Learning From Our Mistakes: Our First (Auto) Loan

This month’s Group Writing Project is about Personal Experiences with Loans, so we’ll tell the story of our first, somewhat disastrous experience with loans, of how we got in trouble and rectified the situation.

In May 2003, when we moved from Hawaii, we lived in a tiny garage apartment in Hayward, CA (more about this in Our Family Financial History). After a few harrowing experiences of walking as long as 3-4 hours through the dodgy neighborhoods to run errands, we decided we needed to buy a car ASAP.

Not knowing the first thing about buying a car or obtaining a loan, we set out on foot on Memorial Day 2003 and walked several miles to the car shopping district. The first used car salesman we spoke to asked us about our credit history, of which he had none. He told us we wouldn’t be able to buy a car without credit history and made some suggestions that we buy some jewelry on financing to build credit. Well, we needed a car then, not a year after owning jewelry we didn’t need, so on we went.

At the next used car lot we stopped at, a young salesman hurried out to speak to us. I can’t quite recall what was said in the conversation except perhaps that we were looking to buy a used car. Before we knew it, we had been whisked off in one of the used cars and driven over to the KIA dealership a block down the road and seated at a table with 2 car salesmen.

Again, they began by asking about our credit. We told them we had no previous credit history, but they went ahead and pulled our credit and came back shaking their heads and tsk-tsking about it, saying it would be really hard for us to buy a car. But good news was that I had an Old Navy credit card account (which I had never used), so I could actually get a loan – at an interest rate 24% APR. It was the only way, they said, that we could get a car.

We believed what they said and settled on a used 1999 Sephia LS, which was listed at $7,000, with a monthly payment of $230 (about $190 of which turned out to be interest) for 36 months. I didn’t like it, but by this time, we had been there for hours, were famished and really just wanted to get out of there. We also felt that we had to get a car that day, because we were too tired to walk all the way back home in that hot weather, and we couldn’t go on walking to buy groceries (Hayward is a scary place and our experience with public transportation there hadn’t been good).

So we finally gave in, put a down payment of $1,500 and took the “deal,” which upon later examination of our loan documents and after licensing and taxes (another $1,500) would have us paying a total of $11,300 for a not-so-great used car. We also made the mistake of not planning ahead and looking into auto insurance, so we had to take the dealership’s deal for insurance until we could get our own.

After we bought the car and spoke to our cousin, who had lots of advice for what we “shouldn’t have done” after the fact, we decided that we would do our best to pay off the loan as quickly as possible. The one good thing about this awful loan was that there was no pre-payment penalty. So we made our monthly payments and saved as much money as possible. By the beginning of June 2004, after 13 monthly payments, we had saved up enough to pay off the remaining balance of about $4,300.

By paying the loan off 2 years early, the final amount we ended up paying for the car was around $8,800. So we were able to save about $2,500. It was a mistake to go car shopping armed with no knowledge, but we did learn from our mistake and you can be sure we will never make the same mistake again. We’ve decided that next time we need to buy a car, we’ll order a new one from Cars Direct and pay in cash.

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PF Bloggers Group Writing Project

About the PF Bloggers Group Writing Project

The Personal Finance Bloggers Network currently consists of 7 active personal finance and frugal living blogs. The Group Writing Project is a monthly project wherein each blog will write a post on a pre-determined topic and publish it on the same day of each month. Be sure to visit the PF Bloggers Group Writing Project page for the others!

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If you are a blogger, we would like to invite you to write your own post on this topic and submit it for listing with our entries on our Group Writing Project pages. Please visit the following page for details on how to participate in our Extended Group Writing Project.


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