Transition period coming, should I use current employ history/credit to purchase now!

[mlb0000]

Hi! Just found this site, hope it helps, I am not real sophisticated with financial stuff though not young, and have the following question:

I have a 10 year steady work history with famous company, with good income, making about 70k, and have good credit rating (although not much credit history! never had mortgage, last new car was 14 years ago (paid perfectly), only one credit card besides and that's it!) I have no debt. I can get credit now. However, I am going to be losing that job in a month. And I will be transitioning to another career I think - I will be making very little money for awhile possibly. I will not have the long-term employment history with the salary amount I now make, so that aspect of credit will be gone after that point for awhile, it could be a couple of years. I am in my early 50s agewise, head of household with one teen and roommate splitting bills. I have some savings, though want to spend as little as possible during this period - want for retirement.

I could really use a new car now (though Honda CRVs go on forever! Mine is 2000!) I wonder if I should:

a) Reduce every expense that I can, and NOT PICK UP ANY NEW ONES AT THIS TIME (car), so I don't spend any more of savings then necessary during this time period, or

b) Because I have the credit with employ history now, and little credit history on my report, buy the car (about 23,000, I will put down 50% down payment), and add this monthly payment to my expenses.

QUESTION: How much of an upside, if any, to my credit history and future credit purchasing power will there be from this new source of credit which will be paid perfectly? Does this (besides me getting the new car which I really want) warrant doing it, or am I wrong to take on ANY new expenses, and the credit benefit is really not much or not enough to be using savings to pay monthly car loan bill. That is my question. Thanks very much for any advice with this!
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I have some more important questions if someone has the time to speak on this, I am also renting a house, I would buy if I was advised this is something I should really consider now given transition period would prevent me for ___ amount of time and there are serious benefits to doing it. I have never owned before. The thing is - I may want to move in about 5 years. I feel like I could go either way, would somewhat prefer owning though never have, so can do what I want, it can truly be mine, and want another dog! I have savings of about $150k, not really doing anything with it, don't know how to grow it - kind of risk averse. This last paragraph is huge topic on its own, I know.

Advice just about the car, leaving the last paragraph alone, would be fine, and great! Or anything about the house and the money sitting would be great too, but don't want to take up a lot of any one persons time - any advice is so appreciated, thanks!!!

[bjl584]

I wouldn't be buying a brand new $23,000 car right now if you know that you're going to be losing your job in a month.

Do you absolutely need a new car? Can you settle for a used car?

How much cash do you have on hand for a car purchase?

Standard advice, if you must finance, is to not buy anything that has a payment of more than 10% of your monthly take home and not finance for more than 36 months.

[mlb0000]

Hi! Don't absolutely need a NEW car, but my car is 14 years old, would really like an update at this point, it is getting a little depressing. One major question I had about that was about any upside to my credit history with adding the car financing to the report, and therefore future improved credit rating and purchasing power that can be gained by my financing about 12,000 of a car - how MUCH of an upside that is to have a recent installment payment. And is it enough of a gain to offset digging deeper into savings to pay monthly car payment for awhile. As I wrote, I have very little credit history - one credit card I have had for 8 years, and a car loan that ended in 2004. My credit score is 720. If I did go ahead and buy car and used more of my savings, should I plan to pay it back, and how... These are the questions in my mind.

[bjl584]

Hi! Don't absolutely need a NEW car, but my car is 14 years old, would really like an update at this point, it is getting a little depressing. One major question I had about that was about any upside to my credit history with adding the car financing to the report, and therefore future improved credit rating and purchasing power that can be gained by my financing about 12,000 of a car - how MUCH of an upside that is to have a recent installment payment. And is it enough of a gain to offset digging deeper into savings to pay monthly car payment for awhile. As I wrote, I have very little credit history - one credit card I have had for 8 years, and a car loan that ended in 2004. My credit score is 720. If I did go ahead and buy car and used more of my savings, should I plan to pay it back, and how... These are the questions in my mind.

Financing a car, or anything else for that matter, just to improve your credit score is one of the worst financial decisions that you can make. Buy what you can comfortably afford. No more. Don't worry about your score. A score of 720 is pretty good anyway.

[mlb0000]

OK, point taken. But the other thing is - once I lose this job my credit is toast, right? how long will it take for me to be able to buy a car getting that amount financed, and/or other items financed of that amount or more, after there is a break in employment. Further, the next employment record may be a self-employed one, which I have never been. Have always worked for companies. And it may be a few years before I get my income up. So for those reasons, wonder if I should take advantage of credit while I have it, as have no idea how this will affect my purchasing ability down the way. Thanks!

