FIN 310 - Long Term Borrowing

Long Term Borrowing

Advantages of buying a used car

lower purchase price, warranties are available, and vehicle will retain a larger percentage of its value

How much should a car be worth for?

Do not buy a car that costs more than 30% of your annual salary

Disadvantages of buying a used car

higher and more maintenance costs, higher financing costs, and no factory warranty

Advantages of leasing a car

lower down payment, low monthly payment,

Disadvantages of leasing a car

more expensive because you are only paying for the most rapid depreciation time, must return vehicle in good condition, and terminating early is very expensive

Key factors to look for in a car

can hold value, reliable, and good fuel economy

How much does it cost to own a car?

Average of 12,182 per year

Reasons to buy a house

ability to customize, fixed monthly payment, interest costs on mortgage re-tax deductible, and hedge against inflation

Reasons to not buy a house

home prices don’t always go up, not great investment return

How to know if you are ready to buy home?

If you have a fully funded emergency fund, 100K in investments

Types of conventional loans

conforming and nonconforming

Conforming loans

Conform to FHFA standards of credit, debit to income ratio, loan size

Nonconforming loans

Don’t meet FHA standards

Fixed-rate loans

interest rate stays the same for life, typically 15-30 years

Adjustable-rate loans (ARM)

Lower interest rate to start, rate can change based on prime rates

Plan to buy a home

1. imagine life in your house

2. purpose

3. emergency fund, investment base, down payment

4. budget

How to manage your credit score?

make payments on time, keep balances low, and monitor it