Is the interest rate worth the credit history?

[Sigarms]

Our son is finally understanding that buying a Mercedes as his first car may not have been the greatest idea after owning it for about 3 years now LOL

Of course what he put in it on accessories along with service he will never recoup his money (2009, 94K on it when be bought it, 124k on it now) and he'll have to sell it for a loss.

Looking at something newer with less mileage, but more important, service costs down the road.

We can float him a "in house loan" and buy a car outright, but he would be responsible for the monthly payments directly to us. This will save him interest, which we more than like.

That said, he's 19 going on 20, has worked since he's 15 (only reason why we let him by the Mercedes is it was his own hard worked money that he saved for 2 years when he wanted to buy something on his own and he has to learn). Has a bank account with a credit card, and has a FICA score over 700 (not that I could really understand those scores).

Thinking about offering the option that we co sign on a car loan for him. I'm not worried about him defaulting on a 3-5 year loan as he's in the Air Force now. Thought if he got a car loan and he paid it off, it would only help his credit score. Question becomes if the interest he has to pay is worth having that loan to help his credit history?

The added advantage is if he's playing with our money or our co signing, we get to have a more level headed conversation on exactly what type of car the next one is going to be LOL

 

[RjCorazza]

We gifted our now 25 year old daughter her first car (lightly used) at 18, although she was the primary driver from 16 on. She has been financially very responsible, and still has that car today.
Anyway, 25 is old enough to make her own car decisions and financing if necessary. She has built up a reasonable credit rating with credit cards and rent payments (?) and we think she should see the hit that financing incurs in adult life.

 

[LittleBill21]

Thought if he got a car loan and he paid it off, it would only help his credit score. Question becomes if the interest he has to pay is worth having that loan to help his credit history?

This thought process needs to end. Under no circumstances should you pay interest if you don't need too, to raise credit score. I don't know why this was taught or ever conceived. I assume it came from a credit card company.

My credit score is currently 820, my credit score has never been under 750. I have NEVER paid a single dime in interest to anyone, no loans, nothing. That said I use credit cards for 99.9% of purchases and pay the balance in full..

 

[JeepHead]

Our son is finally understanding that buying a Mercedes as his first car may not have been the greatest idea after owning it for about 3 years now LOL

Of course what he put in it on accessories along with service he will never recoup his money (2009, 94K on it when be bought it, 124k on it now) and he'll have to sell it for a loss.

Looking at something newer with less mileage, but more important, service costs down the road.

We can float him a "in house loan" and buy a car outright, but he would be responsible for the monthly payments directly to us. This will save him interest, which we more than like.

That said, he's 19 going on 20, has worked since he's 15 (only reason why we let him by the Mercedes is it was his own hard worked money that he saved for 2 years when he wanted to buy something on his own and he has to learn). Has a bank account with a credit card, and has a FICA score over 700 (not that I could really understand those scores).

Thinking about offering the option that we co sign on a car loan for him. I'm not worried about him defaulting on a 3-5 year loan as he's in the Air Force now. Thought if he got a car loan and he paid it off, it would only help his credit score. Question becomes if the interest he has to pay is worth having that loan to help his credit history?

The added advantage is if he's playing with our money or our co signing, we get to have a more level headed conversation on exactly what type of car the next one is going to be LOL

If you want my honest opinion, it would be to stay out of his business. He's an adult now and needs to make his own decisions, good or bad, and learn from them. If he's in the Air Force, it sounds like he's got a good head on his shoulders. If he has a 700+ FICO score then he should be able to obtain good rates for his OWN financing. It's time to allow your son to live his life without mommy and daddy holding his hand... This is just my opinion with no hateful intentions.

 

[MossRoad]

How much money is he going to pay in interest on the loan over its life?

 

[EddieWalker]

In my opinion, there is learning process that happens when you go out and get a loan for a vehicle that builds every time you do it. I've met too many grown people that don't know how to do this, and are afraid to even try. It's the little things that add up to being able to buy a house, or land, and become independent.

My parents helped me buy my first vehicle in High School with a $500 loan because I only had a grand saved up at the time. I had an after school job, so it wasn't a huge effort for me to pay them back. After High School, I sold it and joined the Marines.

