How do loans work for a 18 year old

[SJC]

I have been working a little over a year. I have no credit I dont think because I have never taken a loan out. But the 4runner has become more of a wheeler and I would like to buy something more comfortable and road worthy.

If I go to the bank and ask for a loan for 5k what will they say?

 

[Synister]

They will probably ask for a co-signer, someone with a reputable credit history who will back you and essentially take most of the risk of the loan. Most of the time it is a parent or relative.

 

[KidVermicious]

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.

 

[Madhatter45]

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.

This is sage advice that will serve you well in life. I would amend it to say that the only 2 things that are ALWAYS worth debt is the home and medical treatment. School or education may be worth it, it may not... it depends on the amount of debt and the earning potential that the education can provide.

 

[bluemarlin04]

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.

That's terrible advice. Having an auto loan isn't the end of the world as long as it's within what you can afford. You need a loan to help build credit. A small credit card is not going to be enough when it's time for a mortgage.

Consider this, I took out a loan for 12k for my 2004 4runner. I had more than enough in cash to pay it outright but I think that much money can earn more in my stock portfolio vs paying a very small amount in interest. I can usually earn much more than the standard auto loan with minimal risk on my part.

You can probably get a loan if it's only for 5k without a co-signer if you can show that your job has steady income.

 

[boondoggle]

A lot of banks won't make a loan on a vehicle that's more than 5 years old and I don't think you'll be able to find a <5 year old vehicle for less than $5k (that's worth borrowing money on).

You might have better luck at a credit union.

I see where KidV and BlueMarlin are both coming from. At your age I would definitely recommend against having a huge car payment weighing you down. At the same time, however, a small auto loan - paid off in full, early can be a good way to build credit at a young age so that when you do go to buy a home, property etc. down the road you can get a better deal.

I wouldn't want to have to borrow $5k for a second car at my age because that would mean I'm living paycheck to paycheck and if I had to borrow $5k I probably couldn't afford a second car (then again I'm a pretty frugal bas****).

I think at 18 borrowing a small amount might be ok. But I have no idea what kind of income you have. And, honestly, it's probably best to not get tied down with a second vehicle (and a bunch of payments, insurance, etc.) right now so you can focus on school and building a future for yourself. Cars are just cars. Don't get sidetracked.

 

[calikev]

I think now is the time to start learning how money REALLY works. I was very blessed by both of my parents being in the financial industry. I will share what I did with the insight that they gave me and it gave me a great deal of financial power as a young man your age.

1) Open 2 credit cards--capital one should approve you for $300-$500 and then get a local bank to give you another---pay them off monthly and use them regularly. If you can't get a credit card for some odd reason, don't worry just tell Mom or Dad to add you as a authorized user to one of theirs (it shows in your credit that you have this account as a joint account but you do get credit for it)

2) Take the truck you have and get a secured loan against it for 18-24 months max. If your truck is worth $5k get the loan for $3500. Put the $3500 in the bank they gave you and make payments on their loan with their cash. It will show a $3500 loan in your credit paid perfectly and it won't raise your monthly budget a dime. You have to keep the loan for at least 12 months to show any amount of stability. Personal installment loans are much easier to get when secured (title to your current truck) NOT talking about one of those rip off loan sharking type title loans from pawn shops and commercials. I'm talking about a personal installment loan from a local credit union/bank and just putting your title up as collateral. Works the same as the crooks, but reputable banks/credit unions have been doing these loans for years too.

ALSO...you need to test yourself for the loan you want in the future. A older car/truck loan will be a short term loan so the payments will likely be $250-$300 a month. Put $250 a month into the checking acct that you have the $3500 in that the bank gave you. In other words...every month you should be depositing $250 into the checking that you are sending a $250 payment from for the $3500 installment loan you took out.

3) Make it a habit to save something from EACH check---no matter how small. You will be amazed how much it will be when you're 40. Also banks like to see young people have these values. An 18 yr old with a few thousand dollars saved of his own that the bank can see being deposited and staying put earning interest is impressive.

4) In 1 year you can get a car loan and get it for a good interest rate too if you do these things. At the end of 1 yr pay the loan off---you will have $3k in saving, a $3500 loan paid off in 1 yr and 2 credit cards with a $0 balance that show usage and being responsibly paid off each month. You can get any thing you want with this track record from now until...



Here are a few things worthy of sharing with you...