[bjl584]

OK, point taken. But the other thing is - once I lose this job my credit is toast, right? how long will it take for me to be able to buy a car getting that amount financed, and/or other items financed of that amount or more, after there is a break in employment. Further, the next employment record may be a self-employed one, which I have never been. Have always worked for companies. And it may be a few years before I get my income up. So for those reasons, wonder if I should take advantage of credit while I have it, as have no idea how this will affect my purchasing ability down the way. Thanks!

Your employment status really doesn't effect your credit score. Unless you are carrying around a lot of debt. Then your debt to income ratio will change which could effect your score. But, as long as you keep paying your bills on time every month, then your score should be fine.

I wouldn't buy a car just to take advantage of good credit. Even if you think your score will drop (which it probably won't) buying a car just for that fact isn't smart. What are you really getting for your good score? A decent interest rate? What good is a good interest rate if you have no job and no ability to make your car payment? A zero percent interest rate in that situation won't help you. Keep your current car, find a used car for cash, or finance a used car for only an amount that you can afford. You'll be better off.

[disneysteve]

OK, point taken. But the other thing is - once I lose this job my credit is toast, right? how long will it take for me to be able to buy a car getting that amount financed, and/or other items financed of that amount or more, after there is a break in employment. Further, the next employment record may be a self-employed one, which I have never been. Have always worked for companies. And it may be a few years before I get my income up. So for those reasons, wonder if I should take advantage of credit while I have it, as have no idea how this will affect my purchasing ability down the way. Thanks!

So you're going to be losing your job and probably seeing a significant drop in your income and your plan given those circumstances is to go out and finance a new car? That makes no sense at all. You want to be tightening your belt, reining in your spending, and getting prepared for that lower income. If your car is in need of replacement, that's fine, but don't bury yourself with a big new car payment. Buy something older and in good shape that you can have for 5-10 years by which time hopefully your employment situation will be stable again and if you want to upgrade at that point you'll be financially able to.

[mlb0000]

LOL, you guys think are like, OK, youre losing your job, and want to buy a new car ??????? I guess it DOESNT make sense, on the surface at the least. I have a very stable long time work history. And really, I had been planning to get this new car at this point for a long time, plus my son needs a car so was going to give the older one to him to use. I was always planning to put down about half in cash, then finance the rest, and not get a luxury one. I just hadn't planned on this break in employment happening now. And didn't want to wait 2 years before I was able to get financing for ANYTHING (I was afraid that could happen, didn't know if with all loans they check employment), so thought I would just use savings to pay the loan for now, interest rates are low, and maybe plan to pay the money back into my savings. And that I "might" (wasn't sure how much) get a good benefit to building up my credit history which would benefit me down the line, as I want to purchase a condo or small home in about 5 years and lack credit history.

Having said all that, it seems the both of you are saying - "No, don't spend what you had planned for retirement on this even temporarily!! While you are out of work just minimize spending, that's it!! The kick you get to your credit history and score for having a new installment loan with this does NOT down the line benefit you much and thus make it at least somewhat worth it for you to use savings to pay monthly installment during this uncertain time!!"

If that is, in fact, what you do say, then perhaps Ill just throw down 12k (which I always planned to put down in cash) on a car a few years old but a lot newer than mine, and see how things play out with this (unclear) transition. So no adding a monthly expense (car payment) that I hadn't planned on using savings to pay. Thanks much for your input !

[disneysteve]

You should NEVER take out a loan just to benefit your credit score. It isn't necessary to go into debt to have a good credit score. Borrow money only when you absolutely need to borrow money.

As for your housing question, if you aren't reasonably sure that you will be staying where you are for a long time, I wouldn't consider buying. Don't buy a house just because you are concerned about your credit worthiness at some future date. Buy when you are ready to buy based on the stability of your job and life and your financial readiness to do so.

And what about that 150K in savings. When you say you aren't really doing anything with it, what does that mean? How is that money invested currently? Are you funding a retirement account like a 401k and/or a Roth IRA?

[snafu]

mib, I'm restating the facts you've offered...asking some questions for clarification
* A 50+ y/o, risk adverse father, losing stable employment paying $ 74K,
* Changing career, possibly choosing self employment.
* Risk adverse extends to $ 150K 'not doing anything.' renting, no mortgage,
* Risk adverse but considering buying a house while facing unemployment; would it be paid off by retirement?
* Considering purchase of new car [$ 23K] which likewise raises vehicle insurance costs.

