1. How Much Car?

Hello and welcome to this module. How Much Car Can You Afford? So you’re at a place when you’re ready to buy. You ready to purchase or buy a brand new or used car? And before you go out and do that, you want to make sure, sure you put yourself in the best position to not only get the best deal on the car, but also before you even get to the dealership. When do you do all of that stuff, you decide upfront ahead of time because building wealth and maximizing your credit, using it as an asset is the most important thing for you. So here is what we’re going to cover. So the first thing I’m going to get into is deciding to purchase. So you’re already at a place where you’re considering or deciding to purchase or you want to purchase, but I’m going to break down a couple of things before you even get to the dealership.

So ideally, you’re watching this video in advance of you going to purchase a car, or you’re starting this module because you’re at a place where you want to buy a new car in a big ticket purchase, because you’ve already improved your credit. The other thing is, is I’m going to break down the car buying ratio and why it’s important to understand this. I’m going to get into what I call life opportunity, cost, and why you need to take this into consideration. We’re purchasing a new car. I’m going to break down vehicle affordability. I’m going to break down, um, as a quick recap again, on the credit score, and then I’m going to break down auto loan tier. So up to this point, you have done a phenomenal job, doing everything, to put yourself in the best position to win, and not only with your credit, but yeah, your cashflow getting the negative items removed from your credit, doing all of those things to position your file in the best place to win.

So if you’re watching this particular module and you have not removed all of the negative items from your credit report, your credit score does not meet the requirements I’m going to get into. There is no need for you to go out and purchase a new car. My suggestion is whatever you were looking to do to purchase a car, just go to a website like turo.com or rental car place, and just rent a car for the next few months until your credit is fixed. It is not worth getting involved on a, in an auto loan for the next four to seven years with an unnecessarily high interest rate. So let’s go ahead and hop in so deciding to purchase. So you want to buy a new car. Awesome. I think that’s great. We all deserve to reward ourselves and get a nice car in, or you may be saying, Hey, look, I just need a car to get to work and get around.

So there’s a couple of things you want to take into consideration. So first this is considered a major purchase. So second to purchasing a home. Typically, this is one of the biggest purchases that we’re going to use when it comes to using our credit as an asset, not to mention or not to not to take into account for business. So because that, this is the case, your future financial goals should not come second, meaning you shouldn’t go out and purchase this car. And because you get the car, everything else that you have going on financially, isn’t going to be accomplished because you get this debt on car payment. The other thing you want, I want you to, I really want you to get this, the dealership, the car salesman, nor the bank, they don’t care about you. Um, they don’t care about you. All they care about is getting the deal closed so that way they can get their revenue, sales commission and or interest.

So everybody’s going to seem like that your friend, everyone’s going to be all nice and sweet until the deal is closed. And at the end of the day, you’re the one that’s responsible for this monthly car payment and maintaining excellent credit score. They’re not there in the business to do their job. And they’re really good at doing their job. So you need to be aware of that. They don’t care about you, right? No matter how they make you feel it at the end of the day, your transaction, right. Uh, the other thing is, is that approval doesn’t mean you should purchase more specifically just because you get approved for an amount of loan. Doesn’t mean that’s how much you should purchase. And I’m going to get into this into the car buying ratio and the vehicle affordability, but you just need to get that. Another thing that’s really important, I’ll get into this in another part of this module is pre-approval versus versus pre-qualify.

Those are two different things. You need to understand that difference too. So I’ll cover that in vehicle financing. Um, then there’s a few new vehicle gotchas. So like I was just saying, just because you’re approved many people only think about the car payment. They only think about, Hey, look, I got approved for this $40,000 auto loan. And I’m looking at my particular financial situation. And I definitely can, I can afford a $500 or $600 car payment. But what about insurance? Did you think about that? Many people don’t many people don’t even call their current insurance company to see if they purchase a new vehicle or transfer or whatever, what their cost of insurance is going to be. That’s an ongoing, fixed bucket expense that will increase your out your outlay. So we have to consider, uh, insurance. The other thing is taxes. You know, what state do you live in?

You live in. You need to think about that as well. So just because you see the loan, you may not be considering taxes. And if there’s a down payment associated with paying this, because again, you’re going to have to pay taxes. The other thing you have to think about is when you’re buying a new versus used, they’re going to have all these additional bells and whistles that you may or may not need to get. So you need to take that into consideration and then last but not least, and I spelled this wrong, it looks like I spelled it wrong. It’s maintenance. I’m pretty sure I mispelled maintenance wrong. So please forgive me. But the moral of the story with maintenances is you have to be able to afford. I definitely I’ve got the end, so charges to my heart and not mine. Matter of fact, I’m just going to switch it out.