"Credit is the devil's work" No man should spend money he hasn't even earned yet" ----Pawning the Future----

"Credit is a modern day handshake" When Dad was young, you looked a man in the eye, shook his hand and agreed to pay for things taken from the local farming store and you kept your word...----Word is Bond----

"A man should always have the means to pay cash for everything he purchases but his home" This man can choose the terms on the money he borrows. Any other way and he basically becomes a begger and accepts any terms offered to him out of desperation.----Cash is King----

 

[Natey]

If I go to the bank and ask for a loan for 5k what will they say?

They'll say, "Sure, no problem. Come back with a co-signer and we'll make you pay 28% interest." or some crap.

If I were in your shoes, I'd save up a few bucks of my own, buy a hoopty for under $2500, put a halfway decent stereo in it, and pour my money into my 4Runner where it belongs.

 

[Satchmo]

This is sage advice that will serve you well in life. I would amend it to say that the only 2 things that are ALWAYS worth debt is the home and medical treatment. School or education may be worth it, it may not... it depends on the amount of debt and the earning potential that the education can provide.

Listen to these guys. As someone who is still paying off school debt for the last ten years, stay away from debt like the plague.

 

[KidVermicious]

That's terrible advice.

No, it's not. Debt is evil and should be avoided at all costs. A regularly paid revolving account or two and no collections/late utility payments will be all he needs when it's time to buy a house, and if he doesn't blow all his cash paying interest on loans he doesn't need he'll have more for a down payment anyway.

Telling him to finance a vehicle he doesn't need at his age is a horrible horrible thing to do. We just had the worst economic meltdown in decades due to people financing things they couldn't afford and didn't need, and we don't need any more of that thank you very much.

 

[KidVermicious]

I think now is the time to start learning how money REALLY works. I was very blessed by both of my parents being in the financial industry. I will share what I did with the insight that they gave me and it gave me a great deal of financial power as a young man your age.

1) Open 2 credit cards--capital one should approve you for $300-$500 and then get a local bank to give you another---pay them off monthly and use them regularly. If you can't get a credit card for some odd reason, don't worry just tell Mom or Dad to add you as a authorized user to one of theirs (it shows in your credit that you have this account as a joint account but you do get credit for it)

2) Take the truck you have and get a secured loan against it for 18-24 months max. If your truck is worth $5k get the loan for $3500. Put the $3500 in the bank they gave you and make payments on their loan with their cash. It will show a $3500 loan in your credit paid perfectly and it won't raise your monthly budget a dime. You have to keep the loan for at least 12 months to show any amount of stability. Personal installment loans are much easier to get when secured (title to your current truck)

ALSO...you need to test yourself for the loan you want in the future. A older car/truck loan will be a short term loan so the payments will likely be $250-$300 a month. Put $250 a month into the checking acct that you have the $3500 in that the bank gave you. In other words...every month you should be depositing $250 into the checking that you are sending a $250 payment from for the $3500 installment loan you took out.

3) Make it a habit to save something from EACH check---no matter how small. You will be amazed how much it will be when you're 40. Also banks like to see young people have these values. An 18 yr old with a few thousand dollars saved of his own that the bank can see being deposited and staying put earning interest is impressive.

4) In 1 year you can get a car loan and get it for a good interest rate too if you do these things. At the end of 1 yr pay the loan off---you will have $3k in saving, a $3500 loan paid off in 1 yr and 2 credit cards with a $0 balance that show usage and being responsibly paid off each month. You can get any thing you want with this track record from now until...



Here are a few things worthy of sharing with you...

"Credit is the devil's work" No man should spend money he hasn't even earned yet" ----Pawning the Future----

"Credit is a modern day handshake" When Dad was young, you looked a man in the eye, shook his hand and agreed to pay for things taken from the local farming store and you kept your word...----Word is Bond----

"A man should always have the means to pay cash for everything he purchases but his home" This man can choose the terms on the money he borrows. Any other way and he basically becomes a begger and accepts any terms offered to him out of desperation.----Cash is King----

Why can't I like posts more than once? Excellent advice, all of it. Neat trick with the truck loan and paying it back with that money, I like that a lot. Lose a little in interest, but get an awesome credit score in return, very nice.

 

[KidVermicious]

I had more than enough in cash to pay it outright but I think that much money can earn more in my stock portfolio vs paying a very small amount in interest.

I missed this, but if you were getting a better return on the stock market than you were paying interest on your truck loan, you need to call up Warren Buffet and give him some tips.

Let's see some numbers. What was your interest rate?

 

[bluemarlin04]

I missed this, but if you were getting a better return on the stock market than you were paying interest on your truck loan, you need to call up Warren Buffet and give him some tips.

