I have found an exceptional car that I want to buy and feel purchasing it with a loan makes sense as I probably won’t see this good of a used car (‘92) again. I went to my bank and they want to charge me 10% interest because of the year of the car (their words). This took me by quite a surprise. Is this common in the US to vary the interest rates like this depending on what you purchase with the money loaned to you?

Answer: I would recommend two things: join a credit union, and shop dealerships for program cars. The credit union will generally give you a good rate on a car loan; I got my Taurus on a 3-year credit union note at 7%, which at the time was an excellent rate. Program vehicles are generally about a year old with plenty of miles remaining on the original warranty. Program vehicles have the added advantage of having been inspected by dealer-certified mechanics so you can be reasonably certain the thing won’t die by the side of the road in six months. This is a bugaboo for me. I have never, ever, financed a car. I save the money up and then pay cash for the car no matter what age it is. When I walk away with a car, I own it; not some finance company.

Ever added up the interest you’d be paying for a used car? Or a new one? I think it’s just plain dumb to make payments on an automobile.

It’s just not worth it, to me.

I could: 1. Put it all away in investments… but this is almost ‘extra’ and is definitely unexpected and I think I want to enjoy a bit of it now.

2. Put it towards paying off a credit card or something. See above note.

3. Buying an expensive gift for my wife. But is this a tradition I really want to risk starting?

4. Waste it all on myself, both for pleasure and for a few basic necessities. I need new glasses, for example, and I’ve been craving a playstation for about 3 years…. (please, please, no lectures on the playstation, and “Yes”, I DO know how old I am

5. Setting it all aside for a land/MH/house purchase..

I’m not really asking a question here everyone, I guess I”m just trying to think outloud… any input is greatly appreceiated.

Thanks for your time, as usual.

Answer: I am a CPA, and have been CFO of several multi-million dollar corporations. For the last 20 years that I have used a credit card I have used just one card and paid it off in full each month. If I were to carry a balance, the current rates on my card would be 16.8% for purchases and 19,8% on cash advances. I routinely counsel people who are up to their ears in credit card debt and their cards have rates at least that high or higher, excepting the occasional short-term promotion rate some banks use to encourage people to take their cards and transfer balances there from other cards.

Regardless of the specific numbers, the fact remains that any credit card rate is going to be significantly higher than that of any other debt instrument (such as a personal loan or home equity loan), and certainly much higher than any CD or savings account. A quick scan of CD rates shows them currently to be running between 5 and 6 percent, depending on term, which seem to be about twice the inflation rate. Therefore, even if your credit card were costing you only 12%, to put money into a 6% CD rather than relieve the 12% debt still keeps you falling behind. And just putting the money in a chequing account earns you zero percent (except for the rare interest-bearing chequing account which usually requires high balances and/or additional fees charged), which is a ridiculous option.

Now for the question. How do I correctly determine the annualized rate of return to compare to other investments….Here is what I have done so far, but I am quite sure it is wrong.

Loan duration is 2 years with a starting investment of 1,000 turning into 1,080 for an annualized rate of return of 3.92%. To get this 3.92% figure, I used a financial calculator with the following inputs: N = 2 Present Value = -1,000 Future Value = 1,080 Compounds per year = 1 Payments per year = 1

This just doesn’t seem like the correct calculation to me. Is this the correct way to calculate annualized rate of return for a set amount of monthly payments – as in this case?

Answer: I’m also a little nervous about anyone loaning money directly to another person. I’d definitely get some collateral, like the borrower’s car.

I’ve seen friendships break up over loans, and not only that, the money wasn’t paid back either, leaving bad feelings and guilt. Personal loans can teach the meaning of the phrase “neither a borrower nor a lender be.”

I think it might be smarter to forget about loaning the money. I’d send the would-be borrower to a bank or other professional loan source. I think the borrower might also be able to find as-good or better interest rates. I’m also wondering why the borrower wouldn’t use a bank, and also wonder if the borrower had credit problems that prevented using a bank, which would be a bad sign for the lender.

Rather than make a personal loan, I’d try to steer the borrower elsewhere. I could put the $1,000 in a savings account or CD and get a guaranteed return and know I’d be guaranteed to get my $1,000 back also.

OTOH, the personal loan here could all work out. But I think it’s risky and I’d ask for and get collateral. I’d also make sure to get the whole loan contract on paper and make sure the collateral is transferred to the lender.

My only concern is how is this tactic going to affect my credit, which has always been in perfect standing. I mean, if, for the next sevaral months, I’m only paying the monthly minimum on the credit card, and have a substantial month-to-month carryover balance, will that have any negative impact on my credit? I asked the credit card company customer service rep that very question, and she said there wouldn’t be any damage to my credit. I still want to make sure.

