Financial Advice

[SEComposites]

I have a question or two to ask this diverse community!
I have been looking at buying a new (used) car as my old truck is getting a little tired. I could buy a cheaper car outright or finance a newer more expensive one. My problem is my credit history/score. Having been brought up to the mantra of 'neither a borrower nor lender be' I've never liked owing money. Right now I don't owe a penny to anybody, and that seems to be a bad thing! My credit score is apparently nosediving towards zero and I can't get an auto loan below 14%apr.

Do I continue my philosophy and just buy a cheaper car outright?
Do I swallow a high interest rate just to boost my credit score?
Do I get a smaller loan to buy something else just to boost my credit score?
Do I get a credit card?

My instinct is option 1 but am I screwing myself by continuing down this path?

Thanks!

[HazelNut]

get a basic crappy credit card, like from capital one with a low credit line, buy a few things with it every month and make sure you pay it off every month. That will build some history and should raise your score. Once it's raised get a better card with a higher limit or a car loan. Those will have more impact on your score and assuming you always pay on time will also raise your score.

creditkarma.com is pretty good for checking out your credit report and you can use that to figure out what will help improve your score going forward.

even if you don't ever take out any big loans its still a good thing to be able to.

[rickb99]

Actually, I stayed totally and completely OFF the credit card, utility, mortgage and loans grid for about 10 years..... LOL

When I went to rent an apartment, I had ZERO credit, as in, I didn't exist. No problem renting.

[Daryl DeArman]

Having been brought up to the mantra of 'neither a borrower nor lender be' I've never liked owing money. Right now I don't owe a penny to anybody

Perfect.

My credit score is apparently nosediving towards zero and I can't get an auto loan below 14%apr.

If you don't intend to borrow money, you don't need a credit score. A "ZERO" credit score, is much better than a 500. One says I don't borrow money or have a recent credit history. The other says I borrow money and don't normally pay it back as promised.

Do I continue my philosophy and just buy a cheaper car outright?

Yes. Meanwhile, pay yourself that money you would have paid in interest to buy a nicer car the next time if you wish.

Do I swallow a high interest rate just to boost my credit score?
Do I get a smaller loan to buy something else just to boost my credit score?
Do I get a credit card?

Nope,nope, nope.

My instinct is option 1 but am I screwing myself by continuing down this path?

Thanks!

Biggest hit to your future financial well-being is spending money you haven't yet earned on things that depreciate all while paying somebody a premium to do so.

[Nardi]

Daryl nailed it.

[Tiago Santos]

You're doing it right. If you do want a credit score (I dunno, in case you ever need a mortgage for instance), there's nothing wrong with a credit card, if you've got the discipline to not use it stupidly.

I pay for everything I can (meals, clothes, bills, transportation, gas, whatever) on the credit card and pay it off every month. I never pay any interest, and I get 1% cash back at the end of the year. The bank calls me every few months trying to raise my credit limit, I politely decline. My credit limit is high enough that I can pay for flights or holidays when I need to, but low enough that I can always pay it off every month.

Works for me, but then again just about anyone on apexspeed has more $$$ than me, so take it with a grain of salt!

[Dennis Valet]

I also recommend checking out creditkarma.com. The site will give you an analysis of what is hurting your credit score and ways to improve it. Just opening a high interest rate car loan for the sake of raising your credit score is not necessarily the answer. There are probably "cheaper" and better ways to do it. You can maintain your lifestyle and philosophy while building up your credit score for those times you do wish to or need to finance something. They don't have to be mutually exclusive.

[steve zemke]

Have you thought about joining a credit union? Putting a few bucks with them every month will get you a place to borrow at a reasonable rate. Borrowing from/at the dealership is a last resort.
We put everything we can on the credit card and pay it off every month. Costco gives out American Express cards with no annual fee.

[SEComposites]

Thanks for all the good advice - plenty to ponder this weekend!

[RussMcB]

Give up racing. You'll be rich.

