Should I feel bad about wanting to get a $60-70k car?

[HiFromSeattle]

(This post is for a friend, as I am trying to convince him that he is good to go and he didn't want to create an account for one post.)

Hi All,

I am trying to gauge how responsible of a decision it would for me to get a $60-70k car. Some financial information about me:

-25 Years old

TU Score- ~750

Experian - ~740

Current DTI - 5% (only pay student loans)

Have 6 credit account, total of $15,000 avialable credit, zero balance

Annual Income: $85,000

Down payment: ~$10,000-15,000

Rent: $1,000/month

-No missed payments on any accounts, ever. I have had an auto loan (~$26k) in the past for 3 years and paid on time for the life of the loan.

I guess my main question is: does this financial profile seem responsible to take a ~$40-45,000 car loan? Depending upon the APR, of course, my DTI after would be somewhere around ~15-17%, which doesn't seem too high...

[pipeguy]

I don't know about the "feeling bad" part, but I don't think it's wise to "invest" 60 grand in a car that will lose value quickly and will cost as much as your rent/mortgage. Note too that with $15k total available credit limits, I doubt if you get qualified for the loan that you'll get a great APR.

Personally I've wasted well over a million dollars on cars and truck and motorcycles in my lifetime, could/should have bought half the cars and twice the real estate and at least I'd have something more than memories today for all that money. 

Edit add: I have a personal rule which is never pay more for a car than I did for my first house - $54,371, the closest I ever got to that was $43k for a new 2003 Chevy Avalanche which I kept for 10 years and 263,000 miles and I traded in for $6200. 

[HiFromSeattle]

Thanks for the reply...

To clarify, what is the issue with my avialable credit limit on my cards?

[pipeguy]

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@HiFromSeattle wrote:

Thanks for the reply...

To clarify, what is the issue with my avialable credit limit on my cards?

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Maybe nothing, but as a lender looking at your profile, you have $15,000 in available credit through 6 different lenders or maybe $2-3000 per lender. You are asking a lender to go 300 to 400 percent of all available credit limits on a car and yes I know there is security on an asset they can repo, but as a lender they look at risk and while you have no "defaults" in your credit history, its a higher risk for them. While I'm sure some lenders will pass on this loan, you'll probably not have too much trouble finding a lender but I "assume" the APR will reflect the risk and I doubt you'll get the best rate. 

Of course the actual car makes a difference, say a dressed SUV or Lux car is different from a sports car or high proformance vehicle, partly because of your age. If you were a lender how would you view a 25 year old with limited credit history, one car loan of $26k and wanting to finance a "Corvette" at $50k for 5 years? 

I'm not in the car business and I might be completely wrong as far as your paper getting bought - but I'm not wrong about wasting $1,000,000 on "tin cans". 

[HiFromSeattle]

Fair.

FWIW I am looking at a BMW (possibly an M235i or M2). Hoping to actually do a European Delivery (which puts the car ~14% below USA MSRP) which would mean the MSRP vs loan value will be much lower (plus my down payment).

[TRC_WA]

$1000 a month rent? Not in Seattle unless you have like 3 roommates. 😉

[redbeard]

Let me be blunt..... its not a smart move.

You're 25, I assume single, no kids, no real responsibility.  The car is a nice life style enhancement.  Its a nice 'want'.  I also assume it serves no real practical purpose over and above a solid $35,000 car.  At some point in the next couple of years, you'll want to settle in and the car payment will be a huge burden.  I know this is looking out for tomorrow at the expense of the want today, but its the right thing to do.

The only smart way to buy a car that is 'above your income level' is to pay cash for it.  Yes, that means you save for years, but then, you get what you want and can really enjoy it.  I know many middle aged guys who finally got the corvette they wanted when they were 25 (I'm way older than you) because they finally saved for it.  You make good money, it wouldn't take you long to save a significant chunk of the purchas price.

At the very least, save enough to make the payments affordable and to have 6-12 months of payments in the bank, just in case.

Dan

[HiFromSeattle]

To a comment above:

-Yes, I pay $1,000 in rent in Seattle (14 months left on a two year agreement).

To the comment about settling in and family:

-I do not want or ever plan to have kids. While I know this is something that a lot of young people say, I truly mean it.

-As far as marriage goes, I am also against that and so is my current girlfriend. Even if we break up, that would mean finding a new girl and dating for several years, then getting engaged for a year then getting married---car will be paid by then.

I would definitely agree that it is a "nice" to have and is in no way a "need".

I do already have 6 months worth of bills in a bank account and this does not include what I would use for my down payment.

I do appreciate and respect all of this feedback, though. That is why I came to ask. I certainly will live if I don't pull the trigger, but just in early stages of contemplation...won't actually be making a choice until May-June 2016 (the M2 is released in the US then).

[StartingOver10]

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@HiFromSeattle wrote:

(This post is for a friend, as I am trying to convince him that he is good to go and he didn't want to create an account for one post.)

Hi All,

I am trying to gauge how responsible of a decision it would for me to get a $60-70k car. Some financial information about me:

-25 Years old

TU Score- ~750

Experian - ~740

Current DTI - 5% (only pay student loans)

Have 6 credit account, total of $15,000 avialable credit, zero balance

Annual Income: $85,000

Down payment: ~$10,000-15,000

Rent: $1,000/month

-No missed payments on any accounts, ever. I have had an auto loan (~$26k) in the past for 3 years and paid on time for the life of the loan.

I guess my main question is: does this financial profile seem responsible to take a ~$40-45,000 car loan? Depending upon the APR, of course, my DTI after would be somewhere around ~15-17%, which doesn't seem too high...

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No, IMO this is a completely irresponsible move.  My opinion:  its a huge mistake.

I notice your friend didn't say how much he has in student loans and I am positive those loans will factor into the lenders decision. And, as pointed out before, this is a huge leap from the OP's (friend) current credit lines to this proposed auto loan. Have your friend price out insurance for this vehicle he wants to buy. I bet it is extremely high.

I have a small disclaimer to make: i have owned many vehicles, but I am not a 'car person' at all. I believe in real estate and investments (assets that appreciate) and my opinion on your friends plan to purchase a high priced vehicle that depreciates is influenced by my investment philosophy.

[HiFromSeattle]

Thanks for the response.

~$20,000 is owed in student loans

We did price out the insurance together and, shockingly, it wasn't really that much higher than his insurance for his old, $26k car (around $50 more/month).

Real estate is a great idea, however, where we live its a pretty terrible idea...the market is disgusting.