Saturday, May 22nd, 2010

Is it a good idea to borrow a high-APR auto loan, although I don’t need it, to build my credit rating fast?

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JJ Flying asked:


The manager at the financing department suggested that I should at least keep the loan for 24 months in order to boost my credit record significantly. So my plan is to pay off the majority of the loan in 1 or 2 months, and finish paying the rest in 22 to 23 months. I figured this way I can avoid paying too much interest while getting the so called “boost”. Does this idea sound silly or reasonable? Thanks!

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5 Responses to “Is it a good idea to borrow a high-APR auto loan, although I don’t need it, to build my credit rating fast?”

kati k Says:
May 23rd, 2010 at 8:17 pm

some creditors dont report as often as we like when we are trying to boost our credit scores. if you plan on paying it off quickly then i would think that your plan seem justifable. Talk to the bank before doing so, they will be more honest than the finance managers.. the car business is full of a lot of sneeky people (i worked in that business doing accounting)

Eaglesong3 Says:
May 27th, 2010 at 12:50 am

Some banks will set you up with a minimum monthly payment that has nothing to do with remaining balance. Therefore you may not be able to do what you’re wanting to.

You don’t need to have a high APR loan to have it affect your credit in a good way though. What is important is to make your payments on time every time. Having a higher loaned amount is good to but the biggest thing is to make your payments on time.

If you really want to help your credit you can go to your bank and talk to them about getting a small $500 or $1000 dollar loan. Then set up a separate account with them and put the money in to that account. After that just set up your payments to be automatically withdrawn from the second account. That way you can just forget about the money and the payments will be made for you. Be sure to find out from the loan officer how much interest there will be on the loan and make sure that the additional money is put into that second account to cover that.

Once that loan is paid off go in and get another one. They should have no problem doing this for you if you explain that you’re just trying to build your credit up a bit. And it will cost you far less than using a high APR loan to do it.

Wally Z Says:
May 29th, 2010 at 11:18 am

Your plan is reasonable but you should try to pay it off sooner if you can. Say six months. I think your finance manager is getting a commission on the finance charges you are paying and that is why he is feeding that bull.
Here is the deal. First off, it doesn’t matter what the interest rate is so if you can find a cheaper rate, take it. Most credit unions have relaxed credit requirements and have lower rates so check with you parents to see if they are members and chances are you could be eligible to join as well. Often you can get a better rate by putting up a larger down payment but don’t let it interfere with paying down the debt later. You build up your credit by making payments on a loan on time. You should do this for a minimum of 3-6 months. The second thing you need to do is to show that you will successfully pay it off completely afterwords. The sooner you get that done, the sooner you get a better credit rating. In the meantime, probably after 3 or so months, apply for a credit card at your favorite department store and be sure to put your car loan on the application. You should do pretty much the same thing, charge something and, this is important, the first couple times, pay at least the minimum but do not pay it completely off until the second month. Now all of a sudden, you have two credit references in about 6 months. I do want to stress that you should not charge anything you cannot afford, which is what alot of people new to the credit business fail to do.

Echion Says:
May 30th, 2010 at 12:16 am

NO. Sounds silly.
Your desire to build up your credit rating in no-time is like a worm at the end of a hook.
Save money, get interest to work for you and you’ll have many offers of credit you can pick and choose the lowest.
There are far too many hidden charges, fees and time traps to trust a high-APR loan, especially in todays market.
Play safe.

TaylorProud Says:
June 1st, 2010 at 11:27 pm

The problem is that if the interest rate is too high, you could wind up upside down on the car loan, or if it makes you owe more on the car than it is worth.
If you can’t refinance it or sell it for what you owe on it, it is not a good deal at all.
Who is to say IF you’ll be able to sell it or IF you will still be employed tomorrow in this economy.

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