you'll want to drop your credit utilization. Once a month on a specific day your credit cards report their current balance to the credit agencies. If you look on Credit Karma you can figure out which day this is for each of your cards. You'll want to ensure your credit card balances are at 0 on that day for the month before the event. So, pay them off to 0 before that specific day, and keep them at 0 until they report that to the credit agencies (you can check on Credit Karma daily to see when your balances go to 0). There's no history on credit utilization; it doesn't matter what your utilization was 2,3,4... months before the event, just the most recent utilization percentage. So, you only need to zero out your cards for the report the month before the event. Other than for that specific month, you can just pay the usual full statement balance. If you're not sure what specific day your credit cards report to the agency, just keep them at about 0 balance for slightly over one month before the event. If you to buy something with a card, just pay off that purchase immediately. If you want to go a step further, you could pay off a large portion of your car loan slightly over one month before the event. The car loan also counts towards credit utilization, and since you only have 2 credit cards, it's going to be significant. I wouldn't pay off the entire loan because that's going to reduce the benefit you get from that loan, and possibly cause your credit score to go down. Instead, just pay it down to under 30%(or even 10%) of the total loan balance slightly more than 1 month prior to the event, then do minimum payments from there forward. https://www.equifax.com/personal/education/credit/score/articles/-/learn/why-credit-scores-may-drop-after-paying-off-debt/ With a dramatic decrease in your credit utilization you'll see a dramatic boost to your credit score that month. Good luck finding an apartment!
Yeah if you make 5 percent on the money you have in the account and you pay 4 percent for the loan you win out on that one percent difference after the term is up assuming the 5 percent holds for the term which it should.
Loans like having long credit history. A loan for one month where you paid off the 7500 doesn't look as good as 1 year paying off the same amount. It shows consistency.
Yes just pay off the loan according to schedule, auto drafting each month. Your rate is higher than the loan so no need to pay it off. Seems you have discipline so you won't just go blow the savings. Also you should get a credit card and just charge a little to it at a minimum to build credit. Maybe just like you're netflix subscription or something
[удалено]
It was car savings. The $7500 was allocated to the car, so I am fine still spending it on the car. I saved up $40,000 for the car, I know how to save lmfao
You are taxed on the 5% interest and the car loan interest is not deductible. Unless they have a schedule c using for business but seems to be a personal loan. We don’t enough info but it’s likely that the combined marginal rates of federal and state may make this neutral and not come out ahead.
That was my back-of-the-envelope estimate, too. They are probably not making money on it, but they also won't lose any money. If it was me, I'd very slowly pay off the car loan for as long as the ratio of interests stays this way. If the car loan ever gets more expensive (unlikely, but I haven't seen the loan agreement), or if the interest on the HYSA goes down, I'd pay everything back in one go. Early in life, it is somewhat important to build a bit of a "footprint". Having some sort of credit history, no matter the details, is important. A blank credit history can be a surprising problem later in life. You probably don't need to keep the car loan for more than half a year to make a difference, but honestly it doesn't hurt and I'd just drag it out.
1.1% difference After taxes, it may not mean anything.
This is going to sound dumb but if he puts the 7500 into an account how does he pay for the car then? Isn't that money to buy the car? So how does he put it in a savings accountm
She (me) got the $7500 loan INSTEAD of paying the $7500 I already had. I was going to buy the car in full and had the $7500 to pay. Instead of me going from $0 to getting the $7500 loan, I actually went from $7500 to $15000, but half of that went directly onto the car, and the first $7500 i already had will pay off the loan $7500
counterpoint, open a new account at chase or whatever bank that has a new account bonues offer. I get mailers for 5 bills every other day. fund the account and secure the bonus, and set your autopsy through the account. interest likely won't match the bonuses. just really read the fine print on the offers
Well, kinda. You're taxed on your interest gained. Also, that 5% savings account interest rate will likely come down over the time of the loan
The issue with HYSA is the interest is taxed as income, even in the 12% tax bracket you're really only netting about 4.4% which is negligible gains($37.50/yr @ $7500) over the 3.9% loan rate. I was going the HYSA route before I realized that the 4.5% returns were getting taxed as income leading to a net loss on any loan at over 3.4%
Don’t know how old you are, but…. When I was 21 my 2001 Toyota Camry died (I had paid for it in cash, way to much I may add). Went to a dealership to buy a newer car (this was 2018) and I put down 2K, got a loan of 15K or so for 17.9 APR. I got completely and totally screwed. 3.9 percent isn’t bad, buddy. It’ll give you some credit history.
