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Borrow from a bank or a parent (or both)??

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dswails2729
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Borrow from a bank or a parent (or both)??  Reply with quote  

So my girlfriend is purchasing a used vehicle from a private seller and we're currently pondering which route to take in regards to the loan. Her father is offering to front the money to purchase the vehicle (no interest) and she can pay him back in monthly installments. Or, we can go through a bank, which is offering a 7% interest rate (she is a first-time buyer). I also suggested it might be wise to take out the loan from the bank to improve her credit rating and use the money from her father to pay off the loan immediately. Then, pay off her father interest-free. What is the best route to take??

Thank you in advance for your help.
Post Mon Aug 19, 2013 2:51 pm
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Wino
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The "best" route? Save up the money and don't borrow it. If this is my daughter, go with the father loan. Borrowing and paying back immediately will not improve your credit rating. You only improve your credit rating by paying interest (though that's not how it is written).
Post Mon Aug 19, 2013 3:02 pm
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dswails2729
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So it would be more beneficial to take the loan from her father instead of taking the loan from the bank and paying it off monthly to get credit?
Post Mon Aug 19, 2013 3:18 pm
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oldguy
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In addition to just the math, there is also the "becoming a grown-up" issue. If your gf is very young (to me that is under 25) then borrowing small amounts from dad is still OK, probably a carry-over from her college and comfortable for both sides.
But anyone over that age should be moving into adulthood and borrowing money from 'outside the family'. Eg, if it was a house DP of $30,000, then an interest-free loan could be costing dad about $3000/yr in op costs. Plus a bad car wreck ties gf's & dad's liabilities together, etc. So a lawsuit takes not only her small net worth but opens the doors into dad's big NW.
Post Mon Aug 19, 2013 4:12 pm
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littleroc02us
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Not to steal Dave Ramsey's thunder on this one, but I totally believe in his theory that "when you borrow money from a family member, Thanksgiving dinner tastes different when your eating with your master". Relationships will be even more worse off when she doesn't make the payments. If it were me I'd do as Wino suggested and save up to buy a used car. But if your wish is to build your credit score you need to borrow money over and over again and pay it back, so then have your girlfriend take personal responsibility and take out a loan of her own and pay it back on time.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Mon Aug 19, 2013 6:40 pm
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dswails2729
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Thank you guys. She is 25 yrs old and just moved from NYC to Long Island so she doesn't have a ton of extra money sitting around to purchase the vehicle outright. We found a used 2005 Honda Civic for sale that she'll be using mostly to drive to/from the apartment to the train station. She works in Manhattan but we determined it will be a lot cheaper for her to move in with me and commute every day than for her to live in the city. Not to mention she will no longer have to pay NYC city taxes in addition to state/federal taxes. The joys of living in NY...
Post Mon Aug 19, 2013 7:05 pm
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oldguy
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In addition to the bank, she might also try a credit union, they might beat the bank's rate. But a 2005 Civic is a great choice, most will have less than 100,000 miles - and they are reliable way past 200,000 - probably cost $5000 to $7000.

Your plan sounds great - her rent in the City was probably >$24,000/yr, (or >$12,000/yr with roommates). In either case the savings on rent easily pays for a $7000 Honda in less than a year.
Post Mon Aug 19, 2013 8:57 pm
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dswails2729
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You're pretty close oldguy: the Civis has 117k miles (mostly highway- the guy went to school in Arizona and a lot of the miles are from traveling back and forth). The purchase price is $6,600, which I think is reasonable for the condition it's in.

She was spending around $17,000-$18,000/yr in rent+utilities+monthly subway card. By moving in with me she alone will be saving $4,000+ each year and it will cut my rental fees down by 40%, allowing me to save an additional $5,280.

Overall, the car should be paid for in about 2 years and in the long run we'll be saving so much money this way.
Post Tue Aug 20, 2013 4:22 pm
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Guppy2
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Get the interest free loan from her dad. Credit score is not hard to build, just apply for a cc and pay it off every month. I did it since I was 19 and my score is over 720. Never had my name on any loans.
Post Wed Aug 21, 2013 5:17 pm
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campbeelld
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There are many factors that you need to consider before borrowing from friends and family. First and foremost you need to discuss, with whoever you are borrowing from, your financial situation so they can make a decision whether or not to lend you money based on whether they are comfortable that you can repay them. There is no quicker way to lose friends or cause family strife than to get in a situation where you have borrowed money from them and cannot pay it back when they need it.
Post Fri Aug 23, 2013 9:11 am
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Angelass
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quote:
Originally posted by Wino
The "best" route? Save up the money and don't borrow it. If this is my daughter, go with the father loan. Borrowing and paying back immediately will not improve your credit rating. You only improve your credit rating by paying interest (though that's not how it is written).


Yes, credit score is a magical thing, missing a payment, even just one, could be bad news.
Post Fri Sep 13, 2013 7:27 am
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