Car Loan - Yes or No? (To Create Credit History)

LArt1 on 06/01/2016 - 10:42
Last edited 06/01/2016 - 13:23 by 1 other user

Hi All,

I am new in Australia and do not have credit history/rating. I am going to buy a new budget car and I contacted one of the financial organisations to understand interest rates and T&C-s. It turns out that if I take a car loan let us say for $10.000 for 3 years the interest and fees will cost me around $1250. I decided not to go with the loan as I have some savings that I can use to pay for the car and I can use $1250 to pay for the insurance for the next 2 years. Then I got a call from the financial organisation from the same guy whom I asked for a quote earlier and he is trying to convince me that as I do not have a credit history in Australia it would be beneficial to have a loan to have a good credit history. According to him it would be much easier to get a home or other loans in the future if I have a good credit history such as the one that he is trying to sell now.
I do understand that his job is to sell the service and most probably he is going to get commissions.
My questions: is having no credit history + positive balance of a couple of $10Ks in accounts worse than having a good credit history?

Please, advise.

Thank you in advance.

PS this is my first post. I am sorry if something is wrong

Financial

Comments

  • ozhunter on 06/01/2016 - 10:48
    +13

    I wouldn't get a car loan. Get a credit card or phone plan if you want a credit history.

    • chumlee on 06/01/2016 - 18:53

      A post paid mobile phone gives you a credit history

    • SuperC on 07/01/2016 - 13:39

      Agree. Get a $0 annual fee credit card, and make sure to either never use it or pay it off in full every month.

  • ESEMCE on 06/01/2016 - 10:49
    +3

    Never get a loan for a car…
    If you need to build a credit rating, buy things from Harvey Norman on their Interest Free plan.
    And pay off the total before the Interest Free period ends.

  • tomleonhart on 06/01/2016 - 10:58
    +2

    NO

  • spackbace on 06/01/2016 - 12:03
    +1

    If you've been here, and been in a job, less than 3 months, the financiers that would give you money would only lend it at a high interest rate, despite what they promise over the phone!

  • nubzy on 06/01/2016 - 12:06
    +1

    Nope, buy car with cash always and get a credit card to build a credit history

  • mightyfes on 06/01/2016 - 12:19

    The person that called you is actually wrong, that used to be the case in the past. Nowadays everyone with a bank account has a credit history.

    • [Deactivated] on 06/01/2016 - 15:28
      -1

      a bank account isn't a form of credit

      • mightyfes on 06/01/2016 - 18:50
        -1

        Credit is just the ability to obtain goods before payment, it's not a type of product. Most people are ignorant about this; you can overdraw your account and have a negative balance, ask for a permanent overdraft facility on your account etc. But yeah this sort of ignorance kind of allows salespeople to feed false information like in the case of the OP. A bank account is enough to have a credit history. People claiming otherwise are wrong.

        • [Deactivated] on 07/01/2016 - 10:57

          so I assume you've gotten a copy of your credit history and seen your savings accounts listed on there…….

          you can have an overdraft service on your bank account, this would be a form of credit, not the bank account itself. when I try and buy things with my account and there isn't enough money, it gets declined.

          there are laws regulating what can be listed on your credit history, and when a credit check can be performed on you. a bank account doesn't qualify for either, same way as a post paid mobile account does, while a pre paid one doesn't.

        • mightyfes on 07/01/2016 - 11:15

          @terminal2k: Since you tried to buy things on your account when there wasn't enough money is probably the reason your application got declined and you had to get your credit report to see why you don't qualify for lending.

        • [Deactivated] on 07/01/2016 - 11:27

          @mightyfes:

          I've never heard "soft pull", google seems to indicate it is an american term. I've worked for for the main consumer credit reporting agency in australia and also one of the big 4 banks, so I have a reasonably good idea of what i'm talking about.

        • mightyfes on 07/01/2016 - 11:38

          @terminal2k: Did you work at a call centre by any chance?

        • [Deactivated] on 07/01/2016 - 11:48

          @mightyfes:

          in the credit reporting agency I started in customer service before moving into the department that manages disputes on the credit report data. In the bank I worked around risk assessment but not for credit products. What history do you have with credit reporting?

        • mightyfes on 07/01/2016 - 12:29

          @terminal2k: So you worked in a call centre and then did not work with credit products? I was a graduate recruit for one of the big 4 banks and I worked cross-departmentally in global, financial markets and delivery. So neither of us have any history with credit.