Have you been terminated with cause, downsized, voluntarily relinquished employment?
Will you get a major buy-out?
Do you have a defined pension? 401K? ROTH?
What is your plan for medical benefits?
Have you developed a business plan for self employment?
Why buy a house if you['re considering relocation in 5 years? Please look at a mortgage amotorization table, The payments until nearly mid way will go to taxes, mortgage insurance, interest and a minuscule sum to mortgage principal.

You want to buy a new vehicle to give your gas guzzling CVR to son. Does he have the knowledge, skills and tools to do the maintenance? After a point even a CRV costs maintenance.

What are your monthly maintenance costs? Why must you buy a new car when the best advice is a 2-3 y/o vehicle to moderate depreciation loss the day you drive it off the lot!

What is your plan age 65-80?

[mlb0000]

To DisneySteve:

As for your housing question, if you aren't reasonably sure that you will be staying where you are for a long time, I wouldn't consider buying. Don't buy a house just because you are concerned about your credit worthiness at some future date. Buy when you are ready to buy based on the stability of your job and life and your financial readiness to do so - Actually the reasons in my mind are for my son who is 14 to be in a home we owned, home of own is preferable to renting; to control fate of where we live, not in hands of owner or property manager, only not paying mortgage et al could force us to move; we want another dog! But if I don't do it now, would not get a mortage for a long time I think at this point, so if going to do it for these reasons now is the time or must forget that

To Snafu, to clarify:

A 50+ y/o, risk adverse mother, losing stable employment paying $ 74K,
* Changing career, possibly choosing self employment. internet-based business. Did have a small business in the past tutoring math/statistics, could go back to that for some money pretty quickly. I have been a computer programmer, but my skills have degraded compared to the latest technologies, and Im tired of keeping up with it. But do have skills in that. Also looking into doing web pages for small businesses, but will be ramp up time with that as well
* Risk adverse extends to $ 150K 'not doing anything.' - actually not knowing what to do with it where makes money but not so risky (stock market) is reason not doing anything - actually have about $180k [*]renting, no mortgage - this as had been unsure about job and if remaining in area I live in, also, did not have best credit rating, have raised it from 650 to 720. Rent I pay is not low, would pay less with a mortgage. At this point am going to remain here in town unless absolute financial emergency until child graduates high school - in 4 years
* Risk adverse but considering buying a house while facing unemployment; would it be paid off by retirement? - need to live somewhere, rent is more and throwing away money, plus if have house only inabiiity to pay mortgage et al would be problem, now am ultimately at whim of owner, not comfortable feeling. Plus other reasons for wanting my own home. Anyway, there is no way will not make the rent/mortgage, not gonna happen. And do have savings to back that up ultimately
* Considering purchase of new car [$ 23K] which likewise raises vehicle insurance costs. True, rethinking the car, may put up with this for another year anyway. But also with a new business, may need to meet with customers, nicer car would be better

Have you been terminated with cause, downsized, voluntarily relinquished employment? combo downsized, and REALLY dying to get out of there - I expect unemployment (not much in state I live in)
Will you get a major buy-out? no
Do you have a defined pension? 401K? ROTH? smallish amount in that (25k), the rest of money is savings not in retirement account and inheritance
What is your plan for medical benefits? On obamacare exchange currently paying alot - when lose job, cost WILL go way down as is by income until income up
Have you developed a business plan for self employment? working on it
Why buy a house if you['re considering relocation in 5 years? Please look at a mortgage amotorization table, The payments until nearly mid way will go to taxes, mortgage insurance, interest and a minuscule sum to mortgage principal. Again, not savvy in financial stuff, yes, this may not be the thing to do. So many reasons to have house, and conversely to not have house, but confused as to definite thing I should do. Rent seems like a waste, not your own, others have your fate

You want to buy a new vehicle to give your gas guzzling CVR to son. Does he have the knowledge, skills and tools to do the maintenance? After a point even a CRV costs maintenance.

What are your monthly maintenance costs? Why must you buy a new car when the best advice is a 2-3 y/o vehicle to moderate depreciation loss the day you drive it off the lot! Not a must to buy a new car, but I AM also risk averse with cars, lol, as hate to deal with mechanics. The CRV has been amazing for 15 years, practically perfection. I would buy a car similar to that, and like having a warranty for that period, that's a fun thing. The CRV was my first new car, and was good experience. I got it for a GREAT price due to research I did beforehand. I am a great shopper!

