I just arrived in the US in the last month. I am keen to buy a car and have the reserves in my home country that I could transfer over that would allow me to buy it outright. I also have a smaller sum in my checking account that could be used as a downpayment.

The car im interested is about 13K inc taxes etc. I have about 8 to play with over here. In theory I'd need to borrow an additional 5K. I recently had joined a local credit union and was recommended to do the following...

Wire over the remaning balance of 5K to them. They would keep it as a collateral for which I could apply for a loan of the same amount for. This would mean I'd be able to qualify for a secured loan at about 2.6% or so - which is much better than the 11% or so that they implied that applying for a loan normally would be - I also dont need a co-signer.

Does this sound ok? Or is there maybe a better way to do it ? I hope one day perhaps in the next year or two to apply for a mortgage which is why im interested in building my credit rating.

W

It sounds fine. I work with lots of foreigners who come here and have a horrible time because they have no US credit. This arrangement sounds like a great way to build US credit.

I can't answer your question directly, but if they are telling you your auto loan would be at 11%, that's outrageous! Any auto loan would already be secured by the car itself. I just paid off the one I got last December at 2.14% fixed. But generally, yes, you want to keep your rate down as low as possible. Also, it is ALWAYS a good idea to have an emergency fund set aside, so if putting the $5k from your other country would leave you without any emergency fund, you don't want to do that. I imagine that moving between countries is especially a time when keeping a sizable emergency fund would be wise. If applying the $5k still leaves you with a healthy emergency fund, then you should go for it. Good luck!

@LeRainDrop I'm not sure exactly if the loan will be secured directly against the car. It might be some kind of regular loan as I am already going to be paying about 8K of the total cost of the car. There was no mention of the CU keeping the title or anything. I will call them for more details tomorrow.

I'll have enough liquid resources at home that if times get hard I can liquidate if required that would give me a few more months flexibility or alternatively I can just return back to Ireland and live with my folks.

Typically, banks/credit unions in the US offer "auto loans" at lower rates because they are secured by the car itself. They also offer unsecured loans at higher rates. In the middle sounds like the option they presented to you of putting up the $5k as collateral in exchange for a lower rate. I suppose it's up to you whether you'd rather pursue a low-rate the auto loan with the credit union keeping a lien on the title until paid off, or a low-rate secured loan with the $5k. It's about six of one, half doze of another, haha! Seeing as you have saved other money to back you up for at least a few months, I'd agree that moving forward with a secured loan is a great way for you to build credit here.