[Daryl DeArman]

While that may be true Russ, what is the point in accumulating all that money if you aren't going to use a portion for your enjoyment?

[SEComposites]

Give up racing. You'll be rich.

I've tried too but i've come the the conclusion that its actually not possible.

[Offcamber1]

Right now I don't owe a penny to anybody

An Ex-Wife will fix that condition.

[Jeremy Soule]

Ben, you can usually find a good used luxury car for reasonable price. People that can afford a lux vehicle usually take good care of them. A few years ago I found a solid 86 BMW 635 csi on craigs list for $3300! I drove it for 6-7 years then sold it for $1700, in that time I didn't spend more than $500 over routine maintenance. The car had decent paint and I waxed it. Non-car people thought I had a new BMW and car people knew I had a cool classic. Lately I've been looking at Lexus SC 300, also any Acura, E36 BMW, Etc. You know what to do. Have fun with it. It's your wheels. And monthly payments are a drag.
I do the same thing with my work trucks. Had one that me and a racing buddy painted with rustolim (with a spray gun, comes in quarts for about 8 bucks)one weekend, my regular clients were asking if I got a new truck People that knew it was an older truck appreciated that I kept it in good repair.

Debt is generally a bad thing unless some one else is paying it back for you. Example: a rental with a mortgage that the tenant is paying down for you!
Luck. J

[marshall9]

http://www.daveramsey.com/home/

[SStadel]

While debt is generally a bad thing, good credit can be invaluable. You can get better insurance rates and if you did need to take out a loan you get better rates, like you found out. My advice is to raise your credit score regardless of which way you go on your car purchase. Someone like you is not going to abuse your credit card. Like others have said, get a card, use it and pay it off fully every month.

[Daryl DeArman]

Debt is generally a bad thing unless some one else is paying it back for you. Example: a rental with a mortgage that the tenant is paying down for you!
Luck. J

Until that tenant quits paying the rent and it takes you months and months to get them out. Meanwhile you are stuck paying a mortgage payment you may not be able to afford.

Or it's 2006 all over again and you are suddenly way upside down.

There is risk involved in that scenario.

Nothing wrong with owning income property, it just needs to be income property without a mortgage.

[veefan]

I apologize in advance

Finance 101... quiz

I have a really good credit score and I have $10,000 available, do I use my money or take a loan to buy a car?

A smart financial person takes a loan, why, because the loan costs 2.59% while my money is a mutual fund earning me 15% on the $10K. The debt free guys cash is in a depreciating asset losing money.

Living debt free is all the rage, but it's not the the best financial advice if you know how to mange money.

That being said,

Best starting point to build credit, was already said, join a good credit union. Most offer great loan and credit card rates.

Loans and credit cards both help build credit, but credit cards are really dangerous if you don't use them correctly. I love my credit cards, one pays for my FREE family vacation every year!

Used car loan...use a CREDIT UNION, period. The credit union I'm with offers a 2.59% loan for 36 months on newer used cars. Yes, that's with good credit score but a friend who has really bad credit just got a 6.5% rate on 60 months with his credit union.

NEVER get a loan from a car dealer. Dealers make money on the loans they sell you, the higher the rate they push, the more THEY make which is what the "finance guy" at the dealership does. His finance company might tell him you qualify for 10%, but he knows you have no or a low credit score and you need a car, so he up charges you to a rate of 14%. Sounds crazy, but it's true, every dealership does it.

p.s. the finance guy in a typical dealership makes more commission on his loans, than the top salesman does selling cars!

[Mark_Silverberg]

I apologize in advance

Finance 101... quiz

A smart financial person takes a loan, why, because the loan costs 2.59% while my money is a mutual fund earning me 15% on the $10K. The debt free guys cash is in a depreciating asset losing money.

If I could get consistently 15% out of a mutual fund without risk of loss I would be retired right now. The point is that there is risk of loss and that is why some people feel more comfortable with no debt - because they will not lose the money that they have used to pay off debt.

