Borrowing against your house in this economy is not a good thing to do. Any and all financial advisers will tell you that you should never take out a 401K loan ever.

When I got my first C4 a little over a year ago, I paid about 40% cash and the rest I refinanced my 2004 Solara that was owned outright. The credit union I belong to was able to give me new car rates by financing the 2004 rather than trying to find a loan for a 1995. Another option if you have a car that is newer and paid off already.

 

check capitol one

 

I know this is sort of a hijack, but I disagree with that one. First, the conventional wisdom comes down from the same geniuses who ran the financial system straight into the ground. Second, if you have a reasonable expectation of job security, a loan if not too large, seems to make sense. Right now my 401k is performing at about -5%, as is everyone elses. If you move to bonds, you may make 3%. If you loan yourself the money, you pay yourself about 5%. So, your 401k performs better, and you have access to the money.

Of course, if you lose your job, the game changes completely.

 

I would agree if you plan on paying the loan back in a very short time (like months). If you are talking about several years to pay back and the market rallies during that time frame then you run the risk of losing money as you are paying yourself back less than the gains that could have been realized. If for some reason you can't pay it back, you will be taxed and penalized for early withdrawal on that amount. Another thing to keep in mind is that money in a 401K can not be touched if everything goes south and you have to file bankruptcy, heaven forbid. Granted there is no absolute right and wrong, but borrowing from 401K for a car loan has far more wrong than right.

 

i just used my tax money to pay cash

 

Not everybody can do that. I started out at 21, and financed and traded and financed and traded...built equity. I just bought my yellow 96 for cash, and yes it felt good, but I would have financed it to if I had to.

You build credit in this world by making payments. Not everybody is born with a silver spoon up their a$$ or retired. I'll take my fun now, thank you.

 

96LT4, I think the world of ya man, but I gotta disagree. A home is an appreciating asset (over the long run, market corrections aside) and is paid for in inflated dollars over a long period of time. Home prices are still increasing where I live. I also have enough cash on hand that, push comes to shove, I can pay off my house. 99.9999% of all cars do nothing but depreciate.

I've also financed cars in the past....when the economy was growing at a good clip, I had tons of disposable income after paying the bills and my savings and investments, and companies were hiring like mad because they couldn't find enough qualified people. The growth and hiring part is no longer the case...and as for just selling it if (when) times get tough....have you looked in the C4 for sale section lately? Very little is moving, and what is moving is deeply discounted.

JMHO, take it how you will.

 

Yep, and now is the perfect opportunity to buy a car that was a whole lot more expensive.

I agree that some people get way in over their heads with financing cars...but, we're talk ing about $10K or so...if that's going to break you, then be glad Obama is the president becuase he seems to have an appreciation for stupidity.

FWIW, both my LT4s are paid for...1 year to pay off the red car, and the yellow paid in full at purchase.

 

I'm not so sure using a home equity line of credit to buy a Vette is "stupid". It depends on how disciplined you are in paying back the loan. I paid $6000 for my 87 and used my HE line of credit. I figured instead of going through all of the paperwork to finance a car, I'd use the credit line at a much lower rate and pay it off at $500 a month. Worked great.

 

This question comes up every few months, so I'll give the same answer that I usually give. There are several ways to finance an older car:

1. home equity loan (if you own a home and have sufficient equity) - the benefits include deductablity of the interest for income taxes. However the drawback is if you fall on hard times and start missing payments you could lose your home.

2. a personal loan - the benefit is that there is no lien against the car but the rate will probably be higher that a straight car loan.

3. a car loan from a company that specializes in loans for older cars. I got a loan from Capital One. Their program gives you an upper limit and you use the proceeds to buy any car you want. The drawback is it can be a somewhat complicated process requiring submission of notarized copies of yours and the seller's drivers license among other documents (some sellers may balk at giving you this information but they can send it directly to CapOne if needed).

Keep in mind that insurance may be a problem if you finance with a car loan. Most specialty insurers like Haggerty will give you full coverage but there are restrictions on the use of the car and they will not insure a daily driver. Most regular insurance companies (All State, State Farm, Geigco, etc.) may not offer full coverage on an older car but the car loan mandates that you have it. Check with your insurance company before you decide how you want to finance.

 

Don't get discouraged. Just keep looking if you want to finance it. Financing is not always a bad thing. I've heard all the crap before from those who say, if I want it I pay cash. Good for them but that is not the way 95% of America lives. Maybe Wachovia Dealer services may be able to help.

 

First of all, thank you to those who have posted legitimate responses.

Thank you for stating what is obvious, but so few seem to understand here! There seem to be a lot of people who are out of touch with reality posting out of their *** in this thread.

I am not independently wealthy, nor have I been working and saving for 20+ years. I am 24, have been out of school less than a year, working for about 5 months, and have a good job as an engineer at a very good company.