Answer: I’m not an expert nor do I have any inside knowledge at all of how the credit rating system works. What you’re talking about doing certainly shouldn’t lead to any adverse information going on your credit report–adverse of the type that results from late payments, defaults, etc.

However, I think it could affect your credit score, that three digit number that the credit professionals have until recently been able to keep laypeople pretty ignorant about. If you are concerned, I suggest you find out your current score by getting a copy of your credit report. Then do a web search on the term “credit score” and you’ll be able to get enough information to help you ascertain whether you can afford to have your score lowered slightly by the fact of your carryover balance and making minimum payments.

Off the top of my head I’d say if you’re not planning to apply for major credit soon, like a home mortgage, you wouldn’t have anthing to worry about.

Answer: Unless you have a significant prepayment penalty, but all means make extra payments.

This almost seems like a troll note. I was not aware that it was legal to charge so high an interest rate.

If for real, you may want to apply for credit cards that have significantly lower rates and borrow at the lower rate to pay off the higher rate money. At 24% interest, it’s hard to imagine you’ll ever catch up. I shutter at thinking about paying any more than the 6% on my mortgage. I can’t comprehend 24%. I wish you the best of luck. Sounds like you are making some progress. For sure, I’d continue to sacrifice any way possible to reduce that 24% interest money. There’s almost no way you will get an equal-to-better return elsewhere, so paying down debt has to be your first priority until it gets under control. (and don’t be afraid to borrow elsewhere at lower interest rates – to pay down that almost sinful interest rate debt.

Answer: You better check that a home that small is allowed. Many city zoning codes won’t allow homes that small. Attracts the wrong sort of residents. And even building out of town, you’ll probably need to have the cash up front as most banks won’t loan you money for a primary residence that small. Little resale value. You could claim it as a vacation cabin maybe, but that would probably classify as a personal loan which is harder to get as there’s no marketable home for collateral. Your cost estimates for utilities are off by a couple decades. If you can find properties that cheap that are capable of being built upon, I would be amazed. Putting in a septic system is not a trivial matter. If the property doesn’t perc test properly, it won’t be allowed. And if it is allowed, is the property big enough for a well too? There is a minimum separation required. And if a well is allowed, how deep will it have to be? You can spend many thousands just on drilling, not counting the pump and associated equipment.

Building a home is an enormously complicated endeavor. Pipe dreams are free but homes cost. I’m sure this varies greatly by location, but it cost me US$1400 for sewer and US$800 for water, just for the permits to connect to city services back in 1984 (small town NW Oregon). Hiring the contractor to dig the trenches and make the connections (he had to cross the road for the sewer) was on top of that. I understand that the permits cost something over 2 times that now.

>In the sticks, you will have to put in >a septic system, and may have to use a well for water supply. Other >than the well (I still haven’t priced this at all),

Again, this varies by location and terrain, but the septic system for my second house cost about US$6000, and my well about US$4500, all total, in 1996 (again in NW Oregon).

Well, the reason 401k’s and IRA’s withdrawals get taxed is because the $$$ put in to them was NOT taxed. Um, say you make $25,000 and put 10% into an IRA. Instead of being taxed on the full $25,000 you’re taxed on $25,000 less 10%, or $22,500. Put the $2,500 into an investment, and say it grows 10% the first year. You end up with $2,750, and your return on investment is tax deferred. That’s cool because instead of the gov’t taking a chunk out of it, you get to keep it and invest it for additional returns. Keep doing that over 20 or 30 years, and it really amounts to a pretty good pile . . . more than if you had paid taxes on your investments every year. There are a few things you don’t want to do with your IRAs, though. You don’t want to invest your IRA $$ in tax exempt bonds, for instance . . . if you do, you not only get less return than on a taxable bond, but when you withdraw the money at retirement, you have to pay taxes on it. It’s crazy, but that’s what happens sometimes . . . it pays to read up on this stuff. WWW.fool.com has good info on IRAs and 401Ks. All in all, it’s a good deal.

Answer: OOPPSS…sorry Ken my mistake…..we have put in nearly $40,000 but the exact amount that is in there now is around $60,000……We recently withdrew about $10,000 for some foundation repairs on our house. We actually *borrowed* it at 5% and have to pay it back. But the 5% they are charging us, they are actually putting it back into our account. We wont make as much had we not taken the money out, but that was a better option than getting a personal loan and paying higher rates to some bank…… it was time for my six month sediment flush so now that is done thanks to this thread. I did check where I had the temp set … only 125 degrees; it now is at 140 degrees

kasper (or anyone) – i occassionally open the valve and i’ve never yet seen any sedimant (nine years). is there something i don’t know (i’m opening what i call a drain valve about 6 inches up from the bottom of the heater) or is it normal for some water to not form the sediment?