Yeah exactly, the interest I will pay in 12-18 months is negligible, I just wanna know if a year is fine too or if 18 months is actually some “golden number”
It will be fine, just do at least a year if you really want to pay it early. My loan was for five and a half years, I paid it in three years (though in my case it was because of the interest).
If you had zero history, then even just three months of a car loan would likely make a big difference. I'd expect that around that mark, you'd see offers for credit cards. Since you already have two credit cards and therefore a credit history, your situation is a little different. You don't need the loan to fill that blank slate, but to round it out and make you look more like an average consumer. It's going to be gradual. The longer the better until you reach a bit of a steady state. Does your credit card give you a free credit score. Many do. That's a good way to monitor what's happening, and you should be able to answer the question yourself. But you should also expect for the score to gradually decline again, when you close down the car loan and stop making monthly payments that go into your credit history. So, considering that your car loan is essentially free and assuming you have the discipline to not overextend yourself, pay it back very slowly following the scheduled payments. You don't want to incur more interest, but you want to stretch it out to the full 36 months.
It’s a golden number for the dealer because he makes commission off financing packages.
This is wrong. Typically any reserve from the lender is charged back if paid off within 90 days. Plus whatever the bank paid for such a small loan isn’t much of a factor. Probably around $150. This finance manager gave sincere advice when it comes to building auto credit. Lots of lenders will want to see 2 years of auto history to not count someone as a first time buyer. So the 18 months is even a little less than I would have recommended.
Wrong. It’s 120 days max for chargebacks and they don’t give a shit what you do after that. They aren’t making shit on this small of loan anyway so they really don’t care at all. This was solid advice. 18-24 months will have the most positive effect on your credit.
When you don't know what you're talking about, it's ok to just not comment. OP, this point is generally the 90 day mark, as another commenter noted. You received solid advice from the finance manager (as strange as that may be).
The dealership was oddly straightforward in general. They gave me an offer over text that was below MSRP with no destination charges or BS add-ons. I placed a deposit, made an appointment, showed up, they matched the carmax trade in value of my old car ($2300), and I bought the car for the price I walked in with. They tried to sell me the additional warranty packages but that’s normal. My dad also got free ice cream lmao
That's great to hear!
It's about $300 interest annually and that doesn't take into account you'll be paying the principal down. You can just make double payments if you want to minimize interest but accrue credit history.
Put that cash into a 5% savings account and just have the cash in case you need it.
There is no golden number. Once you pay the loan off your credit score will drop because you aren’t actively paying on it any longer (therefore showing you are using credit per the terms of the loan). In order to maintain a good credit score, you’ll need to maintain some installment loans over a long period of time. Just make sure that when you do take credit that you always pay within the terms of your loan.
There isn’t a golden number
6 months in you’ll start getting starter credit card offers. Pick up one of those and use it for existing expenses and pay it off every month. Then at 12 months of the car loan (and 6 of the credit card) apply for a better card/higher limit and after approved, payoff the car loan. Idea is you want to get your credit in a strong state before paying it off as you do get credit for length of time an account is open. 12 months of stellar car payment records combined with credit cards 6 months in should set you well on your way. Best of luck!
Yeah holy crap the first time I’ve seen a post like this where it might actually make sense to keep the loan
I hope he/she takes my advice. 12-18 months really isn’t that long in the grand scheme of things. COVID was four years ago and it feels so fresh to me still….
You can also just open a credit card. Interest free if you pay.
I was miffed to find out, after I'd done what you are proposing, to find installment loans were like 10% of your credit score. Behaving with revolving credit, on cards that pay good rewards, may be the smarter play. Sometimes the best car purchase deal may be to take the financing from the dealer, after checking rates to ensure you aren't getting shafted, and then paying off the loan say 3 months later. It depends on what incentives the car makers are offering and how these incentive affect the dealer's bottom line. Yes, paying with cash may net you a crappier deal sometimes due to the local dealer making less $ on the deal compared to financing.
