Financing a car, advice please...

[CollegePlayer]

Im in college and would like to invest my poker earnings into purchasing my first automobile. The thing, though, is that I of course have no credit and I am curious as to what options I should expect in terms of financing. After all the fees I expect the total cost of the car to run me about $16-17,000. I currently have $21,000 in a checking account, with a seperate savings account for money that will go towards taxes in January. The other negative factor is that I have no job, I doubt the dealer will understand that internet poker is a profession.

So, do you think it will be posible for me to put down maybe $10-12,000 and drive away happy? Or will I have to wait until I can safely pay completely in cash? I am making about $600/wk from poker right now, if that matters in your math.

Thanks...

[Oski]

go get some crap job so you can include it in your financing report. With 10,000 down, you don't have to show much.

Quit your job soon thereafter.

[CCass]

Wait until you can pay cash. You don't need a monthly payment hanging over your head with no steady income.

[GuyOnTilt]

Wait until you can pay cash.

I'd advise against this. I'm 20 years old and am really regretting not establishing my credit history earlier. It's a real pain. He should definitely get the car financed and make his payments on time every month.

GoT

[cardcounter0]

Do both. Wait until you can pay cash. Then finance the car. Make all payments except the last one. Wait two years (loans of shorter duration don't effect credit rating). Make final payment. You will only be paying two years interest on amount of one payment.

Viola! Minimal interest expense, no payments hanging over head, good credit rating.

[pudley4]

Even better - find out how much you need to put down to get 0% financing. Put the rest in an interest-bearing account. Have the payments automatically deducted from this account each month.

Perfect credit and you're making money too.

[Ray Zee]

learn to buy and own things you can afford. get a car you can buy and not have to insure for collision. establish credit by getting credit cards and always paying off. that is enough until you get ahead more. no one loans an serious money with you showing three years tax returns and a steady stream of income. thats what to shoot for. but no body gets rich by borrowing. you get rich by investing. not spending large amounts of your net worth on consumer goods. food for thought.

[cardcounter0]

You lose thousands the instant the front wheels of your car leaves the dealer's lot.

A car is a necessary evil. Buy modest. I think a new car is okay, if you plan on caring for it and driving it until the wheels fall off. Might check out slightly used cars also, let some other fool take the initial huge depreciation hit. Not a big fan of really used cars, because what you save in money, you usually lose on repairs or getting stranded.

Peter Lynch pointed out in his book "One Up On Wall Street", that in the early 70s if you had bought the then new brand Subaru car for $6000, five years later you would have an old beat up five-year-old Subaru. That same $6000, invested in Subaru stock, would have made you a little over $1 million in five years.

Food for thought.

[moondogg]

[ QUOTE ]
I'd advise against this. I'm 20 years old and am really regretting not establishing my credit history earlier. It's a real pain. He should definitely get the car financed and make his payments on time every month.


[/ QUOTE ]

If you want to establish a credit rating, get few credit cards that you use for everything and pay it off in full each month (i.e. you pay no interest). Make sure you have enough credit across all of the cards so that you're total charges against each one each one is less than 40-50% of your limit for that card. Ask them once a year to bump up your credit limit.

This ends up being much cheaper way to build credit than paying interest for years on an aggressively depreciating asset. IMHO, if you're going to pay interest on something, make sure it's going to go up in value.

(Of course, all of this is moot if you can get 0% interest for the life of the loan, no strings attached. In that case, finance every penny you can and make the absolute minimum payments, saving the rest in an interest-paying account. Anytime you can get someone to loan you money for an extended period of time with no interest, you are pretty much making money. Given this, nothing is ever free, so they are probably f-ing you over somehow)

P.S. Example regarding credit cards: When I graduated college at age 22, the only thing on my credit report was a deliquient phone bill from junior year. The only card I could get was a $300 "secured" card (not actually credit, you have to front the $300, just looks like a credit card on your report). When I was 23, that me got a $200 credit card from Capital One. When I was 24, those cards got me an $2000 Delta Skymiles American Express, and then a much bigger BOA Visa. At 25, BOA removed the limit. 3 years, damn near unlimited credit, and I never paid penny of interest on any of it. Just applied for a mortgage, and they said that my credit was as good as they had seen for a 20-something, despite the deliquient phone bill.

