Friday, March 21, 2008

Why I'm Jumping Back into the Credit Market

I had a comment on one of my blog posts about the new to me car purchase, and since I was planning on blogging about this very comment this weekend, I'll just jump in and post now.

Just out of curiosity, but why are you looking to get back into a high interest loan for a car, as opposed to purchasing a small, cash-only used car from a private party?

Very valid and a great comment and I'm sure others are wondering the same. I have decided to go with a car loan for a decent vehicle for a number of reasons.

1) I need to re-establish credit to start boosting my FICO score (which is currently really low.......). I had planned on getting a secured credit card and using it for things like my gas purchases and pay off in full each month and hope to qualify for lower interest rate loan later this year. Instead, it's a car loan about 5 months earlier than planned. Frankly, you have to start somewhere. It might as well be a car loan.

2) The current car repair was not expected, I figured an oil change, yearly tune up, and front end alignment ($250) would get me through to the summer. The projected repairs on the car push the bill over $1,000, and that is without further investigation as to why the car seems to be drinking oil. It was "in my grand plan" to save up for a decent down payment for a new to me car. This current repair bill just changed my plans. I don't want to sink $1,000 in a car that is only worth about $700-$950. Up until this past year, I had little to no repair cost in my current car, just regular maintenance (oil change, the occasional brake job, new tires, etc).

3) I had hoped to already have a real second job in place to offset the car payment. The prospective job has been put off until late April/early May, but I've been looking at alternative sources of income if this job is not to be (Virtual Assistant work, I am a Notary Public and can do loan signings for title companies, doing some back office work for a couple other real estate agents in the agency that hold my real estate license, etc). I've had second jobs on and off most of my adult working life and have usually used them to pay for "extras"-hobbies, vacations, and now it's a car. Arse backwards yes, I have a car loan, now I will get a second job. There are a number of local businesses that have started to advertise for summer help, the hours (and probably the salary) are not as good as the job at the horse farm if that does not come to fruition, but hey, it's a job! I totally admit, I've been sitting on heels waiting to see what happens at the horse farm. I could have gotten my act in gear earlier for a second job and this would not be as much of an issue, but I did not and only have myself to blame. I need to stop being sooo fussy.

4) I talked to both my credit union and my bank and both said the same thing, they could refinance me in as little as 6-9 months if all my installment payments are current (mortgage, student loan and car) and the rate would be competitive for the market. They did say I would not qualify for the "red carpet lease and loan terms" (less than 5% interest rate), but at a much better rate than 14.9%. My bank is a small local bank and they could not even offer me a car loan at any rate until my FICO gets above 600. One advantage to a local bank and credit union is the personal touch and the fact they know me as a person and not just a credit report. While I may be spending my raise on a car, I will still be able to keep to my projected savings plan. A second job or alternative income source will be snowflaked to the car fund account. I hope to be able to accelerate loan payments. Depending on the final price, the additional interest I pay may not be that much.

5) And simply, I do not have enough money saved to do a cash purchase on a used car that fits my criteria (age, mileage reliability, space requirements), I've been looking at that option as well for a motivated seller. The last two cars I bought from private parties both ended up costing me a lot (even with my mechanic looking at them prior to sale) in repairs and aggrivation. One repair hit 5 weeks after I bought the used car and was $700 to fix. This makes me a little leary of a private purchase, once bitten, twice shy as they say. The two cars I've bought through a dealership have had minimal upkeep and cost. At least with a dealer, I have some sort of a warrenty for the next couple months.

I did a test drive last night of the two vehicles that made my final cut. I did my Kelly Blue Book and Edmunds research on both (both private party and dealer price) and I started the bid process on one of them. I'm not interested in a dealership extended warrenty (you can actually find warrenties on line at less than half the dealer price) if one is needed or wanted. Plus I was surprised at how much wiggle room there was, especially on one vehicle. I think in this current economy, even car dealers want to move inventory and are willing to negogiate on price.

So we shall see! Thanks for the feedback!



spillingbuckets said...

What makes/models are you looking at primarily?

Can you get a bank to manually underwrite your credit rather than just relying on FICO? I know they can do that for a house, and I am 90% sure then can for a car too.

We were in a similar situation a few months ago. We planned on saving for a "new" car when the one we were replacing died (repairs cost more than the value, like yours) and so we were forced to drain most of our emergency fund and bought a car for $8,000 that had great miles, reliable brand, and fantastic condition. It took a while and a lot of searching to find this car but I am really glad we paid cash. It sure was tempting to purchase new and we saw how very easy, if we had decided to use a loan, it would have been to buy more car than we needed.

iva said...

I suppose at some point your going to have to get back into the credit market, so why not sooner rather than later...?