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Knowing your monthly "burn rate" is critical to this discussion.
Set up a spreadsheet and list all of your monthly expenses: rent, savings, insurance of various types, groceries, utilities, credit card payments, walking around money each week a and whatever else applies in your life. You need to be brutally honest about this. At your age, lots of changes can be on the near term horizon. Factor in those costs. Total these expenses and compare that with your realistic after tax income. It's a good time to understand your current tax withholding and assure it is appropriate for your situation. Do you get large tax overpayment checks ( some call them refunds) at the end of the year from the IRS? If so, wouldn't you rather have the use of that money each month? Once you understand your net picture, you can make an educated decision as to whether you can afford a car Couple other tips: Join a credit union. They typically provide loans and credit cards at lower rates than other financial institutions. Improve your credit rating and credit scores. This will save you considerable sums of money as you move through life. Consumer Reports current issue has an interesting article about how insurance companies price their products. Increasingly it is based on ones credit worthiness. A person with lousy credit pays more for car insurance than someone with a DWI. That blew my mind. Lastly, if you set up an Ira and contribute $200 a month for the next 10 years, by the time you are retirement age you will have a very substantial amount of money. Good luck to you however this turns out. |
Which dealership do you work for in the Bay Area?
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You're young and have your whole life ahead of you. As my late grandfather told me when I was 18 yrs old, "a car will always be there". Buy what you can afford. Build your credit up and save your money. As others have suggested you can always buy a used BRZ or FRS. For a new FRS I believe Scion has with approved credit .09% interest for 60 months (which is what I got). Just my 2 cents! ;)
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You might be able to currently swing the payments, but I'd strongly urge you to consider either a used car or keep driving the Lancer.
You can afford the monthly payments now, but what about in 2 years from now? Ok, if you put down $7k, you'll be in "good shape" as you won't be underwater on the car - meaning at any given point, going gets tough, you can sell the car and MAYBE walk away with a few dollars in your pocket (but no car). Without that $7k down, you're looking at having the car repo'd and then the bank coming after you for the balance. Essentially a car payment that you couldn't afford but without having a car to show for it. So yeah, that $7k might save your bacon. The $7k might also save you in that if you wreck the car after a year, insurance might give you $22k for a car you paid $30k for out the door. Yikes! But say goodbye to that $7k! And for that matter, say goodbye to $30k over 5 years - bc that's what you are paying, plus interest. If you kept your Lancer, you could pocket $30k over 5 years and be all set for maybe a down payment on a house, or a large emergency fund, or money to invest and try to grow. As you don't know how long you'll have steady income for (lets face it, none of us do!), its better to spend much less than you "can afford" on a car. FWIW, I bought a WRX in 2003 and I'm still driving it. Ok - maybe a bad example bc I also have a BRZ, but I'm twice your age (doesn't matter), and have built up a rainy day fund (matters!) over the past 20 years of working full time. You don't have to wait until you're 40 to buy a fun car, but wait a year or two of working full time "real job" to see how your finances go. While you're waiting, newer cars are coming out each year, and today's new cars become tomorrow's gently used cars at 40% off their original price. |
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I'll share my experience with you, since it's similar.
I'm 20. Just leased my FR-S. Car price was $24,xxx. Got approved without a cosigner with a 675 credit score. ~8.9% interest (yeah.. but gains?!). $0 down, $1000 trade in. Bought basic warranty coverage for the car (bc I'm newb), rolled all taxes/tags/etc into it. Came back up to roughly $29k. 36 mo lease w/ 12k/yr, ~$429/mo. Car insurance is $269/mo (for me.. still registered at my parents house, could be diff for you). I live on my own, ~$700/mo rent, $430 lease, $270 insurance, $500 misc. bills/etc. I make roughly $60k/yr. Feasible option for me? Yes. But everyone's circumstance is difference. Break down all of your finances and just do the math. |
I personally see no problem with a 72/75 month loan if you get a good interest rate on the condition that you overpay whenever you can, bi-weekly if at all possible. You will overcome excessive long term interest and pay it down fast, but have a lower payment for months where things happen out of your control.
I always finance for 75 months to get the lowest payment possible and pay bi-weekly with at least $150 extra per month. Our last loan was $28.5k w/ 2.79% interest for 75 months and a payment of about $408/mo. Bi-weekly alone shaves 5 months off the total and saves you a couple hundred in interest. Add just $100/mo to the monthly amount you pay and you're down to under 5 years payoff and you save about $700 in interest. The more you add monthly, the bigger the difference. This isn't perfect advice for every situation, but I'd rather have the cushion of a more affordable payment for months where things come up. This also requires you to have the willpower to add the extra payments, which my wife and I do. If you aren't financially responsible enough to do such a thing, put money down and go for a shorter term because others are right, longer terms mean more interest and lost money if you go full term. EDIT: While the above does save you the need of a large downpayment to get a more affordable shorter term loan, it does take a about a year and a half to get positive on the loan, maybe even longer depending on how bad depreciation hits you. This sucks because if you do get into a situation where you can't afford the car at all, you won't be able to quickly sell it at a break-even price. That being said, I recommend taking a long, hard look at your job stability, income, and debts before getting into a car loan. In our current economy banks tend to be a bit more understanding about repossessions, but it still isn't something you want over your head for 7 years because even if you can get another loan, they are going to slam you on interest rates. |
Get a used Miata. Wait a couple of years when you are more financially secure, and then buy a new BRZ or a used one with a warranty if they are no longer made. I consider myself very lucky to have parents that bought me the car of my dreams (a MT BRZ) that I will cherish for the rest of my life.
I understand as much as any lover of driving that it is one of the most incredible experiences in the world to drive a "driver's car", but being financially stable brings a release of stress that's nearly incomparable. |
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Figured the little stuff I do to the car counts as clothes and shoes haha Quote:
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Try doing pretend payments to your savings for about 6 months to see if you can truely fit it in your lifestyle. Doing that really showed me that I can't afford this car just yet.
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