If I had financed a car, it too would have helped my credit, but I would have been flushing thousands of dollars down the drain on something that would have lost more than half of it's value. One mortgage broker offered the advice that I pick up a car loan to further build my credit, so of course I hung up on her. Sure, more credit history more gooder, but it's a pretty damn expensive way to go about it.

If you have to finance the car as a practical means to afford it, that's fine. Just be aware that you are paying significantly more than the loan amount.

[moondogg]

[ QUOTE ]
learn to buy and own things you can afford. get a car you can buy and not have to insure for collision. establish credit by getting credit cards and always paying off. that is enough until you get ahead more. no one loans an serious money with you showing three years tax returns and a steady stream of income. thats what to shoot for. but no body gets rich by borrowing. you get rich by investing. not spending large amounts of your net worth on consumer goods. food for thought.

[/ QUOTE ]

And again, of course, beating a dead horse, read "The Millionare Next Door".

[SpiderMnkE]

Dude... you are just slightly younger than me... you have no need for a 17,000 car. Why blow your entire wad on a "consumer good" as Zee says.

If you want to be rich in the future, you should invest most of this money. I can't advise you on the best route for that... but just know this... the rich buy assets... the poor by liabilities.

Asset = something that makes you money.

Liability = something that takes money from you.

Car = liability

Stock/Real estate = Asset

Pour all of your money into assets so that 10 years from now your assets are paying you.

This will get you laid much more for this than for the fancy car that you blew your wad on in your early 20s.

DON'T THROW YOUR MONEY AWAY.

The car will come later... and your assets will make the monthly payment.

This idea of spending your entire wad on a car is making me sick... absolutely sick

[SpiderMnkE]

Go read "Rich Dad Poor Dad" as well as the other books mentioned.... at least do that before you decide to spend all of your savings.

It will be worth the money and the time to help you make a proper decision. In fact... I bet you will end up thinking that the car is the dumbest idea you could have had for that money.

Trust me.. I just nearly financed a BMW... read some books... now I'm more than happy to drive my Ford Escort

It features manual locks and windows... as well as an in dash casette player. It is a hot ride... forest green.. the chicks dig it baby!

[moondogg]

Yeah, I read most of those books when I was 25. If I had read them when I was 20, I'd would've had thousands (if not tens of thousands) more in the bank at 25. It's amazing how much you can piss away without realizing it.

[aloiz]

There are plenty of better books out there than "Rich Dad Poor Dad". IMO the book had very little substance, and can only really be considered motivational reading (which isn't really what the poster needs). Considering the original question, doing a searching for some advice columns on the internet should more than enable him to make a good decision.

aloiz

[sprmario]

Umm... hello? Not insuring for collision is stupid. Even if I paid cash for a new car I would stilll insure it for collision even if it was a car that I could easily afford. You are just going to risk getting in an accident and losing your car to not pay insurance?

[ QUOTE ]
learn to buy and own things you can afford. get a car you can buy and not have to insure for collision. establish credit by getting credit cards and always paying off. that is enough until you get ahead more. no one loans an serious money with you showing three years tax returns and a steady stream of income. thats what to shoot for. but no body gets rich by borrowing. you get rich by investing. not spending large amounts of your net worth on consumer goods. food for thought.

[/ QUOTE ]

[sprmario]

People need cars. Its one thing to buy a car that is way out of your league and another thing to drive around a POS Ford escort when you don't have to. Despite what people have mentioned here, cars are indeed an asset and the loan on it is a liability. Most people finance such a high percentage of their cars that the liability of the loan is larger than the value of the asset (the car) and are upside down on the deal, that is they owe more than what the car is worth.

If you have absolutely zero credit history, then go get a student credit card. Be responsible and don't charge it up to the limit. If you are the kinda guy who has $21k in the bank and an additional fund for taxes then you probably won't charge it up so good for you. Use the card to make purchases you were going to make w/ cash and pay it off promptly, which is so easy to do via online banking. Over the course of your college time they'll raise your limit periodically which is good for your credit rating. Try and make the first credit card a big name card that will be around for some time like BofA. The longer you keep 1 card in good standing the better for your credit. The more credit limit you have the better for your credit.

