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

[chickdigger802]

Not even really thinking about finding a gf again atm! Had my fun in college/hs. Right now it's all about the solo life of working hard at the job, saving money, buying things that would probably be frowned on if in a relationship. get back in the game later lol. Seems like girls these days are more interested in your income than wang anyways.

but enough with thread derail. Thanks for all the opinions/advice etc. Current plans is save until 2014 models are out and depending on whats new, i'll get 13 or 14 model hopefully by years end.

now for the real tough issue... what color?

[shawnperolis]

Originally Posted by chickdigger802

now for the real tough issue... what color?

Easy, Whiteout!!!

[Enraged21]

Originally Posted by chickdigger802

Not even really thinking about finding a gf again atm! Had my fun in college/hs. Right now it's all about the solo life of working hard at the job, saving money, buying things that would probably be frowned on if in a relationship. get back in the game later lol. Seems like girls these days are more interested in your income than wang anyways.

but enough with thread derail. Thanks for all the opinions/advice etc. Current plans is save until 2014 models are out and depending on whats new, i'll get 13 or 14 model hopefully by years end.

now for the real tough issue... what color?

Hot Lava/Firestorm/White Out

[chickdigger802]

Originally Posted by thill

Well my point is that you should budget in not living in the house when you buy a car. It is a big expense, depending on where you live and if you have roommates. What if you want to move out in a year and can't because your car loan and student loans are too big? I did not live with my parents after college, but it never stopped me from stopping by and helping out. We still had family meals together every weekend. If you live at home the next two years and focused on paying off your student loans, you could easily get a new car and also have money to live on your own too if the need ever arises. I did not get my first new car until after college and I was out of the military. Would I have loved a new car? Absolutely. But I focused on paying down debt, traveling and seeing the world (which you can't do with a car loan), going out with friends and having spending money, and not having a big car payment. I can't tell you how many guys I knew in the military who were making good money, but were bogged down by their new car payment and other debt (credit cards, student loans, etc). It is your money. If having a new car is a top priority then go for it. But at least budget around not living at home and whether or not you could afford that new car payment every month if you moved out and paid all your other bills. If you can fit it in the budget, great. If not, you should really be concerned about having a new car put you in a corner due to debt.

Valid point. I should be done with my school loans in 2 years, and with how i'm currently budgeting (I'm already slotting off at least 1 grand a month for car), i should be able to live away from home fine with a car loan.


offtopic but why is whiteout $200 more? Don't really know paint does the pearl finish thing cost more to make?

[Zaku]

You can be a sheep and join all the others with a whiteout which everyone and their grandmothers has, literally someone grandmother here has a white out. Or you can be different and go Raven. Break the norm or go other colors

Im just joking whiteout is a nice color, but fact is its the most abundant one as wel, great for parts since everybody has it.

[thill]

Originally Posted by chickdigger802

Valid point. I should be done with my school loans in 2 years, and with how i'm currently budgeting (I'm already slotting off at least 1 grand a month for car), i should be able to live away from home fine with a car loan.

Well there you go. And the more you save and put down, the lower the payment and potentially the lower your interest rate if you go with a 48 month loan vs 60 month. It is usually about $20 a month added to your car payment for every $1000 financed. So every $5K in cash you put down lowers your car payment roughly $100 a month. On a $27K vehicle with $5K down and a 3% interest rate (and 6% state sales tax rate) you are looking at roughly $425 a month on a 60 month note and $523 on a 48 month note (which I recommend vs 60 month). Find a payment you are comfortable with and then save up so when you buy you have a very flexible car payment. Cars are some of the worst investments you can make, so you want to have some cushion on what you owe, vs what it is worth, if you need to sell it the car in an emergency. And of course you have to factor in gas and insurance and cost of maintenance over the life of the loan.

[suaveflooder]

Originally Posted by shawnperolis

Gist of this thread: if you don't drive a beater every day, haven't paid for your house with straight cash, and have a cell phone plan then you are an idiot who sucks with money.

Lol, no, if you do those things for a short while, you get to be rich in a few years. It's a short time or sacrifice for a long life of wealth.

It's exactly what i said in one of my first posts:

"Poor people ask 'How much down? How much a month?'"

"Rich people ask 'How much?'"

I sincerely hope your version is not what you got out of all I wrote, because in that case, you have completely misunderstood my points. I would have loved to have had this advice back when I was in my early 20's with no debt.

Why pay a car payment when it takes a couple years to pay cash and own it? Why pay on a house for 30 years when you can go buy one in 10-12?

Think like a poor person and you will be poor. Think like a rich person and you will be rich.

[shirker]

Originally Posted by suaveflooder

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

Pheoxs is 100% completely correct about being able to build a good credit history without paying interest and everything else he said. That FICO breakdown you just gave up there is accurate, but your assertion about paying everything in cash is misleading.