Let's see some numbers. What was your interest rate?

3.99% on my loan (it'd be 1.99% if it was a newer car). It's not too difficult to gain more than that especially if you consider compound interest, long term investments and dividend reinvestments.

The last I checked, all of my investments returned on average about 10% in the last 5 years. Last year I made some solid calls and am at 80% return on some of the stocks I bought when they were low. I also had an income of 1000$ on dividends alone. I'm 26 and have a significant amount of money stashed away (55k+) because I understand how credit and money works (I have a degree in finance).

The people who say credit is the devil do not understand money. Credit and cash flow are the lifeline of a business. I treat my personal finances the same way. There is nothing wrong with having loans and credit cards. People who abuse their credit deserve what's coming to them, but saying credit is bad is nonsense. Paying cash for certain things is ridiculous, especially a house. Using credit doesn't make you a beggar if you know how to play the game.

It's like when people say leasing a car is a waste of money. They do not understand it so they follow what everyone else is saying. It's not a bad idea depending on the circumstances.

I'm not saying go out and blow 30k on a new 4runner when you're 18, but learn about credit for yourself rather than listen to all the nonsense that Dave Ramsey followers like to spit out without any ways to back it up.

The personal finance gurus five years ago were spouting off on why buying a home is a good idea...Look what that resulted in for the people that like to follow the herd.

 

[KidVermicious]

3.99% on my loan (it'd be 1.99% if it was a newer car). It's not too difficult to gain more than that especially if you consider compound interest, long term investments and dividend reinvestments.

The last I checked, all of my investments returned on average about 10% in the last 5 years. Last year I made some solid calls and am at 80% return on some of the stocks I bought when they were low. I also had an income of 1000$ on dividends alone. I'm 26 and have a significant amount of money stashed away (55k+) because I understand how credit and money works (I have a degree in finance).

The people who say credit is the devil do not understand money. Credit and cash flow are the lifeline of a business. I treat my personal finances the same way. There is nothing wrong with having loans and credit cards. People who abuse their credit deserve what's coming to them, but saying credit is bad is nonsense. Paying cash for certain things is ridiculous, especially a house. Using credit doesn't make you a beggar if you know how to play the game.

It's like when people say leasing a car is a waste of money. They do not understand it so they follow what everyone else is saying. It's not a bad idea depending on the circumstances.

I'm not saying go out and blow 30k on a new 4runner when you're 18, but learn about credit for yourself rather than listen to all the nonsense that Dave Ramsey followers like to spit out without any ways to back it up.

The personal finance gurus five years ago were spouting off on why buying a home is a good idea...Look what that resulted in for the people that like to follow the herd.

Nossir, you don't get to count all your investments. Just an amount equivalent to the financed amount on your truck. I think you'll find that changes your numbers significantly.

 

[bluemarlin04]

I think now is the time to start learning how money REALLY works. I was very blessed by both of my parents being in the financial industry. I will share what I did with the insight that they gave me and it gave me a great deal of financial power as a young man your age.

1) Open 2 credit cards--capital one should approve you for $300-$500 and then get a local bank to give you another---pay them off monthly and use them regularly. If you can't get a credit card for some odd reason, don't worry just tell Mom or Dad to add you as a authorized user to one of theirs (it shows in your credit that you have this account as a joint account but you do get credit for it)

2) Take the truck you have and get a secured loan against it for 18-24 months max. If your truck is worth $5k get the loan for $3500. Put the $3500 in the bank they gave you and make payments on their loan with their cash. It will show a $3500 loan in your credit paid perfectly and it won't raise your monthly budget a dime. You have to keep the loan for at least 12 months to show any amount of stability. Personal installment loans are much easier to get when secured (title to your current truck)

ALSO...you need to test yourself for the loan you want in the future. A older car/truck loan will be a short term loan so the payments will likely be $250-$300 a month. Put $250 a month into the checking acct that you have the $3500 in that the bank gave you. In other words...every month you should be depositing $250 into the checking that you are sending a $250 payment from for the $3500 installment loan you took out.

3) Make it a habit to save something from EACH check---no matter how small. You will be amazed how much it will be when you're 40. Also banks like to see young people have these values. An 18 yr old with a few thousand dollars saved of his own that the bank can see being deposited and staying put earning interest is impressive.

4) In 1 year you can get a car loan and get it for a good interest rate too if you do these things. At the end of 1 yr pay the loan off---you will have $3k in saving, a $3500 loan paid off in 1 yr and 2 credit cards with a $0 balance that show usage and being responsibly paid off each month. You can get any thing you want with this track record from now until...



