Personal Finance

Does financing a vehicle hurt your credit score?

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Sr. Member
May 20, 2010
801 posts
118 upvotes

Does financing a vehicle hurt your credit score?

So my wife and I are in the market for a new vehicle - looking at a truck. We went in with the intention of paying cash (or mostly, maybe financing a few grand on our line of credit if need be), but we were offered 0% financing for 4 years which wouldn't affect our purchase price with GMC. We're somewhat inclined to do the 0% financing and throwing most of the savings we were going to use to pay for it on our mortgage. We're just concerned that it might affect our credit scores negatively - we're both sitting at around 800 and don't want to harm it in any way....

So, which route would you suggest?

Thanks!
29 replies
Deal Fanatic
Apr 16, 2007
8134 posts
3485 upvotes
Financial District B…
If you've worked so hard to maintain credit so it hovers at a specific score range why not utilize the system for what its meant to be use for?

The credit bureau system's primary role is a credit qualifying tool for financial institutions. The credit-scoring benefits you no other way anywhere.


As for the auto-loan, if you don't or never had auto-loan(installment) experience and your hell-bent on score then there's no other credit product that will help it go higher.
Zero financing from subsudized auto manufacturers may not be as ideal as it seems as the dealer profits from selling the vehicle at max retail. You'll have to do your homework as to compare the profit margins vs the finance rate and if maybe utilizing your LOC to secure the auto loan yourself may be a better solution.
----------------------------Licensed Credit Bureau member, S1, FI Automotive, CCP forums most banned = x 13 and counting, guess who that is?... stomped to the curb once again
Deal Fanatic
Nov 21, 2013
8130 posts
9317 upvotes
Montréal
I am not a credit expret, and don't know if financing a new vehicle affect the credit score, but if you are sure that the 0% doesn't affect the truck's price, I would jump on it, as I done in 2006 when I bought a new car. Be careful, I am on the market for a new car, and some manufacturers offer 0%, but a rebate if you pay "cash"...

I just Wonder why people goes crazy with the credit score... you already have a house (you are talkiong of a mortgage) so... And I don't know why financing a new vehicle would negatively affect the credit score if you pay what you owe each month...
Deal Fanatic
Nov 21, 2013
8130 posts
9317 upvotes
Montréal
mikeymike1 wrote: If you've worked so hard to maintain credit so it hovers at a specific score range why not utilize the system for what its meant to be use for?

The credit bureau system's primary role is a credit qualifying tool for financial institutions. The credit-scoring benefits you no other way anywhere.


As for the auto-loan, if you don't or never had auto-loan(installment) experience and your hell-bent on score then there's no other credit product that will help it go higher.
Zero financing from subsudized auto manufacturers may not be as ideal as it seems as the dealer profits from selling the vehicle at max retail. You'll have to do you homework as to the profit margins vs the finance rate and if maybe utilizing your LOC to secure the auto loan yourself.
+1 !! 100% agree with you
Deal Addict
Sep 30, 2008
1589 posts
202 upvotes
Unless you plan on applying for another big loan or something in the future I wouldn't worry about it.
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Feb 15, 2008
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Calgary
a) There's no such thing as 0% financing. They just want to charge you extra for the truck up-front, to make the loan appear as a 0% loan. Re-calculate the NPV of the obligation at a typical financing rate of the dealer finance arms (ie: 4-5%), and make an offer accordingly.