Um, let’s get out of this. I am so

Sorry, but I’ve got to get this knocked out. So maintenance and the point about maintenance that I’m really making here is we have to about the tires. We have to think about the oil changes, the car, washes, any type of, if something happens, like I need to get the car fixed, I need to think about it. You have to think about all of those things, because just because you can afford the car payment may not mean you can afford all the other things associated with this car. Now I’m not judging, but I can not tell you how many times, because I live in Atlanta, I have seen multiple scenarios where I have, you know, I’ll see somebody who has a very nice car, like a BMW, Maserati, maybe a Mercedes G Wagon. And then I look at their tires and the tires are bald.

This showing the metal thing and the tire or the car is dirty, or it’s just not kept up. Well. So you have to think about all of those new vehicle gotchas before you purchase, because it’s not just about the car payment. Now let’s talk about the vehicle affordability and why this is important. So what you want to do is look at your cash flow control system. So if you’re watching this particular trend that you have already created a cashflow control system, if you have not created a cashflow control system, then you need to go create a cash flow control system. If you’re watching this particular module in the auto financing blueprint, and you’re in the 700 Credit Score Academy done with you program, you need to go refer to week 7. If you’re watching this particular training and you purchase one of our other programs before, and you don’t have a cash flow control system, make sure you put a cashflow control system in place.

So what I’m going to get into is assuming you already have a cashflow control system, because it’s really important. So let’s look at an example, right? Let’s just break down a real life example. So let’s just say there’s a individual or couple or, or male, female, whatever. Um, let’s just say they have a $5,000 net take home pay. Let’s just say, this is you. You have a $5,000 net take home pay. Well, what we want to do is make sure that we account for our fixed buckets. So let’s just say of the $5,000 in net take home pay $2,300 is what I’ve identified is my fixed bucket expenses so I’m not going to get into the weeds of fixed bucket expenses because you, you would have a cashflow control system already in place. So you know what this is. So you have your $2,300 in fixed bucket expenses.

Then let’s just say you have $1,500 on a monthly basis and variable bucket expenses. And because you do care about your future, you do care about making sure you go in at night, if it nice vacation or putting money towards retirement or starting a business, whatever the case is, you’re putting $500 a month. And it’s in this example was ideal 10% away in your future bucket. So the thing about the cashflow control system is we’re taking the care of the past, which is our fixed bucket, the present, which is our verbal bucket in the future, which is our pres, um, which is our future self. So that’s what we want to make sure we’re doing. So this is just a scenario. This is an example of saying, Hey, look, this, this is what I have going on. So that’s a total of 23 plus 1500 that puts us at 38.

Then the 38 plus the 500 would put us at, um, that would put us at $4,300 in overall things that are accounted for, if you have a strong cash flow control system. So ideally you’re not blowing the additional amount, and this is scenario it’s 700 bucks, or you would have $7 available. So ideally you’re putting that money towards, you know, either you’re probably putting it towards your vehicle bucket, or you’re putting it towards your future bucket, right. That’s really where it’s going on. But when you look and you do your cash flow control system, you bet you’ve identified that you have an additional $700 available. Okay, well, what does this mean? This means that this is the total you have available for the vehicle, not just the monthly car payment. Okay. All the other vehicle gotchas that I just covered. So we have to make sure that we take care of that.

And we also have to consider the life opportunity costs, because let’s just say, you’re like, Hey, look, I do my fixed expenses. I go through my variable cashflow and I don’t have any money available. Okay. Well, if you don’t have any money available, then that means you’re going to have to do one of two things. Number one, you’re gonna have to make more money. We’re number two, you’re gonna have to cut back or sacrifice in some areas to ensure that this bill is going to be beneficial for you. So again, it’s not just about saying, Hey, let me, I got approved based off my credit file and my income for, you know, this loan. Because again, the banks do not care about your financial goals. The banks don’t care about your kids going to college. The banks don’t care about if you lose your job, the banks don’t care about life, right?

