Should I get a auto loan to diversify my credit lines if I have the cash to pay upfront
You should not seek a kind of debt just for it's appearance on your credit report.  If you don't need an auto loan don't get an auto loan. Getting a credit card for the purpose of building credit is a little bit of a different animal because you can use a credit card such that you never pay any interest or fees.  With a loan, you will pay interest.  Altering your score by paying interest doesn't provide you with a net benefit. With that said, depending on the auto loan rate you may want to accept the loan just to fee up your capital.  Some promotional rates are so low you may even make money leaving the cash in a regular savings account.  But don't let your credit score wag the dog. There is no need to get an auto loan just to try and affect your credit score. It is possible to have a score over 800 without any sort of auto loan. If you can afford to pay for the vehicle up front that is the better option. Even with special financing incentives it is better to pay up front if you can. Yes it is possible to use the funds to make more if you finance with a silly low interest rate, however it's also possible to lose a job or have some other financial disaster happen and need that money for something else making it more difficult to make the payment.  It may be just me but I find the peace of mind not having the payment to be worth a lot.
In general I'd say, yeah, if you can pay cash, pay cash. If you pay cash, then by definition you pay zero interest. If you get a loan, you'll pay interest. Most people get a loan to buy a car because they don't have the cash. Possible reasons not to pay cash when you could: One: Technically you can pay cash, but if you did, you would have little or no reserve for emergencies. Like if the car costs, say, $20,000.00, and you have $20,010.00 in your bank account, then technically you could afford to pay cash, but you probably shouldn't, because you don't want to have just $10 left. What if tomorrow something comes up? Two: Arguably, you have a place to invest money that pays more than the interest on the loan. Like say you can get a car loan for, whatever the going rate is today, say 6%. And you know a place to invest your money that is very safe and almost guaranteed to pay 10%. It would make sense to borrow to buy the car, invest the cash, and then withdraw money from the investment to make the payments on the car. You'd end up 4% ahead. There are a lot of catches to that strategy, though. The biggest is that the more the investment pays, the more likely that it is risky. If you thought the investment would pay 10% but it ends up paying only 4%, then you will lose money by this strategy. Also, there's the psychological element: Many people SAY and fully INTEND to invest their money, but then find other things they want to buy and so spend it instead. If you pay cash, you're committed. "Repayment of student loans is usually deferred until graduation. Unless you are late or non-performing on a loan, it will make no difference to an auto loan. To get a (normal) auto loan you will need to demonstrate a source of income or have the loan co-signed by someone who does have income. As a general rule of thumb, banks care a lot more about your income than your ""credit score""." Yes, you are correct to go to the credit union first. Get approved for a loan first. Often, upon approval, the credit union will give you a blank check good for any amount up to the limit of the loan. When you buy the car, make it payable to the dealer, write in the amount and sign it. Enjoy the new car! "It is going to save you more money in the long run to pay at once with cash. If you take out a loan, you will pay interest on the balance, costing you money. If you pay off the balance immediately, there is no difference between the options and your question becomes irrelevant.  There is no credit rating benefit to placing large purchases on your cards, especially since your credit is fine. My advice is to pay in cash in this case, mostly because it makes you 'feel' the purchase. This is what you are describing in your question. This instinct helps you recognize potential problems, instead of masking them with debt. Questions like: ""Do I need this?""  ""Am I overextending myself financially with this purchase?""  ""Am I holding enough cash-on-hand for emergencies?"" You may be fine in these areas, but I would still argue that cash makes you a better buyer because the expense feels much more significant, making you more cautious and discerning.  You are right to feel these things before dropping a large sum of money. Let it inform you and help you make better decisions. Don't mask it or be paralyzed by it!" "It makes no sense to spend money unnecessarily, just for the purpose of improving your credit score.  You have to stop and ask yourself the question ""Why do I need a good credit score?""  Most of the time, the answer will be ""so I can get a lower interest rate on (ABC loan) in the future.""  However, if you spend hundreds or even thousands of dollars in the present, just so that you can save a few points on a loan, you're not going to come out ahead. The car question should be considered strictly in the context of transportation expenses:  ""It cost me $X to get around last year using Lyft. If instead I owned a car, it would have cost me $Y for gas, insurance, depreciation, parking, etc.""  If you come out ahead and Y < X, then buy the car.  Don't jump into an expensive vehicle (which is never a good investment) or get trapped into an expensive lease which will costs you many times more than the depreciation value of a decent used car, just so that you can save a few points on a mortgage. Your best option moving forward would be to pay off your student loans first, getting rid of that interest expense.  Place the remainder in savings, then start to look at a budget.  Setting aside a 20% down payment on a home is considered the minimum to many people, and if that is out of reach you might need to consider other neighborhoods (less than 400K!).  If you're still concerned about your credit score, a good way to build that up (once you have a budget and spending under control) is to get a credit card with no annual fees.  