Buying a new car the year out of college, dumb or not?

[suaveflooder]

Originally Posted by shawnperolis

Not having credit is a dangerous way to do things. If an emergency happens and you need to take a loan out to pay for, let's say extreme medical bills, you are going to get shafted hard if you've never financed anything. Financing a 25k car at 3% isn't the end of the world, guys.

Is it? Having six months of income set aside for "emergencies" is how it should be done. No credit needed. I have health insurance, auto insurance, life insurance and a will. What other emergencies will leave me so out of money that I couldn't pay for it? I think it was in the movie The Mechanic that his gun said something to the effect of "victory loves preparation" Be prepared and emergencies won't happen and take you down financially with them. Own your stuff and you won't have to worry about the bank coming to repossess them if we go into a recession/depression.

I actually totally get where you are coming from because this is EXACTLY how I thought. But on a 90 days same as cash deal (which is usually one of the first deals people fall into because they are easy to get and allow you to get "no interest" stuff), 88% roll over into payments at 20+% You are competing with a BUISNESS that has spent millions of dollars to study you and they know what percentage will default, what will pay on time, and who will roll over in to payments.

You can afford something when you can actually pay for it. If you have to take a loan out for it, you can't afford it.

Originally Posted by pheoxs

Having a credit history is not the same as owing people lots of money. I have a great credit score and never had a loan or paid interest before. Credit cards and lines of credit building your credit score and if you never use the LoC and pay off the credit cards every month you never spend any money in interest. Purposely not wanting to build credit and financing a house with no credit history is ridiculous.

I go into this a little above as far as the traps you can get caught up in. Your FICO score is 100% based on your relationship with debt. So you saying you have a great credit score without paying interest is hard to believe, but it might be possible.

FICO score is calculated as such:
35%: Debt History
30%: Debt Levels
15%: Duration of the Debt
10%: Type of debt
10%: New Debt

Financing a house when you have 50%-100% down is not hard to do. And it's totally doable! You pay bills, you have a job, there is a path for banks to follow and it involves a little more legwork, but can be done.

Millionaires who pay cash for everything (because they can) don't have a FICO score. They CAN'T walk in and rent a $1300 apartment, but they CAN write a check and buy the whole complex. That doesn't seem backward to you?

My wife and I live on half our income and we are far from rich and unfortunately we still have debt. If nothing changes and we don't get a raise, we could buy a 1/2 million dollar house in 10 years in cash if we were debt free (which we hope to be in two years).

So honestly, am I really that ridiculous for saying pay cash? You are more than welcome to pay your house off in 30 years, but I will take those extra 20 years of of interest I saved and invest it. Just an idea of the kind of money that will be saved and invested, first year on a 500,000 home, interest alone is $17,150 on a 3.43% interest loan (average as of today). Obviously it'll go down over 30 YEARS, but that is a lot of money that is given to the bank because I couldn't be patient for 10. Now an idea of how much $17k can make you is that the average rate of growth on a mutual fund investment is around 11.8%. That money is COMPOUNDED yearly to add what you've made in the previous year. 20 years of compound interest as well as adding that interesting you would have paid (that too compounding) will make you very VERY wealthy

It's just my two cents, man. I'm not going to hound anyone for financing a car, I've done it. I'm also willing to admit my mistakes. I've spent a lot of time researching how to be a multimillionaire and speaking with people who are. Number one piece of advice that I get is to get out of debt and pay cash for EVERYTHING. Second is to invest.

[shawnperolis]

Originally Posted by suaveflooder

Is it? Having six months of income set aside for "emergencies" is how it should be done. No credit needed. I have health insurance, auto insurance, life insurance and a will. What other emergencies will leave me so out of money that I couldn't pay for it? I think it was in the movie The Mechanic that his gun said something to the effect of "victory loves preparation" Be prepared and emergencies won't happen and take you down financially with them. Own your stuff and you won't have to worry about the bank coming to repossess them if we go into a recession/depression.

I actually totally get where you are coming from because this is EXACTLY how I thought. But on a 90 days same as cash deal (which is usually one of the first deals people fall into because they are easy to get and allow you to get "no interest" stuff), 88% roll over into payments at 20+% You are competing with a BUISNESS that has spent millions of dollars to study you and they know what percentage will default, what will pay on time, and who will roll over in to payments.

