Car Loans

[ducky911]

Quote:

Originally Posted by FinanceDude Probably about 80% of all folks can't pay cash in my area. .........

sounds like they are living beyond their means.

[Rachel]

Thank you to all who responded, and for the excellent advice.
By a landslide, "tough love" was the verdict, followed by some assistance to refinance at a lower rate/longer term. I liked the idea of making it easier to fund her Roth account (she contributed during the last 2 years of college when she had summer earnings but it was a measley amount each year).

Here is what I have decided to do:
1. Suggest (not tell) that she refinance the loan to 4 years/lower rate and let her research it and do the paperwork. I will shut my mouth about her decision to buy a new car with a loan even though I have to bite my tongue hard.
2. Tell her that I am confident she can find ways to trim her spending once she has refinanced, and use those savings to start an emergency fund.
3. Until she has built a bit of a cushion for emergencies, I will make a contribution this year to her Roth and next year will match her dollar-for-dollar. I don't think she should try to put her own money into a Roth this year until she has an emergency fund.
4. Let her know that I have her back in case of a dire emergency (medical etc) but that I know she can figure this out.

I'll be interested to see how she does in the next 6 months!
Thanks again for the sensible input and support to let her learn from this (I hope).

[73ss454]

Quote:

Originally Posted by ducky911 sounds like they are living beyond their means.

Do you hate them also or is it just car salespeople?

[MasterBlaster]

Quote:

Originally Posted by mystang52 We're all different, but I would offer to pay off the loan for her. Whatever that pay-off amount is becomes the new loan principle that daughter pays to you each month, interest free. Whether the monthly savings is $25, $10, or $0.46, she must devote that amount to automatic savings (savings bonds, Ally/ING savings account, etc.). You'd be helping your daughter out, whil eteaching her a lesson in savings no matter how small the amount. Like I said, we're all different but that's my vote.

You assume that the daughter will indeed keep paying. I suspect if the OP does what you suggest that the daughter will start missing payments cause something comes up as it always will.

The real lesson here is that cars are really expensive (especially new) and perhaps there are better choices for your hard earned money. Pretty much everyone goes through the pricey car thing at some stage in their life.

The other point I would make here is that the interest is the much smaller part of the car payment. The much bigger part is actually paying for an expensive car. So even if the daughter gets the interest rate down to 2 % it will still be a large payment.

[travelover]

Quote:

Originally Posted by MasterBlaster ........... The much bigger part is actually paying for an expensive car. So even if the daughter gets the interest rate down to 2 % it will still be a large payment.

Shhhh....my pension depends on people like this.

[Gatordoc50]

Quote:

Originally Posted by FinanceDude Probably about 80% of all folks can't pay cash in my area. .........

If people could delay gratification for a few years they could pay cash. I have always paid cash. Writing a check for 30000 plus is hard to do so I keep cars a long long time.

[Mulligan]

Quote:

Originally Posted by Gatordoc50 If people could delay gratification for a few years they could pay cash. I have always paid cash. Writing a check for 30000 plus is hard to do so I keep cars a long long time.

Most of my life I didn't have the money to pay cash for a vehicle. Now that I do, there is no way, I could ever do that because it would bring me to tears to let go of it. But on the other hand, I have never had a new car, nor had a car payment above $300 a month (4 year max) even when I had a 6 figure salary. When I eventually need another car, I will "punish" myself by taking it out of my monthly cash flow and thus have to reduce my fun money. Concerning OP, I would concur with the refi and to lower rate. Extending it out to a 4 yr loan, will help cash flow and the car still shouldn't be incurring any significant maintenance cost yet either during this time.

[FinanceDude]

Quote:

Originally Posted by brewer12345 Because they are all going broke paying % AUM fees to their advisors, right?

Not sure, but I see a TON of Lexuses and Mercedes and big BMWs, and a lot of those are $50,000+. so maybe that is eating up their cash........

[martyp]

I don't have a problem with a recent grad buying a cheap new car. It's just one of those life expenses along with funding an emergency fund and later paying for a wedding and maybe a house. Starting retirement savings now could be a good thing but . . . really . . . most people are not doing that this early in life. It wouldn't be the end of the world if she put it off for a couple of years.

I guess I would ask: What is an appropriate monthly car payment for someone with her salary? Probably lower than $450/mo.

[pb4uski]

+1

I don't see a new Ford Escape and a ~$15k loan as being a huge extravagance for a new college grad clearing $24k a year. The reason her payments are so high is because the loan term is only 3 years.

