Bad Financial Advice – Finance a Car
I had just gotten done signing up for my first block of classes for my first semester in college. Finally – a little freedom! It’s time to grow up and move on with life. I’m all ready for life to begin except for one small thing…I need a car!
Not knowing much about cars, not to mention attempting to BUY one, I went to the source of all good advice, my father. In speaking with him about my need to have some sort of mode of transportation to and from classes and work, he told me I would need to have a car. “Naturally,” I thought to myself. So now what? Portafina Information
Over the course of the next week or so, he and I drove onto nearly two dozen different car lots, trying to find something that I found suitable. All I had was my life savings, and that was only $5,000, so I wanted to be fairly conservative as I shopped.
My first thought was, “Buy something for two or three thousand. That should be good for now.” As I saw car after car that didn’t fit my budget, I found myself speaking to my father about financing a car.
Keep in mind that I was just beginning college. I was currently making $400 per week and getting ready to pay tuition for my first semester – nearly $2,000. How was I ever going to afford anything?
“Son, you’ll always have a car payment; why don’t you just finance what you like with a big down payment?”
Genius! Of course…I hadn’t even considered that. Then I can afford what I want!
Finally- I found what I wanted! The sticker said 17k, but we worked the salesman down a couple of thousand. I ended up putting 4k down, leaving me with a meager thousand dollars in my bank. Financing that car at an 8% interest rate (having no credit to my name and nobody who wanted to co-sign), I ended up putting together a financing plan that would later cost me THOUSANDS because of an unfavorable interest rate and a bad financial decision.
5 years later…
Now I know that the “help” I was given by my father was nothing short of bad financial advice. I don’t blame him because that’s how he does things. Even today, at 55 years old, he has car payments. I decided NOW that I didn’t want to be like that.
Here’s the point: when I bought my first car, I didn’t quite understand how interest hurts. Thousands of dollars later in interest paid, I have a better idea. I vow to never pay interest again! A freshman in college with a little over $5,000 to his name should have NEVER made that type of an investment. A car is a depreciating asset. Yes, we all need some form of transportation, but we don’t need to be doing it in style when we can’t afford it. That money could have been used for the tuition I was going to need to pay, or as I began to understand a bit more about finances, it could have been used for my first Roth IRA contribution. Either way, the thousands of dollars could have been used better; instead, my pride got the best of me, and I made a poor financial decision.