I Intentionally Got A NEW Loan And Added More Debt To My Finances

There are going to be instances in life when you make a decision you think is the right choice, but actually ends up being a huge mistake. The alternatives to this scenario are true as well. Ultimately, you may not know what the outcome of your decisions is going to be until you actually make them.

 The Background

One of the most prominent issues in today’s society is the issue of having too much consumer debt. This can come in the form of student loans, personal loans, car loan, credit cards, etc. Mortgages are not considered a bad form of debt, as it can be very difficult to purchase one with 100% cash. Thus, we refer to the other forms of loans and lines of credit as the “bad” debt. With this in mind, my wife and I have worked very hard over the last 6 years to pay off cars, credit cards, student loans, wedding expenses, while avoiding additional debt by paying cash for my master’s degree. Check out our “Debt Status.” It has not been easy, especially with part of that time working off of a $32,000 a year income. So, you can imagine our feeling towards loans and debt is generally weighted with a large amount of trepidation.

So What Caused Me To Willingly Go Into Debt?

The thing I chose to go into more debt over is something quite material. However, it is something I have wanted for a LONG time. It doesn’t make it right, nor would I suggest anyone agreeing to go into debt for this reason. I am simply telling you MY story. For me, it was a truck. Yes, I decided to get an auto loan to be able to buy myself a truck. Now, before anyone overreacts to the fact that I got a loan for a truck after already paying off all our cars, let me explain. In another post, I explain the background of how I am buying a new truck.

What Is Wrong With My Current Car

In all honesty, there is nothing wrong with my current car. It is a fun little sports sedan. It has fulfilled another dream of mine to own, but times have changed. As I have increased the number of projects I like to do on the weekends, so does my need for a truck. My little Audi does not haul lumber, nor will it carry any heavy loads. Another drawback from the Audi is it did not have all of the extras I would have wanted in a car when I bought it. There are some technology items like a backup camera which were missing from the model I had. Basically, there is nothing inherently wrong with my car, I really just wanted a truck.

The Day Of The Purchase

A week before the purchase day, I just happened to hear about am an amazing offer on all 2018 trucks. In short, the deal provides the same level of savings as the current 2016 used trucks. I couldn’t pass it up. However, I was still stressing about buying the truck since it was expensive, and I knew I was going to have to get a loan to do it. Again, this was all planned out well in advance, but there is still a significant amount of stress involved. So, we went to the dealership that night with the intent to buy it at the price listed on the website. Unfortunately, it was NOT an easy experience.

The ACTUAL Buying Process

You can read other articles about making sure you are ready to buy a vehicle, but it can be difficult to FULLY prepare yourself. As we had just gotten the initial paperwork started at another dealership three weeks earlier, we had a good idea about what the values were going to be.  Thus, I had already calculated everything out based on what the cost SHOULD be and what the payments SHOULD be. Do you think this made it easy then for this NEW dealership to get a quick sale? Nope. In short, the advertised price was not inclusive of the additional options which were added on AFTER we began talking about the paperwork. In conjunction with this, they offered me $3,000 less for my trade in than what the other dealer was going to do 3 weeks earlier.  Things weren’t looking good.

The Decision

I was ready to walk away. However, through extensive discussions with managers, we walked away with the savings of over $15,000 off the tag, $14,000 for trade in, $1,500 off the warranty, and .40% lower APR than current prime rates. Overall, the haggling for 3 hours was well worth it. Part of the savings though came from financing through the dealership. This savings alone is worth $1,000.  Although I was going to walk away completely, it did not make sense to pass up such a huge drop in price for a new vehicle. I would regret it if I had.

Two keys items to think about

Why You Should (almost) Never Buy Brand New

When buying a new vehicle, you will ultimately lose 10%-20% of the vehicles values within the first year. If you are financing most of the cost from the purchase, you are already underwater by year two. It is important to understand how quickly the vehicle you are looking at will depreciate. For my truck, I was expecting to lose approximately 20% within the first year, but would then quickly taper off to 5% for every year after. Thus, with the ability to get $15,000 off the MSRP up front, my depreciation is already good for the first year, and I will not be underwater. Obviously, I had a trade in to bring it down more, but if I hadn’t I would still be okay.

Financing Incentives

If you are of sound financial understanding to embark on a similar investment as I did, understand the financing. Some banks have a prepayment penalty if you pay your loan back within the first year. Also, understand how much of a discount you are getting on the vehicle for financing. I got $1,000 off the price. However, I have the ability to pay the loan back within the first year. Thus, as long as my total interest paid is lower than my savings through financing, it was still a good deal. For example, my total interest expected to be paid before I pay off the loan is about $450. Thereforefore, my $1,000 savings is netted to be $550 in savings. It is still a good deal.

Be Smart About Buying A New Car/Truck

You have seen in multiple posts how much research I have done to be ready to buy a truck. I have years of experience working with auto loans, investment financing decisions, and financial modeling. I am not saying you need all this to be financially literate. However, I do want to stress the importance of understanding as much as possible before adding new debt to your finances. My story does not mean you should do the same thing!