How do loans work for a 18 year old

[bluemarlin04]

My advice was to an 18 yr old trying to start his life. He needs credit and cash flow, patience and an understanding that savings is first. I gave him a plan to save $3k in a year, keep his vehicle while gaining a good credit score for very little cost in interest and advised him to be wary of credit especially for wants not needs. I stand behind these statements and am living proof that it works.

He's paying interest on a loan for no reason.

I'll give him a plan too.

Write out how much you spend monthly
Have money deducted automatically
Have enough cash flow for a car? Shop around and see who will give you a loan.
Continue the same plan, only now ensure you put money in savings and to your car.

You now get to pay a lower interest rate towards a car, you're not wasting money on a loan that does nothing for you, and you learn to be responsible.

Works for me.

 

[calikev]

A car loan, in which I probably have three times the amount in liquid assets alone.

You're idea to take out an unsecured loan against a truck and pay interest is terrible. There are better ways to build credit that don't involve flushing money down the toilet.

Actually the advice was for a secure loan using his title which will make the rate very low. It's easy to criticize my suggestion without giving a better solution. You say you have a better way so tell him how to get:

<> $3k in savings in 1yr
<> a loan balance of $3500 paid off in that same year
<> a credit rating that includes 3 lines of credit with a high of $3500 and keep the balances at $0 at the end of 1 yr
<> keep his current vehicle while incurring absolutely no more monthly debt in the form of payment increases
<> build credit with no co-signer

AND do all of this for likely around $30-40 a month in interest charges between the 3 new accounts

 

[calikev]

He's paying interest on a loan for no reason.

I'll give him a plan too.

Write out how much you spend monthly
Have money deducted automatically
Have enough cash flow for a car? Shop around and see who will give you a loan.
Continue the same plan, only now ensure you put money in savings and to your car.

You now get to pay a lower interest rate towards a car, you're not wasting money on a loan that does nothing for you, and you learn to be responsible.

Works for me.

He can't get an unsecured loan...period! BUT if he could, he would be adding monthly debt, thereby increasing his debt to income ratio and choking out any buying power until he pays that loan off AND the rate/terms would be insanely high. Remember this...HE HAS NO CREDIT OR SAVINGS AT THIS POINT. His plan and yours are totally different.

 

[nevada]

I vote you don't do that. If you've got a job and you've already got wheels, then you're in no huge hurry. Save up until you can afford cash for a decent pavement pounder.

There's really only three things you should go into debt for - school, a home, or medical treatment. If you can prevent yourself from aquiring debt now, you won't need to go into debt later. Trust me. Get a credit card that you'll pay off monthly (very important, don't float a balance!) and use that to build a credit score, but don't finance a vehicle, especially if you don't need to.

set it up to be paid off every 3 months. they update the reports every 90 days.
if you never pay interest, never actually USE the credit, it can actually lower the score.
once its established, then do whatever you want.

 

[jmildoc]

reports arent updated every 90 days! where did you hear that? reports are constantly updated, when you pay your credit card bill or whatever bill it is you are paying ,when that statement is posted thats when your credit report is updated.

Kid your 18. look around, in the state the economy is in right now you are lucky to even have a freaking car! Be greatful for what you have now, or sell it and get something different, gain some real life experience and listen to some of this info these guys above gave you some is very useful. Otherwise save whatever you dont spend on candy and beer and put into a savings account, even if its an account that your mom opens for you in your name and doesnt give you the info. that way when you are ready you have cash in hand and maybe by then you have changed your mind.

Ive had one car loan in my life and at least 10 cars, and my motto is the same as above, either pay cash or have enough in the bank to be able to pay cash, its a good feeling.

 

[calikev]

reports arent updated every 90 days! where did you hear that? reports are constantly updated, when you pay your credit card bill or whatever bill it is you are paying ,when that statement is posted thats when your credit report is updated.

Kid your 18. look around, in the state the economy is in right now you are lucky to even have a freaking car! Be greatful for what you have now, or sell it and get something different, gain some real life experience and listen to some of this info these guys above gave you some is very useful. Otherwise save whatever you dont spend on candy and beer and put into a savings account, even if its an account that your mom opens for you in your name and doesnt give you the info. that way when you are ready you have cash in hand and maybe by then you have changed your mind.

Ive had one car loan in my life and at least 10 cars, and my motto is the same as above, either pay cash or have enough in the bank to be able to pay cash, its a good feeling.

EXACTLY! A debt free man is a very powerful man with options. My boss doesn't talk to me crazy or threaten me because he knows I'm financially secure and don't have to take it. My wife and I don't argue about money and noone calls my home about debt. I know my possessions are just that...MINE! If a man gets this feeling at 18 yrs old he will keep it because it is a power and control that is only 2nd to having your health.

 

[nevada]

reports arent updated every 90 days! where did you hear that? reports are constantly updated, when you pay your credit card bill or whatever bill it is you are paying ,when that statement is posted thats when your credit report is updated.

Kid your 18. look around, in the state the economy is in right now you are lucky to even have a freaking car! Be greatful for what you have now, or sell it and get something different, gain some real life experience and listen to some of this info these guys above gave you some is very useful. Otherwise save whatever you dont spend on candy and beer and put into a savings account, even if its an account that your mom opens for you in your name and doesnt give you the info. that way when you are ready you have cash in hand and maybe by then you have changed your mind.

Ive had one car loan in my life and at least 10 cars, and my motto is the same as above, either pay cash or have enough in the bank to be able to pay cash, its a good feeling.

they are updated every 90 days.
atleast this is what was told to me by the credit company.

and if you want to establish good credit HISTORY, you need to actually USE the credit. paying the balance off each month would take YEARS to help, if at all.

it would be better to take out a loan. then stick the money in an account to automatically make the monthly payment with it. set up to take 9 months to a year to pay it off. eating the interest to secure the GOOD credit standing.

