Passbook loan

Question: I wanted to purchase a vehicle that’s selling for $13,500. I have the cash for it, but I decided I wanted to finance it so I could keep some of that cash in my bank still while making my monthly payments. I’m (decently) young, with very little credit history other than my credit card, and so they denied me the auto loan but instead offered me a passbook loan, where I’m paying against my savings.

What is the point of this other than building credit? The money from my account is being taken out and essentially getting placed on lock, which i understand why, but the whole reason i wanted to get a loan is so that large sum of money would still remain in my account. So basically im paying interest on my own money, and in trade for that building credit, which is good, but like i said its not what i wanted. Are there any other options I could try to achieve my original goal, or should I build the credit, or avoid interest and just pay cash for it?

Answer:

Based on your situation, here's a clear breakdown of your options:

Passbook Loan

Purpose: Primarily for building credit Pros:

Cons:

Alternative Options

Pro: No interest payments

Con: Depletes your savings

Purpose: Build credit without borrowing

How: Use for regular purchases, pay off monthly

Purpose: Build credit with lower risk

How: Payments go into a savings account, released at end of term

Purpose: Leverage someone else's credit to get approved

Risk: Co-signer is equally responsible for the loan

Recommendation

  1. If building credit is your priority, consider the passbook loan or a credit-builder loan.

  2. If maintaining liquidity is more important, pay cash for the vehicle and use a secured credit card to build credit over time.

  3. If you want both the car and to keep your savings, explore finding a co-signer for a traditional auto loan.