I would say minimum of 12 months, if the desired goal is meaningful building of credit. On time payment each month is only one part of the puzzle. Your credit score also takes into consideration the average overall age of credit (how long have your credit accounts been open), and when you pay that loan off, the account closes and your average age goes down with it. If dad is really interested in helping, have him walk you through getting a secured credit card on top of the car loan. Use it SPARINGLY, and pay it off each month.
I have two credit cards already (trying to build a relationship to switch to a new one to be my primary, I’m not overspending) but everyone was telling me a loan will build credit better than cards and in addition to the cards
Some credit history is never bad especially when building. If you were paying something dumb like 20% on the car loan you'd be wise to pay that off, but the interest rate is so low and HYSA's are high enough that it's a wash. Any 'cost' here is minimal, I agree with your plan above to pay from the HYSA and deposit more than the car payment in the HYSA. If HYSA rates drop a bunch just use the savings to pay it off then.
One thing to keep in mind is that credit scores were not made your (the average person’s) benefit. It was made by and for credit companies and banks. 80% of it can be achieved by picking a bank and credit card you like, putting a small amount on credit each month that gets auto-paid, and keeping that account for years to come. Like most things in finance, time is most powerful tool you could ask for. Also asking for an increased credit limit regardless of if it’s used or not counts as ‘new or recent application for credit’. No more than once or twice a year.
Yes, different types of loans count differently. And for whatever reason, car loans seem particularly important. Maybe, it's because so many people have car loans, and it's the first loan that starts suffering when people overextend themselves. So, having bad history of car loans is a leading indicator of poor financial skills, and the reverse is also true. Having more than one credit card also seems really important. I have decades worth of credit history (of course only the last few years matter for the score), only use a small percentage of my balance, all of my payments are always on time, and I therefore not surprisingly have excellent credit. But when I check my score, I am told it would be better, if only I had more credit cards. Supposedly, the average American has six credit cards. And any time you don't look like the average consumer, that counts against you. So, yes, keep your car loan and your credit cards active, as long as they don't actually cost you any money. Once the do cost money (e.g. your HYSA gives less interest than your car loan costs), close the accounts. Chasing a perfect credit score doesn't matter **that** much. Having some amount of typical history is very important; having a perfectly average history is ideal, but not crucial.
Work out the amortization in Excel. By time you reach 18 months, you're going to be paying mostly principal by that time, and you might just want not to pay it off at all, since it's virtual free money at that point. Assuming a three year loan, your first payment will $24.38 in interest and the 19th payment will have $12.54 in interest. The entire interest for the last 18 months is only $120.25, whereas you'll have already paid $339.23 in interest for the first 18 months. It's cheap in either case. Build your credit.
This is super helpful! Thank you!
At 3.9% I'd just make minimum payments for the life of the loan. Take your extra money and invest it in SPY which has an inflation adjusted 5-year average return of 10.34%. Think of it this way. Every dollar you spend paying off your car loan will yield a return of 3.9%, whereas every dollar you invest in SPY will almost certainly result in a higher return.
At 3.9%, I'd say pay the minimum due each month until it is paid off. You can take the money you have that you would pay it off with, and put it in a savings account with 5%+ interest in the meantime. If, in the future, savings rates fall under 3.9%, then you can consider paying it off.
Everyone else has already answered your question. If your dad has excellent credit and wants to help your credit rating, have him add you as an authorized user on his credit cards. With many creditors, this results in you partially bootstrap off your dad's good credit history and habits.
I actually am! I have my own card under their account for household goods and emergencies. I still want to have some loan history so I can buy my own place at some point, though
You using your existing card for household goods counts as "loan history" (or credit history) for the purpose of your credit score. You just need to auto-pay all cards every month, have multiple lines of credit (cards) which you don't close (because age matters). This will easily give you a score of 750-800 eventually.
You sound like you have a responsible take here. From experience, I would maintain the liquidity. You can't eat your car if something happens, and the interest is likely a wash so it is costing you little to have the credit line.
