Toyota Extra Care Platinum or Gold

SageBrush that is so true.

It reminds me of 0% financing. Most people that have a credit rating high enough to quality for 0% financing do not finance their car. They understand how to handle money and pay cash for the vehicle.

 

^^ Is that true ? I spent a couple of years reading a finance forum populated by people who live to accumulate money, and I seem to remember them taking the 0% apr loan in order to arbitrage interest rates. I have checked in the past which is the better deal -- cash off rebate or lower interest rate, but I cannot remember what I usually find, and of course the available alternative investment choices change the results.

I personally do not take out car loans, but it stems from being irrationally debt averse.

 

Any cash offer, even interest free, is aimed at getting you buy sooner, and gets you into debt. And if life throws a curve and you get layed off, or incur other unexpected expenses? A car is not a big expense, like say a house. I'd rather wait till I have the cash.

 

They always offer 0% or a cash rebate. If you pay cash and take the rebate you save the most.

When your 18 years old I strongly recommend getting a few credit cards. Finance your first car to build your credit and start saving for that first house. In no time you will be paying cash for cars, your house will be paid in full and your credit rating will look like this.

I have explained this a couple times in this thread. Here is a quote from post 105

 

I need a car to do my job. I drive 35,000 to 40,000 mile a year and they do give me an auto allowance plus $200 a month for gas. I cannot drive a piece of shit car because I take customers to lunch all the time.

My previous car was a 2000 Toyota 4Runner that never did better than 16MPG. The company used to pay 100% of gas. Now that they only give us $200 I am saving a boat load of money with the Prius.

I put 305,000 miles on the 4Runner. Here are pics I used to sell it. It was in mint shape and was able to get $5,000 out it.

4Runner Pictures taken 09-30-09

 

I think that is great and do not think it is financially stupid as you put it.

Many people own vintage cars they never drive. It’s their hobby and they love the car and the history of the car.

Many people go to Vegas every year knowing the odds are against them. They love all the excitement and the fact the city never goes sleeps.

I still do not understand why anyone would buy and extended warranty on the most reliable car in the world. The odds are against you. There are so many other things in life that will give you ‘Pease of Mind’ with your money. IRA’s, US savings Bonds, fix rate savings accounts, and many other investments that have a guaranteed return on investment.

 

If I can get a 0% loan I'd take it, even if I had cash in hand. I'd rather invest it (not stocks because that's just another form of gambling to me), or chip away the mortgage and pay the car off last. I'm not in a position to be laid off so I'm secure. The only thing I can't predict is accident and illness. But if I refuse to let that limit the things I want to accomplish.

 

A car or home loan is not needed for a high credit score. What is needed is a credit history of paying all obligations. As mentioned, a credit card paid on time is a simple method. And keep in mind that while companies like telephone and utilities do not as a matter of course report payments, they do report non-payment.

In short, paying interest or fees do not improve a credit score. It is a common misconception.

As for whether to take a 0% apr loan -- it depends on the alternatives, otherwise known as opportunity costs. E.g., if the choice is a $1000 rebate or a 0% loan for 3 years, and an alternative loan is available at 3%, then the break-even point is a car that costs about $22,000. Everybody should be able to do this sort of arithmetic, but unfortunately it seems the majority of Americans are pretty clueless when it comes to personal finance. Rather than figuring out the better deal, they make do with a monthly cash-flow calc. Extended warranties fall in this category -- a person knows they can 'handle' the extra X dollars a month folded into the car payment, but really have no clue how much the warranty opportunity costs are, and most interestingly, convince themselves they do not *want* to know, and instead swallow the 'peace of mind' BS.

<shrug>

 

SageBrush I can not agree more. People would rather be lazy then save a lot of money.

 

While you're correct that you don't need these loans in order to achieve a high credit score, taking out an installment loan like an auto loan does boost a credit score by a few points and it drops as you pay down the loan. That's how FICO score works. Paying interests on revolving accounts like a CC does nothing, however.

 

No.

My fraction of available credit utilized is way under 1%, and my score is > 800.

 

I didn't say you needed auto loans in order to to achieve a high credit score. How the FICO score is calculated is proprietary and uses a very complex algorithm, but it's been confirmed that taking out an installment loan will raise your score by a few points and it drops as you pay it down. Installment accounts do not use "available credit" so you're confusing them with revolving accounts.

 

It's fascinating how little discussion there is in this thread regarding the relative merits between the Platinum or Gold extended warranties.

Note my use of the words "relative merits", which are quite distinct from the "absolute merits" that everyone is spending their time discussing.

 

I know you didn't. My data point was to show that the effect cannot be more than minimal even without knowing anything about credit scoring.

Although the weighting algorithm of FICO is seekret, the logic is not:
Responsible (as in, paid obligations on time) credit use in the past predicts same in future;
High fractional utilization is a risk factor for not meeting obligations;
High debt to income is a risk factor for not meeting obligations;
Frequent requests for additional credit is a risk factor for not meeting obligations;

An installment loan increases the debt/income. If it is your only credit use, the record of meeting its obligations will outweigh the increased debt/income. However, if you already use credit responsibly then additional debt is a net negative on your score.

Don't believe me? Call a loan officer at a bank and ask if taking out a car loan before applying for a home loan is a good idea.

Read this, from MyFico.com

 

I absolutely agree with you that the effect is minimal. Like I said, you don't need those loans in order to achieve a high credit score. Many factors come into play in determining the score.

I didn't say how the FICO score is calculated is logical. It's just how it is. Just like what they say about not finding fairness in the tax codes, don't look for logic in how FICO score is calculated.

That's because another big factor comes into play, "Too many accounts recently opened" or "Time since accounts opened."

 

Wow @ you braggarts with the >800 credit scores...I thought I was doing well at 762 (though this is TransUnion...Equifax won't provide you with the score unless you fork over $8...I'd rather put that money towards a Toyota EW). I hit a wall @ 777 and haven't been able to surpass....likely due to income reasons.

I made a costly mistake when purchasing my Prius by way of loan...it was a month before the 0% APR was offered (March 2010) on the model, so I got shafted with 4.05%. Live and learn.

 

I paid off my house 7 years ago. Since then my only debt is a monthly credit card bill that is paid in full every month.

My current credit score is 834. Every year it goes up. Here are a couple old ones I have on my site.

http://mbu.com/62.jpg

http://mbu.com/143.jpg

This is 2010 -> http://mbu.com/prius/creditscore2.jpg

I have them all but do not have them the web server.