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New car loan and credit after retirement?
Old 02-22-2010, 11:20 AM   #1
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New car loan and credit after retirement?

We have excellent credit and substantial assets, but will only have SS as verifiable income after I retire (at 62). I was planning on keeping our car another year or two but the stories I'm hearing about consumer loans in this current market have me concerned. Will our credit score take a hit after retirement? Will we have any trouble getting a car loan? Should I advance the purchase of a new car to this year so I can finance it while still employed? We've been loan free for years, so this subject hasn't been a priority in planning. Withdrawing cash to pay for a new car would result in a heavy tax hit.
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Old 02-22-2010, 11:31 AM   #2
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I am sure that you will receive a diversity of opinions regarding car loans. Mine is that if you need a loan for a car, you can't afford it. As you consider retiring, give some thought to beefing up your taxable savings so that you can plunk down the $ needed for a car purchase. The amount that you have saved (aside from your emergency funds) will dictate the affordability of the car.
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Old 02-22-2010, 10:26 PM   #3
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No problems--as long as your credit is good.

I'm retired and we've bought 2 new cars recently, both financed thru Penfed.
At 3.99%.

"Mine is that if you need a loan for a car, you can't afford it. As you consider retiring, give some thought to beefing up your taxable savings so that you can plunk down the $ needed for a car purchase."

Need to? Maybe. We could have bought without a loan. Does that count as "need a loan" or not?

We have quite a bit of money invested in preferred stocks paying an average of 7%+ It seemed kinda dumb to cash them in to buy a car.
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Old 02-22-2010, 10:40 PM   #4
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I am sure that you will receive a diversity of opinions regarding car loans. Mine is that if you need a loan for a car, you can't afford it. As you consider retiring, give some thought to beefing up your taxable savings so that you can plunk down the $ needed for a car purchase. The amount that you have saved (aside from your emergency funds) will dictate the affordability of the car.
I planned to buy a new car when I retired in 2009, and saved up for it in the years prior to that. However, I spent more on the car than I had planned on spending.

So, even though I am no longer saving for retirement, this year (my first year of retirement) I will be spending less than I had planned, to make up the difference. That's OK because I have some flexibility in my budget.

Even though cash does not pay much in interest these days, I think it is a good idea for retirees to keep enough in cash to cover a new car, a new roof, living expenses during a market crash, or whatever happens to come up. To me, this thread indicates a tweak in asset allocation might be advisable so that the cash percentage is a little higher. Possibly DWPC might want to consider setting aside more of his earnings in cash this year and not invest any more until his cash allocation is higher.

On the bright side - - I am SO HAPPY with my new car! I feel like a pampered child of luxury driving it. I simply cannot believe how much cars have advanced in the past 10 years. The technology is amazing. I love stoplights because there is so much to explore and play with, and fiddle with as I figure everything out. What a great "good for me" present for my retirement!
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Clarification
Old 02-22-2010, 11:54 PM   #5
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Clarification

Affording a car isn't an issue nor is it the question. I'm simply trying to determine if retirement is viewed as a big credit negative for loan purposes even with considerable assets, SS income, and what investment income can be made in this stagnant market.
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Old 02-23-2010, 12:06 AM   #6
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Affording a car isn't an issue nor is it the question. I'm simply trying to determine if retirement is viewed as a big credit negative for loan purposes even with considerable assets, SS income, and what investment income can be made in this stagnant market.

I don't know about car loans, but the experience of many retirees on the board has been that rules have changed for asset based borrowing for homes.

Before 2007, if you walked in a bank or mortgage company and showed that you had liquid assets worth many X the amount you were borrowing you could get a good loan no question asked. No days there are much more focused on income from a job than assets, to that Nords reported that there was some questions about his military pension LOL.

Generally speaking you can get either a rebate or a low interest loan but not both when buying a car. (Your mileage may vary and there are many exceptions), so I think you are generally s better off paying a cash...
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Old 02-23-2010, 07:17 AM   #7
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On the bright side - - I am SO HAPPY with my new car! I feel like a pampered child of luxury driving it. I simply cannot believe how much cars have advanced in the past 10 years. The technology is amazing. I love stoplights because there is so much to explore and play with, and fiddle with as I figure everything out. What a great "good for me" present for my retirement!
I know exactly what that's like! When we retired and moved in 2002 we bought two new vehicles, both long-planned. I'd been driving a 1985 Chevy pickup and couldn't wait to get the WV tags on it and send photos to family.

It looked like a stereotypical "WV pickup truck" with rusting roof, hood, side panels, peeling paint, cracked dashboard, etc. 1985 was one of the earlier years of new paint formulations to meet EPA regs and they hadn't solved the longevity issues. I kept it because the mechanicals were all in good shape. It got washed when it rained.

My "retirement present" was a new 2003 4WD GMC pickup truck, ordered with exactly what I wanted on it, with all kinds of bells & whistles that I didn't even know existed. It is every bit as quiet and comfortable as DW's Buick. Not as smooth a ride (hey, it is a truck!) but even she prefers it for longer drives because we sit higher in it and there's more room. Pickup trucks have come a long way.

