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For those who live side-hustling, driving an Uber/Lyft is an excellent way to make some extra dough. Some people drive for both Uber & Lyft full time as well. I’ve recently had a discussion with my best friend who climbed his way out of homelessness to sustainable living (that’s another blog post). He wanted to drive for Uber as a side-hustle but didn’t like the interest rates. I told him he can get his car interest-free.
He didn’t really believe me. Considering he only had a couple grand saved up working his ass off, he didn’t want to get a shitty used car. He was taking the bus everywhere in Tampa.
While he did acknowledge that he is wasting a lot of time taking the bus vs having a car, it was probably the best option given that any used car he would get would have a very high-interest rate.
So I walked him through this very process. He worked two jobs and side-hustled his way out of being homeless, so he is definitely committed to using Uber to pay off his a used car.
I WANT TO BE CLEAR: THIS PLAN IS NOT FOR EVERYONE. THERE ARE CERTAIN REQUIREMENTS NEEDED IF YOU WANT TO GET A DAMN GOOD USED CAR WITH 0% INTEREST.
- DECENT CREDIT SCORE (675 At the absolute minimum)
- PREVIOUS USAGE OF CREDIT CARDS
- CREDIT LIMIT OF AT LEAST $10,000
- WILLING TO TAKE A TEMPORARY HIT ON YOUR CREDIT SCORE
- DEDICATION TO USING UBER/LYFT TO STRICTLY PAYING OFF YOUR CAR IN ABOUT 1 YEAR.
- HAVE DECENT FINANCIAL HABITS
Sorry for the caps, but you are playing with fire doing this. I try to set specific rules because this is pretty unorthodox and advanced technique that a lot of people aren’t comfortable with.
I am not a financial advisor, but rather a dirty basement kid that is making the system work for myself to better the lives of those that are committed and willing.
My friend is currently doing this technique and it’s working.
Step #1: Determine the Type of Car You Want To Drive For Uber/Lyft
Technically, this strategy does work if you want to get a $3,000 used car. But chances are it will have high mileage and you will be more likely to run into maintenance issues. Plus, the goal of this technique is to give you a pretty nice car that pays for itself via ridesharing.
Personally, I would follow these guidelines when shopping for a car for Uber
- ALWAYS Buy Used.
- ALWAYS Buy From A Private Seller & Not A Dealer.
- Get a car that is 2 years old max.
- Preferably less than 15,000 miles.
- Plan For Spending $12,000-$18,000.
I would not want to spend more than $20,000 max. I know you are probably thinking, “$20,000 get the hell out of here”. I’ll break down the numbers later and it should make sense.
The reason you should buy used is that there are a lot of benefits compared to buying new.
- Used cars often cost significantly less than new.
- Even a 1-year-old car can lose up to 40% of the value.
- Lightly used cars run just as well as new cars (assuming it’s not a lemon).
The reason you want to buy private vs a dealer is that:
- Private dealers are looking for an interested buyer.
- No hassle as you can really pick and choose your car based on your needs.
- Less pressure to walk away.
- You have negotiating room (for the sake of simplicity, go based off KBB and try to knock off a few hundred dollars).
- The cost will be much lower compared to the dealer markup.
Now you might be asking, “I can’t afford to buy a used car from a private party”. You can actually get pre-approved for a private party auto loan (See step 3). But the key here is that you already have a game plan before you approach the seller.
So you have a good idea of how much you want to spend? Perfect!
Step #2: Sign Up For No Fee / No APR Credit Cards
I have already talked about which credit cards you need to have. You want to use these credit cards as balance transfers as they offer 12-15 months of 0% APR and no fees.
However, one thing I want to make sure of. Your credit limits will vary for each new card. That’s why you need to have decent credit with a decent credit limit. If you have poor credit, this won’t work as well.
That last thing I want is for someone to have poor credit and apply for Chase Slate only to get a $2,000 credit limit. You won’t maximize your value here. It’s better to build your credit first before diving into this strategy.
Again, it took me years before I was able to leverage credit to stop paying interest and to make it work for me.
Sign Up For 1 Credit Card first to see what your limit it. For someone with good credit (720’s-750’s at any given time), my limits are $8-15K when opening a new card. Remember, you can request a credit limit increase to see if you can raise it.
You will want to make sure your credit limit on these cards is more than what you want to pay for your car.
Step #3: Visit Credit Unions & Banks To Apply For A Private Party Auto Loan
I recommend doing this within all within a few days. The reason being is that most of these banks and credit unions are going to do a hard pull on your credit.
This means that your credit score will briefly take a hit for all the times a financial institution does a hard pull on your credit. If you spread out your applications over weeks instead of days, your credit will continually look worse.
By doing it over a series of days, your score might not reflect all of the applications. This is not guaranteed, it depends on which credit bureau your bank pulls your score from.
But I recommend doing this in a week time-frame as it gives you the best edge to get the highest limit and best rates while applying.
There will be paperwork involved, but you’ll see soon enough that it will be worth it.