Getting back to the initial question. In the case of little credit history shop the loan before you shop the car. You probably have a savings or checking account some place and you should start there. Talk to a real person and explain the situation.

As others have stated, credit unions are good sources of loans for buying a new car. They will particularly work with you if you set up automatic payments from your checking / savings to your car loan. They can also give you a reasonable guideline on loan amount.

Dealers do not know how to handle people in your situation and take the easy way out by lumping you in with people with poor credit.

[veefan]

If I could get consistently 15% out of a mutual fund without risk of loss I would be retired right now. The point is that there is risk of loss and that is why some people feel more comfortable with no debt - because they will not lose the money that they have used to pay off debt.

Sorry, but I'm really confused,

We will not place our money at some risk, but we will place our lives at total risk every race weekend? Interesting?

"Dealers do not know how to handle people in your situation" they actually do, they will totally take advantage of you with a high interest rate!

"shop the loan" 110% right, but keep in mind, credit inquiries will lower your credit score.

[Steve Demeter]

But racing is fun and exciting.

Investing is neither unless you are one of the fortunate few making really fantastic returns

[QUOTE=veefan;449837]Sorry, but I'm really confused,

We will not place our money at some risk, but we will place our lives at total risk every race weekend? Interesting?

[fvkartguy]

get a basic crappy credit card, like from capital one with a low credit line, buy a few things with it every month and make sure you pay it off every month. That will build some history and should raise your score.

Careful, part of the credit score is how long you've had your card(s). I'd echo what others have said, go to credit karma to see what your history is like and where you're lacking before making any moves to try to bolster your score.

[Daryl DeArman]

A smart financial person takes a loan, why, because the loan costs 2.59% while my money is a mutual fund earning me 15% on the $10K. The debt free guys cash is in a depreciating asset losing money.

Living debt free is all the rage, but it's not the the best financial advice if you know how to mange money.

So, I assume you have nothing that is paid for? That your house is mortgaged to the hilt so you can free up all that low-interest cash and put it in the market. That you've taken out every loan you can get your hands on that has a lower interest rate than what you anticipate earning in a mutual fund. If not, why not?

The smart financial person factors in the risk involved.

It's not too unlike those "smart" financial advisors telling you not to pay off your mortgage because you "need the write-off". They're basically telling you to pay the bank $20K a year in interest just to save $6000 in income tax.

[SEComposites]

So my credit score has gone from the high end of excellent to the low end of fair in just over two years of zero debt : /

[Matt King]

So my credit score has gone from the high end of excellent to the low end of fair in just over two years of zero debt : /

Not surprising. Ironically, the credit agencies actually consider people who have no debt and don't use credit as being at a higher risk of default. I was talking to a guy recently who got hit with a big rate increase from his auto insurer because his "insurance credit score" had declined significantly due to him having virtually no outstanding consumer credit debt.

[racerdad2]

Get yourself some department store cards & a gas card. By something every month. Pay it every month, a little early, never late. On one or two cards, carry over a small balance. Let them make a little interest or their minimum fee. Keep your credit limits low. Get one major credit card. Same deal. You'll be looking good rather quickly.

No debt could mean no job

[Pop Chevy]

Dave Ramsey is my hero ! He gives GOOD advice. I too live debt free and love it.I would rather save up to buy a nice used car than take the huge financial hit on a new one. To me it's a waste of money.

[Daryl DeArman]

So my credit score has gone from the high end of excellent to the low end of fair in just over two years of zero debt : /

No worries. You will be in great shape once it hits ZERO.

Ironically, the credit agencies actually consider people who have no debt and don't use credit as being at a higher risk of default. I was talking to a guy recently who got hit with a big rate increase from his auto insurer because his "insurance credit score" had declined significantly due to him having virtually no outstanding consumer credit debt.

Just because you don't have any debt and you don't utilize credit (at the moment) doesn't mean you have a zero credit score. Having that 400-600 credit score is when you have a higher risk of default.

