Auto loan as % of income

[SeattleJeremy]

Originally Posted by harajukukei

Does anyone know how much insurance coverage TFS requires ?

TFS, Subaru, and all the other finance companies require full coverage on a car that is being financed.

[Dave-ROR]

Originally Posted by Gen

Most people see it making more sense to take a loan at 1.75% than plunk down 27 grand. I understand the idea, but debt isn't necessarily 'bad' depending on how the numbers work out. I paid cash for my house (greater ability to haggle and reduced price outweighed the benefits of mortgage interest deduction) and get small loans for my cars.

Correct. I don't keep that kind of money sitting in savings, all of my excess money goes into investment accounts. I'm making far more than the 1.94% interest I'm paying on the 22.5k loan with 22.5k of that money in various investments. Having truely liquid assets (ie cash) is great but cash rarely "works" for people anymore. Invest it and pay minor interest.

The bad thing about doing so is depending on how it's invested it sometimes doesn't work out if you're impulsive like me and decide you want to buy a classic car 2 months after buying a BRZ :P Liquid would rock there versas dealing with selling, taxes, etc..

[alyon]

Hmm. I only make 40k but.... single young guys don't exactly spend much on living expenses.

Then again my payments are only $235/month.

Think I am on the low end of the spectrum income wise though.

[Dave-ROR]

Originally Posted by Rossman

Yeah, "practically nothing". That's how they get you. Anyway to each our own I certainly don't expect to change any minds but the facts are what they are - that $400 would be better off in your pocket than the banks!

You can justify it any way you want, it's not my money you are losing

Disagree.

This last month I made more than the $400 of interest he's talking about on $22,500 in investments.. that's one month vs the life of his loan.

Sure, high risk so I may lose 8 grand next month of course

With rates so low and savings rates also low (obviously) it only makes sense to invest the money IMO. Saving it in a piggy bank, under your mattress, or in a savings account is a waste.

There's a huge difference between having to take out a loan for things while at the same time living paycheck to paycheck and taking out a low interest loan while investing money. I put at least 2x my car loan payment into investments/retirement accounts every month. At the end of my working career that 22.5k financed (in my case) will (well most likely, nothing is a sure bet) pay off a heck of a lot more than the ~$1,100 in interest I'll be paying (and that's assuming I'll be paying the minimum payment which is also not true).

[Dave-ROR]

Originally Posted by MTeator

If it was that simple everyone would be doing it. You could gain 20%, or lose 100%. If you've never had a loss, you just haven't been doing it long enough.

The right answer depends on the person and how they deal with risk.

If I could get a consistent 20% year after year I could retire right now... wouldn't that be nice.

Yeah 20% year over year.. I'd be a client of Spacey's financial planning service

I've been averaging 6-8 over the past few years (yes, some losses in there as well, including GM stocks.. ouch...).

[alyon]

Originally Posted by ayau

actually the best way to build one's credit is with an entry level credit card and paying it off each month.

No.. just no. A entry level credit card will build up your credit score but be almost entirely ineffective. When you go for a mortgage the lender will look for installment credit history. This include auto loans, student loans, previous mortgages, and other personal loans. We really don't give a crap about credit cards.

-I work for a commercial real estate lender

[ayau]

Originally Posted by alyon

No.. just no. A entry level credit card will build up your credit score but be almost entirely ineffective. When you go for a mortgage the lender will look for installment credit history. This include auto loans, student loans, previous mortgages, and other personal loans. We really don't give a crap about credit cards.

-I work for a commercial real estate lender

would you lend someone 25k with 0 credit history? someone with no creidt history probably isn't making more than 40k. we're talking about no past credit cards, loans, etc etc.

also, you're only going to take on a loan if you're planning to purchase something big (house, car, etc).

for your average late teens through early 20s who's starting to build credit, do you honestly suggest them to get a personal loan and pay interest?

[bimmerboy]

Time Value of Money. That's what it all comes down to

[alyon]

Originally Posted by ayau

would you lend someone 25k with 0 credit history? someone with no creidt history probably isn't making more than 40k. we're talking about no past credit cards, loans, etc etc.

Student loans or a 5k car loan is a good place to build effective credit. Or places like scion do a college program which automatically gives you high grade credit as long as you have a job and a degree.

But yes, usually you will have a credit card to inflate your credit score.

Credit card history is a good way to weed out the lowest tier borrowers though. If they can't even pay off credit cards why will they pay you? Biggest red flag is not paying child support though... or BKs.

Sorry if I came off a little ****ish the first post.

[Spaceywilly]

Originally Posted by Dave-ROR

Yeah 20% year over year.. I'd be a client of Spacey's financial planning service

I've been averaging 6-8 over the past few years (yes, some losses in there as well, including GM stocks.. ouch...).

Company stock options

Of course, I haven't sold anything yet so the 20% is all just unrealized gains, but it's still doing better for me than if I had just taken it all as cash and used it to pay for my car. Regardless, with interest rates being so low the original quote that I replied to "debt is no good" is a foolish way of looking at things. The interest rate on my car is 2.9%, it's easy to beat that even without taking on a lot of risk.

[ayau]

Originally Posted by Dave-ROR

Disagree.

This last month I made more than the $400 of interest he's talking about on $22,500 in investments.. that's one month vs the life of his loan.

Sure, high risk so I may lose 8 grand next month of course

With rates so low and savings rates also low (obviously) it only makes sense to invest the money IMO. Saving it in a piggy bank, under your mattress, or in a savings account is a waste.