If you want to see if you can finance $5k... go to eloans.com or capitalone.com and just do an online application and see if you qualify. I do think the minimum at capitalone is $7,000 though. Just to give you an idea of payments. $7,000 financed for 4 years at 5.0% is $161.21 a month.

if your school has a credit union, or anyone in your family is a member at a large credit union you should open an account there. Credit unions tend to give great car loan rates.

Also go to www.edmunds.com (http://www.edmunds.com) and go check out their fair market pricing to get an idea of what you should actually pay on the car you are looking at. A lot of times that's way less than sticker and even less than invoice. I was looking around for my girlfriend who is looking to buy something like a Civic and the going rate for a Civic is slightly under invoice. Oh and www.carbuyingtips.com (http://www.carbuyingtips.com) has a bunch of great advice and tips to avoid getting scammed.

Finally get some of that money out of the bank and into an investment account and earn something on that money.

[turnipmonster]

while you are in college you should DEFINITELY GET A CREDIT CARD AND ESTABLISH CREDIT. credit cards are easy to get in college, and actually difficult to get once out of college with no credit history. I never had a credit card and never had any debt, and I had a really hard time establishing credit once I was out of school. I ended up convincing my bank to give me a card, but no credit card company would touch me because I had no history. basically never bought anything I couldn't pay for. go figure.

--turnipmonster

[Ray Zee]

hello back to you. if you think not insuring is stupid, then you shouldnt be on a gamblers forum as you dont understand risk versus reward. although your other post is very informed. collision insurance as well as most insurance is one of the major reasons most people never get ahead in life. i wish someone would explain it to you, as you are really missing it.

[moondogg]

[ QUOTE ]
hello back to you. if you think not insuring is stupid, then you shouldnt be on a gamblers forum as you dont understand risk versus reward. although your other post is very informed. collision insurance as well as most insurance is one of the major reasons most people never get ahead in life. i wish someone would explain it to you, as you are really missing it.


[/ QUOTE ]

Let me take a stab at it, please correct me if I'm wrong:
NEVER buy supplimentry (sp) insurance to prevent against something you could actually afford anyway. Sure, if you total your car you'll be glad you had collision insurance for it, but most of the time you won't, so you lose money on the premiums.

Insurance companies, like everyone else, are in business to make money. Collision insurance is as profitable as craps. You may get a pile of money from time to time, but you lose in the long run.

American Express called me the other day to sell me supplimentry disability insurance. Something along the lines of "if you are injured and cannot work, we'll give you $200 a month, in addition to any other benefits you receive from other insurance companies". This is a scam, period. America Express will always come out ahead of it's customers. If you take this kind of insurance, you are taking the worst of it. If you were to compare the chance of being injured vs. premiums vs. payoff if you get injured, it would be obvious that you're being screwed, taking the sucker end of a bet. A whole lot of actuaries working for American Express verified this was the case before they started calling anyone about it.

ALL insurance plans are taking the worst of it (except maybe government-sponsered programs which are not profit-driven).

However, sometimes you have to get insurance anyway. Sometimes it is required by law or an agreement, and sometimes the potential downside is just too much of a risk:
- I have basic auto insurance only because it is required by law
- I have homeowers insurance because it is required as a part of my mortgage, and because I am willing to accept the -EV bet if it protects me against a loss of hundreds of thousands of dollars. In this case, I am just paying a fee to bail me out of a potentially tragic situation that I could not afford.

What you can afford and what you cannot afford makes all of the difference, though.
Suppose I told you that would insure one a T-shirt. If anything should happen to the T-shirt, I will replace it or pay you the fair market value of the T-shirt. Get this limited time offer for only $2 per month!
You would obviously tell me I'm insane. If the shirt is worth $10, that I'm make money as long as the shirt lasts 5 months, which it almost definitely will, during which time you could save up the $10 yourself to replace it if you need to. In the "terrible" circumstance that the shirt is damaged before 5 months, oh well, so you're only out $10.

Yes, this example is absurd and extreme, but so is ALL supplimenty insurance. If you possibly afford the potential downside, do not insure against it. You would just be feeding the insurance company profits, which costs you money, period.

Specifically regarding collision insurance: If you cannot afford the possibility that you may total your car, you're driving too much car and need to seriously re-examine whether you are living above your means, IMHO.