So they also don’t know or care about the fact that you may want to start a business, or you may want to go on a vacation. They don’t care about all of that. So you have to consider the life opportunity costs. And really what this means is this represents the benefits and individual i.e. you, your spouse, your family misses out on when choosing in our term of over another. So all those things, I was just breaking down. So just because you can afford the vehicle in this scenario, I was saying that there are several hundred dollars available for you to spend, and that’s including everything. Now, if you say, Hey, look, Kenny, that $70, isn’t going to get me another vehicle. Then I get it. So what do you want to do? Do you want to take money from your child education or your emergency fund or your retirement account or your, Hey, look, I want to go to Spain account or my, whatever that is.

Okay. Do you want to take it away from, because that’s what you’re going to do, or I’m not going to take it away from, I’m going to go create a, another source of income to pay for this vehicle. So that way I can keep all of my other things in tax. So that’s the mindset you want to take in? That’s the mindset you want to think about going into this now in simpler terms, I’ve already explained this, right? That’s what you, you are literally giving up anything else when you choose to purchase this car. So it’s going to re it’s going to prevent you from reaching any other goal that you want to achieve. So is it worth it, right? That’s the question you have to ask yourself, is it worth me giving up all those other things? Is it worth because I have a nice car and I’m looking good for the gram or looking good for Facebook, or I’m looking good at my place of employment, whatever the case is, I’m looking good because I’m egotistical, whatever, and I’m not calling you.

egotistical. We all deserve to have nice things. But what I’m also thinking, what I’m also conveying to you is, is that is the life opportunitycost worth the monthly car payment associated with this decision. And if it is, then you should go for, and then the other flip side is, Hey, look, if I’m putting money or if I’m getting this car and it’s going to help me make money, or it’s, it’s directly tied towards me getting, uh, you know, uh, income or creating an asset, then that’s totally different. However, if you, if this is simply, you are trying to make sure you have an affordable vehicle, you want to take care of. You want to think about all of these other things, not just being able to get approved for the auto loan. Okay. And then it’s really this rolls onto vehicle affordability.

So again, we just broke down what that car ratio was. So we want to know, and we want to know what that is, and we want to be able to afford the car. And like I was just saying, just because you’re approved, doesn’t mean you can afford it again. It’s not just about that monthly car payment. It’s all the other gotchas associated with the car that you are going to be responsible for in the bank car dealership. Even the people on Facebook and the gram, not even your ego, um, are not responsible for making that monthly car payment, your bank account in your income is right. And that’s a humbling, that’s a humbling thing to realize because sometimes we make decisions emotionally and egotistically and our emotions in our ego are not responsible for making the car payment or bank account and income is.

So sometimes we have to check our emotions and our ego at the door and just look at facts and figures and make sure that we’re being realistic, especially when we’re considering all the other financial goals. And, um, the other thing that you want to really look at with your vehicle affordability is, is if you cannot afford to put at least 5%, I would even say 10% of your net take home, pay in a future bucket account every single month. Then you can’t afford the car payment because when life happens, because life will happen, life is going to be like, Hey bro, I’m happening right now? I didn’t give you a warning. I’m here. I’m I’m here. And what are you going to do? You’re going to look at the car payment. You’re going to look at life and then you go take care of life.

And then you’re going to start the cycle of bad credit. Don’t do that. Don’t even put yourself in position to do that. We want to make sure we have that money going away on a monthly basis to cover our monthly expenses while at the same time save us. So when an, if an emergency happens like life comes knocking, you can take care of it, right? So that’s the moral of the story. Wouldn’t it be able to put away minimum 5% maximum 10%? Well, I would say minimum 10%. I mean, I would say at least five to 10%, we’ll just keep it there. 5 to 10%. If you could do more than great now credit score, recap, we’ve already covered this, but I’m going to just, I just really want to just give it to you. So again, your credit score, we already know range between 300 to 850 that’s 550 points available.

What this does is deplete your worthiness and the higher your credit score is, as we already know, because everything we’ve covered about automated underwriting, that the banks, all that stuff, the more attractive you look to a borrower, and the more attractive you look to as a borrower, the more water i.e. money you can get from the banks. So basically all your score is doing is just talking about how good you are at returning and paying money back and managing your loans. That’s all it is now. Um, like I’ve already said multiple times, your credit score is a by-product of your financial behavior. That’s all it is. That’s what your credit score determines is how is a three-digit number that reflects your financial behavior and your account balances are numbers that reflect your account, your, um, your, your, your credit score and your bank account.