There's a huge difference between having to take out a loan for things while at the same time living paycheck to paycheck and taking out a low interest loan while investing money. I put at least 2x my car loan payment into investments/retirement accounts every month. At the end of my working career that 22.5k financed (in my case) will (well most likely, nothing is a sure bet) pay off a heck of a lot more than the ~$1,100 in interest I'll be paying (and that's assuming I'll be paying the minimum payment which is also not true).

also consider this:

unless you have a lot of disposable income, it's probably not the wisest decision to dump 30k in a brand new car considering that you're only paying ~2k of total interest (depends on your interest rate) over 5 YEARS.

i really doubt most americans have 100k just sitting in their accounts. even if they did, you're throwing away 30% of that money on something that has depreciated the minute you drive away from the dealer. also, wtf are you doing just letting 100k sit in a virtually no yield savings account?

what happens if you lose your job or your spouse loses hsi/her job? if you don't want to pay so much interest, then pay more than the monthly requirement. there's no penalty for paying off your loan early.

my point is this: with today's low interest rates, it's really a no-brainer to finance the loan instead of paying it all off in cash.

[ayau]

Originally Posted by alyon

Student loans or a 5k car loan is a good place to build effective credit. Or places like scion do a college program which automatically gives you high grade credit as long as you have a job and a degree.

But yes, usually you will have a credit card to inflate your credit score.

Credit card history is a good way to weed out the lowest tier borrowers though. If they can't even pay off credit cards why will they pay you? Biggest red flag is not paying child support though... or BKs.

Sorry if I came off a little ****ish the first post.

i amended my original post.

"also, you're only going to take on a loan if you're planning to purchase something big (house, car, etc)."

not everyone is ready to take on a loan, but i understand what you're saying about installment loans.

[thill]

Originally Posted by veuxx

Where do you guys fall?

I would be around 18%, I think I should really be patient and save to get a larger down payment but I'm growing impatient. This car looks amazing.

What do you guys recommend?

My rule of thumb for me (that has worked) is that my mortgage/rent including homeowners insurance and monthly heating and cooling costs should not exceed 30% of my take home pay (I actually try to keep this around 25%, but heating and cooling costs fluctuate), and my monthly car payment should not exceed 5% of my take home pay. This leaves me 65% of my take home pay to invest, pay other bills, etc. It allows me to have a strong savings account to pay off the car loan quickly if needed in an emergency. I also never take out more than one car loan at a time (one car is always paid off) and I typically pay off car loans within 2 years of taking them out at the lowest possible interest rate and have a separate savings account to start saving up for the next down payment. I have zero credit card debt or other loans.

I have not always lived this way. I used to spend about 40% of my take home pay on rent and about 15% on a car loan, and I had credit card debt and monthly student loan payments. I was single and ate out a bunch and partied a lot. Outside of 401K and some other minor investments, I saved nothing.. Paycheck to paycheck, even being single with a great job and a nice income.

I got tired of living this way and wanted to save to buy a house and start thinking about having a family (fast forward 10 years since I changed my lifestyle and I now have a wife and three kids). My wife is able to stay home and we live very comfortably and are able to save and take fun vacations. I don't live paycheck to paycheck anymore and don't feel pressure if the air conditioner breaks or I have an expensive car repair.

You also have to think about the current economy. Inflation, cost of medical care, cost of gas, food, rent, etc in many cases is growing faster than salaries. Many companies have cut back on bonuses and other benefits.

Lastly, a car is just a poor investment period. There are very few investments that depreciate faster than a car. A $25K+ car is a luxury. My advice is to save up and have a larger down payment. 18% a month is a lot of your disposable income for a car (assuming his is take home pay and that 18% also includes insurance). If you have credit card debt or other loans that have a high interest rate, pay those off first.

[alyon]

Originally Posted by thill

My rule of thumb for me (that has worked) is that my mortgage/rent including homeowners insurance and monthly heating and cooling costs should not exceed 30% of my take home pay (I actually try to keep this around 25%, but heating and cooling costs fluctuate), and my monthly car payment should not exceed 5% of my take home pay. This leaves me 65% of my take home pay to invest, pay other bills, etc. It allows me to have a strong savings account to pay off the car loan quickly if needed in an emergency. I also never take out more than one car loan at a time (one car is always paid off) and I typically pay off car loans within 2 years of taking them out at the lowest possible interest rate and have a separate savings account to start saving up for the next down payment. I have zero credit card debt or other loans.

I have not always lived this way. I used to spend about 40% of my take home pay on rent and about 15% on a car loan, and I had credit card debt and monthly student loan payments. I was single and ate out a bunch and partied a lot. Outside of 401K and some other minor investments, I saved nothing.. Paycheck to paycheck, even being single with a great job and a nice income.

I got tired of living this way and wanted to save to buy a house and start thinking about having a family (fast forward 10 years since I changed my lifestyle and I now have a wife and three kids). My wife is able to stay home and we live very comfortably and are able to save and take fun vacations. I don't live paycheck to paycheck anymore and don't feel pressure if the air conditioner breaks or I have an expensive car repair.

You also have to think about the current economy. Inflation, cost of medical care, cost of gas, food, rent, etc in many cases is growing faster than salaries. Many companies have cut back on bonuses and other benefits.

Lastly, a car is just a poor investment period. There are very few investments that depreciate faster than a car. A $25K+ car is a luxury. My advice is to save up and have a larger down payment. 18% a month is a lot of your disposable income for a car (assuming his is take home pay and that 18% also includes insurance). If you have credit card debt or other loans that have a high interest rate, pay those off first.

I am kind on the same route. I am able to justify this luxury expense due to my rather conservative spending on everything else.

In comparison to other 25k cars the FRS is actually a cheap car to own. little boxer NA motor, simple interior, cheap tires/brakes, fairly good gas mileage, and lowish expected depreciation. Insurance isn't even bad... yet.