Debt PAYMENT History: what matters here is your record of payments on both installment and revolving debt. Installment debt = things like auto loans, mortgages. Revolving debt = things like your monthly credit card bill. You absolutely can build a strong credit history without ever racking up debt, as long as you properly utilize credit. Say you have a $1000 credit card bill every month. So long as you pay that off in full every month, you are absolutely building credit history without ever making interest payments. Yes, it is ideal to have payment history on both installment and revolving debt, but more emphasis is put on history of revolving debt payments I believe. If you pay everything in cash, you have neither forms of debt, and therefore cannot ever build payment history.

Debt Levels: for any given level of spending, the higher your credit limit, the better. If you spend $1000 a month on your credit card, your credit score will be much better off if that $1000 a month is out of a $10,000 credit limit than a $2,000 credit limit. The way to raise your credit limit? To use and establish credit. You can't do that if you pay everything in cash.

[shirker]

Originally Posted by suaveflooder

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?

That does seem backward, but that's because it's not true (okay maybe there are millionaires out there who have no credit score or credit history, but they're in the minority)

Millionaires often get to where they are by investing. Investing requires a basic understanding of interest and compounding, which I'd say you already know judging by your asset diversification advice. But investing also involves understanding the opportunity cost of money. You wouldn't (or at least shouldn't) pay in cash for something significant if you knew that you could take out a loan and pay extremely low interest on it (assuming you have good credit history) while investing that money and earning interest at a higher rate.

Originally Posted by suaveflooder

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.

Again, it's ideal to have all the money to be able to outright buy something in full, but you make it sound as if taking out any loan is like selling your soul to the devil. From the 2nd page (I think) of this thread:

Originally Posted by shirker

If you have the cash to buy a car outright, instead of paying it in full, you could finance it at 2 or 3% while investing an equal amount in a mutual fund or investment vehicle of your choice earning 5%+. You'd end up having your money working for you, and would be better off in the end than paying in full and never taking on the auto loan debt (not to mention the installment debt payment history)

In short, being in debt can be a good thing.

I may strongly hold this view, but I'm not irrational - if you can explain to me why this is bad advice, I'm all ears!

[Demandred7]

Sounds like you have a solid plan. Congrats on getting such a good starting wage. The most obvious is making sure you are permanent before proceeding. Beyond that, pick your color and enjoy.
I was lucky enough to have no debt coming out of university, but was stuck with a much lower starting wage. I still leased a brand new car for about $23k back in 1996. Different people have different priorities, and I don't regret buying new cars. Never had any of them break down and always under warranty. Sure, I could have bought a house sooner and would have more equity right now, but, living life is standing on your own two feet and making your own decisions. You are the owner of your own destiny, think before you leap and talk to your family, they want you to succeed and are an invaluable source of information.

[CamryDS]

Originally Posted by thill

- I would wait for the permanent job status first and foremost. - Secondly, I would move out of the house and really get a feel for what this will cost you before you take on a new car loan. In the meantime continue to pay down your student loans and save for a car. - Third, I would wait for the 2014 models to see if you can score a deal on a 2013 if you decide to buy new. Personally, with that much money in student loans, I would focus on getting out of my parents house and just getting a decent used car that you enjoy driving for a couple of years that costs about half the price, and then buy a new FRS after the student loans are paid off.

Best advice ever!

[thill]

Originally Posted by shirker

That does seem backward, but that's because it's not true (okay maybe there are millionaires out there who have no credit score or credit history, but they're in the minority)

Millionaires often get to where they are by investing. Investing requires a basic understanding of interest and compounding, which I'd say you already know judging by your asset diversification advice. But investing also involves understanding the opportunity cost of money. You wouldn't (or at least shouldn't) pay in cash for something significant if you knew that you could take out a loan and pay extremely low interest on it (assuming you have good credit history) while investing that money and earning interest at a higher rate.


Again, it's ideal to have all the money to be able to outright buy something in full, but you make it sound as if taking out any loan is like selling your soul to the devil. From the 2nd page (I think) of this thread:

I may strongly hold this view, but I'm not irrational - if you can explain to me why this is bad advice, I'm all ears!

[ame="http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/dp/0671015206"]The Millionaire Next Door: Thomas J. Stanley, William D. Danko: 9780671015206: Amazon.com: Books[/ame]
The book was really interesting when it covered automobiles and self made millionaires:

- Millionaire next door type do not buy a new car. They buy gently used, and they look for a deal. - Millionaire next door does not finance, they pay cash. Whether you can argue they should have invested the money at a higher return is neither here nor there, the book was pretty clear these types of people are not taking out loans for things like cars.