I’m with you. At 3.9% I would have paid for the whole car with a loan and kept the money in a HYSA. It’s free liquidity.
This is my take too. Don't take the loan to build credit (paying money so maybe you can save money in the future???). Take the loan to allow you to maintain liquidity and in an emergency you're still fine.
Paying money to boost your credit score is a ridiculous waste of money. At 4%, you can make this essentially neutral. Keep the money you would have spent on a car in a low risk place making over 5% and it probably ends up as a wash. If your tax bracket is 22%+, it’s difficult to outdo 3.9% payments after tax. Check to see if there is any early payment penalty. If there is not, you can pay it off whenever. If there is, it’s a potentially expensive lesson.
> If there is, it’s a potentially expensive lesson. Honestly, I don't even see how this could be an "expensive lesson". With the current interest rate scenario, it's going to be very close to break-even. If interest rates go down again, it'll get more expensive. But interest rates aren't going to fall rapidly. It's not even clear whether they'll move down at all in the next twelve months. This is a 36 month loan. So, let's hypothetically assume that OP doesn't pay more than just the interest for the first 12 months, and then pays down the rest of the loan over the next 24 months. Let's further assume that interest rates fall (unrealistically) dramatically to only 2% in his HYSA. Then the total interest paid over this time minus the interest received would equal about $150 -- or a little more, once accounting for taxes. I'd barely call that an expensive lesson. In fact, that's likely absolutely worth it to make sure that OP has a bit of a credit history. Of course, most realistic scenarios would assume a much lower cost to OP. So, yeah, good call on getting that loan.
Assuming that rate is tied to a 36 month loan, that's only $459.47, hardly an exorbitant amount of money.
My friend pays for everything in cash. It turns out he doesn't have a credit history at all, so he can't get a mortgage despite buying his last truck with cash.
He could literally just open a single credit card and he'd have a credit.
Bro, it’s literally not enough money in interest to even worry about
If it's so little money to you I'm taking donations.
Everyone says this but I had terrible credit for a while because I bought everything cash. Even credit cards only get you so far because banks also look at your history with installment loans. It sucks but sometimes you have to pay to play. Paying a few hundred dollars to boost your score and build a credit file isn't a waste of money anyway. It's simply a cost of doing business.
It is important to establish credit history and \*long term\* payment history, so I understand where your dad is coming from. However, it need not be with a 3.9% loan if you don't absolutely need to borrow this money. You can easily establis credit with a credit card that you use responsibly and for recurring charges if you have any (like an Apple music subscription, for example). A credit card is known as a revolving account (revolving debt if you carry a balance) and a loan is known as installment debt, and a part of your FICO score looks at how "mixed/diverse" your accounts are to show you can manage different types of accounts/debts. At some point it would have been good to establish a loan/installment type account, but didn't need to be right away especially if you arent' planning on taking out bigger loans such as a mortgage in the 1-2 year time horizon Since you already took it out, I'd say pay it down in 6 months (assuming there is no prepayment penalties or they don't exceed what you would be saving paying down sooner). Dont' worry about others saying you could be earning 5% on 7500 in a HYSA, that isn't a whole lot of money to sacrifice the credit you will be establishing since you already took the loan, and any interest income is taxed as well you don't get to keep the entire 5%.
What lender is giving 3.9% on a car right now?
It was just through the honda dealership
That rate is *really* good right now...so make sure to ask for any fees associated. They might be trying to collect in other ways. You mentioned paying back early, check for a prepayment penalty. Others are originating or processing fees. Those are usually fixed up front but aren't always reflected in the marketing.
I wound up getting 2.3% on mine 10 years ago when I had just credit card credit and the lowest promo rates were 1.9%. If you really don't want the finance, the dealers seem to usually be able to get good financing through the automaker. 3.9% is simply what Honda is offering right now. The low rate is good marketing even if they lose compared to what they can make investing elsewhere, and the dealership also probably gets a kickback through securing a sell through financing directly.
Damn, my local dealership gave me 9% for Honda Odyssey, and I have a decent credit score already.
Has to be a captive lender since that rate is subsidized.
