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CraigCC

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I have no credit yet and am looking to buy my first car. Should I get a loan or pay cash?
I have the cash in hand for a car, but I want to start building credit. I'm not sure what would be the smartest move for myself. I know that with cash, I wouldn't be paying interest and I would personally own the title. That sounds pretty good to me. At this point, I am thinking I should just pay cash and build my credit by getting a credit card to pay for gas with. That could be my best move, but I still feel like I'm shooting in the dark.

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If you have the cash to buy, I would put 1/2 the cash into a savings account with a credit union. Then ask them for a car loan with 50% down and the savings account to secure the loan.  Generally you'll get better rates from a Credit Union you do business with.  And they are real good at working with you to build your credit. 

After about 6 months of on time payment, apply for a credit card through the same CU.  Pay off the loan early once you have a couple of credit cards open.  Consider the interest paid as the cost of establishing you credit.

Only open a new accounts 4 to 6 months appart.

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"At this point, I am thinking I should just pay cash and build my credit by getting a credit card to pay for gas with."

I would agree, since you have the cash on hand to purchase a car. It is hard getting a loan without any credit established, and it is a good idea to get a credit card and using it responsibly to start building credit. I would suggest a secured credit card for any reason if you get denied for an unsecured card (credit cards are also hard to get without credit established).

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roy2ohio

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I agree and disagree with tg101688.

I do agree that it could be a smart move to open a secured credit card.  That would be your first step in acquiring additional revolving credit in the near future.  However, revolving credit is only one type of credit, and your score will improve if you also show an installment loan too, such as a car loan.

If you have the cash to purchase the car, then you have sufficient cash to use as a down payment.  There are lenders out there that will take a chance on you with the right amount of money down.  This could be 20% down.  It could be 40% down.  It could be 50% down.  If you have the full amount, it wouldn't matter.

Now I'm not saying that you would get super prime .9% rates on a new car, but some prime banks may offer you rates as low as 3% to 5%.

Corporate financing companies such as Ford Motor Credit, Chrysler Capital, and others would be willing to buy deep in order to sell a new car.  Odds are good they would pick your loan up with the right amount down at favorable rates.  The nice thing about these companies is that once you pay successfully, they will offer you incentives (such as money, early pay-offs, super low rates, etc) to purchase another new and finance with them again.  If you pay well, you are pretty much guaranteed a new loan as they are looking for customers for life.

Even if you need to go subprime, say at 10% or 12%, your loan is temporary.  You can establish a positive track record of 6 to 12 months, then pay the loan off with no prepayment penalties.

Having both an installment loan and a secured credit card will increase your chances of being able to obtain better credit offers during that 12 months.  If you decide to pay your installment loan off after 12 months, you will be in a much better position to purchase another car in the future at much better rates.

Keep in mind you can go the "Pay Cash" way if you want.  However, if you are young, the longer you wait to build your credit, the harder it's going to become to get it.

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