As to insurance companies giving you a higher rate because of NO credit. Find a new insurance agency. Now, if it's a bad credit score---that's another story.

Dave Ramsey is my hero ! He gives GOOD advice. I too live debt free and love it.I would rather save up to buy a nice used car than take the huge financial hit on a new one. To me it's a waste of money.

Exactly, if people stopped and thought about how much money they spend every year on finance charges (credit cards, student loans, auto loans, and mortgages) they would see just how much a lifestyle they didn't pay cash for costs them.

The process of becoming debt free is too painful for many to go through, but like anything worth having, it's worth the hard work.

[Wren]

Whether you want to borrow money or not, keeping your credit score up is in your best interest.

Something like 50% of all jobs are checking applicants credit scores. Same goes for housing and insurance companies. A bad/low credit score can cause drama that will be annoying to deal with.

Credit cards are convenient and offer a lot of consumer protections. Having one doesn't mean that you have to live beyond your means.

[Daryl DeArman]

Whether you want to borrow money or not, keeping your credit score up is in your best interest.

Something like 50% of all jobs are checking applicants credit scores. Same goes for housing and insurance companies. A bad/low credit score can cause drama that will be annoying to deal with.

Credit cards are convenient and offer a lot of consumer protections. Having one doesn't mean that you have to live beyond your means.

Keeping your credit score up certainly makes some facets of life easier, such as pre-employment and/or security clearance screenings.

I agree that having a credit card doesn't mean you have to live beyond your means. However, the average US Household has almost twice the credit card balance as savings account balance. The average credit card holder is most certainly living beyond their means.

Buying an automobile on credit is usually a perpetual cycle that has a large negative effect on ones' ability to build wealth.

[veefan]

So, I assume you have nothing that is paid for? That your house is mortgaged to the hilt so you can free up all that low-interest cash and put it in the market. That you've taken out every loan you can get your hands on that has a lower interest rate than what you anticipate earning in a mutual fund. If not, why not?

No that's not what I do, but I do wake up every morning and go off to work as a VP of Financial Planning and Analysis for a company that had over 14 billion in sales last year, and I've been in this profession for over 35 years.

Suze Orman and Dave Ramsey have made an amazing living out of selling books and hosting TV shows.

[Daryl DeArman]

No that's not what I do, but I do wake up every morning and go off to work as a VP of Financial Planning and Analysis for a company that had over 14 billion in sales last year, and I've been in this profession for over 35 years.

Suze Orman and Dave Ramsey have made an amazing living out of selling books and hosting TV shows.

I suppose if I were a VP of Financial Planning and Analysis for a company that "sells financing" I would have well-prepared rebuttals to those controllers who are fans of Orban and/or Ramsey.

I'm curious why it is that you don't choose to leverage all of your own assets and available credit to free up cash flow for investment purposes?

[veefan]

Veefan,

Now that we know what you do for a living and your area of experience why is it that you don't leverage every tangible asset and line of credit you can secure to free up cash to invest?

My assets exceed my liabilities by a substantial amount, does that answer your question?

p.s. my company doesn't sell financing...

[Daryl DeArman]

My assets exceed my liabilities by a substantial amount, does that answer your question?

p.s. my company doesn't sell financing...

Nope.

The advice you gave was to invest the cash available and get a loan for the vehicle. You justified the advice by stating the return they would get on the investment would exceed the cost of the financing....making them money.

So the question is, why don't you have your assets mortgaged to the hilt (getting access to as much cash as possible) and investing all of that cash?

On edit---your company doesn't sell financing. My mistake. Your employer helps companies obtain financing by leveraging their underperforming assets.

[veefan]

Nope.

So the question is, why don't you have your assets mortgaged to the hilt (getting access to as much cash as possible) and investing all of that cash?

I do, but that's risky, but no more risking than racing...

[Daryl DeArman]

No that's not what I do

I do, but that's risky, but no more risking than racing...

Got it.


Yes, the obvious answer is RISK.

