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Posted in Auto Loans
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bobenna

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Need a car now, want a home in a year... Should I finance or pay cash?
My current score is 696, I would like to buy a home in a month, but need a new car now. I can pay cash for the car, or I can finance it. I'd like to do whatever is best for my credit so that I can have a better chance of getting a home in a year. Thanks!

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The short answer is that financing the car could actually help raise your score over the next year while preparing to buy a home. That could be beneficial to you in terms of the interest rate on your home. However, the biggest thing you need to consider right now is the effect having a car payment on your total monthly expenses.
Mortgage lenders look at your total monthly payments (credit based) as a percentage of your total income. This is called the "back end" ratio in the mortgage consideration.It depends on they type of financing you end up doing but it would be a good idea to make a quick call to a lender to find out what they will be looking at and the back end ratio numbers for the various financing products. If you do speak with a lender, DO NOT let them pull credit. They can help you with this without doing that. Hope this helps.

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38 Contributions
8 People Helped

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Top Contributor
38 Contributions
8 People Helped

The short answer is that financing the car could actually help raise your score over the next year while preparing to buy a home. That could be beneficial to you in terms of the interest rate on your home. However, the biggest thing you need to consider right now is the effect having a car payment on your total monthly expenses.
Mortgage lenders look at your total monthly payments (credit based) as a percentage of your total income. This is called the "back end" ratio in the mortgage consideration.It depends on they type of financing you end up doing but it would be a good idea to make a quick call to a lender to find out what they will be looking at and the back end ratio numbers for the various financing products. If you do speak with a lender, DO NOT let them pull credit. They can help you with this without doing that. Hope this helps.

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How about reading the articles here so you can learn what is best.since the purpose of this site is to teach about credit. They do so very well because I now enjoy a very good credit score and the benefits that go with it. 

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