        • [Deactivated] on 07/01/2016 - 12:55

          @mightyfes:

          lol, no, I started in a call centre for the credit reporting agency, where I was required to discuss the legal specifics of credit reporting all day, then I worked in the same reporting agency in another department correcting peoples credit histories, so I needed to know in even greater detail the laws surrounding what could be on a credit history and when it could be accessed.

          It was at my next job in the big 4 bank that I wasn't working directly in a credit role. Your usage of an american term relating to credit checking would make sense as you worked across the global market, where as my experience only applies to the australian market and laws.

  • MelBourne on 06/01/2016 - 12:39
    +1

    There are some great credit cards out there that will technically allow you to 'Cash Advance' at quite a low rate and with minimal fees… You could do this to buy a cheapish car ($5000-$8000).

    You could then pay a month or two to that company to thank them for providing you with finance before doing a 'Balance Transfer' of the credit card debt to another bank's credit card, there are offers available with lower or 0% interest when you transfer a balance.

    Not a bad way to go about it. But dont abuse this type of thing.. Stay real!

  • KK on 06/01/2016 - 14:25

    I wouldn't rule out taking a car loan straight away. But no need to take it for credit history. Like other members already said, you can get a credit card, home phone, post paid mobile connection etc to build credit history.

    One thing that you may want to take into account is the fact that your money will earn you interest if its in a bank. Given the current historic low interest rates (both loans and deposits) it may not be much. If you can negotiate the effective/comparison interest rate on car loan to around 5-6% taking a loan may work in your favor (if interest rates increase in the next year or so you will still be paying the current interest rate). Also, you can use your money for other things - may be a home deposit :)

    Take a calculated decision and all the best :)

    • ESEMCE on 06/01/2016 - 15:19

      Pretty sure that personal loan rates are variable, so as the Cash Rate increases, so will the loan rate.
      Even if it's fixed it'd be a massive (and highly unlikely) gamble to bet that the Cash rate is going to increase to 6+% in the next few years.

      • KK on 07/01/2016 - 11:25

        @scubacoles - it depends where you take the loan from. I have a fixed interest car loan (Toyota finance).

        • ESEMCE on 07/01/2016 - 11:40

          But as above, if you're gambling that the Cash rate is going to increase to the point that savings earn more interest than you pay, then I think you're likely to lose that bet. (over the term of a car loan)

        • KK on 07/01/2016 - 13:38

          @scubacoles: That's the reason why I asked OP to take a calculated decision. If OP can wait , he can get a car loan for as low as 1.5% comparison rate (current Toyota offer is 0% on demo models) which is much less than current interest rate on deposit accounts.

        • ESEMCE on 07/01/2016 - 13:47

          @KK:
          Not on a $10k used car though.

        • KK on 07/01/2016 - 18:19

          @scubacoles: From OPs post - " I am going to buy a new budget car"

        • ESEMCE on 08/01/2016 - 09:22

          @KK:
          :D
          Must've seen $10k and just assumed the used car bit!

  • fickre on 06/01/2016 - 14:43

    If your primary purpose is establishing credit history, paying your rent rent or mortgage on time is sufficient. Car is a depreciate investment.

  • shazam7 on 06/01/2016 - 16:36

    I am going to be a bit left field here. The benefit of getting a car loan is for cash flow management.
    ie you can still have yr savings for emergencies, and the car.
    Hence look at the $1250 as 'cash flow management' or 'emergency funds fees'.
    Alternatively, get a zero annual fee credit card with a low limit. This will also help u build up yr credit history and at the same time, provide funds to help u juggle expenses between paydays…

  • Davros on 06/01/2016 - 18:54
    +1

    Pay your rent on time does the same thing

  • User167511 on 07/01/2016 - 11:52

    Agree the credit card is the way to go.

    I'd been overseas till recently and had trouble re-establishing credit because there was no data on me.

    ANZ gave me a credit card but it was after I did a check on www.checkyourcreditscore.com.au and I clicked on the ANZ link from their website. Mobile phone plan postpaid is also valid one.

    My credit score was 706 and they gave my the card. Suggest not applying if it is <700 (I think) perhaps talk to their credit management dept, they were quite helpful.

  • Art1 on 07/01/2016 - 22:22

    Thank you ALL for your replies and advices!

    I've done some calculations and decided to pay cash this time as I cannot wait and I do not have a credit card (it will take time to get one). At the same time I will look for a good credit card to build a credit rating and juggle expenses as advised above.

    Before applying for a card I would like to check my current rating as advised by User167511 (www.checkyourcreditscore.com.au probably outdated and looks strange). Could you please advise a reliable place/link to do so?

    Thanks again!

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