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Loan question

Discussion in 'Members' Lounge' started by Kanned, Oct 20, 2010.

  1. Kanned

    Kanned Beast

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    :cliffs:
    Have loan for 4k with a co-signer and shitty interest rate.
    Borrow from my 401k?(No money loss, but doesn't show up on credit report)
    Take loan from bank/lender?(Money loss, but on report as a loan in my name only to show responsibility)
    Either loan will only be a 3 year term.
    :cliffs:




    When I bought my bike, I took a loan out on some of the cost instead of paying in full for the sole purpose of building my credit. Now that some time has passed, I don't exactly have the same type of cash laying around that I used to. My father is a co-signer on the loan, which currently has a pretty nasty interest rate. I've put off refinancing it to get a decent rate, but I'm gonna go ahead and do it now.

    The last time I checked my credit score was almost exactly one year ago and it was in the high 700's, so I've got high hopes for when I check it again. This doesn't stop me from wanting to build it even more for my future, especially since score isn't much without installments.

    It's going to be a three year loan and only for $4,000. So here is where I'm having a hard time deciding...

    Borrow from my 401k

    -$50 one time fee.
    -4.25% compounded interest rate. All interest is being paid directly back to myself.
    -Average profit from 401k lately has only been like 3.5%, so I won't exactly be suffering a major loss as of now on possible interest earned while money is temporarily withdrawn.
    -Only financial loss is the 50 bucks and what I mentioned right above this, which is subject to change.
    -DOES NOT SHOW ON MY CREDIT REPORT, therefore doesn't help my score/installments.

    Refinance through bank or lender

    -Probably a 7%-8% rate that of course I wont be paying back to myself.
    -SHOWS ON MY CREDIT REPORT, therefore helping my credit.
    -Almost certainly will cost me more in the long run.

    The biggest factor is as mentioned before, I want my credit to be the best it can so I wont have any limits in major life choices. Since my current loan is co-signed by my father, it would look great to show I was able to take care of one in my own name.

    As of now, I'm thinking of taking a loan through my bank or a lender, making payments for a year, then pay it off via a small 401k loan or from my savings.

    I know this is all cluster-fucked/run-on style, but it's the only way I can get my thoughts out sometimes. I'm sure there are plenty of necessary details left out, I'll do my best to check up on this during work tomorrow. So what do you guys think?
     
  2. Pizzo

    Pizzo New Member

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    As of now, I'm thinking of taking a loan through my bank or a lender, making payments for a year, then pay it off via a small 401k loan or from my savings.

    I like that Idea but you need 18 months of payments. If you have ever seen your credit report when you have a loan if you count the (0) or (1) i forgot what they are one or the other. that is the months you have payed on the loan so you will only have 12 of them and then the loan is paid off not going to help your credit.. do it at 19 months

    That is what I did when I bought my Tool box just so happen it was income tax return time. and it didn't help me at all by paying it off early.. score was still the same

    Also Check with your bank and make sure there is no penalty for paying it off early.. IDK my bank says that to me when I get a loan No penalties if paid off before loan agreement is up..
     
  3. phyregod

    phyregod !!YTINASNI

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    Loans suck. Be patient, pay cash, win.
     
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  4. D16Civic

    D16Civic Matt

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    I guess if the current interest rate is higher than the 7-8% you would be paying on a new loan you can't go wrong. Taking money out of a retirement fund is normally not something you want to do given the compounding interest you won't be getting, but at your age it's somewhat less of a concern.

    I would say paying the least amount of interest possible is your best bet, however possible. I'm assuming a 401k loan would be paid off through a payroll deduction, and would be a fixed amount. Taking out a loan through another lender, even at a slightly higher rate, would offer you the option to possibly pay it off early or make larger than minimum payments.
     
    Last edited: Oct 20, 2010
  5. B16RacerN2NR

    B16RacerN2NR Working Hard VIP

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    The loan that's co-signed with your dad will get your credit score up as if you were on a loan by yourself.

    A co-signer is just there to give the lender peace of mind. That way if you default on the loan they can just get their money from a reliable/proven source.
     
  6. B16RacerN2NR

    B16RacerN2NR Working Hard VIP

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    I agree to an extent.

    This method can hurt you in other areas. Such as insurance rates and even potential jobs. If you don't have a good/strong credit history to show, then they can't gauge how responsible your are.
     
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  7. corvetteguy78

    corvetteguy78 Well-Known Member VIP

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    two things that don't add up here. If you had high 700's for a credit score, you wouldnt need a co-signer for anything and also, you wouldnt have a shitty interest rate
     
  8. chestercheeto48

    chestercheeto48 Senior Member VIP

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    Exactly what I was thinking.........coming from a guy that wouldn't be living in his house if his wife hadn't had impecable credit. Now mine is fixed.

    I say pay the loan off right now or refinance with your bank/a bank then put the money saved towards any other debt you have like credit cards. If you have more than 50% of your total limit that will kill your score. Also check the local Credit Unions out. They LOVE to steal loans from other banks and especially from dealerships. When we bought my wifes Trailblazer a couple of years ago we were financed through the dealer on a Saturday at 8.3% because my wife found her dream car. After the first payment cleared the bank we went to my CU and redid the loan for 4.5%. The key is to just pay it off as soon as possible. If you want to build your credit do what my buddy does. He takes out a personal loan for a grand every year then pays it off.
     