b) Yes, each piece of credit will affect scores and utilization. As one's leverage increases, typically financing costs increase.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
Sr. Member
Dec 26, 2013
668 posts
59 upvotes
If you can get a discount for "cash" use your savings and that line of credit, depending on your interest rate of course. Now you didn't tell the dealership you don't have all the money and you may use a line of credit now did you? If that's the case, kiss any cash discount good bye. They'll simply want to sell you financing.
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Feb 15, 2008
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Mindfulmonkey wrote: If you can get a discount for "cash" use your savings and that line of credit, depending on your interest rate of course. Now you didn't tell the dealership you don't have all the money and you may use a line of credit now did you? If that's the case, kiss any cash discount good bye. They'll simply want to sell you financing.
The seller really shouldn't care whether they're being brought cold hard cash, or on financing. All they're looking for is a certain NPV. However, most people can't/won't bring them cash, so they definitely like to push the financing.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
Deal Expert
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Feb 11, 2009
20055 posts
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Toronto
Mark77 wrote: a) There's no such thing as 0% financing. They just want to charge you extra for the truck up-front, to make the loan appear as a 0% loan. Re-calculate the NPV of the obligation at a typical financing rate of the dealer finance arms (ie: 4-5%), and make an offer accordingly.

b) Yes, each piece of credit will affect scores and utilization. As one's leverage increases, typically financing costs increase.
There's no such thing as 0% financing only if "cash rebates" exist in the situation. But if you're only two options are:

a) Pay $30,000 cash
b) Finance $30,000 @ 0%

Then yes, 0% financing is a thing.

That is to the consumer anyways, if you're talking about at the dealer/manufacturer/w.e other level, then yes they factored the 0% in as cost of financing.
Realtor (Investment Properties) - CPA, CA
Sr. Member
May 20, 2010
801 posts
118 upvotes
Hmmm, I asked the guy if there was any better deal for cash, or if that was their bottom line price for cash or financing, and he said it was. I may need to visit another dealership to see what they might be willing to offer - which I was thinking of doing anyways. It seemed like a reasonable deal - 57,000 MSRP to 47,000 financed over 48 months at 0% (plus gst and dealership fees on that 47k of course).
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Feb 15, 2008
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Offspring22 wrote: Hmmm, I asked the guy if there was any better deal for cash, or if that was their bottom line price for cash or financing, and he said it was. I may need to visit another dealership to see what they might be willing to offer - which I was thinking of doing anyways. It seemed like a reasonable deal - 57,000 MSRP to 47,000 financed over 48 months at 0% (plus gst and dealership fees on that 47k of course).
The sales people tend to lie about it at first, as they really don't want a stream of people coming in wanting to combine the lowest bottom line 'cash' price with a financing offer, and then complaining about such. A better tactic is to arrange the financing, run your numbers, and actually dangle the cash infront of them (or an equivalent).

If you run into a salesman who can't do the math, or refuses to, then you're not dealing with the right person in the dealership.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
Sr. Member
Aug 29, 2004
952 posts
271 upvotes
Mark77 wrote: a) There's no such thing as 0% financing. They just want to charge you extra for the truck up-front, to make the loan appear as a 0% loan. Re-calculate the NPV of the obligation at a typical financing rate of the dealer finance arms (ie: 4-5%), and make an offer accordingly.

b) Yes, each piece of credit will affect scores and utilization. As one's leverage increases, typically financing costs increase.
Wrong and half wrong.

As the poster below very clearly explains, there such a thing as true 0% financing, provided there is no cash rebate.

Financing costs only increase once you cross a threshold (basically the same TDSR rules as mortgages) short of that, there is no impact.
deal_with_singh wrote: There's no such thing as 0% financing only if "cash rebates" exist in the situation. But if you're only two options are:

a) Pay $30,000 cash
b) Finance $30,000 @ 0%

Then yes, 0% financing is a thing.

That is to the consumer anyways, if you're talking about at the dealer/manufacturer/w.e other level, then yes they factored the 0% in as cost of financing.
Very well put.

Lots of moving parts, but if the manufacturer wants to eat the difference (not the dealer) is makes no difference to the consumer. You can't buy a car straight from ford.

OP, you maybe, maybe, maybe might see a 5-10 point drop over the first month or two, because of higher utilization, depending on your other card limits/balances. However, in the long term, your score will increase, as mikeymike1 mentioned, due to having an installment trade line reporting.

However, neither of these things matter - if you have a 750 or 800 credit score and you are within debt service ratios, you will get the same rates/approvals everywhere. Even if you have high balances, so long as you make your payments on time on all accounts your score will stay above what it needs to be for any future credit products.

