1st loan??
Answers:
If you can afford the car and do not need a loan and have no need for the credit right now, then do not get the loan.
You can improve your credit score later if you need to but that is not the only thing someone would look at anyway.
Credit ratings have become swords to hold over our heads. You do what is best for your budget and tune out the banker's advice.
They want to make money, that's why they are telling you that. They want the interest you'll pay on the loan. If you've got the money, buy the car outright. If you really want to build up your credit, get a credit card and don't use it. Ignore the greedy salesman.
You may not have bad credit, but you probably don't have great credit...you need good credit for a lot more than just buying things...many employers now check credit reports to see if you are a good risk for employment.
Your bank is right...you should get the loan. That is how you build a good credit history. If you don't want to get the loan because of the interest just think of it this way...yes, you will pay more for the care than you would have if you just purchase the car out right...but in 5 or 10 years when you are ready to buy a house (or another car that you don't have the money to purchase out right) you will save money BECAUSE you have good credit history established. You get lower interest rates when you have a good credit history!
You might feel like your bank just wants to make money on you (this is true don't get me wrong) but they are not steering you in the wrong direction. This is a great way to build your credit!
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Obviously there are pros and cons. You didn't say how much money you are talking about. I'd suggest borrowing at least a portion of the car price. You can put that same amount in a high interest savings account so that you'd only be paying the difference between the amount you earn and the amount you are paying. I know, most people think that high interest savings accounts do not exist. Check out HSBC and ING to name a couple. You could probably Google for more. They offer savings accounts paying 5 or 6%. The loan can be for a short term, say one year. That way you'd have the best of both. One more thing. Just because you pay cash for vehicle, that doesn't mean you aren't paying interest. It's called the opportunity cost of the money. Say you paid $10 thousand cash for a car. If you didn't pay cash for the car you would have it in a bank or an investment. Either of those scenarios would have the money growing. While it is sitting in a car, it is depreciating. Food for thought.
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