Ha, ha, I'm not sure about racing being more risky. Almost 1,000,000 people filed BK last year. That's about 1 in 300. What's the fatality rate in racing? Or did you mean that racing is financially risky?

[Brian]

I was at my ford dealer today, looking at cars with zero percent financing. I'd finance as much of that car as I could at zero percent, since I do earn an honest 4% - 5% on my portfolio most years (the past few weeks not withstanding). I did the same with the last car that I bought, two years at 1%. So I had a $1,000 a month car payment, I could care less. Why? I had the money in the bank to pay for it earning more than 1%. I have no income, no pension, and I have no idea what my credit score is (three years ago it was 825, whatever that means). I put all my travel on credit cards, pay them off at the end of the month. I just got a new Amex card that my wife got me that apparently gives me a 5% cashback if I buy gas with it. I have enough credit card headroom to buy my first house about twice. When I found my retirement property I wrote a cheque for it on the line of credit that I had previously established on my first house, then sold that house and paid off the line of credit. Moral of story? Use credit as a tool, it's just like a hammer and you just need to find the right nail.

Brian

[veefan]

I Use credit as a tool, it's just like a hammer and you just need to find the right nail.

Brian

Brain, gets it, Holly cow! PERFECT!

p.s, I'm not best racer, I'm much better at doing what I'm paid to do!

[Matt King]

Just because you don't have any debt and you don't utilize credit (at the moment) doesn't mean you have a zero credit score. Having that 400-600 credit score is when you have a higher risk of default.

As to insurance companies giving you a higher rate because of NO credit. Find a new insurance agency. Now, if it's a bad credit score---that's another story.

I didn't say he had a low credit score or zero. In fact, his credit score is over 800. What he was told is that the insurance company calculates it's own "insurance" credit score based on credit history and that was negatively affected by his (lack of) credit usage. He is looking for a new insurance provider as a result, but it's a PITA to have to do it for such a ridiculous reason.

[Brian C in Az]

I apologize in advance

Finance 101... quiz

I have a really good credit score and I have $10,000 available, do I use my money or take a loan to buy a car?

A smart financial person takes a loan, why, because the loan costs 2.59% while my money is a mutual fund earning me 15% on the $10K. The debt free guys cash is in a depreciating asset losing money.

Living debt free is all the rage, but it's not the the best financial advice if you know how to mange money.
…..
p.s. the finance guy in a typical dealership makes more commission on his loans, than the top salesman does selling cars!

So, I assume you have nothing that is paid for? That your house is mortgaged to the hilt so you can free up all that low-interest cash and put it in the market. That you've taken out every loan you can get your hands on that has a lower interest rate than what you anticipate earning in a mutual fund. If not, why not?

The smart financial person factors in the risk involved.

It's not too unlike those "smart" financial advisors telling you not to pay off your mortgage because you "need the write-off". They're basically telling you to pay the bank $20K a year in interest just to save $6000 in income tax.

Veefan is correct, but Daryl is also correct….

I've been telling friends for years that the home mortgage interest deduction program is a con game. The typical family of four doesn't even get the mortgage deduction because they take the standard deduction instead of itemizing. Dayrl, you forgot to add the $200 or $300 a month mortgage insurance premiums to that equation; then it really turns upside down….

My home is mortgage free, I have several high limit credit cards because they pay me $$$ every year. Most recently I earned/received $980.00 in a cash reward check.

I use my credit cards for everything and get the rewards cash back every year. Did you know that many credit cards give you 5% cash back if you use them to pay your cell phone bill? Electric bill? Cable bill? That is easily $200.00 each year in cash back rewards.

Two of my cards are currently offering 0% interest on purchases for 18 months, why wouldn't I use them for a major purchase? As long as I use them wisely, I make money off them.

You need a credit card to build your credit score. Why pass up all that free cash back that you should be receiving?

The higher credit score will lower your auto insurance rates as well as give you more and better options for financing when you need financing. I even use my credit card to pay my auto insurance and get 2% cash back from it as well.