Confirm again there is no cash incentive, then go ahead and finance (and enjoy) your new car.
Sr. Member
May 20, 2010
801 posts
118 upvotes
Thanks for the replies everyone. I don't see anything on GMC's website that specifies anything about upfront cash for the 0% finance rates, so I didn't really question it. The Ford sales people were pretty up-front with it as well - but we decided on the GMC instead. I'll hit another dealership tomorrow night to see if I get any different offers. Any other feed back still definitely appreciated!
Deal Addict
Jan 30, 2012
1836 posts
1399 upvotes
TORONTO
mikeymike1 wrote: The credit bureau system's primary role is a credit qualifying tool for financial institutions.
True.
mikeymike1 wrote: The credit-scoring benefits you no other way anywhere.
False. In many provinces, insurance companies also use credit score & credit history (in part) to determine insurance rates.
mikeymike1 wrote: Zero financing from subsudized auto manufacturers may not be as ideal as it seems as the dealer profits from selling the vehicle at max retail.
I've never seen a manufacturer's finance rate on a new car depend on purchasing at max retail price.
Offspring22 wrote: It seemed like a reasonable deal - 57,000 MSRP to 47,000 financed over 48 months at 0% (plus gst and dealership fees on that 47k of course).
You don't want to negotiate down from the MSRP, you want to negotiate up from the dealer's cost. You can get the dealer's cost from many places, but I like the Automobile Protection Association ( www.apa.ca ).

They also have a new car buying service ( http://apa.ca/purchasing.asp ) where they take care of all the details and get you a great deal so that you don't have to deal with the BS of negotiating with the dealer.

Regardless of what you decide to do (buy for cash, finance or lease), you should negotiate the price. Unless it's a very popular vehicle in very short supply, the price is negotiable.
Deal Fanatic
Apr 16, 2007
8134 posts
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Financial District B…
M8Rxmjsik wrote: False. In many provinces, insurance companies also use credit score & credit history (in part) to determine insurance rates.
Yes your presumption is false. Insurance companies do not use credit scores and cannot use credit score to determine insurance premiums.
Insurance companies require a CBI insurance scoring model that's not the same as credit-scoring used for applying for a credit product. Do your homework.

M8Rxmjsik wrote: I've never seen a manufacturer's finance rate on a new car depend on purchasing at max retail price.
You're not following what I wrote. Read it again
----------------------------Licensed Credit Bureau member, S1, FI Automotive, CCP forums most banned = x 13 and counting, guess who that is?... stomped to the curb once again
Deal Addict
Jan 30, 2012
1836 posts
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TORONTO
mikeymike1 wrote: Yes your presumption is false. Insurance companies do not use credit scores and cannot use credit score to determine insurance premiums.
Insurance companies require a CBI insurance scoring model that's not the same as credit-scoring used for applying for a credit product. Do your homework.
Well, that is an interesting statement.

Here is an article by a major law firm discussing the practice: http://www.mcmillan.ca/Ban-on-using-cre ... nd-deepens

Here is an article by the CBC about it: http://www.cbc.ca/news/credit-scores-ca ... s-1.890442

The privacy commissioner of Canada reporting on a complaint about it: https://www.priv.gc.ca/cf-dc/2012/2012_005_0427_e.asp

And, here is an insurance company's website (http://www.cooperators.ca/en/Insurance/home.aspx) saying that they use credit score where permitted:

[INDENT]The Co-operators now uses credit score, where permitted by provincial regulations, as a rating factor to determine home insurance premiums.[/INDENT]

Who should people believe? You or an insurance company who admits it?

As you know, there are many types of credit scoring, and different institutions use different criteria depending on the situation. They are still all called credit scores.

But you wrote, "The credit-scoring benefits you no other way anywhere." A good credit score can result in lower insurance premiums. I would call that a benefit.

