 Cheaper car means no co-signer
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 Dear
Dr. Don,
Here's my story. I'm 20 years old, I have established a credit history over the last three years and I'm thinking of buying a car around $30,000. I have less than $3,000 in credit card debt, I don't pay for rent or any mortgage and my minimum payments are under $100. I also pay for my cell phone, which is about $60/month, car insurance under $100/month.
I work at a mortgage company getting $14/hour, and work there full
time. I recently checked my credit score and it's 702, and I haven't
made any late payments. So, my question is if my credit history and
length of established credit is OK for me to finance the car under
my own name instead of having someone co-sign for me?
-- Kim Co-sign
 Dear Kim,
Lenders have loan underwriting standards that you'll have to meet in order to get approved for that car loan without the lender requiring a co-signer. Your credit score is just one component of those standards, as is your length of credit history and income.
I guesstimated a monthly spending plan for you using
the information you gave me about your monthly income and expenses
and adding a few that you didn't consider. This wouldn't change
even if you had someone co-sign your loan, because, ideally, a co-signer
should never have to step up and make a payment on the loan.
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Monthly spending plan |
|
| Gross wages
(estimated): |
$2,275 |
|
| Net wages
(estimated): |
$1,760 |
|
| |
|
| Cell phone: |
$60 |
|
| Car insurance: |
$100 |
|
| Credit card payments: |
$150 |
(5
percent of balance) |
| Gasoline: |
$200 |
|
| Food, household expenses: |
$400 |
|
| |
|
|
| Estimated car payments: |
$608 |
($30,000
at 8 percent interest for 60 months) |
| |
($1,518) |
|
| |
|
|
| Monthly cash surplus (deficit): |
$242 |
|
You can fine-tune this spending plan based on the
particulars of the car loan, etc., but I think the biggest question
mark here isn't whether you can get the car loan, but whether you
can afford the payments. Do you really want to assume you don't
have rent or mortgage payments for the next five years while you're
paying down a car loan?
Trying to get a car loan without a co-signer is the
easy part of the equation. Apply for a loan, and if you can't get
approved without a co-signer, you've got your answer. Since car
loans are secure loans, you can do some comparison shopping in a
concentrated time period (a couple of weeks) and it won't hurt your
credit score like multiple credit inquiries for an unsecured loan.
Instead, I think you should focus your attention on
finding a less expensive car. A loan payment that's 35 percent of
your monthly take-home pay will limit your career and lifestyle
options over the next five years.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "financing
a home," "saving & investing" or "money."
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