[John Cole]

Ray,

This is a gamblers' forum?

[John Cole]

If you do decide to buy a new car, find a reliable one. Drive it until it rusts away in the driveway. Check out the new car loan rate at the local credit union, and tell the dealer you plan to finance there. A big dealer will usually beat the credit union's rate; of course, you may need a good credit rating yourself. Get one quickly, as others have suggested.

Unlike some here, I don't see anything wrong with buying a new car every ten years or so. Then again, unlike Ray Zee, I have to work.

[cardcounter0]

Exactly. Which is why you should always have liability insurance (and why it is usually required by law).

In the case of collision insurance, your loss is limited to the value of your car (and as pointed out, if you can't afford to replace it, you are driving too much car). However, there is a small chance that if you get in a wreck and somebody gets seriously injured, hospital bills for the injured party, or a big disability payment, could wipe you out for everything you have. Hence the need for liability insurance.

Also, why do you think Insurance Companies can afford all those big huge fancy office buildings downtown? Who do you think pays for all that?

[cardcounter0]

My car is 12 years old, but it only has 185,000 miles on it so I'll be keeping it a while longer.
/images/graemlins/grin.gif

Still runs strong, suspension smooth, no dents, one small rust spot. Oil change every 3,000 miles is the smartest thing you can do to a car.

[MMMMMM]

Why not find a decent car for like 3000 or less and pay cash? Save all those expensive collision/comprehensive insurance premiums which you would be required to pay if you finance it.

Pick a car you can replace for cash if anything happens to it. You might have to shop around a little and run down some want ads.

You are making 600/wk right now at poker. What if that changes? Do you really want to be locked into a long-term car loan coupled with mandatory collision payments without a good-paying job?

Nice new cars are attractive and an ego boost but they are a really poor investment for most people. Realtors need really nice cars but most people can do just fine with a decent car.

By the way, have you noticed that there seems to be a loose inverse correlation between how pretty a woman is and the car she drives? It seems to me that the pretty girls tend to drive average cars and the less-attractive ones tend to
drive head-turner cars. Try noticing this for a while and see if you agree.

You have to decide if your ego or the money is more important to you. When you have the money and want something, it is very easy to be seduced into buying. Later when you don't have that thing anymore and you don't have the money either you might have something to think about.

You are young so if you make a mistake you will probably come out of it OK anyway.

Don't forget that not having that money on hand could cause you to miss an opportunity sometime and that is a loss also.

If I had realized certain things along these lines when I was younger, instead of after 40, I would be in a much better position in life now.

[CCass]

Ray's post is dead on. /images/graemlins/grin.gif

[J.R.]

Hot chicks have rich husbands and drive nice cars. Perhaps you should spend some time in a more affluent area, it is an unmistakable fact.

[MMMMMM]

I have noticed the opposite but then the age group I am referring to is probably mostly unmarried.

[miamikid]

[ QUOTE ]
but no body gets rich by borrowing. you get rich by investing. not spending large amounts of your net worth on consumer goods. food for thought.

[/ QUOTE ]

Actually, one of the fastest ways to build wealth is by borrowing money and buying investment real estate and then have a renter pay your home loans,insurance, and taxes for you.

By borrowing money, you make much much greater returns on your investment. Borrowing is absolutely essential.

Lets say you have two options to buy a $100,000 house.
1. You buy the 100k house all cash, and sell it a year later for 120K. You make 20% return on investment.

2. You buy the 100K house, put 5k down, and borrow 95k.
Now, in the first example, you have no loan to repay. In this example you put 5K down, put still have 1k a month in loan payments. so after one year, you spend 17K, You sell the house for 120K, after you repay you loan of 95K, you make still make 20K even after paying off the loan. Except this time, you only invested 17K to make 20K for over a 100% return on investment.

This works of course, because you put the money you borrowed into something that appreciates.

[MMMMMM]

"Actually, one of the fastest ways to build wealth is by borrowing money and buying investment real estate and then have a renter pay your home loans,insurance, and taxes for you.

By borrowing money, you make much much greater returns on your investment. Borrowing is absolutely essential.

Lets say you have two options to buy a $100,000 house.
1. You buy the 100k house all cash, and sell it a year later for 120K. You make 20% return on investment.