You can afford something when you can actually pay for it. If you have to take a loan out for it, you can't afford it.

I financed a car at an extremely low interest rate through a respectable lender, Toyota. I didn't go take out a payday advance or anything. There is absolutely nothing wrong with financing a car.

[suaveflooder]

Originally Posted by shawnperolis

I financed a car at an extremely low interest rate through a respectable lender, Toyota. I didn't go take out a payday advance or anything. There is absolutely nothing wrong with financing a car.

Extremely low is what? 2.5%? You are still paying MORE than you have to. That's my point! You can't afford it! I'm not arguing whether you made the right decision or not because it's not MINE to make, it was yours. You made it and now you are in debt to toyota. I personally am fed up with being indebted to someone, so I have made the conscious decision not to be ever again (possibly house, but I'm going to try and avoid this).

Interesting fact. Do you know that the number one money maker for dealerships is the service department and the finance department? Most dealers will practically GIVE you the car to get you into payments. My friend did this. Walked in, told them he knew what they paid for the car and offered to pay them $50 more for the car. Well, guess what? They took the deal and they had the joy of collecting his 2.49% interest for 6 years. Who really lost in that deal? You think they made that $50 back?

[shawnperolis]

Originally Posted by suaveflooder

Extremely low is what? 2.5%? You are still paying MORE than you have to. That's my point! You can't afford it! I'm not arguing whether you made the right decision or not because it's not MINE to make, it was yours. You made it and now you are in debt to toyota. I personally am fed up with being indebted to someone, so I have made the conscious decision not to be ever again (possibly house, but I'm going to try and avoid this).

Interesting fact. Do you know that the number one money maker for dealerships is the service department and the finance department. Most will practically GIVE you the car to get you into payments. My friend did this. Walked in, told them he knew what they paid for the car and offered to pay them $50 more for the car. Well, guess what? They took the deal and they had the joy of collecting his 2.49% interest for 6 years. Who really lost in that deal? You think they made that $50 back?

But how much does that really matter? Maybe my interest that I'm paying is well worth it to me because wasting my life saving up for something that I can afford monthly payments on would cost me more of my life, which I think is worth a lot more than money... Life is way too short to make a huge deal out of 2.49% on a 25k car.

[Ingen]

Originally Posted by chickdigger802

hopefully a little more when I transition from contract to perm in june.

yeahhh, I think I'd probably hold out until July or so before I dropped the money on a new car.

Make sure you actually DO transfer, and have a job. Stranger things have happened man, and you don't want to be left holding the bag and having to sell your brand new car

[suaveflooder]

Originally Posted by shawnperolis

But how much does that really matter? Maybe my interest that I'm paying is well worth it to me because wasting my life saving up for something that I can afford monthly payments on would cost me more of my life, which I think is worth a lot more than money... Life is way too short to make a huge deal out of 2.49% on a 25k car.

I used to agree with you, sir. I really did. Then I starting studying and reading and it really makes me mad just how much money we are giving to the bank. It's the reason their building is bigger than my house (or in my case, rented condo)

I can't tell you what to do, all I can do is give you advice. The old cliche that life is so short is getting more and more incorrect. If you make it to 40 years old with no major illnesses, statistics say that you will live to be 90+ That is A LOT of life. If you are wise with your money, you can retire at 65-70, still plenty of life to live and you can literally do whatever you want. If you are counting on the government to take care of you, think again. They are horrible at managing money (if you haven't noticed) meaning that YOU will have to take care of yourself when you retire. You start putting money away NOW, investing and have no debt you WILL be a multimillionaire when you retire. The average person with a HOUSEHOLD income of $50k can be a multimillionaire when they retire if they invest correctly. That is a looser! No raise in the entire 40 years of working and they come out a multimillionaire! Which scary enough is better than the majority of americans are doing right now! That is insane and exciting to me! If you can't tell this is a passion of mine!

What could you do with three to five million dollars in the bank when you retire? Answer: Anything you want! "Now what if I'm half wrong?"

This is cool stuff if you really take the time and have the patience to be wise with your money. It's a marathon, not a sprint.

