We got new credit in a second!! Unsecured! Wow

[backtoschool]

How does a car loan allow you to put money into a ROTH? If you have $800 a month to work with and you are spending $400 on a car note and $400 on the ROTH then you are investing $400 at 10% and paying 4.5% to the bank for the use of the money that generates the $400 car note. If you had no car note, you could be putting in $800 a month in at 10%. Am I missing something?

It is a fallacy that not having a car note allows you to put all that money in the bank. First of all money has to be saved up to buy the car. That is money that could have been going to the car note. I don't see how buying four $2,500 used cars that you have to save up for, and taking on a $10k car note are different.

[LSUTiger32]

Since I bought my car I have contributed 8K to my ROTH. I owe 11.5K on my car. I could have put that 8K against the car or into the ROTH and I chose the ROTH which is outperforming the 4.5% for the car loan.
I could have a car loan with 3.5K remaining but then I would have a ROTH IRA with a 0 balance. P.S. My loan on the car was 22K last November

I assume you mean 2 ROTH's because you can't put $8,000 in one ROTH since last Novemeber. With this logic, why pay extra on the car? Pay minimum payments on the car and max out the investing. Of course, that doesn't take risk into account, nor does it make you think.

You invested $8,000 over a year or $666 a month into ROTHs. I am going to guess that it's made about 10%......the market isn't setting the world on fire so this is generous, probably. Since you invested it over the year and not all at once it would be closer to say $8,500 right now (money invested on a monthly basis) than $8,800 (a 10% gain on money invested at one time). In that case, you made about 6% on the money as a whole. At the same time, a car loan of $22,000 at 4.5% costs about $82 a month in interest because the interest is calculated on the whole balance every month. You paid $975 in interest at minimum payments and using ($10,500/12) or $875 a month as a payment that you said you paid you saved about $140 over the year in interest by lowering the principal. The total interest paid using a $975 monthly car payment on the loan would still be $838 for the year. You would have had to get a return of between 19-20% over the course of the year to make the same money as the car loan. You seem to be using the notion of compounding interest (which is actually working against you in this case) and the idea of what $8,000 could do in a year if you put it all in there at the beginning of the year. It's not the same. Basically, you went through all this work to lose money unless of course you ROTH made you 30% during a time in which the market pretty much sucks. If it did make you 30% in the last 12 months, please tell me what you are invested in......cause hot dang, I want some!

[LSUTiger32]

It is a fallacy that not having a car note allows you to put all that money in the bank. First of all money has to be saved up to buy the car. That is money that could have been going to the car note. I don't see how buying four $2,500 used cars that you have to save up for, and taking on a $10k car note are different.

Huh? Who would buy 4 cars? I buy one car and that makes it different. I did not buy a $10K cash car at first....I am working towards that. That's not a very fair comparison, since I can't drive 4 cars at once. Yes, you have to save up to buy it, but you do it progressively.....or I do anyway.

If you want to compare a $10K car loan to a $10K cash purchase then it is obviously the interest savings. On a $10K car loan for 5 years at 6% interest you save $1,600. I know you got a low rate, but most people on here are not getting anywhere near 6%. You also save the worry of the repo man coming in the middle of the night if something goes wrong and you can't make the payments. As you get lower, to say a $5,000 car loan.....we then the differences are few. You are not likely to default on a such a small payment unless you just don't care and the interest savings over a 3 year loan even at 10% would be only about $750. Still, why pay a bank $750???? Even though I rather save $750, I could see financing a small car loan if you need something to drive today.

Also, the big thing is eventually not having car payments anymore. You get yourself to a point where you are driving a new paid for car and then you can save half of what a car payment might be as a replacement fund and then invest the rest. It's the continually going back into car debt that kills you. If you pay on a car for 5 years and then drive it for 15, you can save 10 years worth of car payments. That works too, although you lose a lot of money in interest over the first 5 years.

[backtoschool]

Huh? Who would buy 4 cars? I buy one car and that makes it different. I did not buy a $10K cash car at first....I am working towards that. That's not a very fair comparison, since I can't drive 4 cars at once. Yes, you have to save up to buy it, but you do it progressively.....or I do anyway.

If you want to compare a $10K car loan to a $10K cash purchase then it is obviously the interest savings. On a $10K car loan for 5 years at 6% interest you save $1,600. You also save the worry of the repo man coming in the middle of the night if something goes wrong and you can't make the payments. As you get lower, to say a $5,000 car loan.....we then the differences are few. You are not likely to default on a such a small payment unless you just don't care and the interest savings over a 3 year loan even at 10% would be only about $750. Still, why pay a bank $750???? Even though I rather save $750, I could see financing a small car loan if you need something to drive today.

