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Old 12-26-2012, 01:12 AM   #1 (permalink)
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Vehicle Loans

What are your opinions?

I'm a believer in paying cash for everything, but I'm learning that cars are expensive and take a long time to save up for. Especially on a fixed income. Lets keep it civilized, just curious on others opinions.
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Old 12-26-2012, 01:29 AM   #2 (permalink)
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As in leasing? If you are leasing it is my general opinion you are flushing money down the drain. If you are looking to borrow money to purchase, go to your bank, hopefully it's a credit union and apply for a loan. CU's have better interest rates than standard banks.
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Old 12-26-2012, 04:27 AM   #3 (permalink)
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As in leasing? If you are leasing it is my general opinion you are flushing money down the drain. If you are looking to borrow money to purchase, go to your bank, hopefully it's a credit union and apply for a loan. CU's have better interest rates than standard banks.
I had no luck with my CU for a used vehicle loan. Unless the car is 2 years or newer they don't like to lend directly to you. My wife and I got a great rate on a loan online earlier this year.( Sadly I can't remember with who) We used the approval later with the rate listed to get a slightly better rate through the dealer. The main bank they went through was our CU who would not lend to us directly but they gave us a loan through the dealer.
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Old 12-26-2012, 12:08 PM   #4 (permalink)
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I used to be of the opinion it was better to outright own your vehicle, but especially in America where credit scores affect everything (jobs, security clearances, apartment rentals, higher education opportunities, etc), I think it's better to get loans to buy cars and build up your credit rating. Now, I'm still of the opinion that unless you're just swimming in excess cash, it's better to buy used cars. For proof of that, exhibit A - GAP insurance. Your insurance company knows that a brand new car loses a portion of its value the minute you drive it off the lot (some cars don't, but over 85% of the vehicles on the market do this), and they're making you pay extra insurance to cover the difference in value of the vehicle from when you bought to when you fully own it. I can't tell everyone that we should all buy used cars, because if no one buys new cars we wouldn't ever have used cars, but for most of us, buy something that is gently used (ie: around or under 10,000 to 15,000 miles per year it's been on the road).

And I agree with Ninja - there are specific times and circumstances when a lease makes more sense, but for most of us, purchasing a car makes more sense financially.

In general, there are only two things you should buy with credit - vehicles and houses (property). Now, that doesn't mean you can't use credit cards to pay bills and then immediately pay off the cards, help build up your credit rating that way. Unless it's a drop dead emergency though (pipes break in the winter and you just don't have the money to pay the plumber, that kind of emergency), don't use credit to buy ANYTHING, except cars and houses.
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Old 12-26-2012, 12:15 PM   #5 (permalink)
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I used to be of the opinion it was better to outright own your vehicle, but especially in America where credit scores affect everything (jobs, security clearances, apartment rentals, higher education opportunities, etc), I think it's better to get loans to buy cars and build up your credit rating. Now, I'm still of the opinion that unless you're just swimming in excess cash, it's better to buy used cars. For proof of that, exhibit A - GAP insurance. Your insurance company knows that a brand new car loses a portion of its value the minute you drive it off the lot (some cars don't, but over 85% of the vehicles on the market do this), and they're making you pay extra insurance to cover the difference in value of the vehicle from when you bought to when you fully own it. I can't tell everyone that we should all buy used cars, because if no one buys new cars we wouldn't ever have used cars, but for most of us, buy something that is gently used (ie: around or under 10,000 to 15,000 miles per year it's been on the road).

And I agree with Ninja - there are specific times and circumstances when a lease makes more sense, but for most of us, purchasing a car makes more sense financially.

In general, there are only two things you should buy with credit - vehicles and houses (property). Now, that doesn't mean you can't use credit cards to pay bills and then immediately pay off the cards, help build up your credit rating that way. Unless it's a drop dead emergency though (pipes break in the winter and you just don't have the money to pay the plumber, that kind of emergency), don't use credit to buy ANYTHING, except cars and houses.
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Old 12-26-2012, 12:40 PM   #6 (permalink)
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Loans aren't as scary as they look at first. I was scared to death to get a 24k dollar loan for my first truck, but it was fairly simple to do and now a few years later it's paid off, and my credit score is around 790something (kinda odd that i paid off a loan that large over 5 years and my credit score isn't in the 800's)
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Old 12-26-2012, 12:47 PM   #7 (permalink)
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Get a vehicle loan you can afford and pay it on time for the entire term. It's a great thing for your credit rating. I just bought my first brand new car earlier this year, but I've financed a few vehicles and the long history of on time payments has helped me tremendously credit-wise.

All that being said, if you are a "cash-only" kind of person, you might be surprised that your credit rating is not as high as it should be. That's because about 30% of your credit score is based upon how much credit you have available and the percentage of that amount that you have used at any given time (your utilization rate). If you don't have a credit card, get one or two and use them for gas or groceries each month. So long as you pay the balance in full every month, and you keep your utilization rate at about 15% or less, you will get a huge bump in your credit score and you will qualify for much better loan terms.

Seriously, if you don't have a credit card... Get one. Someday when you absolutely have to finance something and have no choice in the matter... You will be glad you did.
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Old 12-26-2012, 01:11 PM   #8 (permalink)
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My general philosophy on cars is to pay cash if you can, but for most people a car of some kind is a necessity and not a luxury, and it is often an investment in that you need a car to keep a job.

At one point, just a couple years out of college, my 2002 Ford lemon died. I had saved a couple thousand dollars at that point and could have probably found a used car that I could've bought with cash, but I would've emptied most of my savings and been left with another car nearing the end of its usable life. A surprise repair bill could have screwed me. In that case, I believe taking a loan to get a more reliable vehicle while retaining my emergency cash reserve was the better choice, even though it will cost me more by the time it's paid off.

In other words, it depends on your circumstances.
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Old 12-26-2012, 09:23 PM   #9 (permalink)
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Even if they want to give you 0% financing (rare these days), you're paying triple for nothing more than "that new car smell."
I don't agree... completely. Yes, new cars depreciate quickly but what you also get is a warranty. I personally drive a used truck which is completely paid off. Actually I've never owned a brand new car for myself. I am willing to take the risk for myself of a breakdown, maintenance...etc. We just replaced my wife's vehicle (which we bought new) with another new vehicle. The main reason was that even with just 60k miles on it we were looking at having to spend 3k on it in the next couple months and other probably major mechanical issues not covered under warranty. With the trade in and incentives we got a nice deal and the payments are actually less.

The benefits for me are:
- Skipped one payment and saved 2k+ in out of pocket costs in the next few months
- I have peace of mind knowing her and my kids aren't going to be stranded by a breakdown
- Vechile has a bumper to bumper warranty that extends past when we'll have it paid off

Still, unless you have a very stable income and a good reason to do it, I'd suggest just going for a decent used car. Paying cash and buying from a private seller vs. a dealership is almost always cheaper too.
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