Start putting all of your expenses on the credit card (groceries, etc), and paying off the balance IN FULL every month.  By spending only what you need to within a reasonable budget, and making payments on time and in full, your credit rating will begin to gradually improve.  If you have a difficult time tracking your expenses or sticking to a budget, then there is potential for danger here, as credit cards are notorious for high interest and penalties.  But by keeping it under control and putting the rest toward savings, you can begin to build wealth and put yourself in a much better financial position moving into the future." I think you are making this more complicated that it has to be.  In the end you will end up with a car that you paid X, and is worth Y. Your numbers are a bit hard to follow.  Hopefully I got this right. I am no accountant, this is how I would figure the deal: The payments made are irrelevant.  The downpayment is irrelevant as it is still a reduction in net worth.   Your current car has a asset value of <29,500>.  That should make anyone pause a bit.   In order to get into this new car you will have to finance the shortfall on the current car (29,500), the price of the vehicle (45,300), the immediate depreciation (say 7,000).  In the end you will have a car worth 38K and owe 82K.  So you will have a asset value of <44,000>.  Obviously a much worse situation.  To do this car deal it would cost the person 14,500 of net worth the day the deal was done.  As time marched on, it would be more as the reduction in debt is unlikely to keep up with the depreciation. Additionally the new car purchase screen shows a payment of $609/month if you bought the car with zero down.  Except you don't have zero down, you have -29,500 down.  Making the car payment higher, I estamate 1005/month with 3.5%@84 months.  So rather than having a hit to your cash flow of $567 for 69 more months, you would have a payment of about $1000 for 84 months if you could obtain the interest rate of 3.5%. Those are the two things I would focus on is the reduction in net worth and the cash flow liability.   I understand you are trying to get a feel for things, but there are two things that make this very unrealistic.  The first is financing.  It is unlikely that financing could be obtained with this deal and if it could this would be considered a sub-prime loan.  However, perhaps a relative could finance the deal. Secondly, there is no way even a moderately financially responsible spouse would approve this deal.  That is provided there were not sigificant assets, like a few million. If that is the case why not just write a check? Usually, it's not a good idea as it will not only raise your debt to income ratios,  but also impact your credit scores. However, if you have extensive credit history, having owned a home or two for a while (read: 10-20 years), taken out multiple auto loans in the past and paid them satisfactory, your credit score may not take a big hit. Possibly ust 5-10 points or it can be 30-40 points. It really depends on the depth of your credit profile. Absolutely do not pay off the car if you aren't planning to keep it.  The amount of equity that you have from a trade in vehicle will always be a variable when negotiating a new car purchase.  By applying cash (a hard asset) to increase your equity, you are trading a fixed amount for an unknown, variable amount.  You are also moving from a position of more certainty for a position of less certainty.  You gain nothing by paying off the car, whereas the dealer can negotiate away a larger piece of the equity in the vehicle. Paying weekly to be able to have maneuver room under your credit limit is a way to handle low credit limits. Doing it to boost your credit score when you have no immediate need for a loan is wasting energy.  A few months in advance of buying a car or house, you can start to worry about your utilization rate. When you apply for the loan they will pull your credit file, and that will lock in your utilization rates. Then make sure that you pay the balance quickly, and if you need to make a big purchase pay the bill before the account closes for the month. Keep in mind that if you pay the balance every month the highest utilization rate will occur the day the payment is due. This is because it not only has all the purchases from the previous bill, but all the purchases you have made since that bill closed. For example if you have a credit limit of 10K and you spend 2K a month on the credit card, on the day the payment is due it is not unusual to see the total owed to be above 3K. If they pulled your file on that day, your utilization rate would appear to be above 30%. "It's rarely advisable to pay interest for something you can afford with cash. Just because you have no credit or loan history doesn't mean you aren't credit worthy. When applying for loans or credit, the lending institutions look at your credit report, not just your credit score. There are lots of things that show up on the reports they receive including (but not limited to): Right now, so many people are focused on their credit score, they're taking on unnecessary debt and potentially losing money in the long run. Yes, having a higher credit score will ultimately be beneficial, but your score will start growing naturally as you live your life. Unless of course you can and do pay for everything with cash. The concept of monitoring your score and striving to get it as high as possible is being shoved down our throats by advertisers at the moment. Don't fall for it. Rather than taking out a loan, which will cost you money in interest and actually show up as a closed account once it's paid off, you might be better served by applying for a credit card and using it sparingly just to start getting that credit history together. (Add usual ""don't spend more than you can pay back"" mantra here). Get a card with no annual fee and maybe some cash back options, and use it as the auto-payment for a utility if possible. You build credit history, increase your score, and it doesn't cost you any more than you'd be paying anyways.   With regards to the investment question: With little to no credit history, you're not going to be approved for a loan with a low enough interest rate anyways. Think double digits. With a co-signer, you'll get a better rate, but then you need a co-signer. I don't know the exact math, but in today's market I'd say you'd need a loan interest rate of 2% or lower for investing to be worth thinking about.  