Back on topic, we have chosen to have savings in place for about our next three or four vehicles, but for those who have those funds in a tax-deferred account, or plan on selling investment assets which would trigger higher taxes, a vehicle loan might be the cheaper way out.

Have to crunch the numbers both ways to see what is best for you.
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Old 02-23-2010, 04:52 PM   #8
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Wouldn't you solve this with 1) a cash (or near cash) emergency fund that can handle whatever situation might arise, and 2) additional retirement cash flow to replenish the emergency fund? Maybe I have oversimplified, but we have a budget item for new cars -- it is a fixed amount per year. No we don't get a new car every year, but when we do we have the ability to pay cash.

We do this for other infrequent large expenses, also.
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Old 02-23-2010, 05:04 PM   #9
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Originally Posted by clifp View Post
Before 2007, if you walked in a bank or mortgage company and showed that you had liquid assets worth many X the amount you were borrowing you could get a good loan no question asked. No days there are much more focused on income from a job than assets, to that Nords reported that there was some questions about his military pension LOL.
I would like to see this thread focus on the OP's question- credit for a secured loan after retirement. Many of us follow the total return plan, and judging from what people on the board report as their AGI, many of us could not qualify for much based soley on the dividends and interest that we earn annually.

The problem will not come from one's score deteriorating- I have a strong credit score after many years of retirement. The problem, if there is one, will come from cash flow and repayment ability doubts.

I doubt OP cares, and I know that I do not care what the debt averse think should be bought for cash only.

Ha
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Old 02-23-2010, 05:13 PM   #10
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I doubt OP cares, and I know that I do not care what the debt averse think should be bought for cash only.

Ha
Understand your point of view.
My comments did not originate from debt aversion, although it may appear so.
The OP's topic is a good one.
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Old 02-23-2010, 06:32 PM   #11
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Well one thing you can do is set up a home loan line of credit while working. I did that a couple years before retiring as I did not know what younger sons college costs would be. Have a $100K HLOC on our $400k house and it just keeps being renewed. Only used it once when we bought a travel trailer and paid that off in 18 months, could have paid cash but it smoothed out the cash flow. If we needed a new/er car we would probably use it rather than deplete our emergency fund in the credit union. Remember to set up the line of credit while working and can answer all those nice income questions, it doesn't suddenly disappear because you retire.
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Old 02-23-2010, 07:51 PM   #12
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Affording a car isn't an issue nor is it the question. I'm simply trying to determine if retirement is viewed as a big credit negative for loan purposes even with considerable assets, SS income, and what investment income can be made in this stagnant market.
I took out a car loan with my credit union during the cash for clunkers program of 2009. I'm an early retiree (not yet eligible for SS) with just my assets. I have no income stream other than my investments.

I found the loan officer to be mostly concerned with income and not so much with assets. My saving grace is that I move money into my checking account every month from brokerage institutions. I was able to show these monthly deposits into their checking account and this qualified as meeting the income requirement - loan approved.
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Old 02-23-2010, 08:01 PM   #13
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Understand your point of view.
My comments did not originate from debt aversion, although it may appear so.
The OP's topic is a good one.
I wasn't commenting on your post, only that I would like to know more about getting secured loans after retirement, without pension income. I didn't mean to offend, I am sorry if I did. It's clear to me that I didn't do a very good job of expressing myself.

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I found the loan officer to be mostly concerned with income and not so much with assets. My saving grace is that I move money into my checking account every month from brokerage institutions. I was able to show these monthly deposits into their checking account and this qualified as meeting the income requirement - loan approved.
Interesting. A peculiar definition of income, but definitely something to keep in mind.

Ha
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Old 02-24-2010, 03:15 AM   #14
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.

I found the loan officer to be mostly concerned with income and not so much with assets. My saving grace is that I move money into my checking account every month from brokerage institutions. I was able to show these monthly deposits into their checking account and this qualified as meeting the income requirement - loan approved.
Someone, maybe it was Nords, reported that all kinds of weird things counted for income include Roth Conversions.

This would be a nice time for any current or former bankers to delurk. Cause I am pretty close to repaying my 4.99% PenFed Home Equity Loan, with the proceeds of my Vanguard High Yield Fund that I just sold. The only that is stopping me is the possibility that I may not be able to borrow in the future.
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Old 02-24-2010, 07:18 AM   #15
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We have excellent credit and substantial assets, but will only have SS as verifiable income after I retire (at 62). I was planning on keeping our car another year or two but the stories I'm hearing about consumer loans in this current market have me concerned. Will our credit score take a hit after retirement? Will we have any trouble getting a car loan? Should I advance the purchase of a new car to this year so I can finance it while still employed? We've been loan free for years, so this subject hasn't been a priority in planning. Withdrawing cash to pay for a new car would result in a heavy tax hit.
I'll skip the "used car" and "Craigslist" part of this topic.

I think a credit rating is based more on how well you've handled the debts you've been given, not how much income you have now. So ER doesn't seem to impact those. Spouse and I both have pretty high up there credit ratings because we always pay the debts.