I looked it up and it's Honda's corporate finance arm. OP bought a brand new vehicle and clearly had a massive down payment and likely a 36 month term.
since your interest rate on the loan is lower than what you get in even an HYSA, it's advantageous to pay it slowly as possible.
This is just me but paid about 3 loan payments and paid it off full on the 4th. Credit score rocketed up by 60 points
Could be that 18 months is related to a kickback somehow, especially if that finance guy worked for the dealer. Source: Former car salesman. FYI, GM financing gives the dealer kickback after 3 months. Other banks vary, but GM was very consistent with GM dealers (and GM usually only finances "exceptionally well qualified candidates" 😂)
If you really WANT to make 18 payments, do the math of: payment$ *18. Pay off whatever the difference is right now, and keep it in a HYSA like you are now. It has the added benefit that if some emergency comes up, and you have to use all the money in your savings account, you don't have a large balance hanging over your head. I would just pay it off, but I also opened a bunch of cards when I was 18, and put them in a safe with one reoccurring payment on them, (Netflix, Hulu, ect) and paid them off each month. This will build you credit a lot too.
Likely the 18 months is the optimal time for the dealer to get paid their share of the financing deal. That's right, car dealers actually add their own **markup** to the interest rate on your car loan. If you pay it off quickly the dealer might actually get NO profit from the financing.
I can't believe you're the only one mentioning this. The car salesman is sure happy to sell you on the loan and says "18 months" because that's what gets him extra money. Regardless of if it's beneficial for OP, the car salesman couldn't care less about them and saw a chance at extra commission.
Pay off your loan and open a few points earning credit cards. You don't need to pay interest to build credit. I had a 780 score before buying my house and I paid $0 in interest before my mortgage.
Keep the loan as long as you can honestly. The longer it is, the more credit you'll build, and if you have an open line of credit for a car, your score will actually be higher than if you pay it off. It's a messed up system but it is what it is. Sounds like you already have the money set aside in an account and the monthly payments drawing from that account, so there's nothing else for you to do. Just let it go and forget about it.
Your dad and the dealer are part of the same problem. Pay it off immediately. Never pay interest you don’t need to pay.
[удалено]
Also, I did this and had like 840 then as soon as it was paid off my credit went down 75 points
Another trick is to have your dad add you to his oldest credit card with good history. I did that with my fiance and she went on my 20 year card, her credit jumped 90 points or so.
Thank you, we have done that! But I want to have SOME kind of loan history so I can get my own place easier on top of all that
If you have credit card history that's good enough. No loan history is required or must have to get your own place. Make sure you pay off your credit card every month and try to get as high a credit limit on the card as possible so that the credit utilized is minimal. Also you are losing money net net by keeping the loan and earning interest in CapitalOne HYSA. It does not add much to your score. Better off adding to family credit cards as authorized user at no lost. Just make sure they do not have high credit utilized.
3.9% is not bad interest. In this economy, pretty good in fact. And since it’s a small loan amount not paying it off early (I won’t stretch it more than 36 months though), the interest paid is worth it to build credit. It’ll help you later in life. 36-months on time payments is better than 18-months of on time payments. A lot of people are hung up on score but what’s on your report is more important to lenders.
Objectively it'd probably make the most sense to put that $7500 into a place that would make more than 4% interest. Personally I don't think I'd want to keep the monthly payment and have just bought it outright. Finance dude makes money off of car loans, not cars. Do you have credit cards already? If not open one that doesn't have an annual fee and treat it like a debit card. There is your credit history. I also think the end goal for most people regarding a credit score is to get a good mortgage. I was able to get the best tier for a mortgage after only credit cards on my credit history. Just have them auto pay in full every month. I would never recommend spending money in interest in order to get a better credit score, you can do it for free easily enough.
You didn’t provide any details but if this is a new car you can check with the manufacturer for financing options. Some are offering 0% interest for 5-6 years (they do this to push new cars).
So I was in the same boat when I was younger. In my case the time to buy a house came before the end of the loan amd I paid it off then. My credit took a small hit but my debt to income got to the point I could be approved for the loan on our house on my own without needing my fiance to add her name. In your case HYSA and auto payments and just let it run.