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  9. reckedracing

    reckedracing TTIWWOP VIP

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    check the tax implications with borrowing against a 401k
    specifically how much time you have to repay before uncle sam fucks you

    here's a quick read for you
    http://www.investopedia.com/articles/retirement/06/eightreasons401k.asp

    and another very valid point
    the whole idea of a 401k is the money is pulled from your check before taxes
    so you pay tax when you take distributions from the 401k at retirement age when you income will be less, thus paying less tax on the money at that time, theoretically
    so if you borrow against your 401k, you need to repay that money with POST tax money out of your paycheck
    so then you're paying tax on that money when you get paid, and then get taxed on it again when you withdraw it at retirement age

    http://hubpages.com/hub/401Kpenalties
     
    Last edited: Oct 21, 2010
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  10. Kanned

    Kanned Beast

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    I got my current loan almost two years ago and my score then was high 600's at that time. It was high 700's a year after that, which was one year ago. I haven't checked it since then. Also, this is the only debt I have.

    I was only 20 and had no real installments at that time also. I was never late on anything, but all I had was one or two low limit credit cards. I wasn't trusted because I was young and hadn't been trusted with anything major before.

    My loan is through honda and I was too dumb and excited about getting the bike to get rates from anyone else at the time. They only wanted two checks... then another... then another... then one more. I ended up showing them about seven checks of > 2k a week before they even thought about accepting me, but not without a co-sign... and I still got shafted with a crazy rate. Since I've gotten the loan, I've been too lazy to get out of it, but now I'm gonna take that step.

    I'll without a doubt make sure there are no penalties for early payment on a loan I accept. As for the 401k early payment, it's acceptable, but only if you cover the entire sum of what you currently owe.

    You're absolutely right, the co-signed loan still helps my credit a shit ton, but there's going to be an individual evaluating my report when applying for something large. An individual with personal opinions and beliefs. I would like to believe that seeing that I had a loan under my name and mine alone would be a bit more impressive, regardless of score.

    Thanks, recked. I completely overlooked that fact. Rep when I spread it.

    I applied last night with my bank and I'm applying today with my local credit union.
     
  11. Briansol

    Briansol Admins Admin VIP

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    get a 0% 1 year intro credit card and pay it off in a year and stop paying interest.
     
  12. 95b16coupe

    95b16coupe New Member

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    odds are they wont give him a credit limit of $4000 unless he lies and says he makes $250k/year.
     
  13. reckedracing

    reckedracing TTIWWOP VIP

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    that 0% only covers standard purchases
    he would need a cash advance off the cc to get 4k to give to a bank
    unless they came up with a loan system that you can pay via credit card, the last i knew that was not an option
     
  14. Briansol

    Briansol Admins Admin VIP

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    i can pay my car loan online via checking or a CC/debit card. don't see why this isn't common.
     
  15. reckedracing

    reckedracing TTIWWOP VIP

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    lol, shows how long its been since i had a loan
    my last one i had to pay by check
    well, except the mortgage
     
  16. Kanned

    Kanned Beast

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    Not a bad idea...

    I don't get CC's and their limits. I have a student CC that's been at its max line or 2k for a while now and never thought of getting anything higher. I just pay my bills with it and pay it off at the end of every month. Years ago when I could only get a limit of like $500, I had two friends that were both nowhere near up to par with my credit score and income. Despite that, they were both able to get CC limits of like 7k without any sort of assistance from their parents. Shit was stupid.

    I'm with B here, I pay the same way. I don't see how/why it would be a problem.
     
  17. Briansol

    Briansol Admins Admin VIP

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    citi is easy to get get high limits and 0% intro rates. go apply for a few cards. just because you get them, doesn't mean you have to use them.
     
  18. Kanned

    Kanned Beast

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    Yeah, I actually have 4 credit cards and only use one. Had 5, but HSBC cancelled me for inactivity. I haven't used any of them in forever, I should really close them.
     
  19. endlesszeal

    endlesszeal Senior Member

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    correct me if im wrong, but as i understand, everytime you apply for a card (any card ie target, macy's card, etc...) you get a hit on your credit score regardless if you pass the credit check or not. this is also true if you check your credit score often?

    i applied for a shit load of cards because of the discounts they gave at the time. i didnt know about it knocking your credit score. it also made it really hard to keep track of them so i cancelled my: macy's, j.crew, circuit city (defunct), chase, amazon.com, and buy.com. lol so im back to one debit and one credit card.

    im not sure, but i like the way the 0% interest sounds. im actually planning to do that for a new tv and maybe computer build and keep it as a back up card for while.

    anyway, good luck. ive heard of dumbasses going to grab the biggest baddest bike they can get and crashing it like a month later because it was their first time and first bike :eek:. on top of not having full coverage insurance.
     
  20. Briansol

    Briansol Admins Admin VIP

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    a lookup has no effect on your score.
     
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