Advice Needed: $100k auto loan for someone with no loan history?

[Greenkirby21]

Originally Posted by se15679875

Here's a good way of looking at the cost of driving the GT3 versus a cheap economy car for just these 6 years.

1696/month pumped into the stock market for 72 months with a 6.5% annual rate of return yields roughly $150k by the end of 6 years.

Now, let's take that $150k and keep it invested in the market for the next 30 years (with no annual addition) until this guy is 59. That's $1M and change.

The true cost of owning the GT3 at such a young age is losing roughly $1M in assets by age 59, and even more by retirement age (65+).

Now you can quibble with rate of return that I've assumed for this analysis but this is just a rough calculation. I've ignored taxes for the time being as well. But, as far as I'm concerned, as long as this guy is saving enough money such that he'll have considerably more than $1M by age 59 then he can afford the car.

Maybe he's on pace to save $9M. Had he abstained from purchasing the GT3, he would have $10M. There is little quality of life improvement going from $9M to $10M.

However, if he's 59 and he finds that his nest egg is only $2M or $3M, then he'll probably look back and realize that purchasing the GT3 so young was one of the worst financial mistakes of his life.

Edit: And to be fair, you also have to consider hypothetical investment gains once he sells the car. For example, maybe he sells it after 6 years for $45,000.

$45,000 invested in the market for 30 years @ 6.5% is about $300k, so he's actually losing out on $1M - $300k = ~$700k in assets, but the idea is still the same.

excuse me for my ignorance, but is that 6.5 annual rate of return guaranteed? Don't stocks go up and down?

[wakeboarder109]

Originally Posted by se15679875

Here's a good way of looking at the cost of driving the GT3 versus a cheap economy car for just these 6 years.

1696/month pumped into the stock market for 72 months with a 6.5% annual rate of return yields roughly $150k by the end of 6 years.

Now, let's take that $150k and keep it invested in the market for the next 30 years (with no annual addition) until this guy is 59. That's $1M and change.

The true cost of owning the GT3 at such a young age is losing roughly $1M in assets by age 59, and even more by retirement age (65+).

Now you can quibble with rate of return that I've assumed for this analysis but this is just a rough calculation. I've ignored taxes for the time being as well. But, as far as I'm concerned, as long as this guy is saving enough money such that he'll have considerably more than $1M by age 59 then he can afford the car.

Maybe he's on pace to save $9M. Had he abstained from purchasing the GT3, he would have $10M. There is little quality of life improvement going from $9M to $10M.

However, if he's 59 and he finds that his nest egg is only $2M or $3M, then he'll probably look back and realize that purchasing the GT3 so young was one of the worst financial mistakes of his life.

Edit: And to be fair, you also have to consider hypothetical investment gains once he sells the car. For example, maybe he sells it after 6 years for $45,000.

$45,000 invested in the market for 30 years @ 6.5% is about $300k, so he's actually losing out on $1M - $300k = ~$700k in assets, but the idea is still the same.

This school of thought is exactly what's keeping me from pulling the trigger on a GTR or M3. At 27 its hard to put excessive funds away every month for 30 years down the road but its also hard to ignore the compounding interest.

[Sy546]

my recommendation (i'm young as well, 24. First business at 21, 2nd @ 23, 3rd @ 24, First "real car" 1M at 22 & Than Lotus at 22 as well), buy a cheaper car for a year, pay it off quickly & build auto credit history. I did the same with a GTI lease. After that i never had an issues getting approved for a loan. I could pay for my cars in cash but id rather keep that $150k invested in my businesses with high net returns. I'm paying roughly 2.4% for $120k-ish

Also id buy a house first. A wedding & house should be first priority. I don't own b.c of my traveling history for work. But I do own real estate.

Also a lot of people sound real butt hurt lol. You guys don't know his finances so relax. I bet theres a ton of 40 year olds here who make less that drive way too expensive cars too. Just like the guy in the m3 forum who makes $100k and wants to spend $1k/month on a car payment.

[Sy546]

Originally Posted by se15679875

Here's a good way of looking at the cost of driving the GT3 versus a cheap economy car for just these 6 years.

1696/month pumped into the stock market for 72 months with a 6.5% annual rate of return yields roughly $150k by the end of 6 years.