I really do see your point LSU, and its a good point if you have a tolerance for older cars. By "Four $2,500 cars", I meant that $2,500 cars are pretty much disposable and you will have to buy four of them in the time period a $10k car would last. This is debatable I know, and ymmv. I have no tolerance for older cars, and cannot even safely drive one in the Midwest winters, so the $400 a year that I am paying the bank in interest for my loan is well worth the convenience to me. Plus.....the chance that a $2,500 car will need a $400 repair in the course of a year is very high. It may be that you end up paying more in repairs on that $2,500 car than the $400 you would have paid in interest to the bank for a newer car. You have been lucky with your beaters, but there are a lot of people who end up with $1,600 in repairs on a $2,500 car. Ymmv.

[LSUTiger32]

I really do see your point LSU, and its a good point if you have a tolerance for older cars. By "Four $2,500 cars", I meant that $2,500 cars are pretty much disposable and you will have to buy four of them in the time period a $10k car would last. This is debatable I know, and ymmv. I have no tolerance for older cars, and cannot even safely drive one in the Midwest winters, so the $400 a year that I am paying the bank in interest for my loan is well worth the convenience to me. Plus.....the chance that a $2,500 car will need a $400 repair in the course of a year is very high. It may be that you end up paying more in repairs on that $2,500 car than the $400 you would have paid in interest to the bank for a newer car. You have been lucky with your beaters, but there are a lot of people who end up with $1,600 in repairs on a $2,500 car. Ymmv.

I hear ya, and with the lower amounts like I said I really can understand. Also, I remember you saying that you drive yours for like 10 years so that's understandable as well. The more we talk, the more I think we have more in common than we think.

To me it's also a perception right now. I just don't want to owe anyone anything after what I went through since August of 2005.

[backtoschool]

I hear ya, and with the lower amounts like I said I really can understand. Also, I remember you saying that you drive yours for like 10 years so that's understandable as well. The more we talk, the more I think we have more in common than we think.

To me it's also a perception right now. I just don't want to owe anyone anything after what I went through since August of 2005.

I totally understand not wanting to owe anything after bk. But since I am still so burdened with my student loan debts, I never have felt debt free after bk anyway. Not having a car payment would not make me feel any more debt free than having one, so I chose, to get a new, reliable car. I do keep my cars for 7-10 years so it all works out.

[LSUTiger32]

I totally understand not wanting to owe anything after bk. But since I am still so burdened with my student loan debts, I never have felt debt free after bk anyway. Not having a car payment would not make me feel any more debt free than having one, so I chose, to get a new, reliable car. I do keep my cars for 7-10 years so it all works out.

Yeah, I have some student loan debt as well plus the house so we are no where near debt free. It's going to take about 7-10 years for me, but that is house and all. We should be done with the things that weren't discharged in about 2-3 years....but some of those things were our choice.

[backtoschool]

Yeah, I have some student loan debt as well plus the house so we are no where near debt free. It's going to take about 7-10 years for me, but that is house and all. We should be done with the things that weren't discharged in about 2-3 years....but some of those things were our choice.

That's great that you will have your house paid off in 7-10 years!

[LSUTiger32]

That's great that you will have your house paid off in 7-10 years!

I know, and I will still be in my early 40's at that point. Of course, it's a plan and plans change but I have it all mapped out. I just have to make it happen.

[platter]

Hi
Just to let you know I owed Cap one 6000 that ended up 8600 I think on my chpter 7 in Jan 2009. I stopped paying them 18mos b4 they sued me also and got a judgement. I also got a new card with them per offer in mail for 1000. No monthly fee , 39.00 annual fee, and nointerest until june 2011. They also sent me a 30,000 ck for car ( I did not cash of course) So I do not know what their logic is. They also have sent me a reward zone card offer . I guess they figure we can not file bkrptcy again for 8 yrs. I know I am not getting into the cc trap. I plan on paying for gas with it and paying off each month.

I read somewhere that said just what you're figuring - that you can't file bankrutsy again for 8 or so years so they have you for a while. The card companies hate the ones that pay off their amts each month, I think they're called the 'deadbeats' by the company because they don't keep the debt running.

[Logan]

I assume you mean 2 ROTH's because you can't put $8,000 in one ROTH since last Novemeber. With this logic, why pay extra on the car? Pay minimum payments on the car and max out the investing. Of course, that doesn't take risk into account, nor does it make you think.

