The world's tiniest auto loan is playing a song just for us.

November 22, 2015 7:22 AM

Tell me about getting a bank loan for a very cheap car.

I would like to help my boyfriend get a small loan-- ~$1500-- to add to the $500 he has to buy a car from a cheap private seller sale--via Craigslist probably. With winter coming, his current commute by public transit (already something he spends 4+hours/day 6 days a week on) will become even less feasible.

His credit is poor (570s) so it is this or a buy here pay here lot and I really don't want him locked into a large loan at a high interest rate with a payment that he can just barely afford for a car that was overvalued in the first place.

I have good credit and am willing to cosign a bank loan, I understand all that it entails and the risk and am comfortable with it for such a small loan. We will sit down and find the money for payments in his budget.

However, here's where we get to my question. I'm not sure what this would look like... Would a bank or credit union even deal with an auto loan that small or be willing to finance a beater? If not, would a personal loan be a better bet? Both of us have bank accounts at Citizens Bank, neither of us have had anything to do with the local credit union--does this matter in terms of who we approach? Would a bank/CU be willing to let me cosign? (My credit is 750s). We are both employed full time at fairly average-to-lower paying jobs.

Things I don't need the mefi standard opinion on: reasons why it's bad to cosign a loan and I shouldn't do it, reasons why it's bad to buy a $2000 car, reasons why he shouldn't buy a car. Please accept my assessment of the situation. Pointing out any other issues is fair game and appreciated. Thanks.

posted by sockypuppeteer to Work & Money (12 answers total)

I would try a personal loan at a credit union as your first option. IIRC there is a limit to how low a car can be valued to be used in a car loan. A credit union will generally offer better interest rates, you can search for one here or ask if anyone in his family belongs to one.

The only other advice I would give is to make sure a mechanic checks out the car you choose and that his budget includes a repair cushion.
posted by Requiax at 8:20 AM on November 22, 2015

I agree a personal loan (or credit card advance, which is largely the same thing) is probably the way to go. No one wants a $2000 car as collateral.

Discover is always offering me personal loans; looks like the minimum is $2500 though.
posted by mskyle at 8:45 AM on November 22, 2015

Would a bank or credit union even deal with an auto loan that small or be willing to finance a beater? If not, would a personal loan be a better bet?

I don't have extensive experience with buying cars, but I can tell you how I got treated when I had lousy credit, an average-to-low-paying job, and needed a small loan (less than $5k) for a beater. I went to my large regional bank and was told they wouldn't finance a used car more than six years old. Mine was seven. Instead I had to apply for a personal loan, and because my credit was so low they actually took a couple thousand dollars of my co-signer's savings as collateral to secure the loan.

Based on that, I would say yes, try a personal loan at a credit union, and anyone should be happy to let you cosign. My bank was certainly delighted to have a co-signer with excellent credit backing my loan.
posted by dislegomena at 8:46 AM on November 22, 2015

As others have said, don't try to use the car as collateral, if the car is only worth $1500 it might not even meet the loan's requirements for collateral value: my credit union calls them 'signature loans', and $1,000 is definitely something they'd do for someone with good credit, no collateral required. Heck, my credit isn't so good and I borrowed $500 from my CU, just by walking in and asking, instead of doing a payday loan when things were tight earlier this year. If you're not already banking with the credit union they may have requirement of opening a savings account, but that shouldn't be too scary; my CU has a minimum balance of $20.
posted by AzraelBrown at 8:53 AM on November 22, 2015 [1 favorite]

Try getting a loan through the dealership. Some tend to work with several creditors that will compete over your loan. I bought a car from Carmax and, based on my credit, was able to get a lower interest rate through their credit department than my credit union or my bank.
posted by Young Kullervo at 11:08 AM on November 22, 2015

If I were going to do this, I would use a balance transfer check * from a credit card to write him a check for $1500. And then have him pay me 100 or 200 or whatever a month until he paid me back. It seems easier than getting a bank or credit union loan.

With a 750 credit score you should be able to get something like a 3% fee and 0% interest for a year or so. ( I get these offers and my credit score is < 700).

* Read the details and restrictions carefully but often these can be used for anything, not just balance transfers.
posted by car s at 12:03 PM on November 22, 2015

He could try getting a loan through Lending Club. They offer auto loans and loan amounts start at $1,000. I lend money through them and they're legit.
posted by jabes at 12:10 PM on November 22, 2015

A balance transfer check from a credit card could work, but be sure to note the interest free promo period rules (which may impose interest retroactively after the period is up if not paid off!) very carefully, as the actual interest rate will likely be far higher than you could get with a personal loan, Lending Club, or another option available to someone with good credit. I'd only go the credit card route if you're totally comfortable ensuring you can satisfy all the conditions.

Also, with a credit card, you wouldn't just be a co-signer, it would really just be your debt and he'd just be making payments to you. This likely isn't what you want.

Also, note that Lending Club's joint loans (which are fairly new) are apparently priced mainly based on the "primary" applicant. If you go that route, you would likely need to be the "primary" applicant based on your credit scores.
posted by zachlipton at 1:17 PM on November 22, 2015

Edit: wrong question, sorry!
posted by geegollygosh at 1:52 PM on November 22, 2015

Yeah, Lending Club loan interest rates have a large range, from around 5% at the low to end to 25 or 30+% at the high end I think. So it’s a much better/worse option depending on what kind of rate you get. (As a data point, I used Lending Club to refinance some of my horrible 29% interest rate credit card debt last year and got a rate of around 15%, with a credit score of ~660. So it was good for me because it was a big improvement over what I was paying, but not a great rate in absolute terms).

I’m not sure how the joint application affects the rates, if you applied with him, but if it were just him with a 570 credit score, I think he would either not qualify for a loan or would get an interest rate similar to the worst credit card rates.
posted by car s at 1:57 PM on November 22, 2015

Response by poster: Thanks everyone. I could do a credit card advance, or heck, I could just loan him the money from my savings, but I'd like it to be through an outside entity because I feel like me being the creditor sets up a weird dynamic and also because it's a good opportunity to start repairing his credit. I'd like it to be in his name as well as mine so that I can tell him it's his responsibility to do the legwork of setting up payments or sit on the phone with customer service or whatever (though I'll make sure all is going well).

We'll definitely look into the lending club and other options you all mentioned.
posted by sockypuppeteer at 2:09 PM on November 22, 2015

IANAL and I don't know all the details that may be relevant for you.

One thing to consider is that you are basically personally taking on nearly as much risk by cosigning for the loan as if you directly lent him the money from your savings.

If he failed to make payments on the loan (e.g. if you broke up and he lost his job), the lender could sue you personally for the FULL amount owed (i.e. if they think it'll be easier to get the money from you than from him, they can go after for the full balance). You would legally be allowed to then sue him to get him to pay for the loan, but that's essentially the same position you'd be in if you lent him the money personally.

If you do decide to make the loan from your savings, make sure you document the exact expectations of the loan and have both of you sign and date it.
posted by vegetableagony at 9:01 PM on November 22, 2015