So the other thing is, is that I would say anything 720 and above is really where you want to be. And this is also going to put you in the best position to pay the most effective interest rate when it comes to financing your vehicle. So I’m going to go ahead and hop right into the auto loan tiers. So this is something that is really important for you to understand. And if you’re watching the auto financing system and, or blueprint, and you have not fixed your credit, or you are going to fall into one of these tiers, I’m going to cover, I urge you not to purchase a new car, go rent a car, go to Turo, turo.com, Turo.com and then just rent a car. And you can just, whatever you would have paid towards the car payment, you just put, you just put towards renting a car and you focus on fixing your credit and getting your cash flow in order then you go.

And now you’ve already gotten used to making that payment. Then you have a car, okay. So let’s go and hop into the auto loan tiers. So there’s tier one, which is super prime and super prime means you’re basically top tier excellent credit, and you’re going to get the best rates available. And generally speaking, um, if, if you’re doing the bank route or purchase or financing, the vehicle new APRs can be as low as 3.6, 8%. If you go to a credit union, there are some credit unions that can go even lower than this. You can go as low as a one to 2%, but I’m just showing him you’re going to, to a traditional bank. Uh, then APR for use can be as low as 4.3, 4%. And again, this is just going to a traditional bank, not necessarily a credit union, and in some scenarios, these interest rates can be lower.

I’m just kind of giving you a broad stroke for that tier one subprime. You can always get the deal lower. If your score is, is, is, um, at your place. And then sometimes which I’ll cover in financing, you can even get them to shop and do to get it loaded into that. Then you have tier two, which is prime. So that means you’re at a six 80 to seven 39 credit score. That’s still a solid place to be looking to purchase a vehicle in. And then you can get APRs for new cars at a bank for as low as 4.5, 6%. Sometimes you can go to a credit union, like I was saying, and get a lower interest rate. And then for use, it’s going to be 5.9%. And again, historically use interest rates are going to be more than new interest rates. Non-prime that’s that six 20 to six 79.

Could you get a car at a tier three non-prime interest rate? I mean, credit score, you could, but again, I don’t suggest you start doing this because you’re going to be paying anywhere between 7.5, 2% to 10.3, 4%. And that’s being conservative, uh, conservatively low. They really can be a little bit higher. We could be at, at the.. And this is the other thing I’m going to get into. You could get a deal. You can have a 680 to 739 credit score, really being a tier two prime, but get a tier three type of loan based off the deal. So you need to be really, really aware of the type of financing you’re getting, and really try to put yourself in position to have the best rate. Because again, it’s not just your score. That’s determining this. This is just a broad stroke.

It’s all those other factors like utilization, credit, age payment history, which can bring you up or down on one of the tiers. Tier four is subprime. And you do not. You do, I repeat, you should not be going to purchase a car in a tier four subprime area period point blank because the interest rate is going to be conservatively at least 11.89%, at least 11.89%. I’m being conservative here. If you even get approved to 16.4%, if you get approved for the tier four. And I remember, I remember really, really wanting a car and getting approved at a tier four financing because one of my credit bureaus was in the low five hundreds, even though I had 700 on the other two, this was years ago when I was really getting started out in credit. And I had to pay that 16% interest for a few months until I was able to do a refinance.

Okay. So I, I just don’t, I just don’t suggest you do that. Just don’t even do it. Just, you know, Hey, just this cause the, the, the financing, the loan, all that stuff, it’s just going to not be in your favor. Then you have tier five. Again, this is 14.41%. If you get approved for a new car, which I highly doubt you would, but you might be able to, or we can be looking at it as low as 19.98%. And really what this means when we’re at those tier four and below what you’re saying to the banks is, Hey, look, I’m going to pay you $1. And anywhere between 10 cents to 20 cents of that dollar is going straight to your pockets, bro. That is not cool. So now we have an understanding of the auto loan tiers. Now, in my opinion, if you’re not at least at a tier two from a credit card credit score perspective, I don’t suggest you go out and try to buy a new car because you deserve to not pay all that unnecessary money and interest. The other thing you want to take into account is just because you have the score of seven 40 or six 80, doesn’t mean that auto loan, that auto lender, or that dealer may not put you at a tier three deal to get the, get the, um, get the deal. I mean, put you at a tier three lending situation to get the deal done. So be cognizant of that, I’m going to cover that in the next module, but this wraps up module number one.