Most of us need to get out of debt!
And once we’ve achieved that milestone?
The next item on the list of our financial goals is “incur no further debt”.
INCUR NO FURTHER DEBT!
Let’s put it on a sticky and slap it on the bathroom mirror so it’s staring you in the face every day!
You’ve read some of my posts that all say that. Check out Nobody Cares More About My Money Than I Do where I have a baby steps financial plan adjusted for Covid-19.
Here’s what my Covid-19 adjusted financial plan looks like:
- Incur no debt
- Don’t look at the current value of my investments
- Don’t sell any stocks
- No unnecessary spending
- Build up my emergency fund
- Try to save a little for next year’s TFSA
What’s number one on my list?
Incur no debt!
Check out part of this email Coast Capital Savings sent me trying to coax me into buying another car and taking out a loan with them.
Ha ha that Coast Capital is here to help me become a car owner! LOL! They missed the boat on that one by over 40 years! Ha ha ha!
I already own my car! Leave me alone, Coast Capital!
We’ve all had car loans at one point or another in our lives. Probably when we were younger and hadn’t saved up enough money to buy a decent car.
There’s nothing worse than having a car break down and it’s going to cost more money than the car’s value to get it repaired. That’s the time to bite the bullet and buy a new car. Or at least a new-to-you car.
Hopefully there’s enough money in the emergency fund or car fund to buy a decent, safe car.
Safety is the biggest issue. If you only have enough money saved to buy a clunker, you might need to turn to a dreaded loan and incur debt to buy another car.
Don’t buy another clunker that’s going to bite the biscuit when you’re driving over a busy bridge during rush hour traffic.
TD car loan
I’ve taken out a couple of car loans over the years. The last car loan I took out was in the nineties when I bought a brand new 1993 Mazda B2200 pick up truck. I had about $4,000 saved up and took out a $10,000 car loan with TD Bank. Back in the days before it merged with Canada Trust. I had 5 years to repay the loan, but I paid it off in full a little over two years later and I think that might have put me on the TD shit list because they didn’t make as much money in interest charges off me as they’d have liked.
About 10 years later I became the victim of a rogue TD Canada Trust employee, someone I’d never met or dealt with. This person was in Ontario. I’m in British Columbia. The bitch cancelled my Visa and lied about it in a letter she was dumb enough to send me! The Visa got reinstated after I complained to TD Canada Trust, but that pretty much ended our banking relationship.
Except … I still have the Visa, even though I rarely use it. Read I’m a survivor of a rogue TD employee to find out why.
How much a month for a car loan?
Your monthly car payment depends on how much money you borrow to buy the car plus your interest rate. The better your credit score, the lower the interest rate you can negotiate.
When I bought that pick up truck, I borrowed $10,000 and my monthly payments were $212 for five years.
However, a few months later I paid a lump sum $5,000 on that loan, and kept paying $212 for about 7 or 8 more months. At the one-year mark TD had $7500 of the money repaid, principal and interest. The loan was recalculated and my monthly payments dropped to $78. About a year or so later when around $1,500 remained on the loan, I did another lump sum payment to pay the truck off in full.
You’d think a financial institution would be happy to have such a financially responsible client who’s very intense about paying off that loan and striking down that debt. However, I think it just pisses them off when you pay a loan off early because they’re not making as much money on interest charges off you.
I randomly grabbed pricing options for a 2021 Jeep Wrangler Sport at a nearby dealership.
You can see they’re kind of sneaky here giving you the “weekly” payments instead of “monthly” to make it appear much lower. That’s $209.37 a week for 84 months. Closing in on $1,000/month for a car payment.
84 months is 7 years. There are 52 weeks in a year. That’s 364 payments to get that Jeep paid off = $76,420.05. And that’s if you’re approved for the dealership’s 2.99% interest.
Instead you start eyeballing the more reasonably priced 2016 Jeep Patriot sliding in around $15,000.
But did you notice a different interest rate? 6.99% wowsers!
Forget the interest rate they’re sticking you with – they’re locking you in for 7 years! That car can break down before 7 years is up or your needs change and you want to buy something else.
The car loan trap
If you have a car loan and decide to buy another vehicle before it’s paid off, you might be wondering how to deal with this. Technically you’re still paying off the car loan on your first vehicle, but now you have a second car loan that you’ll also be paying on.
Yikes! Sounds complicated! Especially if car number one is no longer in the picture because you traded it in when buying car number two.
If you find yourself in that situation, typically your financial institution will offer to roll your current loan into a new loan. And that’s how you deal with your existing car loan!
Think carefully before doing this. Generally speaking – I mean taking out a car loan at all!
But let’s say your finances aren’t in good enough shape to buy a new (or used) car and you have to take out a loan. You need to get to work so you can pay your bills, after all.