Now, let's take that $150k and keep it invested in the market for the next 30 years (with no annual addition) until this guy is 59. That's $1M and change.

The true cost of owning the GT3 at such a young age is losing roughly $1M in assets by age 59, and even more by retirement age (65+).

Now you can quibble with rate of return that I've assumed for this analysis but this is just a rough calculation. I've ignored taxes for the time being as well. But, as far as I'm concerned, as long as this guy is saving enough money such that he'll have considerably more than $1M by age 59 then he can afford the car.

Maybe he's on pace to save $9M. Had he abstained from purchasing the GT3, he would have $10M. There is little quality of life improvement going from $9M to $10M.

However, if he's 59 and he finds that his nest egg is only $2M or $3M, then he'll probably look back and realize that purchasing the GT3 so young was one of the worst financial mistakes of his life.

Edit: And to be fair, you also have to consider hypothetical investment gains once he sells the car. For example, maybe he sells it after 6 years for $45,000.

$45,000 invested in the market for 30 years @ 6.5% is about $300k, so he's actually losing out on $1M - $300k = ~$700k in assets, but the idea is still the same.

Or he could lose it all in the market... There is no such thing as a guarantee. He might be a great engineer, but from what I've seen if you don't handle your own money your not making a ton from the market.

and if he's actually saving 80% of his income, i don't think anyone should judge what the kid spends on with the other 20%.

If he has $7,500 in discretionary incoming & lets say 20% of his income is $10k, that means he makes $120k net post tax, Meaning he makes 600k/year post tax, Meaning he makes close to $1 Mil/year....

so i think he can have fun with this 20% for now lol

[se15679875]

Originally Posted by Greenkirby21

excuse me for my ignorance, but is that 6.5 annual rate of return guaranteed? Don't stocks go up and down?

It's not guaranteed. Stocks do go up and down. That fact actually makes it less sensible to purchase a GT3 at such a young age - not more sensible.

I suspect you already knew this so I'm curious to hear your line of reasoning.

[se15679875]

Originally Posted by S.hasan546

Or he could lose it all in the market... There is no such thing as a guarantee. He might be a great engineer, but from what I've seen if you don't handle your own money your not making a ton from the market.

and if he's actually saving 80% of his income, i don't think anyone should judge what the kid spends on with the other 20%.

If he has $7,500 in discretionary incoming & lets say 20% of his income is $10k, that means he makes $120k net post tax, Meaning he makes 600k/year post tax, Meaning he makes close to $1 Mil/year....

so i think he can have fun with this 20% for now lol

That's quite the starting (or 3-5 year) salary for an engineer who's nearly fresh out of college. I really don't think $1M/year is a reasonable figure to assume.

[se15679875]

Originally Posted by wakeboarder109

This school of thought is exactly what's keeping me from pulling the trigger on a GTR or M3. At 27 its hard to put excessive funds away every month for 30 years down the road but its also hard to ignore the compounding interest.

Amen, brother. It's tough, no question about it. Obviously when discussing retirement strategy one always has to strike the right balance between being sensible and overly frugal.

I tend to sway more towards the conservative side because I want to factor in the possibility (or should I say inevitability?) that I'll live through another stock market crash during my lifetime.

[TrevorM3]

Originally Posted by Mr Tonka

Except it's silly to think that someone with virtually no credit history, barely any income history, would ever get a 4.5% loan with only 5% down. People with great credit can't get a loan with 5% down. Hell, SBA is 10% down. And any loan at 4.5% will have to be refinanced in 5 years while hardly paying any principle due to the 20 year amortization. Who's to say the rates won't be double in 5 years?

Sounds wonderful in theory and to a point, achievable. But not very easy for someone with no credit history or real-estate experience. It is however very easy to become rich on paper. It's quite another thing to do it for real.

Don't get me wrong, i like collecting rent on the 1st of the month as well, but one doesn't just wake up and successfully jump into multi family homes at a 4.5% rate with 5% down.

Nothing comes easy in real-estate for sure. I was fortunate enough to buy mine cash. I hopefully can do the same in 2014. I'm also young, and no credit history either. I've relied solely on a one credit card and that's my amex.

I'm sure these rates will be important to me when i buy a house, i appreciate the insight.

[wakeboarder109]

Originally Posted by se15679875

That's quite the starting (or 3-5 year) salary for an engineer who's nearly fresh out of college. I really don't think $1M/year is a reasonable figure to assume.