Here are a few things worthy of sharing with you...

"Credit is the devil's work" No man should spend money he hasn't even earned yet" ----Pawning the Future----

"Credit is a modern day handshake" When Dad was young, you looked a man in the eye, shook his hand and agreed to pay for things taken from the local farming store and you kept your word...----Word is Bond----

"A man should always have the means to pay cash for everything he purchases but his home" This man can choose the terms on the money he borrows. Any other way and he basically becomes a begger and accepts any terms offered to him out of desperation.----Cash is King----

I don't even know where to begin.

You're suggesting he pay high interest on a personal loan to build credit by taking a loan against his current truck? LOL. You're suggesting he pay interest yet get's zero benefit. His savings account won't be higher than 2% and his loan will be at least 10%.

Why not sell you're truck or save up for a down payment and put that towards a MUCH lower interest auto loan.

And it's time he be a big boy, get a credit card in your own name not with mom and dad signing it.

As for your quotes? Not even going to bother because they're pure garbage. If you guys want to make life harder because you blindly believe "the horrors" of credit, be my guest.

 

[calikev]

3.99% on my loan (it'd be 1.99% if it was a newer car). It's not too difficult to gain more than that especially if you consider compound interest, long term investments and dividend reinvestments.

The last I checked, all of my investments returned on average about 10% in the last 5 years. Last year I made some solid calls and am at 80% return on some of the stocks I bought when they were low. I also had an income of 1000$ on dividends alone. I'm 26 and have a significant amount of money stashed away (55k+) because I understand how credit and money works (I have a degree in finance).

The people who say credit is the devil do not understand money. Credit and cash flow are the lifeline of a business. I treat my personal finances the same way. There is nothing wrong with having loans and credit cards. People who abuse their credit deserve what's coming to them, but saying credit is bad is nonsense. Paying cash for certain things is ridiculous, especially a house. Using credit doesn't make you a beggar if you know how to play the game.

It's like when people say leasing a car is a waste of money. They do not understand it so they follow what everyone else is saying. It's not a bad idea depending on the circumstances.

I'm not saying go out and blow 30k on a new 4runner when you're 18, but learn about credit for yourself rather than listen to all the nonsense that Dave Ramsey followers like to spit out without any ways to back it up.

The personal finance gurus five years ago were spouting off on why buying a home is a good idea...Look what that resulted in for the people that like to follow the herd.

I agree with alot of this. My point of credit being the devils work is that MOST people don't use credit responsibly. Most actually have more debt than assets. Having $55k at 26 yrs old is a little impressive if you're debt free. The use of credit should always be a choice NOT a necessity.

I'm 41 yrs old and won't get into all of my financials but I will say this...Me and my wife are both 100% debt free other than 1 of our homes still having a mortgage and we have 3 homes. I can guarantee you that we will have a traditional retirement and be just fine in our future. Neither of us will spend our twilight years working to pay living expenses like most in this country. Our children will never have to ask me to co-sign and they both know that we wouldn't even consider it. They also know that we will empower them to be intelligent enough to not need it and secure enough to have the means to pay for what they need because they are being shown great examples of how to do these things.

 

[bluemarlin04]

Nossir, you don't get to count all your investments. Just an amount equivalent to the financed amount on your truck. I think you'll find that changes your numbers significantly.

I'm not sure if you're trolling, because my total ROI should count. But to humor you:

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

I'm not going to dig around and waste my time. But for your time:

My loan will cost me roughly $1,256.65. Peanuts, much better to have my 12k parked somewhere useful rather than sitting in a depreciating asset that will eventually become worthless. Another thing we didn't even consider in this discussion.

You're parking all of your money in a depreciating asset. Tell me how that's a good idea?

 

[calikev]

I don't even know where to begin.

You're suggesting he pay high interest on a personal loan to build credit by taking a loan against his current truck? LOL. You're suggesting he pay interest yet get's zero benefit. His savings account won't be higher than 2% and his loan will be at least 10%.

Why not sell you're truck or save up for a down payment and put that towards a MUCH lower interest auto loan.

And it's time he be a big boy, get a credit card in your own name not with mom and dad signing it.

As for your quotes? Not even going to bother because they're pure garbage. If you guys want to make life harder because you blindly believe "the horrors" of credit, be my guest.

Clearly spoken by a man in debt

 

[bluemarlin04]

Clearly spoken by a man in debt

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.

 

[calikev]

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.