Once I got settled into life on base, I decided that I wanted to buy a car. It turned out that every dealership, new and used, was more then willing to loan me money to do this. I shopped around, looked at a variety of vehicles before buying, and then went through the process of applying for my very first loan.

 

[LittleBittyBigJohn]

In my opinion, there is learning process that happens when you go out and get a loan for a vehicle that builds every time you do it. I've met too many grown people that don't know how to do this, and are afraid to even try. It's the little things that add up to being able to buy a house, or land, and become independent.

Agreed.

If I wanted to help my kid in the situation you are talking about I would probably be more apt to throw them a few bones for additional down payment, instead of floating the loan myself. It would still be helping them with interest but in a way that allows them to gain experience for next time. Honestly with mine I'd probably go with them under the auspices of just being there for moral support, let them do the negotiating and make sure they are getting a payment they are comfortable with, then pull them aside and give them whatever I had planned so they can use it on top of what they were already putting down. Although he may not be in a location where that would be feasible.

There are a lot of things in life that are best to learn early when there is a safety net to help and answer questions. I have done everything I can to teach my kids and help them without doing it for them. Taxes, loans, paying bills, budgeting, etc. I figure my job as a parent is to instill the values and knowledge for them to be able to function independently when the time comes. I'm not by any means saying you aren't doing that, just describing my thought process.

 

[scootr]

In my opinion buying a new Mercedes for a first car is unwise no matter what your work or FICA score is. Living rich will keep him poor. The money he lost on this car could have been a downpayment on a home. A home is the best investment most people make.
I'm old and at the financial point where I could buy a new Mercedes cash but that would be a foolish waste of money I won't do. I rather see him reevaluate his priorities.

 

[2manyrocks]

700 credit score for someone getting started is pretty good.

One potential issue is what happens to the car if he gets stationed in Germany, Korea, or wherever?

 

[JeepHead]

Once I got settled into life on base, I decided that I wanted to buy a car. It turned out that every dealership, new and used, was more then willing to loan me money to do this. I shopped around, looked at a variety of vehicles before buying, and then went through the process of applying for my very first loan.

When I got out of boot camp and went to my A school, I was shocked to see the main road leading to the Base's gates was ridden with predator car lots waiting to take advantage of all the 18 year old kids with a fat bank account and a steady paycheck.

 

[MossRoad]

In my opinion buying a new Mercedes for a first car is unwise no matter what your work or FICA score is. Living rich will keep him poor. The money he lost on this car could have been a downpayment on a home. A home is the best investment most people make.
I'm old and at the financial point where I could buy a new Mercedes cash but that would be a foolish waste of money I won't do. I rather see him reevaluate his priorities.

Re-read the original post. The kid was 16ish when he bought a 12ish year old Mercedes. He wants to buy a newER USED car that's more dependable.

No new cars involved.

 

[FPGT72]

It is clear in the world we live in having this kind of thing on your "record" is a good thing if the payments are made. Like it or not it is the world we live in.

What I would do is make sure there is no fee for paying it off early. Get the loan, let him make one month of payments, then on month two pay the thing off. He finishes making payments to you at zero interest, he gets the loan on his "books" and all is good. Make sure you get the title re done with no lean on it.

 

[Sigarms]

This is just my opinion with no hateful intentions.

Agreed.

Let me give you a little story...

Last weekend he came home and he only has to drive 3.5 hours. Didn't ask me for any money. I however still gave him $40 for gas for the travel to go back. I told him my father always did the same for me even though I didn't ask for it, and I feel like I'd be letting my dad down not doing the same in return.

Likewise, when I lived 6 hours from my parents in my 20's, I told them I was going to go looking for a new (used "high dollar" car/truck). My mom told me they would give me a interest free loan so I don't have to pay interest. Always thought my parents were broke LMAO. I took them up on the offer so I didn't have to pay interest.

This is exactly why I'd do the same for our son.

 

[Sigarms]

My credit score is currently 820

The last time I checked, mine was 845. Wife's was slightly lower.

Honestly, no clue why it goes up or down on my end as I'm not a banker. I actually kind of gave up on it.

I do know from a business standpoint, credit is actually good as long as you can pay your bills. I see it no different from a personal standpoint.

Take out a 4 year car loan, pay it of (or even quicker) because you can afford the car payments, looks good and yes you did pay some interest, but that is the cost of doing business and not taking money out of your account personally.