And as far as "how much does it really matter?" In the long run A LOT! If you never have a car payment and put that "car payment" money into an investment and NOT touch it, you are looking at hundreds of thousands in 30 years as a return. So it DOES matter. ESPECIALLY on a depreciating asset.

[forzajuve]

Originally Posted by chickdigger802

20%? Is that with the grad program, which from what it says on their site gives you competitive rates as if you have a long good credit history?

Or this someone past college age and always used cash?

She was actually in college and just never applied for a credit card. So, since she was of age, she never made the effort to get a credit card, therefore never built any kind of a credit score, which in this day and age a good credit score (700+ typically) can go a long way.

[cmarks20]

I'm was in a similiar situation.

Just graduated last year, living on my own, and paying almost $700 a month in student loans (that's what indecisiveness gets you!. I ended up with a 3.24% interest rate through TMFS. Despite I have awesome credit (750+) and qualified for a lower rate, they couldn't give me a lower rate "because of pure pricing." I did get the graduate incentive at least - and the protection package and the first 7 years of maintenance prepaid (dealership special offer).

When it comes down to it, there's no reason to deny yourself something you truly want if you're willing to work for it - just don't go overboard.

[shawnperolis]

Originally Posted by suaveflooder

And as far as "how much does it really matter?" In the long run A LOT! If you never have a car payment and put that "car payment" money into an investment and NOT touch it, you are looking at hundreds of thousands in 30 years as a return. So it DOES matter. ESPECIALLY on a depreciating asset.

Or your investment tanks and you are out everything. In the end it all boils down to what is more important to you: Having lots of zeros at the end of your imaginary money statement from the bank/investments, or getting into a fun ass car every day and enjoying life moment by moment.

Not saying anything is wrong with either, but I know what route I'm choosing.

[suaveflooder]

Originally Posted by shawnperolis

Or your investment tanks and you are out everything. In the end it all boils down to what is more important to you: Having lots of zeros at the end of your imaginary money statement from the bank/investments, or getting into a fun ass car every day and enjoying life moment by moment.

Not saying anything is wrong with either, but I know what route I'm choosing.

Diversify your investments and you don't have to worry about this. Like I said, the average 30 year return for investments is 11.8%. It can go up and down, the important thing is NOT TO TOUCH IT. You will have bad years and good years, but if you diversify, you always win. This isn't a magic solution, it's actually pretty standard. Many people invest this way and it has worked for a long long time. If you invest all your money into one investment and it fails, you are correct, you will have nothing.....you will also be foolish for making such a poor investment. No one should put all their money in one basket.

That is the joy of mutual funds. You basically have your hand in A LOT of different companies, so one tanking isn't the end of the world. I'm not kidding, look this stuff up. Put aside your "fun" for a couple years and there is no reason why you can't have everything you want...although, your priorities will have probably changed and the ferrari will seem less like a worthwhile purchase. If it is something that you do want though, you go pay cash for it. Sounds like a win win to me.

[DieselxIndustry]

I have a near identical situation to the OP and I am doing well but it can be tough at times. I pay about 330 a month for student loans, 365 for car payment, and 150 for insurance plus an additional 700 in food, gas, phone etc. I'm doing pretty good, my credit score is a 721, and I just do my best to stay current on everything. Just make sure you have enough set aside should something major occur were you needed cash upfront in a pinch and you'll do well. Say you lost your job, how many months could you go before your screwed and could lose your car? Plan for that.

[hanabie]

It is funny that people are willing to pay $80+ for iPhone's plan every two years. Yet they make a big deal for 2.5% APR on a 25k auto loan.

[zipfizz]

Originally Posted by hanabie

It is funny that people are willing to pay $80+ for iPhone's plan every two years. Yet they make a big deal for 2.5% APR on a 25k auto loan.

People waste their money on different things. I have friends that waste a car payment on booze each month. Different priorities. I think we can all agree that people need to be investing some of their income. The earlier you start the better off you'll be. What you do with your money after that is nobody's business.

[chickdigger802]

Originally Posted by hanabie

It is funny that people are willing to pay $80+ for iPhone's plan every two years. Yet they make a big deal for 2.5% APR on a 25k auto loan.

people also don't treat their $800 phone like it's a $800 phone :/