For example, I do need a new left tail light, which I will replace, but the plastic on the other tail light is only a bit chipped. They incloded the cost of a new plastic cover for that other tail light — costs $45, but the chip is small enough that I don’t really care about fixing it, I’d rather have the 45 bucks. Am I doing anything wrong if I do this? I am not trying to intentionally rip off the insurance company; I just don’t feel like the part needs replacing, for my needs (it’s a pretty old car). Plus I am environmentally minded about recycling; why should I send a piece of plastic to the landfill when I don’t feel it needs to be there? Does the mechanic have to send anything to the insurer to prove the work was done? The company didn’t tell me I had to send them any proof.

Thanks for your advice; I really appreciate it.

Answer: First, be aware that even if the car is “paid for”, if you have used it as collateral for a personal loan or something like that and part of the loan hasn’t been paid off yet, the lender may require that you get the car fixed. (So, just don’t tell them about the accident?? Depends on your personal sense of ethics.)

Second, check with your car-insurance company. Mine seemed only too happy to pay about my damaged car, BUT:

they would only pay up to a maximum of the book value of such a car, disregarding that *our* car is still in better shape by far than most of its year and model, and we/they couldn’t find us a comparable car for that book value they were using

their estimate of the costs of repairs are always based on restoring the car to *brand new car* condition, even if the car is old and the rest of the car isn’t likely to last as long as the repaired parts. If it’s a Toyota, they estimate on Toyota factory parts and installation/labor at a Toyota dealer or a shop that specializes in Toyota vehicles only. So, because of their way of doing things, they figured the repairs would cost over twice as much as the book value of the car. They wanted to pay only the book value, considering the car “totalled” because by their estimates it would cost more to fix than to replace. But almost all of our car was still in great shape.

if we went ahead with our claim with the insurance company, the accident would be included on our insurance record for years, and as long as it’s on our record the insurance premiums would be drastically higher than before the claim.

SO, here’s what we did. Checked around and found the parts that were needed for the repair, based on advice from and with the help of a couple of very good car repair places *that do Toyota work quite a bit but are not Toyota-exclusive shops or Toyota dealer shops*.

Some of these parts were used Toyota parts, some were comparable parts that would work in our case but not made by Toyota. They are certainly as “good” as the parts that were damaged in the accident–those parts were already “used”, by us!!

Once we knew that we could have the car repaired to our satisfaction for far less than the insurance estimate–actually just about the “book value” of the car that was all the insurance company wanted to pay–we decided *not* to proceed with the insurance claim. That way we saved what would have been the increase in insurance premiums, which over time would have added up to far more than what we paid for the car repairs.

We had the car repaired ourselves, but properly by professionals so that our car stays reliable and will last us as long as possible. Note that our repair costs could have been even lower if my DH weren’t so concerned about having a *nice-looking* car, but we wanted to bring the car up to the condition it was in before the accident.

This is even a tip for people who haven’t had a vehicle accident: insurance companies and many car-repair places have it in their heads that it makes sense to do repairs that bring the vehicle up to *brand-new-car condition* in respect to the repaired parts, even if the car as a whole is not likely to last anywhere near as long as the repaired parts of the car. You can save *bundles* of money in such cases by finding a good repair shop that will co-operate when you tell them you don’t need brand-new-car-condition. I’ve found you have to tell the repair place each time you go there that you don’t need new-car-condition, and that dealers and brand-exlusive repair shops are the least likely to cooperate.

Whew! Hope this helps someone,

I lived with my husband throughout his graduate school career during which he took out 40K in student loans. I worked throughout that time and contributed over 50% to our household expenses (we rent, don’t have any other debt or any assets). We got married during the final year of graduate school. My question is this: am I now at all responsible for any of his graduate school debt even though I didn’t benefit from it? What if he were to try to declare bankruptcy at some point? What if we were to get a divorce at some point? We are not planning either but I’m curious just what my responsibilities would be.

Answer: If the date the loan papers were sign predates the date on your marriage certificate, theoretically you should not be held responsible for any portion of your husbands student loans; unless…..

During the time you were living together you were residents of a state which recognized common law marriages. If you were, then that could have some bearing on whether or not you *could* be held responsible. Actually,if the student loan was an “official” loan, i.e. stafford, etc. i don’t think you would be held responsible at all. These loans are the responsibility of the student, not the family of the student. This is a different situation from someone “putting” another person through school, i.e. paying thier tuition, etc. I do know that if my husband were to pass away, I would not be responsible for his student loans even though we were married during part of the time he accumulated them (though his estate would have to go toward paying them off). The bank would just have to eat the loan (or the guarrentor of the loan). I am not completely sure though, any financial aide office person should know, just call up the financial aide office. usually, they don’t ask for names or student id numbers for general questions and they are not bank personel so they *should* be more concerned about the people involved.