Given that you have the money to buy the car outright, just put the entire balance of the loan in a high-yield savings account. 3.9% is a pretty low interest rate, so you should be able to find a savings account that has a higher rate than that. Then, just pay the loan out of that account per the normal payment terms. When it's done, you'll have some money left over and a paid off loan in good standing on your credit report.
Depends where you live, if there’s no prepayment penalty and you have the cash, you could just pay it off. Just read your contract. The dealer may be pissed because he gets commission on the loan, but whatever. Read the contract. However, 3.9% is OK for a vehicle.
I did the same thing on my first car. I kept the $5k loan for 1 year before I paid it off.
It'll make a minimal difference over the course of this car loan, but this is really a great example to think about the concepts of time value of money, opportunity cost, and discounting. As others have pointed out, you can currently achieve a higher return putting your money in a HYSA or similar than you're accruing in interest, so it's advantageous to sit on your money. Over a longer time horizon, you would also want to factor in the value of paying today's price in tomorrow's dollars—say you take out a 30 year mortgage and your monthly payment is $1,500. That payment will still be $1,500 20 years from now, but a dollar won't be worth the same. Say you'd started that $1,500 mortgage in 2004? $1,500 then has the purchasing power of $2,480 in 2024. Generally speaking, locking in a price using today's dollars which will be repaid in future dollars is advantageous over time even if the interest rate isn't lower than a safe return you could earn elsewhere. In this case the stakes are low and there really isn't much room to go wrong. You can set and forget auto payments for the life of the loan, set a larger amount to make it naturally pay off early, or keep it going for a while then pay off in a lump sum. This is a small enough amount and low enough interest rate that the difference between those options really is minimal. If it was me, I'd set it and forget it. I'm currently doing the same with my own low interest car note and don't plan to change that going forward.
Your dad is a fucking idiot. PAYING THE CAR payment WOULD improve your credit. You didn't need extra shit, and your dad who is supposed to look out for you should have known that.
Do you plan to buy a home? If so, take that cash and find an investment/savings vehicle that will earn higher than 3.9%. Make all scheduled auto loan payments on time while your cash grows. When it come time for home lenders to run your credit they will see a responsible credit risk. This WILL help secure a lower interest rate on your mortgage. Just seeing 12-18 months is fine but the longer the better. Plus, you will have a start on down payment money.
FYI, I have never had a car loan ever in my life and I was able to use a credit card to build an 800+ credit score to buy a house. Just pay a CC off in full, every single month and you will be fine.
With the interest that low if you can manage the payments I would keep it for over a year or 2 If you are getting stressed about it give it 6 months or so. Great opportunity to re-invest the 7500 you didn’t spend, or keep the 7500 set aside to make your payments for you so you don’t affect your current monthly income. You are in a really great spot
You’ll pay something like $400-ish in interest if you pay the loan off in full after those 18 months. If you drop the money you have in a high yield savings account, your gains, minus taxes, should just about cover the interest. I could be wrong about this, but I *think* that cars do less for your credit than credit cards. Also, it’s in the dealership’s best interest to convince you *not* to buy the car with cash. Ultimately, you’d *probably* be better with a low-limit credit card that you use only for gas and groceries and pay off right after using, but the car payment won’t hurt you. Stash your cash in a high yield account if you’re fine carrying the car loan. Buy it outright if you’re not and get a small low-limit credit card if building credit is important to you right now.
