Car Loan Question

**noppenbd** · 02-04-2009, 11:41 AM

I think you need to seriously reconsider whether this is a wise purchase. I do applaud you for saving the $15000 down payment. That shows that you have turned around some of your financial situation. However, I can think of a multitude of reasons you should put down your $15K in cash and buy a 2-3 yr old used vehicle outright:

1) You are going to get killed on the financing with a 2-yr old repo.

2) The vehicle purchase price is 75% of your income. This is way too much of your wealth invested in something whose value is going to drop like a rock in the first 3-4 yrs of ownership.

3) You work in the banking industry which is not the most stable these days. The last thing you need is a long term obligation.

**rizzmo** · 02-04-2009, 11:56 AM

The short answer is “do not buy the car”. Ok here is the long answer. This would be along one of the worst finical decisions you could make at this point in your life. There are too many reasons to fully explain in one post, so I will stick to the ones that related to the car specifically.

A new car is one of the, if not the, poorest investment (and I use the term loosely) a person can make. The vehicle itself will lose about 50% of its value within the first two years. You will be paying interest on the money you borrowed to pay for the vehicle for 5 years. As long as you are still paying off the vehicle you will be required to carry full coverage insurance, which is significantly more expensive than liability. Basically, if you put 15k down and loaned 15k@8% for 60 months at best you are becoming $704/month poorer ($54/m interest + $650/m loss of value). Based on the info you provided in your post I am being extremely generous with the 8% interest rate, you will most likely be looking at 11 -19% interest.

I would suggest buying a used car at least 2 -3 years old, in cash. The loss of value on the car will pretty much leveled out, so when you go to sell it you won’t lose much money. You won’t pay any interest, and because the car is paid in full you will be paying much less for liability insurance. You may even have some of the 15k left over.

I would strongly suggest reading “Total Money Makeover” by Dave Ramsey, it will help you avoid many pitfalls such as this. Hope this helps.

**bjl584** · 02-04-2009, 12:06 PM

You're going to get a big "NO!" on your question hanging around this forum. I also say no. Buy a used car or one that is more practical and less expensive. I certainly wouldn't completely drain out my savings on a depreciating asset. Especially if I worked in the banking industry.

**TaylorM0192** · 02-04-2009, 12:14 PM

Depreciating asset aside...I need a reliable vehicle (I've had terrible luck buying used vehicles, even ones that are relatively new) to commute to work with - I can no longer use public transporation as I simply have too much stuff to accomplish in a day to have a commute that is 1 hour & 15 minutes each way (vs. 15 minutes with a vehicle). In addition to commuting, I am an avid road trip enthusiast, so I need a reliable vehicle that won't break down on me out in the middle of no where and has the features that I need. And finally, I see this as a great opportunity to improve my credit -- especially since if I get a decent interest rate, I could pay off the loan in three years. I would also maintain full insurance coverage anyway, who knows if I would ever be at fault for an accident even if the vehicle is paid off.

My question was not necessarily should I purchase a new vehicle under these circumstances, it was if I could purchase a new vehicle under these circumstances. However, I do appreciate the advice on the fact that I should not purchase a new vehicle, and I am open to further advice if it is convincing.

**mommyof4** · 02-04-2009, 12:21 PM

Originally posted by TaylorM0192 View Post

My question was not necessarily should I purchase a new vehicle under these circumstances, it was if I could purchase a new vehicle under these circumstances. However, I do appreciate the advice on the fact that I should not purchase a new vehicle, and I am open to further advice if it is convincing.

My friends own a car dealership, and they have told me that GMAC will not finance anyone with less than a 700 FICO score.

**noppenbd** · 02-04-2009, 12:28 PM

You can usually prequalify for lending through a credit union or bank before you even go to the dealership. This is a preferable way to finance anyway, since it makes the negotiation process less complicated at the dealership.

If you decide to go the used route there are several things you can do to prevent yourself from getting a lemon. First, have the vehicle checked out by a mechanic that you hire, before you purchase it. Second, if the vehicle is 2-3 years old, it may still be under mfg's warranty for the first couple of years. Third, make sure you order a carfax history report using the vehicle's VIN number. The carfax report won't tell you everything but it does offer some protection.

