Hacker News Reader

Comment by tester756 | Hacker News Reader

Is this why some people recommend to take loan for something that you have money?

Like - you wanna spend 30K on a car and you have it in cash? take loan

you'll lose a some $$, but you'll be building your history.

Nah, you can easily get a residential mortgage from smaller lenders with just proof of income/savings, and the sort of light credit usage you get from monthly CC payments, rent, utilities. That will net you a solid credit score, too.

The issue is with very large banks. They have rigid underwriting deparments and poor CS, so if you approach them as a first-time buyer who isn't already leveraged to the hilt, they will make it a long and painful process. Mortgage agents are a prime target for AI replacements, because all they do is relay information between you and the underwriting departments that make the real decisions.

Other people have pointed out that when you take a loan for something you can afford, you can use the money you would have spent on other things in the meantime. (As long as you're confident that you'll keep making enough money to make your payments for the life of the loan.)

Rent and utilities rarely report to credit scores.

There's been normalization around using rent as additional inputs into a credit score: https://www.cnbc.com/select/your-rent-payments-can-raise-you...

I'm not sure they're all that available or popular (they're highly dependent on your landlord having the correct paperwork and such) but the place I rented an apartment last year had this available and it did get reported

Yes, that's been a push for a while. I'm glad to see it's becoming more popular. But it doesn't work if unless the landlord opted into their payment system.

That's such a strange system if common routine things aren't counted towards your score. Is this a ploy to get you to buy things you don't need just to prove you can pay it back?

Personally I've never owned a credit card, I always pay with a debit card or cash. 20 years ago I refused to participate in the credit scoring system and still stand by it.

I don't think it's a ploy. I think it's an accident of how the people who designed the credit score used credit. And then inertia keeping things from being updated.

It's messed up because rent could be let's say $800 to $3,500 a month, if paying that every month on time isn't an indicator that you have consistent income to reduce risk on other loans then I don't know what is. It's especially messed up if the same system will ding your score if you buy $8 headphones and forget a payment.

Things are slowly being updated. And rent not being included is a pretty big error that needs fixing.

Last time I got a loan they asked me about my rent/mortgage (and utility!) payments so they could subtract that amount from my take-home pay when determining the risk of me defaulting on the loan. They seemed to assume I'd be paying my rent first and consistently regardless of any other debts I'd accrued.

I think that's a valid assumption. That's also why it's easier to get a mortgage on your primary house instead of an investment property.

No. You need 2+ credit cards and ~2 bank accounts all that have existed for several years. "Carry a balance" of ~15% of your total credit limit BUT you need only _for the owed money to show up on the paper statement_. It's weird but if you pay off the thing you bought immediately that day, it's as if it never happened. It needs to be recorded on a statement, then pay 100% off before due date and don't owe anybody shit!

Curious how the parent commenter had great credit with no seasoned lines of credit. It's one of the biggest factors in the score.

Months before seeking a mortgage loan, learn the score's equation and appease it.

I don't know what factory car loans look like now, but for my last new car, they offered me a 5-year 0% loan vs a $500 incentive if I paid in cash. Safe interest rate paid for the missed incentive. It's a smidge less convenient to have a loan, but no big deal.

In the face of persistent annual inflation, a 0% loan ends up yielding a net discount when compared to saving your money over the same time span and paying cash. Of course, that's only true if you're diligent about paying on time, but automatic recurring payments can take care of that problem.

I think that the usual rationale for taking a loan out to pay for something you can afford without a loan is that you can take the money you have and invest it in something that pays more than what the interest on the loan is.

It's a kind of arbitrage. If you're losing money overall, you're doing it wrong.

There’s no free lunch. You will be taking additional risk by doing this even if the downside seems unlikely or remote.

If the loan % is lower than a savings account then there is no/0/zero risk, so long as you stay under FDIC limits. Your deposit earns money and is backed by the full faith and credit of the United States government.

The loan will usually be at a fixed-rate, while the interest paid on your deposits will fluctuate. So there is still risk that your net interest margin will go negative at some point.

Get a CD or buy treasuries with a matched maturity date. Or if you don’t want that and the savings rate goes below you can pay off any time (check your terms).

Yes, this is just a roundabout way to invest into stocks with borrowed money. There is probably an optimal portfolio for this strategy to minimize the risk but then it is no longer the obvious win that so many people think it is.

If we assume 8% returns and you only put 50% in the stock market and your loan costs 2% interest then your total benefit is only 4%. Putting all of it might get you 6% but you are now taking a significant amount of risk.

The last few times I remember, the interest charged on the loan was less than that generated by T-bonds of the same length.

Reasons other than "it helps me build a credit history":

* you think you can make more money by investing your 30k and letting it grow and compound

* you are very prudent with your cash on hand and would rather have immediate access to liquid cash than save a little bit on interest which you pay down over the course of <term>

Some of the dynamics here are a bit different when market returns are not looking great/steady and money isn't cheap anymore.

> you think you can make more money by investing your 30k and letting it grow and compound

Mortgages especially. Mortgage interest is tax deductible and makes it easier for high tax bracket individuals to outperform their loan by investing.

> Mortgage interest is tax deductible

Since 2017, not really, due to tax law changes. Cap of $10k but that includes state taxes paid also.

I was under the impression that the $10k cap is for SALT and mortgage interest is separate? The mortgage interest deduction was reduced, interest on new loans is only deductable for the first $750k of debt, instead of $1M, and mortgage rates were really low in 2017; capped SALT + a relatively low interest rate on $750k might not combine to more than the standard deduction if you're married filing jointly. Certainly on my ~ $350k mortgage @ 3.15%, I stopped itemizing after the tax changes.

Absolutely not. That's property tax, not mortgage interest.

The bigger change for mortgage interest was the massive increase in the standard deduction in 2018 to $24,000 from $12,700. We were barely doing better than the standard deduction prior to that, and the increase put us pretty far into "just take standard" territory.

You also want to consider whether it's more valuable to you personally to have that cash in hand. Are you going to roll it into another investment? Then maybe a low enough interest rate on the loan will put you out ahead despite paying interest.

Reply on news.ycombinator.com