 

[Sigarms]

When I got out of boot camp and went to my A school, I was shocked to see the main road leading to the Base's gates was ridden with predator car lots waiting to take advantage of all the 18 year old kids with a fat bank account and a steady paycheck.

ANY business off a military base is predatory IMO.

 

[Sigarms]

In my opinion buying a new Mercedes for a first car is unwise no matter what your work or FICA score is. Living rich will keep him poor. The money he lost on this car could have been a downpayment on a home. A home is the best investment most people make.

The kid was 17, saved up 12K after 2 years of working, and wanted to spend 7.5K on a Mercedes, this after passing up a BMW, Saab and Audi because he followed "my rules".

We both told him we wouldn't do it, but he earned the right in our opinion to make that decision on his own hoping he learns from a potential mistake.

The Mercedes was literally from a German widow off of Fort Bragg whose daughter was selling it for her. Honestly, from what I saw 3 years ago after driving and meeting the mom, it wasn't a bad private sale IMO other than the one rule which was broken and he knew it, that being able to take the used car to your mechanic to check out.

Thing is no matter how good the car seems, it's a Mercedes and sooner or later it's going to cost you money. He didn't see that but I'll let it slide because I did see it coming.

 

[Sigarms]

It is clear in the world we live in having this kind of thing on your "record" is a good thing if the payments are made. Like it or not it is the world we live in.

What I would do is make sure there is no fee for paying it off early. Get the loan, let him make one month of payments, then on month two pay the thing off. He finishes making payments to you at zero interest, he gets the loan on his "books" and all is good. Make sure you get the title re done with no lean on it.

Little confused by your post.

He could pay us as we'd just pay for it with cash, no interest charged on his end.

I agree with your comment about having a "record" of payments which is why I started with g thread.

Paying off a loan early with no fee is a no brainer IMO. My line of thinking is take out a 5 year loan, and pay it off early, have that payment history for credit on his that looks good, and he may be better off going that route.

 

[Sigarms]

How much money is he going to pay in interest on the loan over its life?

Just going off of 18K financed at 5%, for 5 years that would put him at $2,300 in interest over those 5 years at a monthly payment around $340 a month.

Thing is, I'd have no qualms having him pay us $500 a month for 3 years. At that same percentage rate for 3 years, he'd be paying around $1,900 in interest.

 

[Sigarms]

No new cars involved.

I'm pushing 60. NEVER bought a new car in my life, always used. Wife the same way, one reason why we think a lot alike even though we met in our mid 30's.

My father didn't buy his first new car ever until age 73

I don't want to dwell on the past for my son, but he realized in the grand scheme of things he most likely made a mistake buying a used Mercedes. That hopefully is a good thing

 

[MossRoad]

Agreed.

Let me give you a little story...

Last weekend he came home and he only has to drive 3.5 hours. Didn't ask me for any money. I however still gave him $40 for gas for the travel to go back. I told him my father always did the same for me even though I didn't ask for it, and I feel like I'd be letting my dad down not doing the same in return.

Likewise, when I lived 6 hours from my parents in my 20's, I told them I was going to go looking for a new (used "high dollar" car/truck). My mom told me they would give me a interest free loan so I don't have to pay interest. Always thought my parents were broke LMAO. I took them up on the offer so I didn't have to pay interest.

This is exactly why I'd do the same for our son.

We've done the same one time for both of our kids. They had the money. We just didn't want to see them spend down their grub stake in case they ran into an emergency, and we didn't want them to have to pay interest. This allows them to have a safety net. IF they run into problems, we'd buy the car from them, sell it, and distribute any amounts accordingly based on loan balance.

Of course, mom and dad, you are eating the interest that you'd be earning in a CD. It's not so much the amount of the loan, as you'll get that back. But you won't get any interest. That part is the gift.

Let's say you loan the kid $20K for 5 years. And let's say you'd make about $8K in interest over 5 years.

The gift is $8K over 5 years, or about $1600 per year, not a $20K lump.

My father loaned one of my sisters money to buy a business. They signed a promissory note and he charged her the same interest as he'd make on a CD. But she had no timeline to pay it back. It worked out well and she made payments whenever possible. When he passed away, we split the estate 5 ways (5 of us kids), then she payed each one of us 1/5 of the balance.