I have a car that I have owned since before I went to college with 200K on it. I think it is time to move on. I want an LT4 'vette as my next car and daily driver. I have always taken very good care of my vehicles and do not plan on making the 'vette a garage queen weekend toy. I am going to drive it. I am first and foremost a driving enthusiast and have wanted to have a Corvette for my daily driver all through college.

You can pick up what I am looking for for between $10 and 15K, which is not an outlandish amount to spend on a vehicle. To put it in perspective, that is about the price of a new Kia (I'd rather take the bus than drive a Kia). I am not concerned about labor costs, because I am a very competent mechanic and have a tool collection that rivals most shops.

I could probably go buy an 03 or 04 C5 for significantly more money and have no problem securing financing. However, I would prefer something that costs less and I can pay off much more quickly.

To sum this all up: I want to finance a reasonably priced Corvette not as a weekend toy, but as a daily driver...something most people do when they are out to buy a car. I doubt many C6 owners paid cash for their cars...And yes, I have several thousand dollars to throw down as a down payment.

 

This makes no sense at all. How are you making money by paying yourself 5%?? Isn't that simply increasing your savings? I haven't taken money against my 401k in years, but I'm sure of 1 thing, the only way you can benefit from a 401k loan is if you're using it to pay off a higher interest loan. Then you're gaining the percentage delta.

 

Hey, if you don't want advice don't post a question. Be like so many people are today, take your fun up front, heck with the consequences. Makes no difference to me if you buy a C4 as a daily driver and it depreciates faster than you can make the payments and pay the Corvette tax as these things make poor daily drivers. In addition, these things just are not good investments right now.

Good luck and have fun now, you're right, why wait? The economy is strong, lots of money floating around out there, interest rates are low, money is easy to borrow and if you can't afford it they'll be someone out there with cash to take it off your hands... WRONG ON ALL ACCOUNTS.

FYI, most of us didn't get where we are by giving advice out our asses or by being out of touch with reality.......

 

I bought my first corvette (an 84) back in the 90's on credit. Went out on a day when there was 12 inches of snow on the ground....walked in ...told the salesman id give him "$X" for the car....next thing you know ol Jeds a millionaire and I bought a vette.

Didnt have a pot to pee in but I got a loan and paid it off as soon as I could. Actually I think I made money on the car, which for an 84 proves the 90's was a peeing money away decade.

My 2 cents for you is....this is a buyers market like no other.....dont settle for less than a cherry car....loan or no loan.

 

His original post asked for advice on options for financing a C4 not whether financing was a good decision. And what makes you think a C4 is depreciating any faster then a new car, which most people finance.

Despite Shakespear's adminition to the contrary there is nothing inherently wrong with borrowing or lending. It's when the borrowers and lenders lose their senses that the economy gets in trouble. But that's a discussion for another time and place.

 

Just giving my opinion, don't have a problem with some one not agreeing, just don't like being told I'm out of touch with reality and giving advice out of my ***, especially by some one as worldy as a 24 year old just out of school. If you don't agree with me fine I have no issue with that, just a little respect for some fellow forum members please.

As far as C4's depreciating, look at his original question, he can't get financing, there's a reason for that. These cars are not holding their value right now and any bank would rather have a lien on a new car than a 13 plus year old sports car. Just look what these things are going for compared to a year ago...........

 

If youve got good credit, you can get a loan on a 15 year old Big Wheel.

Thats the bottom line.

 

It makes sense, just requires that you think about it.

First, one of the big negatives of a 401k loan is missing upward trends. I honestly don't think that's an issue, the market won't be gaining substantially anytime soon.
If my 401k is performing at 2%, (assuming heavy position in bonds). And I want a car loan for a 96 LT4. Given the age of the car, a commercial loan will be at least 11%. Let's say you know someone, and you got it for 9%.
If I take a loan against my 401k to buy the car, I pay myself 5%.

There are 2 givens: I have a 401k and I am going to get a loan to buy the car.

So in the first case, I have my loan for $10k @ 9% and I have my 401k which has 50k in it making 2%. In four years I have my car paid for, but I've paid $1945 in interest. My 401k is now worth $54122.

In the second case, I take my loan against my 401k. So, $10k of my 401k is making 5%, and the rest is making 2%. In four years, my car is paid for. The untouched part of my 401k is worth $43297. But I've also paid back $10k plus $1054 interest. Making my 401k worth $54351.

So, the 401k performs better by about $230.

That doesn't even take into account that you save about $900 in interest payments by doing a 401k loan. For a four year loan, that would translate to about $18 a month. So your car payment is $18/month less with the 401k loan, and you end up with more cash at the end of the loan.

It's not increasing your rate of savings, it's making your money work better.

 

Even in today's market there are still some manufacturers offering 100% financing (granted, only to buyers with stellar credit), knowing full well that the loan is upside down as soon as the buyer takes possession of the car.