You invested $8,000 over a year or $666 a month into ROTHs. I am going to guess that it's made about 10%......the market isn't setting the world on fire so this is generous, probably. Since you invested it over the year and not all at once it would be closer to say $8,500 right now (money invested on a monthly basis) than $8,800 (a 10% gain on money invested at one time). In that case, you made about 6% on the money as a whole. At the same time, a car loan of $22,000 at 4.5% costs about $82 a month in interest because the interest is calculated on the whole balance every month. You paid $975 in interest at minimum payments and using ($10,500/12) or $875 a month as a payment that you said you paid you saved about $140 over the year in interest by lowering the principal. The total interest paid using a $975 monthly car payment on the loan would still be $838 for the year. You would have had to get a return of between 19-20% over the course of the year to make the same money as the car loan. You seem to be using the notion of compounding interest (which is actually working against you in this case) and the idea of what $8,000 could do in a year if you put it all in there at the beginning of the year. It's not the same. Basically, you went through all this work to lose money unless of course you ROTH made you 30% during a time in which the market pretty much sucks. If it did make you 30% in the last 12 months, please tell me what you are invested in......cause hot dang, I want some!

LSU,

1st, this is one Roth. Yes you can put 8k in from last November. I had until April to max out last year an I'm now contributing for this year.

2nd, let's assume your assumptions are correct. Your definitely high on the interest paid for the car and low for the Roth. The gains for the Roth come in waves and I dollar cost average so when the market moves my gains come quickly.

One thing you're not considering is my ROTH can make interest indefinitely. It could also lose but I do go after dividend stocks and my track record is pretty good. Also, I am limited to how much I can invest in a ROTH so if I didn't contribute last year or this year I could never catch up with the lost potential.
Also, in a few years I have the potential to gross above ROTH limits so it's now or never to get some tax free gains.

Your logic is good for the short run but I'm looking long run since I have no intentuon on touching the Roth for 20+ years.

Logan

[Logan]

LSU..

Total interest paid on car: $728
ROTH Contributions: $7970
ROTH Value 10-15-10: $8494 My mistake--you're dead on with the ROTH value

I have paid more towards the car but as I said above the ROTH will earn interest for 20+ years. On top of that I can make a withdrawal from the ROTH with no penalties up to the total contribution if the need arises so the money remains liquid.

Logan

[backtoschool]

LSU..

Total interest paid on car: $728
ROTH Contributions: $7970
ROTH Value 10-15-10: $8494 My mistake--you're dead on with the ROTH value

I have paid more towards the car but as I said above the ROTH will earn interest for 20+ years. On top of that I can make a withdrawal from the ROTH with no penalties up to the total contribution if the need arises so the money remains liquid.

Logan

I agree with you Logan that financing a car at a low interest rate, and putting money into a ROTH ira, is a good plan and will earn you more money in the long run over saving up cash for used cars and then paying for them in full. (Most savings accounts pay between 1% and 1.5% or less so you are not earning anything on your money as you save it to pay cash for the car) Let's even assume you are investing the money to pay for the used car in full and then cashing out your investment when it is time to pay for the car. Most likely you have the money in a short term cash-equivalent fund like a money market fund. Cashing out the investment will usually cost you transaction fees that will negate the savings you made on the small sum of money. Over time, you will come out ahead by financing the car and investing the money in more long-term investments like stocks which have a higher rate of return.

[Logan]

I agree with you Logan that financing a car at a low interest rate, and putting money into a ROTH ira, is a good plan and will earn you more money in the long run over saving up cash for used cars and then paying for them in full. (Most savings accounts pay between 1% and 1.5% or less so you are not earning anything on your money as you save it to pay cash for the car) Let's even assume you are investing the money to pay for the used car in full and then cashing out your investment when it is time to pay for the car. Most likely you have the money in a short term cash-equivalent fund like a money market fund. Cashing out the investment will usually cost you transaction fees that will negate the savings you made on the small sum of money. Over time, you will come out ahead by financing the car and investing the money in more long-term investments like stocks which have a higher rate of return.

I'm just trying to point out that credit is good when used as a tool. We looked at cars, new and used and we decided on a new car. I could have it paid off but what does that really do for me? I am maxing out my 401K and a ROTH which will earn much more interest (Hopefully) in the long run than the interest paid out to Chase Auto.

It's also a matter of wants.

Logan

[backtoschool]

I'm just trying to point out that credit is good when used as a tool. We looked at cars, new and used and we decided on a new car. I could have it paid off but what does that really do for me? I am maxing out my 401K and a ROTH which will earn much more interest (Hopefully) in the long run than the interest paid out to Chase Auto.

It's also a matter of wants.

Logan

I totally agree. How is your new daughter doing?