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Discussion Starter #1
I belong to a credit union that has a car buying service that will put me in touch with fleet buying people who (for cars that are not in the demand that Pilots are) will get you a price of $200 - $500 over invoice. Pilot or not the credit union people will get you a low no hassle price and review all the paper work to make sure the dealer didn't pull any shenanigans. Last time I checked, about 2 months ago, I could get a rate of 4.9%.

I'm wondering if I'd be better off getting a home equity line of credit and using that to buy the car because of the tax write off.

Anyone have any experience or thoughts on this decision?
 

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florida_guy said:
I belong to a credit union that has a car buying service that will put me in touch with fleet buying people who (for cars that are not in the demand that Pilots are) will get you a price of $200 - $500 over invoice. Pilot or not the credit union people will get you a low no hassle price and review all the paper work to make sure the dealer didn't pull any shenanigans. Last time I checked, about 2 months ago, I could get a rate of 4.9%.

I'm wondering if I'd be better off getting a home equity line of credit and using that to buy the car because of the tax write off.

Anyone have any experience or thoughts on this decision?
My CU has the same thing. However no help with the Pilot though as you said. They too offered 4.9 % but I had the dealer give me 3.9 % for my business.

Home equity will give you the tax benefits.

Have you checked out www.bankrate.com
 

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florida_guy said:
I belong to a credit union that has a car buying service that will put me in touch with fleet buying people who (for cars that are not in the demand that Pilots are) will get you a price of $200 - $500 over invoice. Pilot or not the credit union people will get you a low no hassle price and review all the paper work to make sure the dealer didn't pull any shenanigans. Last time I checked, about 2 months ago, I could get a rate of 4.9%.

I'm wondering if I'd be better off getting a home equity line of credit and using that to buy the car because of the tax write off.

Anyone have any experience or thoughts on this decision?
That's exactly what I did. The interest rate is very good and I did a bunch of other stuff with the remainder of the loan. Interest is tax deductible, and doesn't it feel good to write a check for the entire loan amount and not have to deal with the financing guy?
 

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It's really just a numbers exercise to figure out the overall lowest cost. I'd guess that for terms of 36 months or less, conventional would be the way to go. For 48 months or longer, the numbers tell the story.

What conventional rate can you get, what home equity rate can you get, what's your tax bracket? Then crunch the numbers.

Be advised though, that a home equity line of credit (HELOC) is treated as an unsecured loan and a car loan is secured by the vehicle, usually. I only mention it because unsecured credit is treated differently in calculating your Fair Isaac (FICO) credit score. That may impact your ability to get future credit, and the rate.

Compare these scenarios: total indebtedness of $135,000. One person has a $100,000 mortgage, a $30,000 secured car loan, and $5000 in credit card debt on a total credit line of $20,000.

A second person has a $100,000 mortgage, a $35,000 HELOC line on a total of $40,000, and no credit card debt on a $10,000 line.

Both people have access to the same amount of credit, and have the same amount of debt, but the second person's overall costs are lower. Even so, the way FICO scores are calculated, all things being equal, the first person would have a higher FICO score (better credit rating). That's because the first person is only using 25% of the available unsecured credit (the national average is 30%) while the second person is using 70% of the available unsecured credit.
 

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Wow, it's good to have knowledgeable people like Jay posting about the credit rating implications. Great post.

And a good thread too. I was going to post the HELOC option because of the flexibility and tax advantage... and my HELOC line is at 4%, which is a great rate as well... but I was not considering impact on credit rating.

What I AM doing, however, is floating off some of my HELOC via balance transfer to a new credit card at 0% for a year. When that offer runs out, there will be another one, or I can just reload the HELOC (or pay it off if the funds are there). No telling what all this is doing to my credit rating but I don't have plans for getting additional credit any time soon anyway.
 

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discover told me balance transfers dont hurt your credit rating one bit...what does hurt it are too many credit cards in your name.....so when your done playing the 0 percent game make sure you only keep 2 or 3 cards open and close the rest....also dont ever let anyone check your credit rating unnecessarily..too many of those will lower your credit rating.....
 

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yardman, that makes sense, as a balance transfer doesn't actually increase the amount of credit that has been granted you. and you're right, you certainly don't want to have cards lying around that aren't being used, because they COULD be used and therefore are scored against you.

I actually had them increase my available line on a credit card so that I could add on to the amount financed at 0%. Of course the additional credit would now be evaluated if I should be in a position to request additional credit somewhere else... but again am not planning to until I close out other items.