- Millionaire next door does not lease, they buy their vehicles as I mentioned above (gently used, with cash) and then they maintain them properly and drive them 7-10 years). It was an interesting read for me. I also read Dave Ramsey, and he has some great advice on how to get out of debt, but IMHO, I don't 100% agree with him on investing and I think (as you mention above) there is something to be said for low interest loans, but it is very shaky ground. As was outlined in the book, there are people that make millions a year and are living paycheck to paycheck due to their lifestyle.
I think it really comes down to what you are comfortable paying each month, ensuring that you have at least a years worth of savings to live off of first in case something happened, and ensuring that you are investing a good portion of your income, and have a low debt to income ratio. 2006-2009 were a wake-up call for me. I watched my home (that I had always been told was a great investment/asset) lose about 25-30% of it's value in less than two short years. I watched most of my investments drop by 20-50%. I was concerned about my job even though I am in a growing job field (IT security).

I was really thankful I had money in the bank to live off of, that I had more than 30% equity in my house, and that I owned both my vehicles outright. We could have lived at least 2 years in our house without me or my wife having a job and been able to make all bills without taking out loans on our retirement accounts. Rude awakening. I am actually quite confident that it could and will happen again in my lifetime.

[Re~Mix]

I still don't understand how this is really a debate. The decision is obviously up to the OP himself, and everyone is weighing in with their own financial motto's. What's right for some is not always right for others. Taking a loan out to purchase a car is is a great way to build credit at a young age and often with a new grad discount you can secure an attractive rate.

It seems a lot of people here idolize buying a car outright with cash on the spot. Nothing wrong with that, although the inability to do so does not cripple you financially.

There is a lot of sound advice in this thread backed by real experience and academic knowledge. Alongside it is a lot of opinionated bullshit as well.

[suaveflooder]

Originally Posted by shirker

Pheoxs is 100% completely correct about being able to build a good credit history without paying interest and everything else he said. That FICO breakdown you just gave up there is accurate, but your assertion about paying everything in cash is misleading.

Debt PAYMENT History: what matters here is your record of payments on both installment and revolving debt. Installment debt = things like auto loans, mortgages. Revolving debt = things like your monthly credit card bill. You absolutely can build a strong credit history without ever racking up debt, as long as you properly utilize credit. Say you have a $1000 credit card bill every month. So long as you pay that off in full every month, you are absolutely building credit history without ever making interest payments. Yes, it is ideal to have payment history on both installment and revolving debt, but more emphasis is put on history of revolving debt payments I believe. If you pay everything in cash, you have neither forms of debt, and therefore cannot ever build payment history.

Debt Levels: for any given level of spending, the higher your credit limit, the better. If you spend $1000 a month on your credit card, your credit score will be much better off if that $1000 a month is out of a $10,000 credit limit than a $2,000 credit limit. The way to raise your credit limit? To use and establish credit. You can't do that if you pay everything in cash.

Please tell me you see the contradiction here. That is far from not paying interest. I mentioned in my earlier post that a 1/2 million dollar house will cost you $17k+ in interest alone the first year....that's not counting taxes. That is A LOT of money to GIVE to the bank because someone couldn't be patient. It's the "I deserve this right now and I am not going to wait for it" mentality that is really scary, and its all around us right now!

Originally Posted by shirker

That does seem backward, but that's because it's not true (okay maybe there are millionaires out there who have no credit score or credit history, but they're in the minority)

Millionaires often get to where they are by investing. Investing requires a basic understanding of interest and compounding, which I'd say you already know judging by your asset diversification advice. But investing also involves understanding the opportunity cost of money. You wouldn't (or at least shouldn't) pay in cash for something significant if you knew that you could take out a loan and pay extremely low interest on it (assuming you have good credit history) while investing that money and earning interest at a higher rate.

Opportunity DOES cost money, but you are on a slippery slope with the examples you give. It doesn't mean taking out loans and being indebted to a bank, that costs you money. Millionaires know this. Their investments are in cash. That is where their "cost" comes from. They invest money that they already have into a viable asset that will yield a return. Most of the time, they aren't looking for a fast one. You are talking 10-30 years to see a return.

There will be exceptions to every rule (in fact, my uncle is one of them. Multimillionaire who takes out loans), but you can't give advice like that to a 20 something year old who is still living at home with student debt. It's dangerous and it ruins lives! You have credit cards "emergencies" are going to happen. When they do happen, "thankfully" you have that credit card to fall back on. It's crappy logic! "Oh man, I have no money, so lets TAKE OUT MORE MONEY and get deeper in debt!!" Yeah, that'll fix the problem!

See below. Millionaires don't live like everyone. Middle class people throw their money at new cars with a low interest rate. I've made my mistakes with debt (one of them is in my signature), and I don't plan on repeating them. Investing is a marathon and a long term deal. If you are worried about spending "x" amount of dollars on a car instead of investing it, so you take out a loan, you're doing it wrong. I get the idea, and I actually have a couple successful people that I know doing this, but it's all wrong. That is the amazing thing about compounding. You can turn a little bit of money into A LOT of money if you are patient. So take that interest (usually a couple thousand dollars) that you would have spent on that car and invest it. You now have your car that you OWN, and you can make a couple hundred grand off the compounded interest over 30 years. Also, when a depression or recession hit (because they will again), you're not scrambling to pay for stuff you can no longer "afford"