Your Private Auto Loan Rates
My friend went to several banks and credit unions. Even though he had decent credit (720’s) he didn’t have a super long credit history. Plus his take-home income wasn’t that high at the time.
Because of that, his interest rates were 19-25%. For reference, that’s pretty much similar to most credit cards.
Let me clarify: Despite having decent credit, his loan interest rates were nearly the same as credit cards.
This is fairly common for used car auto loans. My first used car loan was 6% and I had excellent credit back then.
You should be able to get approved on your private auto loan. For now, don’t worry about the rates. If you have good rates, then perfect, you probably won’t need to follow this strategy to a tee.
PS: Some banks might have a prepayment penalty, make sure there are no prepayment penalties or closing fees on your loan.
Step #4: Purchase Your Car From The Seller
I won’t go over the details regarding your car purchase. I’ll stick with generalities as you should do your due diligence on the car you want to buy.
But by this step, you should have a credit card(s) with a higher credit limit plus the loan approval from the bank. Meaning that you can buy your car without any more roadblocks.
Here are a couple tips to make sure your deal goes without a problem.
- Make sure the title is clean and it’s state issued. No title = no deal.
- Do your homework on the vehicle.
- Don’t be afraid to finalize the sale at the bank so the seller knows that the payment will go through.
- Don’t bring cash, use a check instead.
Step #5: After Purchase, Balance Transfer To Your Credit Cards
…and this is where I can see the Dave Ramsey fanbase throw rocks and yell “SHAME”. This is also where I will (hopefully) blow your mind.
Your balance transfer credit cards should have no fees and no APR for a time period. I even walk through the process of doing a balance transfer to pay off your loan (granted, it’s for student loans but the process is very similar).
Assuming you are able to get your loan and buy your vehicle within 60 days, you will be able to do a fee-free balance transfer!
The Lesser of Two Evils?
What blows my mind is that when I see people take loans with around 20% interest rates. Now, it’s not terrible compared to payday loans but 20% is fairly high. Even getting a used car from a dealership can have an interest rate of 25% APR.
Most credit cards offer between 15-30% interest rate. If we were to use the Chase Slate card for a balance transfer, the max APR is 25.24% (seriously).
Hmm, 25% auto loan interest rate vs 25% (worst case) interest rate after 15 months of 0% interest for a credit card?
Even with a $10,000 car, you save $2,500 on interest along after the first year compared to an auto loan.
Now, your credit score will take a hit as your credit utilization will be pretty high. But it’s a trade-off. You save thousands in interest at the cost of taking a hit on your score.
Step #6: Become Uber/Lyft Approved
Considering you’ll have a much nicer car to drive for ridesharing, you will have a much easier time getting approved to be a driver. I won’t dive too much into the process of doing this as there is a lot of documentation in getting started, Uber has some documentation as well.
Step #7: Pay Off Your Balance Transfers
I’m going to crunch some numbers for you. Assume you get a solid 2016 used Honda Accord for $16,000. You get two balance transfers with 0% APR for 15 months.
You will need to pay:
- $1,066 each month for the next 15 months
- Total Cost – $16,000
- $0 Interest
A six-year used car loan for about $16,000 at 25% APR means you will be paying:
- $428 each month for 72 years
- Total Cost – $31,221
- $15,221 in interest
What If You Made Aggressive Payments On The Loan?
REALISTICALLY SPEAKING, the point in doing all of this is that you would be doing ridesharing enough to pay for your car in one year and still make extra dough.
“But Mr. Debt To Dough, so what if we did enough ride sharing to pay $1,066 on the loan instead of the credit card”.
Good question! I crunched the numbers in unbury.me and this is what showed up.
So while being just as aggressive on an auto loan, you still pay nearly $3,400 extra interest. And you’ll still need to pay it in 18 months (3 months longer) compared to a balance transfer.
The Key To Payoff – Commit to Ridesharing
Lyft especially has been very aggressive in hiring drivers. So much that they are offering guarantees for new drivers.
Realistically, you should commit to 20 hours a week minimum. 20 hours a week with tips on both Uber/Lyft (depending on the city) should net you about $1,200/month.
Assuming this is a side hustle and you want to be more aggressive (job 40 hours & lyft/
40 hours a week), getting $2,500/month is more than enough for a car payment and then some!
Paying off your balance transfer before APR hits are completely doable. If you want to plan/budget around your loans, check out this article.
Even after 1 year, you can pay off your slightly used car in full and not worry about interest.
As For My Best Friend, he is committing to 30+ hours a week on Uber/Lyft. On top of that:
- No longer paying for the bus.
- He is driving a nice car vs a beater.
- Extra hours saved by not riding the bus go towards ridesharing.
- He is saving enough money to pay off his car and have extra savings.
I think what might rub some people the wrong way is that “You’re working on uber/lyft to pay for a car that I won’t get to enjoy until it’s paid off”. For my friend and probably other people, what’s wrong with wanting a nicer car or finding a way to stop wasting time if it could be prevented?
I will say, this plan isn’t for everyone. Having strong financial basics is necessary to avoid late payments and proper planning.
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