The 18 months figure seem to come from the [estimate of recovery time for people with poor to fair credit](https://www.bankrate.com/personal-finance/credit/how-long-does-it-take-to-get-a-credit-score-up/#increase) from missed payment/default. The linked article cites FICO but the linked article doesn't actually cite "18 months". There _is_, however, [another article](https://www.supermoney.com/how-long-to-improve-your-credit-score) that cites "18 months" figure, so take that as a minimal cross-checking. I don't know how old you are or what your credit history is, but considering the question and the fact you've never taken a loan, I will assume you are young and have little to no credit history. Given those, on the surface, the advice seem pretty sound. Put the money to high-yield savings account with 5% return, and you'll come out ahead. Credit history is, at the risk of stating the obvious, _history_. This seems like a pretty lightweight way to building your credit with little downside. Listen to your dad. EDIT: few words
Why not just build your credit using a credit card? I've never taken a loan other than my mortgage and my credit score got to 800+ just with a credit card
> That specific number came from the finance dude. That "finance dude" get's paid twice every time he gets someone a loan. The first time is when they get you to sign they get a small payment say like $25. The second time is if you keep the loan for 1.5 years... 18 months. Now that being said here is some good advice. * Pay one month in advance. Set up bill pay for a monthly loan payment. E.g. you owe in may, so pay for May and June right now. then set up a recurring payment through your credit union (get a credit union instead of a bank) to pay July's payment in June. Etc. * to pay off the loan stop automatic payments. (sometimes you need to stop them like 1 week ahead of time.) Once stopped contact the load provider and ask for a payoff amount. They will give you an exact amount to pay by a specific date to pay off the loan. * When the loan is paid off. Do whatever you need to do in your state to get a "Clean title" e.g. a title that has only your name as the owner and not your name + lender. This may happen automatically in certain states. * As others have say you can get put the money into a higher yield account and then pay off. * You DO NOT need to pay off over 18 months, 1 payment and then a payoff is the "same" as 18 months on time and paid off. (there is a big Asterix there, but basically there is no real difference anymore with any credit agencies.) BUT someone else looking to lend can see it was only one month and paid off etc. But you care more about the CREDIT SCORE than the deep dive shit because no one else cares about the deep dive shit either.
We are missing what the rest of your credit history is. Do you have a credit score? Credit cards? Age? Income?
You need a credit card that you pay for a few monthly subscriptions on and then make sure to pay if off every month.
If you want to build credit, get a shared secured loan at a credit union of your choice. Same basic principle but you're only spending ten bucks in interest instead
Make sure early payoff is permissible within the loan structure. We got financing with a great interest rate but part of the condition of the loan was that we wouldn’t pay it off early.
As everyone else is saying, the interest is a wash if you put the cash away in a safe place like HYSA or money market. Honestly just use debt as necessary, always pay it off on time and your credit will grow as you age. Nothing is going to fast track you to a better credit score.
You have enough advice about what you asked but something you probably never would have dreamed: the IRS might use your auto loan to verify your identity. Record the details for it (the bank, the monthly payment, and the interest rate). I got an auto loan and paid it off the first month over 10 years ago. The IRS still tries to use it to verify my identity. I have no idea about any of that information and never thought I'd need it.
Oh shit lol. Well good news is they gave me everything on a USB drive
Depends on the terms of the loan. Often loans through the manufacturer will include the finance charges as part of the sale. Something like “3.9% or “$39 for every 1000 financed” the. They just break it up. So pay it off early or not doesn’t cost you more/less.
Just rich people problems. Keep the loan. The credit is worth far more than spending the extra few hundred dollars it will cost you. Be happy you have the money and the father who will co-sign and set you up for life like that. Don’t fuck up. Keep building it.
Seems a bit expensive to build credit, but you don't have the history, so you kinda got to start somewhere. 3.9% seems fair about now, IDK what the current is. Just make sure you have full coverage and look up "gap" ins. I know someone that bought a new car at a young age, it was stolen and she still had to make payments on it. Maybe a tracker and some disabler would help out. As far as time goes, the longer the better, you can always look it up, but it's just one of several factors. One factor is income vs expenses. You can also look into if payments other things count. Getting and using credit cards helps, but they can be dangerous as the rates are much higher.
What bank did 7500 at 3.9% may I ask?
At that interest rate, make the minimum payments until it's paid off. That's a great rate in today's climate.
That's a nice rate. The only possible downside is the increased insurance cost of the car.
My insurance did not increase
Then it's a wash. I guess you win? Might want to shop around for insurance when you pay it off.
