Retiring? What to Think About if You Want a Car Loan
Remember when you we are in your 20s or 30s, and retirement seemed like the distant future? Well here you are now, and it seems like it’s going to happen tomorrow. Thank goodness for your RRSP! You might tell yourself because now, you’re going to put that money to use for what YOU WANT to do, after so many years of working. Maybe you’ll treat yourself to a new toy, like a brand new car. While you may certainly deserve it, you should give some thought to the how’s and why’s of getting a new vehicle after retirement, especially if you’re considering an auto loan. After all, why put yourself in debt after spending a lifetime trying to get rid of it?
Can retirees get a car loan?
With age comes wisdom, not to mention perks right? Some people assume that as you get older, it becomes harder to get a loan. That’s not true. And if you’re wondering whether you can still qualify for a loan after retirement (which nowadays happens anywhere from 60 – 67), the answer is yes, you can. But it all boils down to whether you really want to or not. Remember, a loan in any way shape or form is a liability, and you do not want to spend your retirement funds paying down loans, debts, interest rates and all the fees that “working” people have to deal with.
You certainly don’t want to join the ranks of the following crowd – retirees with debt. It’s the antithesis of freedom after retirement”. Unfortunately, it’s not as rare as you might think it is. In fact, according to an article published on Financial Post, half of all Canadians expect to carry some form of debt into their retirement. There are some other troubling numbers too. About 20% of people close to retirement are relying on the value of their homes to pay for their daily expenses once they have left the workforce. Hopefully this isn’t the case for you, but it does show that retirees are walking away with fewer assets than previous generations. That means you (as well as any other Canadian about to retire) needs to think carefully about whether they want to lock themselves into a long-term commitment, relying solely on retirement money.
Weighing in the financial costs
Even though you may enjoy a degree of financial freedom not yet experienced, you still have to exercise caution and care with your money. Many of the same considerations that apply to those in the workforce, will apply to you too once you leave the job. Even if you’re sitting on what may seem like a fortune, you don’t want to squander your money because of a few careless mistakes.
At the end of the day, you’re still collecting a paycheck, and it is a factor in how much financing you will qualify for. The amount of money you have to work with, might be less than what you earned during your working years. Therefore, you have to consider your other expenses compared to the monthly cost of your loan.
Let’s say you still have some debts to pay off, or have a credit score that’s not the best. When combined with reduced “pay”, going for a car loan might be risky. If you’re going into retirement with serious credit issues, lenders may flat-out deny your request. And you also have to watch out for setting yourself up for bad credit. You don’t want your credit score to drop during the period of life you should be debt free.
Weigh-in the emotional aspects
Aside from the financial aspects mentioned above, there is the more important side of things – your freedom. Isn’t that what retirement is all about? Having the ability and flexibility to do what you want, when you want, where you want? Throwing yourself into a long-term commitment may not be a bad thing at this point, but it shouldn’t mean squeezing your funds to make your payments affordable.
If you have kids, they’re most likely grown with children of their own now. You’ve probably paid off your mortgage and other loans over the years as well. That’s not something you want to throw away! A loan can be worthwhile if it’s a short-term deal that you’ll have no trouble paying. If not, think about other options, such as leasing.
The ultimate experience that comes with retirement is that of personal freedom. When you think about it, that’s the goal that all retirees look forward to. Travelling, hobbies, relaxation – the things you didn’t have time for when working in a office are now open to you whenever you please. Taking on a loan if it’s not in your favour can make those activities difficult, even impossible. So before deciding to go for a loan, think about your aspirations and plans and how a long-term financial commitment will affect them.
Building a Plan
Ultimately, if you want a loan instead of having to pay for a car outright, make sure you go in with a plan. It’s the key to getting financing that doesn’t put a strain on your money. And if things do get a bit rocky, you can always use this plan to keep you on track or make changes.
Tips for making a successful plan
- Speak to your financial advisor first
- Review and revise your budget
- Talk to your significant other and family members
- Consider how a long-term loan will affect other expenses, hobbies, aspirations
- Consult with a credit advisor who will give you pointers
No Time to be Tied Down
Your days of 9 – 5 are coming to an end. Soon, you’ll be trading office hours for time on yoga mats, beaches and of course, breezy drives on backcountry roads. Just the mental image of driving around a car you’ve always wanted can get you through a long day at work. But you also have to think about how you’re going to pay for a new set of wheels. If it’s going to interfere with your post-employment life you’ve worked so hard for, ask yourself, “Is it worth it?” Although a new car may satisfy a long time dream, it shouldn’t come at the expense of living a debt-free life in your later years.