That’s great! Lots of people do.
Now, the difference between you and them is that you’re here, actively trying to figure out how to make this dream a reality, and for that, I commend you because you are already closer than most of the dreamers who want something without taking any concerted action to get it.
Today, I’m going to go over the three criteria you need to be able to get yourself into an exotic car AND be able to drive it for free.
Let’s dive in:
1 – Credit
Before we get into how to get credit for auto loans, let’s talk about the cash vs. credit debate.
Many will argue “if you can’t afford it cash, you can’t afford it” and that could not be further from the truth. It’s just something broke people say to justify why they are too afraid to borrow against something they want.
I can afford all of my cars in cash many times over. In some cases, I do buy them cash, but I also am happy to take out loans on my cars because the cost of the loan (2-4%) is much less than I am earning on my cash elsewhere every month (15-20%).
Buying a $150k car cash to save $2k in interest costs me upwards of $15k in income elsewhere.
This is what I call “the cost of cash”.
If you are one of the many who finance because you don’t have the cash to pay for the purchase, then your interest rate is simply the “tax” you are paying for not having cash.
Everyone’s cash cost and risk appetite are different, so I’m going to write this with the assumption that you will need to borrow to pay for your car. If you’re paying cash, skip to section three.
When it comes to auto credit, lenders look at four main factors to determine whether to give you a loan.
The first is your overall credit score. You want to be scored AT LEAST 650, ideally higher.
Second is your auto loan history.
Third is your debt to income ratio, which they like to see at 40% or less.
Fourth is your residency and employment, which they like to see at least three years at the same place. (Protip, if you are a small business owner, list yourself as a high-level employee of your company, NOT as self-employed).
If you are lacking in any of these criteria, there are some factors that a bank will overlook. For example, if you own your home outright, a low credit score could still get you a great rate. Or if you are a medical doctor, lawyer, engineer, or other high-paying STEM position, you can get approved for a much higher loan than, say, someone in marketing, even if it’s your first auto loan ever.
Need to build your credit score? Here are some things you can do to get it up:
- Get a credit card, use it, and pay it off in full every month.
- Get higher card limits. This will lower your credit utilization percentage and increase your score. Call and ask, open another account, etc.
- If you’ve never had an auto loan before, get an intro auto loan on a lower dollar car (that is still hackable) even if the rate is rough.
- You only have to carry the loan for ~3-6 months to see a score and auto credit increase.
- Use a co-signer for your auto loan and/or become an authorized user on a long-standing credit card account.
- And NEVER EVER MISS A PAYMENT.
2 – Cash Flow
Yes, you need income or available cash to “carry” the loan while you have it. There are many ways to do this, from employment, to investment income, to liquid cash available to carry your investment.
If you are young and don’t yet have a job or aren’t sure what do to, I highly recommend seeking compensation that has a performance-based aspect to it.
(NOTE: if your “sales” job is an MLM-type scheme that promises you that you can work your own hours and be your own boss, it is a scam. I am talking about a real position at a real company that pays real base wages to their sales staff, not jobs that charge employees to work for them up front for the promise of a return later.)
This has already been considered by the bank in your application, as they look at your debt-to-income ratio and determine how risky it is to add this new payment to your debt column.
I can’t stress how important it is for you as a hacker to NEVER miss a payment for anything ever. Banks don’t need honesty from you, but they need deniability to cover their own asses.
When hacking properly, even with a high payment, you need to remember that this money is not lost. It is being transferred into the asset temporarily while you own it, and recovered after sale.
Which is why it’s crucial to buy…
3 – The Right Car
Ok, you have purchasing power and are ready to get your exotic car. What’s next?
Car hacking, boiled down to its essence, is: buying the right car (not the cheapest) for the right dollar, so that your cost to own is free or slightly profitable.
This means we are buying cars that fit the following criteria:
First, they are no longer depreciating based on time (generally 3-5 years, but some new cars now will never see a drop below MSRP) and are only experiencing value fluctuations based on condition, mileage, and overall market backdrop.
Second, the car must be desirable. I don’t just mean a desirable make/model, but a specific car.
This is why we stay away from brands like Lotus, Fisker, RIMAC, etc. that, while considered “exotic” in some circles, don’t have enough of a buyer pool to justify ownership.
Some brands and cars that fit the model include Ferrari, Lamborghini, Porsche, Bentley, RR, Aston, BMW M, Mercedes-Benz AMG, and the Dodge Viper.
I recommend narrowing your search down to 1-2 models within your desired price range to start so that you can do better research in a more concentrated market, as opposed to looking at every make and model of car you could potentially afford.
Remember, the beauty of car hacking is that you don’t have to keep these cars for very long (although in many cases you can keep for years), so you can try lots of cars in a relatively short period of time in a financially responsible way.
Put this all together and you are well on your way to becoming a car hacking pro.
Want more help with the nitty-gritty details of exactly how to research cars, where to negotiate deals, how to save on maintenance and insurance, etc?