Should I Buy A Car Before Or After I Retire?
As Jalopnik's resident car buying expert and professional car shopper, I get emails. Lots of emails. I've decided to pick a few questions and try to help out. This week we are discussing the timing of buying a new car around retirement.
First up, if you are coming up on retirement and think you may need to buy a car, when should you make that purchase? My mom is a teacher but she is going to retire this June. She has an old Mazda 3 with a lot of miles and it will need to be replaced in the near future. She wants to know if it will be harder for her to get approved for a loan after she retires and her income is reduced.
This is a good question, and it involves two key components to the loan approval process. The first, naturally, is the credit score. If your mom has good credit and maintains or improves that score, that will be the most important factor in both getting approved and a low rate for a loan.
The second aspect of approval is what lenders call the "debt to income ratio." This is where they examine how much money you are borrowing versus how much money you are making. Your mom will be collecting a pension, but that's not a full-time job, so her debt to income ratio might be less favorable after retirement. That being said, as long as her credit score is strong and she isn't buying something ridiculous like a Rolls-Royce, I don't see her having any problem getting approved for another reasonable car.
However, if she knows the Mazda 3 is on its way out, she may want to consider getting a replacement while she is still working so she can pay it down while she is making more money. Also, some manufacturers offer additional rebates and discounts for educators. In this case, just make sure her post-retirement budget can handle any payments.