What is your plan age 65-80? To not need to work but work if want to doing what I want to supplement. I have a pension of about $1300 month, plus SS, plus the money I have and what I can do with it, and I can still add to that.

[snafu]

While I'm sorry for gender error and presuming DS was older, I offer different viewpoint Being 'risk adverse' makes you vulnerable in my opinion.. There is giant risk in avoiding a basic understanding of finance and working with a flexible financial plan throughout your career. Right now you are losing buying power to inflation. You may have noticed some savings account/instruments pay less than 1% to savers but charge consumers around 7% for car loans. We keep hearing inflation is low but every trip to the grocery store costs more.

I mistakenly thought you had controlled spending to amass $ 150K only to realize it includes an inheritance.
The real risk is unfunded liabilities, reaching retirement without sufficient income to cover out-go at your current standard. I do not agree with your view of rental. There is serious risk in homeownership. You are 100% responsible for all the repairs and landscaping. If you worry about mechanics, the rip offs and ghastly workmanship in home repair can cause the roof to fail and floors collapse. You've no idea the problems lurking behind the drywall, even in new construction. The collapse of the housing industry 2008 -2010 left millions 'underwater' on their mortgages and banks demanding impossible catch-ups. Selling a house is expensive and fraught with peril when you just want to move on with your life.

I too drove a CRV for more than a dozen years, best car ever. Have you noticed how many recalls Honda suffered this year? A wonderful 2000 CRV has no relationship to a 2014 model other than the stylized logo. I think the government finally forced GM to recall a great many different models.

I'm not wishing to change your mind, just understand the risks are higher than you've expressed. If unemployment is part of the picture, I suggest you access the forms, consult with HR about your benefits, eligibility, dates for submission and what details are needed. Do you meet the requirements or qualify for any classes or programs UI pay for? Does employer offer any assistance of any kind for newly displaced?

Have you read the latest version of What Color's My Parachute? Have you joined LinkedIn?

[cypher1]

I could really use a new car now (though Honda CRVs go on forever! Mine is 2000!)

If it makes you feel any better, my 00 CRV has 206k for mileage, and still runs great. I just bought new tires. "Winter is coming."

[Petunia 100]

Renting is not throwing money away; it is buying you (and your son) shelter, one month at a time. You don't want to live in that CRV, right?

The problem with buying a home you don't plan to stay in for more than a few years is that both buying and selling are quite expensive. By the time you pay all of those fees and service your mortgage debt, you will be parting with quite a bit of money. What if the value of the home declines in the meanwhile? You will be out that, too. Renting may be far cheaper. Wait to buy a home until you are in the locale you wish to call home long-term.

Do you have a written budget? How long have you been making 70k? How much are you contributing to your retirement accounts? How much of your 150k was inherited?

Your credit rating is just fine. I agree with the others, you buy a car because you need a car, not because you want to finance something to improve your credit rating.

I'm a single mom too, so I understand it can be a bit overwhelming when every decision is on you. But, you owe it to yourself to learn the basics of personal finance. No one else is going to care about your financial well-being as much as you do.

[autoxer]

* Risk adverse but considering buying a house while facing unemployment; would it be paid off by retirement? - need to live somewhere, rent is more and throwing away money, plus if have house only inabiiity to pay mortgage et al would be problem, now am ultimately at whim of owner, not comfortable feeling. Plus other reasons for wanting my own home. Anyway, there is no way will not make the rent/mortgage, not gonna happen. And do have savings to back that up ultimately

Renting is certainly not throwing money away, as Petunia described. Although paying a mortgage may seem cheaper than paying rent, it doesn't include maintenance/upkeep. If the HVAC system fails, a pipe bursts or the roof needs to be replaced, you are on the hook for that. When you are renting, it's not your financial problem. That could give you some peace of mind, if you look at it from that perspective. As a homeowner, we discovered mold, had the boiler fail, had the washing machine fail, the dishwasher started leaking... the repairs never end.

It seems like you have figured this out, but the bottom line is that you shouldn't rush out to finance a new car, because you are concerned that after losing your job, you won't be able to get credit. You actually have enough money in savings to just buy a car outright, so you don't even need to finance one. It isn't worth paying interest to build up your credit score.