**arthurb999** · 02-04-2009, 12:30 PM

Buy a used civic for ~5000 cash...

DO NOT GET INTO DEBT

**creditcardfree** · 02-04-2009, 12:41 PM

To answer your question, I would get prequalified through a bank or credit union.

My guess is you will not qualify. You can get a nice vehicle for $15K cash, or save the other $15,000 and then purchase the vehicle you are looking to buy.

**red92s** · 02-04-2009, 01:21 PM

COULD you buy the car? Sure, I guess you could probably fine someone to finaince you, but it won't be easy . . .or cheap.

SHOULD you buy the car? No, a thousand times over.

Forget the whole "depreciating asset" thing. After gas, insurance, and car payments, that vehicle will account for a very, VERY large portion of your income. I'm a car guy myself, and even I think that is a very unwise move.

I understand the need/want for "reliable" transportation and something with a warranty. But, lets be honest for 30 seconds . . . it's an American built crossover SUV. For $30,000. That is essentailly the same as a Saturn VUE. I fail to see what is going to make this particular American built crossover SUV significantly more reliable than a 2007 or 2008 American built crossover SUV with low mileage at around half the cost. This one took me less than 20 seconds to find. Same platform, 9,000 miles, and about half the cost once you negotiate in this buyers market. I bet it even still smells new-ish.

If you are going to make a rash, financially ill-advised decision to buy a new car representing 75% of your income . . . at least do it on something like the new Nissan Z or a Sky Redline and not one of the dime-a-dozen cars out there, please?

Something to keep in mind: Your last payment, in 2015, after 96,765 miles, on your SUV with a dented bumper, scratched door, and no new car smell, will be just as much as the first one on your shiny SUV, fresh off the lot, new-car-smelling SUV.

**swanson719** · 02-04-2009, 02:43 PM

First off, DO NOT BUY A NEW CAR. The opportunity cost is much higher than anyone can reasonably afford, short of being a millionaire. Secondly, if you are concerned with improving your credit, and you are serious about having to have a brand new car, set aside having to have a 2010 Equinox. They WILL NOT finance you for $15K. Let me repeat don't buy a new car. But if you must, go with a car you can buy brand new for $15K. If you walk into the dealership with $10K cash money, set it on his desk and tell him you want the car with a sticker of $15K, and you'll pay $12K, he'll sell you the car. Finance the other $2K on a 5 year note, because you'll pay less interest if you have the loan set up longer, then after 7 months of payments, write a check for the remaining $1800 and be done with it. The seven months of financing will hit your credit report and look good, you won't have any debt, you'll have a new car, and still have $3K in savings. You get everything you want, aside from the 2010 Equinox.

**jujuk8** · 02-04-2009, 03:23 PM

Did you ever go to college? How did you land a job with a bank?

Good job on your money though, I'm 18, turning 19 in April and I've only got half of that $15k.

I also thought of buying a newer car (Mitsubishi Lancer Evolution, Subaru WTX STi) and decided to wait until I can afford it.

If you add up all the expenses such as gas and insurance, it's just not worth it. We are under 20, so car insurance will be very high, especially for a brand new car. Best thing i can say is not buy it, and get it when you are over 25 years old when insurance rates go way low.

**snafu** · 02-04-2009, 04:37 PM

If your FICO score is too low and you are denied the loan you desire, what is your back-up plan? What rate of interest are you willing to pay? Be sure to break-out the interest portion of your payment and multiply that by 60 to keep you grounded.

You need reliable transportation. Do some research on vehicles and the cost of operating [insurance, mpg., repair record]

**red92s** · 02-04-2009, 04:58 PM

Originally posted by jujuk8 View Post

Best thing i can say is not buy it, and get it when you are over 25 years old when insurance rates go way low.

As someone who recently turned 25, I can tell you that there is not some magical rate drop when you turn 25.

**disneysteve** · 02-04-2009, 06:15 PM

Originally posted by red92s View Post

As someone who recently turned 25, I can tell you that there is not some magical rate drop when you turn 25.

There was in PA when I turned 25. Then another drop when I got married.

Car Loan Question