Whether the car dealer (or whoever) wants to loan you more money is another situation, and can be easily finessed. For example our last two real estate refinancings were based on the classic debt/income ratios. Pension, CD interest, and bond/stock dividends were counted as income. Cap gains and account balances weren't considered "income". Frankly the banks were much more surprised (and a little suspicious) to learn that we didn't have any credit-card debt. It wasn't "does this guy have the cash flow to pay the mortgage" as much as "where is he hiding those consumer debts?!?"

If you don't have the interest & dividend income then there are other non-income choices. Your car-loan options include a home equity line of credit (secured by the home, not by your income), credit cards (admittedly not a very attractive choice), and a secured loan. A bank may be willing to loan you the car price if you maintain your cash asset allocation in one of their CDs.

I've said it before: if the strength of your ER rests on a single point of failure like this, then it's time to reconsider the ER planning. These issues are typically indicative of ER plans that may be undercapitalized. Rather than planning credit strategies for a new-car purchase, you'd be much better off (and sleep much better at night) with either setting aside the cash now (to someday buy a new car) or working longer to have the cash to set aside.

Or revert to the "used car" and "Craigslist" options.

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I don't know about car loans, but the experience of many retirees on the board has been that rules have changed for asset based borrowing for homes.
... to that Nords reported that there was some questions about his military pension LOL.
I sure hope that was indicative of the credit crisis.

The "documentation" for our refis between 2002-2006 was laughable. No one wanted to verify anything because their compensation was related to volume, not verifications or audits. Admittedly these were handled through Navy Federal Credit Union, which probably has some experience with military pay.

The last two refis were through Territorial Savings Bank in Feb 2009, a tiny local bank that was just getting ready to IPO, and Bank of America in Nov 09. We used the same mortgage broker for both, and even she was a bit taken aback at Territorial's inquisitiveness. I not only had to cough up a 1099-R for 2008's pension but even had to produce the military pay (DFAS) statement that promised to pay my 2009 pension. That year the military retirees had been given something like a 5% COLA so I not only had to convince these green-eyeshade-wearing accountant types that the federal govt would pay its obligations but that it would even give me more money. Territorial has held & serviced the loan; we expect to stick with them for the next 30 years. Or until mortgage rates drop way below 4.5%.

Nine months later BoA was much more accommodating. "You're paying points? Why, step right this way. Pension 1099? Sure, whatever. Hey, how come this guy doesn't have any debt?!?"

So I think if you go with a large financial institution (perhaps not BofA) for a loan then you'll be fine. "Honest Cal's Clean Cars & Payday Loans"... maybe not so good.
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Old 02-24-2010, 10:50 AM   #16
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Be that as it may, there might still be a time when a retiree wants to take advantage of a "60 months no interest" situation instead of liquidating assets...or whatever. It would be helpful if someone in the banking industry could chime in to address the OP's question. My hubby won't be ERing for 5-6 years, but I'm curious about how credit-worthiness will be affected by retirement.
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Old 02-26-2010, 01:00 AM   #17
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I would like to see this thread focus on the OP's question- credit for a secured loan after retirement. Many of us follow the total return plan, and judging from what people on the board report as their AGI, many of us could not qualify for much based soley on the dividends and interest that we earn annually.

The problem will not come from one's score deteriorating- I have a strong credit score after many years of retirement. The problem, if there is one, will come from cash flow and repayment ability doubts.

I doubt OP cares, and I know that I do not care what the debt averse think should be bought for cash only.

Ha
That pretty much sums up my original question. I have called our CU and asked directly, but the rep I spoke with didn't seem to understand the issue very well. I'd rather pay on a 5.5% note than withdraw a large chunk that's earning 7-8% or more. When the economy picks up, hopefully that won't be a huge challenge.
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Old 02-26-2010, 01:47 AM   #18
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That pretty much sums up my original question. I have called our CU and asked directly, but the rep I spoke with didn't seem to understand the issue very well. I'd rather pay on a 5.5% note than withdraw a large chunk that's earning 7-8% or more. When the economy picks up, hopefully that won't be a huge challenge.

I agree with you although for me the numbers are 4.875 partially deductible mortgage vs 3-3.5% GNMA fund. Where are you earning 7-8%?
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Old 02-26-2010, 01:53 AM   #19
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I agree with you although for me the numbers are 4.875 partially deductible mortgage vs 3-3.5% GNMA fund. Where are you earning 7-8%?
I wanna know too!

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Old 02-26-2010, 07:04 AM   #20
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I agree with you although for me the numbers are 4.875 partially deductible mortgage vs 3-3.5% GNMA fund. Where are you earning 7-8%?
A well diversified selection of preferred stocks will get you there.

JPM preferred stocks are currently yielding 6.5% to 7.3%
WFC's 6.5% to 7.5% (although some of them are above par)
USB's about 6.75%

DRE --a reit-- around 8.25%
BAC, 7.75% to 8.3%

O--another reit--is 7%

AMB & KEY both about 8%
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