Thanks for the post! Hope it helps Florida_Guy creep toward the finish line in his evaluation process.
 

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Discussion Starter #8
jay said:

Be advised though, that a home equity line of credit (HELOC) is treated as an unsecured loan and a car loan is secured by the vehicle, usually. I only mention it because unsecured credit is treated differently in calculating your Fair Isaac (FICO) credit score. That may impact your ability to get future credit, and the rate.
That is a very good point Jay! Thanks. I will definitely consider that. I guard my credit very closely. Last I checked it was High 700 to Low 800 depending on the service. Do you think unsecured thing is an issue with a credit score at that level?

This is kind of scary. I hadn't seen this thread in the new posts list since I posted it. All of a sudden just now I noticed I had posts to it as early as last night. I will have to watch my threads more carefully.
 

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Also, beware. When you transfer your balance between cards, sometimes the paid off balance STILL is on your credit report (and is VERY difficult to remove). This has happened to us several times.
 

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florida_guy said:

That is a very good point Jay! Thanks. I will definitely consider that. I guard my credit very closely. Last I checked it was High 700 to Low 800 depending on the service. Do you think unsecured thing is an issue with a credit score at that level?

This is kind of scary. I hadn't seen this thread in the new posts list since I posted it. All of a sudden just now I noticed I had posts to it as early as last night. I will have to watch my threads more carefully.
With a score like that, I'd guess that you'd be perfectly fine whichever route you took. While I'm not a loan officer (or loan arranger, we'll leave that to kemo!), and don't play one in cyberspace, I've read everything I could find about FICO and credit management, and personally seen the impact on my score from my decisions; I request all my reports annually from all the bureaus, and get my score before every major credit event.

And in credit scores, just like at work, one "Aw Sh*t" is equal to 1000 "Atta-Boy's" or "Atta-Girl's." Just ask Sammy Sosa.
 

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Keep in mind that with a mortgage,HELOC or second mortgage, the security interest (collateral) is your house. God forbid, but if you ever had a catastrophic financial event (death, disability, daytrading, etc.), your home would be at double jeopardy, once by the HELOC and once by your first mortgage. And then all of the other 'credit' sharks would circle when the proverbial blood was in the water.
 

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Discussion Starter #12
Twinkie said:
Keep in mind that with a mortgage,HELOC or second mortgage, the security interest (collateral) is your house. God forbid, but if you ever had a catastrophic financial event (death, disability, daytrading, etc.), your home would be at double jeopardy, once by the HELOC and once by your first mortgage. And then all of the other 'credit' sharks would circle when the proverbial blood was in the water.
Not arguing the point but just trying to collect information. Here is how I see that...

My mortgage is my only current debt. I pay my credit card bill in full every month. My car would be make two debts. If they are both secured by the house, the first mortgage company has first dibs on taking my house. The HELOC company is screwed because the house is alread ready spoken for.

If I do conventional financing on the house they can take my Pilot too which I would need to sleep in under these circumstances. Have I got this screwed up?
 

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Discussion Starter #13

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Discussion Starter #14
jay said:

Compare these scenarios: total indebtedness of $135,000. One person has a $100,000 mortgage, a $30,000 secured car loan, and $5000 in credit card debt on a total credit line of $20,000.

A second person has a $100,000 mortgage, a $35,000 HELOC line on a total of $40,000, and no credit card debt on a $10,000 line.

Both people have access to the same amount of credit, and have the same amount of debt, but the second person's overall costs are lower. Even so, the way FICO scores are calculated, all things being equal, the first person would have a higher FICO score (better credit rating). That's because the first person is only using 25% of the available unsecured credit (the national average is 30%) while the second person is using 70% of the available unsecured credit.
O.K. so right now I'm using 0% of my unsecured credit. So now let's say I take out a HELOC. Do I take out only what I need for the pilot or do I take out as much as they'll give me and only USE as much as I need for the Pilot??...

Anyway, so now I have a percentage of my available unsecured used so my credit rating goes down. Now my credit card company raises my limit again, as they do regularly. Now my percentage of used goes down. Are you saying this causes my Credit Rating to go up? That seems weird because I would think I'm a higher risk because on any given day I could suddenly take on more debt.
 

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florida_guy said:

Not arguing the point but just trying to collect information. Here is how I see that...

My mortgage is my only current debt. I pay my credit card bill in full every month. My car would be make two debts. If they are both secured by the house, the first mortgage company has first dibs on taking my house. The HELOC company is screwed because the house is alread ready spoken for.