You should think twice before making absolute statements.
Member
Dec 10, 2006
356 posts
98 upvotes
Offspring22 wrote: Hmmm, I asked the guy if there was any better deal for cash, or if that was their bottom line price for cash or financing, and he said it was. I may need to visit another dealership to see what they might be willing to offer - which I was thinking of doing anyways. It seemed like a reasonable deal - 57,000 MSRP to 47,000 financed over 48 months at 0% (plus gst and dealership fees on that 47k of course).
I wouldn't take his word for it. I highly recommend you pull a report for the same vehicle at carcostcanada.com

It will give you the dealer invoice price plus all others offers (e.g., rebates if paying cash, rebates if financing, etc...).
Sr. Member
May 20, 2010
801 posts
118 upvotes
I did a report for free at unhaggle, and it's listing a $3500 rebate for both a cash rebate and finance rebate until the 28th.... However it doesn't mention a 0% finance rate in the report - the GM website does (but doesn't appear to give details on any rebate amounts for that 0% rate)....
Deal Fanatic
Apr 16, 2007
8134 posts
3485 upvotes
Financial District B…
M8Rxmjsik wrote: Well, that is an interesting statement.

Here is an article by a major law firm discussing the practice: http://www.mcmillan.ca/Ban-on-using-cre ... nd-deepens
Here is an article by the CBC about it: http://www.cbc.ca/news/credit-scores-ca ... s-1.890442
The privacy commissioner of Canada reporting on a complaint about it: https://www.priv.gc.ca/cf-dc/2012/2012_005_0427_e.asp
And, here is an insurance company's website (http://www.cooperators.ca/en/Insurance/home.aspx) saying that they use credit score where permitted:
[INDENT]The Co-operators now uses credit score, where permitted by provincial regulations, as a rating factor to determine home insurance premiums.[/INDENT]
Who should people believe? You or an insurance company who admits it?
As you know, there are many types of credit scoring, and different institutions use different criteria depending on the situation. They are still all called credit scores.
But you wrote, "The credit-scoring benefits you no other way anywhere." A good credit score can result in lower insurance premiums. I would call that a benefit.

You should think twice before making absolute statements.
You should think twice about posting about subjects (again and again) you know nothing about. What is it with you always pulling a Wayne???

Your first supplied link clearly shows that almost all of Canada(most provinces) have banned the use of consumer credit scores for insurance underwriting. The key operative words are 'credit + score'
Insurance companies were using such scores for underwriting insurance but it evidently became banned - read your first link.
Furthermore, the dates of those links are 2-3 years old. You're going to use aged reports to argue today's policy? :facepalm:
This will be yet another series of posts where you seem to not understand the definitions and their purpose.

CBI Insurance scoring is NOT the same as Credit Product bureau scoring.


I stand by my statement: The credit bureau system's primary role is a credit qualifying tool for financial institutions. The credit-scoring benefits you no other way anywhere.
The credit bureaus scoring model is a reference tool solely used for the purpose of 'credit granting and underwriting' for loan advancement.

And I stand by my above statement which you quoted which clearly defines there is differences between credit bureau products which your totally do not understand.



Policy issues are the reasons why SBI Insurance scores came about
read this as example:
http://www.sgicanada.ca/ab/about/progra ... story.html


Credit‐based insurance scores are not used in the same way as traditional credit scores. While traditional credit scores are used to predict the likelihood that a consumer will default on a loan, credit-based insurance scores are used specifically for insurance purposes to predict the likelihood that an individual will file an insurance claim.


M8Rxmjsik wrote: As you know, there are many types of credit scoring, and different institutions use different criteria depending on the situation. They are still all called credit scores.
I'm very much aware of the many types of credit scoring but apparently you are not.
Your post #14 clearly proves you do not know as you assume my post relates to Insurance when it does not.

You're not familiar of the varying definitions thus this attempted debate of yours will go nowhere.



Say this 1000 times then 1000 times more = Credit‐based insurance scores...Credit‐based insurance scores....Credit‐based insurance scores...Credit‐based insurance scores

... is not the same as Equifax's or Trans Union's consumer credit score


.
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