Here’s an email I got this week…
After searching high and low throughout the internet I wanted to ask you directly your opinion regarding the most suitable means of financing of a car in light of my unique situation that follows. I know all matters of personal finance are just that – personal, so these details should help you understand why I’m needing advice.
1) My fiance and I will be getting married in 6 weeks and she is facing some untimely car troubles. Her car has been paid off for over 6 years now, so it isn’t unexpected, and we are looking at buying a car for her. My car is in good shape and has a car loan with about 3 months of payments left on it at $350/month.
2) We are looking at best financing practices for us to use considering that my credit is OK (700), hers is bad (600), on a used 2010 Volvo for $18k. My income is steady at $50k/yr, and hers is steady at $75k/yr.
Given that my car loan is my only debt (not for long), would it be wise for me to apply individually for the credit on her car? Or is there a better alternative with me or her co-signing on the other’s loan (not sure which would be better)? I have run through the numbers and I think my income is OK from an underwriting perspective to handle a new monthly debt for the amount we are looking to finance.
We are currently renting together now, and only spend approx $900/mo. in rent.
Here’s your answer Mark!
First, congratulations on your upcoming nuptials, as well as marrying someone who earns more than you do! You also deserve kudos for finding someone who’s apparently as thrifty as you are and hopefully also as adept at living beneath their means.
As for your question: I’m sure you’re aware that it’s a bad idea to co-sign other people’s loans. But assuming that you’re absolutely, positively going to tie the knot, what I’d do is approach potential lenders (credit unions may offer you the best deal, although you can also use our loan search to find auto lenders with the best rates) and lay your cards on the table: Ask what interest rate you’d qualify for, as well as the rate your fiance would be able to get given both of your incomes and credit scores. They can probably give you some guidance without having to formerly apply for credit.
Unless you’ve done it recently, it’s a good idea to check your scores before applying for credit. See How to Get a Free FICO score – but be aware that the promotion that allows you to get a free score isn’t always available.
In general, the person with the highest score will probably end up getting the best terms, providing they have the credit capacity needed to be carry the payments. If you turn out to be the primary borrower, adding her as a co-borrower will help her improve her score as you folks make timely payments on the loan.
But be aware that, should you break up, the loan doesn’t: you’ll be responsible for it until it’s paid off.
Hope that helps. Best of luck to you and your bride to be, Mark!