My sister has never really had credit and the small amount of credit she had about 5 years ago was not good. She ha a few low balance credit card charge offs and late student payments. She has been on time for the last year of so. Well she just got a settlement on a lawsuit and wants to buy a car for around $20,000 and can pay cash. Would it be better if she could pay for most of it cash and take out a loan on the rest to establish some good credit???
Does she currently have revolving credit (eg credit cards) that's she's using responsibly and paying on time every month?
The car loans offered to people with poor credit have VERY high interest rates, and other onerous terms, compared to those offered to people with good credit. Therefore,attempting to rebuild credit with a car loan would be very expensive, and may not even give the desired result, since your sister's credit report still shows charge-offs. (Regardless of whether or not the charge-offs were ever paid, the effect to her credit score is the same, although some lenders will absolutely refuse to extend credit if there are any unpaid charge-offs on the credit report). Because of these facts, I would strongly suggest she buy a reasonably priced car "for cash" using the proceeds from her settlement. A used car might be a good idea, especially if it is a reliable model such as a Honda or Toyota. She can always get a secured credit card to rebuild her credit, without the pitfalls and expense of taking out a car loan from a sub-prime finance company.
I was thinking her taking out a small loan for lets say $5000 on a $20,000 car and paying it off early(like within a year) to avoid paying to much interest. Not sure itf that would work...I guess cash it is.. thank you
Cash would be it! Also, getting a secured credit card, keeping balance at 30% of limit and paying on time every month, will drive scores up. She should also work on paying the charge off.