I'll probably get flamed for suggesting this, but if I were Rachel, I would offer to refinance the loan for my daughter (with me as the lender) on more reasonable terms (say 5 years at 4%) which would make her payments more affordable and in exchange ask that she take half of the savings and start saving in her 401k.

And I'd probably try to get her to agree to discuss any major financial decisions with me in advance, but good luck with that.

[clifp]

Quote:

Originally Posted by Rachel I'll be interested to see how she does in the next 6 months! Thanks again for the sensible input and support to let her learn from this (I hope).

That all seems very sensible. To be honest if that is the dumbest financial thing your kids do, you raised some pretty smart ones.

Thanks for letting us know what you've decided. Lately I found myself not one wanting to throw my $.02 cause I often seen need members post a question or two and then disappear with no acknowledgement that any feedback was read much less had any impact.

[target2019]

I would pay off loan and refinance for her with no interest. I'd also let her know that I'm available for help with decisions. I wouldn't leave her with just the advice of the used car salesman.

In your situation it sounds like your decision is similar. Maybe her not asking for advice is a reaction to something in the past where she felt book smart, but lacking on the practical side.

[Walt34]

I'd pretty much leave it be as is but suggest, not insist, that she refi at a lower rate. If she said "no" I wouldn't argue about it.

The good news is what she did not do: Buy something wildly extravagant that she can't possibly afford, or stretch it out to 5 years of payments. Three years is long enough to write a strong memory of deprivation that will hopefully make her reluctant to do that again.

She's young, she will stumble a few times and learn from the scrapes and bruises of the consequences of her actions.

Later on they call that "wisdom and experience".

When I was 25 I bought an airplane that I could barely afford. I had a ball with it, but ate hot dogs to afford the fuel and maintenance. I don't regret it, but had I known then what I know now I doubt I would do it again.

Not sure if that's a good thing or not.

[cj1717]

Quote:

Originally Posted by omni550 +1

I agree, although she may never make the connection between the pain and the poor decision making process.

[travelover]

Quote:

Originally Posted by Walt34 ......... When I was 25 I bought an airplane that I could barely afford. I had a ball with it, but ate hot dogs to afford the fuel and maintenance. I don't regret it, but had I known then what I know now I doubt I would do it again. Not sure if that's a good thing or not.

Do you wish that your mom or dad had just paid for it?

[FinanceDude]

Quote:

Originally Posted by ducky911 sounds like they are living beyond their means.

0% for 72 months has worked for GM...........

[MasterBlaster]

Quote:

Originally Posted by martyp I guess I would ask: What is an appropriate monthly car payment for someone with her salary? Probably lower than $450/mo.

The head of General Motors mentioned that people tend to spend around 5% of their gross income directly on cars and car payments. Insurance, gas, maintenance were not included in the 5%. So if you make $50k, for example, then I suppose an appropriate monthly payment would be just over $200 a month, and so on.

[pb4uski]

Quote:

Originally Posted by MasterBlaster The head of General Motors mentioned that people tend to spend around 5% of their gross income directly on cars and car payments. Insurance, gas, maintenance were not included in the 5%. So if you make $50k, for example, then I suppose an appropriate monthly payment would be just over $200 a month, and so on.

I have trouble reconciling 5% of annual income for payments with what today's cars cost. Seems to me like no one would be buying new cars if they were limiting themselves to 5% of annual income. In other words, $200 a month isn't going to buy much.

[MasterBlaster]

Quote:

Originally Posted by pb4uski I have trouble reconciling 5% of annual income for payments with what today's cars cost. Seems to me like no one would be buying new cars if they were limiting themselves to 5% of annual income. In other words, $200 a month isn't going to buy much.

well for someone who makes $50k, 200 a month will buy you one of the cheaper economy cars or a late model used car after a good sized down-payment/trade-in.

It goes without saying that the high-end cars take a good income to support. Either that or you become car-poor driving a car that's really above your means.

[jazz4cash]

Quote:

Originally Posted by pb4uski +1 I don't see a new Ford Escape and a ~$15k loan as being a huge extravagance for a new college grad clearing $24k a year. The reason her payments are so high is because the loan term is only 3 years. I'll probably get flamed for suggesting this, but if I were Rachel, I would offer to refinance the loan for my daughter (with me as the lender) on more reasonable terms (say 5 years at 4%) which would make her payments more affordable and in exchange ask that she take half of the savings and start saving in her 401k. And I'd probably try to get her to agree to discuss any major financial decisions with me in advance, but good luck with that.

I agree w/ PB4. 4% is a favarable arrangement for both parties. I think a 3 or 4 yr term is a good choice.