Maybe I'm a little drunk and misread the statement you're replying to but I'm not seeing how your figuring $1M/year. Making $125k+ I could see having $7,500 post tax of discretionary income (assuming no student loans). If so, that is damn impressive. I have a high school friend that double majored in ChemE and MechE from Penn State (graduated with honors but I'm not exactly sure how high) and he started at Exxon in the mid $90s. That was also with multiple years of solid internships.

[se15679875]

Originally Posted by wakeboarder109

Maybe I'm a little drunk and misread the statement you're replying to but I'm not seeing how your figuring $1M/year. Making $125k+ I could see having $7,500 post tax of discretionary income (assuming no student loans). If so, that is damn impressive. I have a high school friend that double majored in ChemE and MechE from Penn State (graduated with honors but I'm not exactly sure how high) and he started at Exxon in the mid $90s. That was also with multiple years of solid internships.

S.hasan546 guessed that the person in question made $1M/year (pre-tax AGI).

I think that guess is too high by a factor of 5 to 10.

Your estimate is far more reasonable. I agree with your estimate.

[gatorfast]

Originally Posted by wakeboarder109

Making $125k+ I could see having $7,500 post tax of discretionary income (assuming no student loans).

$125k will get you nowhere near $7.5k/mo of discretionary income unless you consider the entire take home pay discretionary.

[Malibu1]

Originally Posted by gatorfast

$125k will get you nowhere near $7.5k/mo of discretionary income unless you consider the entire take home pay discretionary.

125K and maxed out (assume 16%) to 401K leaves you at about 105K.
Take 105K and subtract out (assume 28% income tax for single guy) leaves about 76000. That's 6300 a month. Not seeing how he has so much discretionary money each month. Live with parents and they pay all the housing bills? Give him an allowance on top of his income?

[NemesisX]

Just FYI the dude's already purchased the GT3 so any further speculation on his income is no longer necessary

[Uber V8]

^^ thank you!! my gawd...

There is a big difference between driving a Porsche GT3 at 23 vs. driving one at 176 years old... or uh was it 59 years old?

One of the biggest differences I can think of is there won't be any Porsche GT3's available in the year 2049.

[grimlock]

Whether you want to live now or save for the future is different for each person- what they want to do/plans, responsibilities, what they have to fall back on.
As a no-longer-young but not-yet-old, I bought a nice car once I had money out of college, enjoyed life, banged a few chicks.. what if I had saved or invested it? I could have 10times as much, or nothing..?
Everybody is going to do what they want to do, good luck trying to stop a hormone filled 20-something from buying his dream car..
While you responsible older people who are financial set for their lives can be satisfied in what you have achieved..
Perhaps they'll listen to your advice or maybe they're just not ready.

[wisesoul]

Originally Posted by NemesisX

Just FYI the dude's already purchased the GT3 so any further speculation on his income is no longer necessary

pics!

[wakeboarder109]

Originally Posted by se15679875

That's quite the starting (or 3-5 year) salary for an engineer who's nearly fresh out of college. I really don't think $1M/year is a reasonable figure to assume.

Originally Posted by wisesoul

pics!

While the rest of the conversation was only speculation/advice for others, I agree! Pics or ban!!

[Rotorocious]

Now how about he invests in some driving school before he kills himself in that car

[Ginger_Extract]

Originally Posted by RandomHero

Find him one in Cararra White with 15k miles for less money and I’m sure he’d pay you a finder’s fee.

http://www.autotrader.com/cars-for-s...ce=120000&mmt=[POR[911[]][]]&listingId=358870035&listingIndex=7&Log=0

Private seller, talk him down:

http://www.autotrader.com/cars-for-s...ce=120000&mmt=[POR[911[]][]]&listingId=354733456&listingIndex=16&Log=0

Dealership:

http://www.autotrader.com/cars-for-s...ce=120000&mmt=[POR[911[]][]]&listingId=362004573&listingIndex=21&Log=0

[TeinBMW]

Why not buy this gt3 out right in cash?

[Spinny02]

Happy it wired out. Now tell him to save more =). and don't buy another one every two years like i did.

[Billup]

Pics of said you both in front of car holding hands would help us understand this thread a little better.