 

[bluemarlin04]

Actually the advice was for a secure loan using his title which will make the rate very low. It's easy to criticize my suggestion without giving a better solution. You say you have a better way so tell him how to get:

<> $3k in savings in 1yr
<> a loan balance of $3500 paid off in that same year
<> a credit rating that includes 3 lines of credit with a high of $3500 and keep the balances at $0 at the end of 1 yr
<> keep his current vehicle while incurring absolutely no more monthly debt in the form of payment increases
<> build credit with no co-signer

AND do all of this for likely around $30-40 a month in interest charges between the 3 new accounts

Ever see the interest rates on a title loan? Title loan =/= an auto loan taken out from the bank. An auto loan has the lien on the title with the state. If you're saying he should re-finance his car through the bank for an auto loan that may work but it's still pointless cause his car is paid off in full.

The best way to get a new car in his case is to take out a small auto loan. There are ways to do this including joining a credit union.

 

[bluemarlin04]

EXACTLY! A debt free man is a very powerful man with options. My boss doesn't talk to me crazy or threaten me because he knows I'm financially secure and don't have to take it. My wife and I don't argue about money and noone calls my home about debt. I know my possessions are just that...MINE! If a man gets this feeling at 18 yrs old he will keep it because it is a power and control that is only 2nd to having your health.

Give me a break. No one calls my house either because I pay my bills too. I also don't argue about money because me and my fiance don't overextend our credit usage.

Debt isn't evil. I have no idea why everyone seems to think it is. Show me one company in the world that runs without debt.

 

[calikev]

Give me a break. No one calls my house either because I pay my bills too. I also don't argue about money because me and my fiance don't overextend our credit usage.

Debt isn't evil. I have no idea why everyone seems to think it is. Show me one company in the world that runs without debt.

You're missing the point...this isn't about you and he isn't incorporated. This is advice for an 18 yr old to "start" planning his future and create good financial habits.

And yes, my advice was to take his title to the local credit union and get a secured installment auto loan against his current vehicle. I did it at his age and the rates are even lower now than they were then. It will probably cost him 8-10%. 8-10% of "simple interest" on $3500 is nothing to secure a strong credit history at 18 yrs old.

The pay my bills comment and boss comment was to let him think ahead and realize the power of being financially secure and debt free. It's VERY easy to see the other side and consider what being without cash flow and in debt is---EVERYONE knows of many examples of people in that spot.

I'll sum my position up with this statement...An 18 yr should not start his financial planning with the mindset that borrowing money for a luxury item is a plan for success.

 

[bluemarlin04]

And yes, my advice was to take his title to the local credit union and get a secured installment auto loan against his current vehicle. I did it at his age and the rates are even lower now than they were then. It will probably cost him 8-10%. 8-10% of "simple interest" on $3500 is nothing to secure a strong credit history at 18 yrs old.

The pay my bills comment and boss comment was to let him think ahead and realize the power of being financially secure and debt free. It's VERY easy to see the other side and consider what being without cash flow and in debt is---EVERYONE knows of many examples of people in that spot.

I'll sum my position up with this statement...An 18 yr should not start his financial planning with the mindset that borrowing money for a luxury item is a plan for success.

I agree on those points.

I would personally just buy a separate car and finance it but most 18 year olds aren't responsible with money.

 

[calikev]

I agree on those points.

I would personally just buy a separate car and finance it but most 18 year olds aren't responsible with money.

I don't believe it...WE ACTUALLY AGREE? :guitar3: LOL Seriously, I was starting to think you just want to disagree. Looks like we took this thread over HAHAHA I need a drink after this one

 

[CXS]

I had 10k in one stock. Last year my total gain was 90%.

No fair singling out a high performer.

The right answer to the OP's question is absolutely not. If you can't pay cash don't buy it. Ways to establish credit have already been covered.

 

[SJC]

So much info.. did not think I would learn that much so fast haha. Thanks everyone who commented with helpful words.

I think I will keep driving the 4runner until I have cash for the car I want, (vw golf)

I dont want to have a credit card because I think I wont be able to control my spending then. I like paying cash for whatever I buy, makes it easier for me to control my money. But It is something I will look into.

Thanks everyone

 

[jmildoc]

Good idea and from what you posted about getting 12mpg and motor running weird you got other things to worry about than getting another car.

 

[SJC]

Not worried about the 4runner quitting on me. 215,000 Miles i dont want to put money into it.

 

[rjaudi]

If you had credit getting a loan would not be that big of a deal. My credit union finances old cars. The problem is you have no credit so I can imagine you are in double digit interest rates. I recommend getting a credit card and only charging a few things a month, such as gas. This will help you build credit while not making you go crazy with the card.

 

[SJC]

If you had credit getting a loan would not be that big of a deal. My credit union finances old cars. The problem is you have no credit so I can imagine you are in double digit interest rates. I recommend getting a credit card and only charging a few things a month, such as gas. This will help you build credit while not making you go crazy with the card.

That makes sense. When using a credit card does the bank actually take out more than I spent? (like charging me to use the card right then)

 

[Satchmo]

Generally the bank will only charge you interest after your payment due date. So if you buy $50 gas on the 20th of August and your due date is 15th September you only owe the $50 until after the 15th when interest starts being added.

 

[JohnsD90]

Dude, just save up your cash and buy it outright, I just saved up my money for 2 years to buy my Land Rover, granted I don't have many other expenses but I did spend my money similarly to tether college kids, and despite the fact that I could have taken a loan to buy my land rover, it wasn't something I needed and I save up till I had the cash in hand and with much left over to spare to buy it!

I really wouldn't buy a 2nd car if I was you, but that's just my opinion.