2. You buy the 100K house, put 5k down, and borrow 95k.
Now, in the first example, you have no loan to repay. In this example you put 5K down, put still have 1k a month in loan payments. so after one year, you spend 17K, You sell the house for 120K, after you repay you loan of 95K, you make still make 20K even after paying off the loan. Except this time, you only invested 17K to make 20K for over a 100% return on investment.

This works of course, because you put the money you borrowed into something that appreciates."


Great in a rising market.

Not-so-great in a flat market.

Lousy in a falling market.

[Patrick del Poker Grande]

[ QUOTE ]
Great in a rising market.

Not-so-great in a flat market.

Lousy in a falling market.

[/ QUOTE ]
I would imagine this is pretty typical, at least the general shape is:

http://www.graememulskionline.homestead.com/files/Sept_Price_Graph.jpg

[moondogg]

You're right. If you can borrow money at a rate better than your expected return on investment rate, you make money.

But that's not really what he was talking about. Yes, "you don't get rich borrowing money" was a pretty sweeping statement, but he specifically said "consumer goods", and it's a discussion of borrowing money to purchase of an depreciating asset. They is a money-losing proposition, period.

Let's rephrase: "You don't get rich borrowing money for depreciating assets, consumer goods, or any investment whose return does not outpace your interest rate". Personally, I like the original version better. It has more zip.

[MMMMMM]

Thanks for the chart.

It generally goes up long term.

It might be turning down soon, though, and if you are highly leveraged that could be a place you really don't want to be. A down-turn pocket with leverage can really hurt in any investment, and renting out houses isn't like using one yourself for a roof over your head.

[miamikid]

Hi MMMMMM,

This is more the point. If you have a 100K to invest in rental properties, you do better to buy lets say 5 properties 100K properties putting down 20K on each and borrowing 400K than buying just 1 property cash.

The two scenarios:
1. You buy a rental property 100K ... you pay all cash. You rent this property for 1000/mo. Since you have no loan, you have a 1000/mo positive cash flow.

2. You buy 5 rental properties 100K each. You put down 20% and borrow 80%. Lets say in this scenario, you also have a 1000/mo positive cash flow... Each property is rented for 1000/mo, you have 5 loans which are 800/mo each. 200/mo positive cash flow on each property.

So now, Fact is... Real Estate averages 10% return a year in appreciation.

Assuming rents stay same, but 10% appreciation a year per property.

After 5 years, scenario 1, property is worth ~160K
After 5 years, scenario 2, properties worth ~800K -400Kloans= 400K + the principle that your renters have paid back.

Here is the thing too, as time goes on rental values also go up.

So in ten years, lets say your rents have increased just $200 per property... The more properties you have, the more positive cash flow. Before, both scenarios yielded the same cashflow, but now.... In scenario 1 buying just 1 property, your cash flow is now 1200/mo, but on 5 properties it is now 2,000/mo. As time goes on it becomes more magnified.

So not only do you gain alot more wealth in appreciation, but you cash flow is greater too.

This is all possible because you borrowed money and you are having someone else pay back the loan.

So which 100K investment was better?
Scenario 1 or 2?

Clearly 2.

2 is more work, but the rewards are sooo much greater.

[MMMMMM]

Yes but if you catch a downtrend and are highly leveraged you can get killed.

Prices going up an average of X% a year doesn't mean they are necessarily going up over the next 5 years; they might go down.

Haven't you heard of people getting busted out in real estate when the market turned down? This has happened to guys like you are talking about, and to big real estate developers too.

I agree it can work much of the time, and that real estate is generally one of the best investments, but you can't say with confidence that the method you describe works without qualification. Again, if you are leveraged to the hilt and the market turns down for a while you can go bankrupt.

There is a good chance home prices will be turning down soon for a fair length of time. Ask the people on the Stock Market Forum if you want more info.; some (or most) of them know the business much better than I.

[Ray Zee]

yes that works better and i am not advocating not getting mortgages. but even in your scenario it is highly speculative. not just from a down turn in prices but from a downturn in the rental market. in the first case if you are empty you only have to cover taxes and such. in the second you get broke and lose the works.
if things go good you do better. much better with the leverage. anyone that thinks things always go in any direction are doomed for disaster.