If I do conventional financing on the house they can take my Pilot too which I would need to sleep in under these circumstances. Have I got this screwed up?
Based on these posts, I've come to the conclusion that we're discussing a savings of less than $1000, even if you finance all of a $32,500 Pilot. Get a HELOC at 4%, or a car loan at 3.9%. The tax writeoff will make the HELOC an effective rate of 2.9%. 1% of 32,500 over 5 years is $325+ 260 + 196 + 130 + 65 = $976 calculating it straight line over five years, or about 54 cents a day. Of course, though, driving the same car for 11 years and saving pennies a day is how you end up with only mortgage debt and an 800 FICO score!

---And this presumes that President Bush and Congress will continue to fight terrorism at home and abroad at billions of dollars per year, and lower our taxes, but do nothing else to stimulate the economy, even though unemployment is increasing on a daily basis and is at its highest level in almost a decade, but not lower our Federal taxes to the point that everyone is getting a check for $400 every year and paying no Federal taxes whatsoever.---
 

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florida_guy said:

Not arguing the point but just trying to collect information. Here is how I see that...

(A) My mortgage is my only current debt. I pay my credit card bill in full every month. My car would be make two debts. If they are both secured by the house, the first mortgage company has first dibs on taking my house. The HELOC company is screwed because the house is alread ready spoken for.

(B) If I do conventional financing on the house they can take my Pilot too which I would need to sleep in under these circumstances. Have I got this screwed up?
(A) No, the HELOC company isn't screwed. They'll bid at the foreclosure sale and pay off the first trust deed holder. Then, they will turn around and try to sell the home. Best case is that the first lender credit bids what they are owed, the HELOC company bids their debt plus a takeout of the first and some individual (who likes bargains at foreclosure sales) bids enough to pay off both lenders.

(B) Your right. In a worse case, you could lose your home to a foreclosure sale and have the car repossessed by the auto lender.
 

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florida_guy said:

O.K. so right now I'm using 0% of my unsecured credit. So now let's say I take out a HELOC. Do I take out only what I need for the pilot or do I take out as much as they'll give me and only USE as much as I need for the Pilot??...

Anyway, so now I have a percentage of my available unsecured used so my credit rating goes down. Now my credit card company raises my limit again, as they do regularly. Now my percentage of used goes down. Are you saying this causes my Credit Rating to go up? That seems weird because I would think I'm a higher risk because on any given day I could suddenly take on more debt.
If there is no fee for the HELOC, I'd get as large a line as possible (although, I think that the HELOC deduction is capped at $100k over your acquisition indebtedness - can anyone else confirm if this is still the applicable limit?).

The higher available credit you have and the lower your usage of the high available credit translates into demonstrated fiscal responsibility. This gets quantified into a higher FICO score.
 

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jay said:


Based on these posts, I've come to the conclusion that we're discussing a savings of less than $1000, even if you finance all of a $32,500 Pilot. Get a HELOC at 4%, or a car loan at 3.9%. The tax writeoff will make the HELOC an effective rate of 2.9%
The only caveat is the stealth tax. The dreaded itemized deduction / personal exemption limitation that kicks in that higher AGI levels. This can reduce the tax advantage of a HELOC.
 

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sfhondapilot said:


If there is no fee for the HELOC, I'd get as large a line as possible (although, I think that the HELOC deduction is capped at $100k over your acquisition indebtedness - can anyone else confirm if this is still the applicable limit?).

The higher available credit you have and the lower your usage of the high available credit translates into demonstrated fiscal responsibility. This gets quantified into a higher FICO score.
That's correct, you can only re-finance, whether by second mortgage or re-finance of the first mortgage, $100,000 more than the original mortgage and still deduct the interest, based on current tax law.

And yes, as your credit limit is raised and you're using a lower percentage of it, your FICO score goes up, to a point. At some point the amount of unused but available unsecured credit begins to negatively impact your FICO score, particularly if it's available across a number of credit lines.
 

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florida_guy said:

That is a very good point Jay! Thanks. I will definitely consider that. I guard my credit very closely. Last I checked it was High 700 to Low 800 depending on the service. Do you think unsecured thing is an issue with a credit score at that level?

From a score perspective, generally anything in the 7's is considered to be "excellent credit". When we bought our bimmer in March, the sales person said they see very few scores in the 8's - and this is for a dealership that sells cars with price tags reaching 6-figures.

Walk in with a credit score of high 7, reaching 800 and you should expect red carpet treatment from a loan officer / finance manager. That's a slam dunk loan application.
 
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