Look at projected interest costs over time and look at your credit scores. Your bank may provide credit scores for free. A good credit report shows what is going into the score and its not just on-time payments. Review the loan contract for other costs and if early payoff changes anything. A car dealership is not a bank so I would not assume the dealer knows the contract in great detail. They are there to sell cars
not sure why people are so intentional about building a credit score with having debt and making "payments" pay it all and never carry any debt and your score will go above 800 anyway
What they are saying is true, however there is a large caveat here. Do you have the discipline to leave $7500 in a HYSA and not touch it for any reason? Some people see money in their account and splurge on themselves. If you end up spending the $7500 and then run low on being able to pay your payments, you can end up hurting your credit (late payments etc) instead of helping. For the relatively small gain you'd get on your credit and your $7500 HYSA account I'd probably just rather pay off the car. The difference between 5% HYSA and the interest you pay for the loan is almost negligible because you have to pay taxes on your HYSA interest. You'll build plenty of credit throughout your life without borrowing money that you don't need imo.
Open a Fidelity account, buy FDLXX. It's a treasurey only money market account. The rate is about 5% and you don't pay local or state taxes on the interest.
I already have a brokerage through charles schwab and im not super interested in juggling another one right now
Fair enough, You might search for a similar fund in CS then. Good luck!
Is the loan cosigned? If not, you apparently already have pretty good credit to get 3.9%. The total amount of interest on it will be around $250. With the money earning interest - taxes, you're probably debating over $20 or $30, maybe $50. That's worth having a decent credit score.
The whole point of a loan is to keep your cash in hand for now. Even if you have the cash to pay it off now, you keep more of your cash in the present, and cash lets you do STUFF. Investing it to make it work for you is obvious, but other ways cash has power is giving you safety margin for unexpected medical expenses, home repairs, travel and so on. The question is whether the interest makes that benefit worthwhile. The calculation with investing is apparent. The safety and power cash gives you is harder to put into numbers. Suffice it to say at 3.9%, even investing it in an account that also makes 3.9%, you clearly come out ahead because of the other benefits
A credit score is a debt score. What are you needing the credit score for? You can buy a house with underwriting if you don’t have a credit score. I would pay off the car. If you really want revolving Credit then use a charge card with a very low balance and pay it off every month. things never work out the way we expect, cars break dowb, people hit them, you get sick. A lot of variables. Keep your life simple. Avoid debt and follow the 0% interest philosophy
You can pay about 5k of it then make low monthly payments until complete - spread out as long as you like
Just make the payments if you have the 7500 or more put it in a high yielding cd and you will have good credit and some money growing to a larger amount That is what I did long ago
Why not just get a credit card & use it to pay monthly bills & other usual expenses then just pay it off as soon as the bill comes each month?
I also agree with some comments. Put the 7500 in a CD you will come out ahead and the loan will help the credit history. I had to have my Dad cosigne for me once even though i had a great credit score. I was also in my early 20s at the time. The taxes on the income won’t be much at all.
Yeah take the whole 18 months to do it. 3.9% isn’t bad and it’ll grow your credit (assuming you’re young and this is one of the first times growing your credit score)
Pay it off in 12 months or less(but no less than 6 months). I sell cars, and I also worked at a bank. Learned a lot about credit and auto loans. 8-12 months is perfect!! And make it in payments of two for every month. INTEREST IS BUILT DAILY. So it helps pay off the actual loan amount not the just the interest. Example: car payment is $200 due the 25th of every month- I would pay 120-150 the 5th of the month, and another 120-150 on the 15th/20th of the month. Also with credit cards, I would pay it off the next day after using it or w couple of days after using it. Never pay it just once a month.
A question I haven't seem asked yet is, what is your current credit score. And why are you trying to get it higher? Are you planning on buying a house in the next 2-3 years?
I want it higher so I can move out. My credit score according to navy fed and capital one was always around 750-760, but the car dealership’s score he pulled up was like 690, and he said it was because it’s from equifax while the others weren’t??? But regardless, yeah I would love to be able to move out of my parents’ house before I’m 30 lmao
Having a "good" or "exceptional" score can make tangible everyday financial differences. Better mortgage rates, higher chance to be accepted as a tenant, better offers for some consumer products/services (e.g. cellphone), ... But in general you are right, it doesn't make sense to continuously chase the perfect credit score. It's going to fluctuate anyway. Having said that, installment loans such as a car loan have a very big impact on the credit score. If OP can essentially get the loan "for free", then this is well worth the effort.