When your financial institution offers to roll over the car loan, you’ll now have a higher amount to repay every month, because you’re now paying off two car loans. More than likely you’ll be repaying more money than what the current car is worth.
You don’t want to get upside down on paying back a loan that’s more money than what the car is worth, because of a rolled over car loan. That’s a bad financial decision, but your banker will get you all excited about how this is the way to do it.
Don’t forget that the interest rate on the new rolled over loan will probably be higher than your first car loan.
Because that’s just the way it works with interest rates. You got a screaming hot deal when you took out that first car loan. By the time you need another car loan and are rolling your current car loan into a new one, you can bet your bottom dollar that the interest rates have increased.
Banks and credit unions are businesses. They make their money from interest rates and service fees.
Coast Capital car loan
Seeing as how Coast Capital was dumb enough to email me about a car loan, forcing me to write a blog post about it, I had to click their link to find out more. Research, after all.
What I found was a confusing as hell web page about car loans!
One of the first questions asked is if a recent bankruptcy has been declared, so I lied and answered yes to see what would happen, and gave a date of March of this year. I thought for sure Coast Capital wouldn’t let me continue with the application because there’s no way any financial institution will give a loan to a recent bankrupt person. A person with bad credit has to source out those auto dealerships that advertise: “No credit, no problem”.
Coast Capital allowed me to proceed to page two, so I decided not to waste any more of my time.
Then I took a look at one of the articles on Coast Capital’s auto finance page called
It shouldn’t be too much of a shocker to see which way Coast Capital (or any other financial institution) is leaning when answering that question. Here’s how Coast Capital sums it up:
“an auto loan can often be the more prudent financial choice depending on your situation.”
I don’t entirely disagree with that statement. As I mentioned above, if you don’t have enough savings and are in a despearate situation, you might not have any other options other than taking out a car loan.
Then what you have to do is pay off that loan as soon as possible.
Paying cash for that car
If it was one thing that whole TD experience taught me is – pay cash for a car!
That was the last car loan for me. But not the last car I bought!
In December 2016 I bought my current car, a 2012 Mazda 3.
Well, actually, not technically. At no point was I carrying thousands of dollars stuffed into my purse.
I bought the car at a dealership, and after we agreed upon the price – $10,500 – I went over to the cashier. I paid $500 deposit on the car. As much as I hate using my credit card, that was the only immediate payment option. Because, again, I’m not walking around with that kind of cash on me.
Here’s where the cashier gave me a pitch on financing the car with their dealership. Not interested, I responded. The cashier gave me an invoice that showed the price, less the $500 I’d just paid for a deposit, and the final amount owing.
The car was not ready for me to pick up that day because it has just come in as a trade in and hadn’t been cleaned or gone through their safety check, so I had to come back three days later with the final payment.
So now I finally use Coast Capital! And no, not for a loan. I needed a bank draft to pay for my new-to-me car, which just means the credit union used the money in my bank account to write up an official check for me.
Saves me carrying around all that cash!
When I returned to the dealership to finish paying for my car, once again they gave it the old college try to convince me to finance it with them, but no dice.
As you can see, technically, I did not pay cash. Neither did I go into debt.
To read the story about me buying that car, click the photo below:
Do you really need a car loan?
When it comes to car loans, do you really need to borrow more money that you’ll be struggling to repay?
Our mission around here is to bust debt and save money!
If you can live without a car, or at least until your financial situation is better, here are some cheaper alternatives to consider instead of buying a car:
- Buy a scooter or motorbike
- Roller skates/roller blades
- Uber/Lyft or similar
- Car pool
- Bus or subway
- Car sharing service
There are many scenarios where you need a car. You live in a rural area. There’s no public transport near where you live or work (hello Greater Vancouver!). If you have kids. If you have lots of groceries and other goods that you need to haul. Right now with the coronavirus pandemic, people are nervous about using public transit and hired car services, so a personal car is the way to go.
You might be able to put off buying a car by using a combination of the above suggestions. Maybe even occasionally renting a car.
If there is no way you can get around without a car, and you don’t have enough money saved to buy a safe, reliable vehicle, you might need to take out a loan.
If at all possible, avoid taking out a loan from a dealership where you’re buying a car. They make a lot of money by charging higher rates of interest than financial institutions.
If you are in dire straits and have no other options other than getting a car loan, go to a credit union, like Coast Capital, instead of a bank. Credit unions usually offer lower interest rates on car loans.
What’s the one thing you don’t see on Coast Capital’s web page about applying for a car loan?
That would be – ta da – the interest rate.
No mention of it anywhere in that email they foolishly sent me either! Ha ha!
So you have to go through the whole ordeal of applying for a loan, and then finding out whether or not you’re approved, before you even find out how much interest Coast Capital is going to stick you with.
Doesn’t that suck!
Ladies, let’s stick with cash when it comes to buying another car. That way we don’t have to put up with financial institutions dangling a carrot in front of our noses.