I believe this answer helps clarify the loan to invest math: https://money.stackexchange.com/a/26193/30798" If it was me, I would outsource as much as possible with the desire to receive up front payment from financing companies for originating a loan.  Why? The biggest risk to newer businesses is cash flow.  The amount of work a new business owner has to do is daunting.  If you can outsource some of that work it will increase your chance of success and make your life easier.  Focus on selling cars. The upfront origination will help with your cash flow. If you can outsource the credit decision making and paper work you have leveraged your time and can focus on more important things. Generally speaking personal loans have higher rates than car loans.  During fairly recent times, the market for car loans has become very competitive.  A local credit union offers loans as low as 1.99% which is about half the prevailing mortgage rate.  In comparison personal loans are typically in the 10-14% range.   Even if it made mathematical sense to do so, I doubt any bank would give you a personal loan secured by a car rather than car loan.  Either the brain would not work that way; or, it would simply be against company policy. These questions always interest me, why the desire to maximize credit score?  There is no correlation between credit score and wealth.  There is no reward for anything beyond a sufficiently high score to obtain the lowest rates which is attained by simply paying one's bills on time.  One will always be limited by income when the amount able to borrow is calculated regardless of score.   I can understand wanting to maximize different aspects of personal finance such as income or investment return percentage, etc..  By why credit score?  This is further complicated by a evolving algorithm.  Attempts to game the score today, may not work in the future. I am going to give advice that is slightly differently based on my own experiences. First, regarding the financing, I have found that the dealers do in fact have access to the best interest rates, but only after negotiating with a better financing offer from a bank. When I bought my current car, the dealer was offering somewhere around 3.3%, which I knew was way above the current industry standard and I knew I had good credit.  So, like I did with my previous car and my wife's car, I went to local and national banks, came back with deals around 2.5 or 2.6%.  When I told the dealer, they were able to offer 2.19%. So it's ok to go with the dealer's financing, just never take them at face value.  Whatever they offer you and no matter how much they insist it's the best deal, never believe it!  They can do better! With my first car, I had little credit history, similar to your situation, and interest rates were much higher then, like 6 - 8%.  The dealer offered me 10%.  I almost walked out the door laughing.  I went to my own bank and they offered me 8%, which was still high, but better than 10%.  Suddenly, the dealer could do 7.5% with a 0.25% discount if I auto-pay through my checking account. Down-payment wise, there is nothing wrong with a 35% down payment.  When I purchased my current car, I put 50% down.  All else being equal, the more cash down, the better off you'll be.  The only issue is to weigh that down payment and interest rate against the cost of other debts you may have.  If you have a 7% student loan and the car loan is only 3%, you're better off paying the minimum on the car and using your cash to pay down your student loan.  Unless your student loan balance is significantly more than the 8k you need to finance (like a 20k or 30k loan). Also remember that a car is a depreciating asset.  I pay off cars as fast as I can.  They are terrible debt to have.  A home can rise in value, offsetting a mortgage.  Your education keeps you employed and employable and will certainly not make you dumber, so that is a win.  But a car?  You pay $15k for a car that will be worth $14k the next day and $10k a year from now.  It's easy to get underwater with a car loan if the down payment is small, interest rate high, and the car loses value quickly. To make sure I answer your questions: Do you guys think it's a good idea to put that much down on the car? If you can afford it and it will not interfere with repayment of much higher interest debts, then yes.  A car loan is a major liability, so if you can minimize the debt, you'll be better off. What interest rate is reasonable based on my credit score? I am not a banker, loan officer, or dealer, so I cannot answer this with much credibility.  But given today's market, 2.5 - 4% seems reasonable. Do you think I'll get approved? Probably, but only one way to find out! If you want the new car, pay cash for it. Here's why: By paying cash for the car, you immediately save $2,500 off the price of the car. That is not insignificant, it's 8.3% off.  By paying cash, you'll never be upside down on the car, and you can sell the car anytime you want.  You said that all you need to do is beat the 0.9% interest rate with your investment to come out ahead. That doesn't take into account the discount you would have gotten by paying cash. $30,000 invested for 5 years at 1.6% (rough estimate) would get you $2,500 (the discount), so the rate you need to beat to come out ahead is actually 2.5%. Still doable, but it is much less of a sure thing on a 5 year investment, and much less worth the trouble.  New cars are an expensive luxury. If you are wealthy enough, a new car certainly can be appropriate for you. However, if you don't like the idea of paying $30k in cash all at once, that is a strong indication that perhaps the new car is a luxury you aren't in a position to buy at this time. Borrowing the money and paying for it over time makes it psychologically easier to over spend on transportation. Debt creates risk.  Plain and simple.  Comparing interest rates of debt vs. possible investing.  To me, it is all meaningless.  When you are in debt, you options are limited.  If you are not in debt, you have more freedom. To me, it is a no brainer.  Become debt free ASAP.