Are cars making folks broke?

Buzz Killington wrote:

DILYSI Dave wrote: If you can't afford it in 48, you can't afford it.

why is 48 months the magic number? someone else could just as validly say that 48 is too long; if you can't afford it in 24, you can't afford it. or if you can't pay cash, you can't afford it.

The people who would say those other things also have reasonable assertions, but the reason 48 is a line in the sand is that a 48 month loan generally will stay ahead of the depreciation curve. You are never upside down, or at least not very far. 36, 24, 12, and cash are all certainly better.

DILYSI Dave wrote:

Buzz Killington wrote:

DILYSI Dave wrote: If you can't afford it in 48, you can't afford it.

why is 48 months the magic number? someone else could just as validly say that 48 is too long; if you can't afford it in 24, you can't afford it. or if you can't pay cash, you can't afford it.

The people who would say those other things also have reasonable assertions, but the reason 48 is a line in the sand is that a 48 month loan generally will stay ahead of the depreciation curve. You are never upside down, or at least not very far. 36, 24, 12, and cash are all certainly better.

Even if you can afford those other shorter terms, a longer term means smaller mandatory payment amounts. You CAN pay more if you want, straight to principal, shortening up the term. But on a month when you may need a bit extra for something else, your cash isn't tied up in a car payment. when I finance (which isnt' all that often, though I did it on the BMW and on the Rangie) I always stretch the term out, then make a larger principal payment as I feel like it. i can pay it off in only a couple years (and did with the BMW), but if I feel like it, I can make a minimum payment on one month and only have a hundred bucks or so for a payment that month. Hell, that's less than cable... ;)

SilverFleet wrote: Don't live beyond your means, and things will be ok. There's nothing wrong with a car payment, mortgage, etc. as long as you can afford it. Most people cannot grasp this simple concept.

Bingo. I buy a new car if that's the car I want and I can afford to. I buy a used car if that's the car I want and I can afford it. I don't buy a car I want if I can't afford it. All is well.

I've bought 1 new car, financed a couple other "nearly new" ones. At the moment, I have 2 paid for, presentable vehicles, one financed kid-hauler for the wife to drive, and I hope that's my/our last car loan. Vehicles are WAY better now than the average Joe gives them credit (ha!) for, but I think a lot of people are still convinced that cars automatically self destruct at 100k miles.

It all comes down to this: You only borrow money, when you can afford something. So every time you borrow money, you are buying something you can't afford.

Why didn't learn this lesson 16 years ago? I fell into the trap of "affording" payments. Payments are great until your job/company/industry go away.

Minimize buying what you can't afford, and eventually you will be able to afford more.

There's a subaru club in NY which is aka the "best buy crew", all in their late 20s, early 30s, living at home, working entry level cash register jobs (best buy) & owning $35k cars, and not thinking twice about $3k rims, $1k catbacks etc...

About 1-2 months after they 'finish a project car' (buy tens of thousands $ in flavor-of-the-day bolt on JDM parts), it's sold, usually loosing nearly all the value of the parts.

An opposing view. In 06 we bought a brand new s40 for my wife. She wants nice, and safe, and hassle-free. Those are her priorities, and the volvo is a very very good family sedan. We got a good deal on it, but it's still a payment, and volvo depreciation is horrendous.

And I don't care. She will keep that s40 for 10 years or more, long after the loan is paid off. She'll keep it until it's at the very bottom of the deprreciation curve. It's how she is. And then I'll go buy her another new car.

There's nothing wrong with that.

You may have been able to buy the same car 1 - 2 years old at 50 cent on the dollar, but that's not what she wanted, and that's OK.

Years ago, my wife and I were discussing what she should do if something were to happen to me. I told her, as far as cars go, get the lowest lease price on an econo model, and turn it in every 3 - 4 years. It doesn't make financial sense, but back then, cars weren't so good, and she would get ripped off by the local shops. Peace of mind is worth something to some people.

Timeormoney wrote: It all comes down to this: You only borrow money, when you can afford something.

Proofreading is your friend.

[edit] And oh, yeah, I'm with Baxter. Financing and new cars are not the devil's work in and of itself. Stupid financing on too much car is.

Timeormoney wrote: Payments are great until your job/company/industry go away.

So is saving up until you can buy something with cash, until you're halfway there and your job/company/industry goes away. Then you've been depriving yoruself of living and still have nothing to show for it.

As a car enthusiast, spending on cars is the hobby that makes me happy. I don't spend on guns, or sports, or wine collections, or model railroading, or whatever. So saving until I'm old to buy a car that I shoudl be enjoying now defeats the purpose of working hard to earn more than the minimum wage.

Yes, if you buy a car on payments, and you lose your job/company/industry, it can be taken away from you. But at least you got to enjoy it/use it up to that point. If you are saving for a special car and you lose your job/company/industry, that car has effectively been taken away from you without ever getting to enjoy it.

it's not that it's a sense of entitlement or an unwilingness to work for what you want in order to have instant gratification, it's the understanding that life is for living, and it's best to do that while the opportunity is there, rahther than make yourself miserable now in order to MAYBE live long enough to enjoy it when you're too old to actually use it. I've had my life almost taken from me, and now I treasure my personal relationships more, my travel more, and yes, my hobbies/things that I find enjoyable more. if that means buying a car i want now and working to pay for it, instead of working to pay for a car and MAYBE getting to buy it later, I'm going to go for it. I've got to work to earn it in either case. I'd rather take it and enjoy it and risk losing the job than NOT take it OR enjoy it and STILL risk losing the job.

dyintorace wrote: Interesting perspective on how most folks spend an inordinate amount of money on personal transportation.

It's not that my car makes me broke, it's that racing is why I bother to go to work in the morning!

Ian F wrote: Remember folks, it's all a matter of perspective... and everyone's priorities are not the same. To most people - even many car enthusiasts (like my g/f) - the concept of any sort of automotive competition is a huge waste of money...

My extended family think I'm nuts for being out of town essentially every weekend for the Cause of Burnt Hydrocarbons.

They don't like it when I point out that they'll spend most of the weekend watching TV, which is basically just staring at a wall for two days.

i pay cash for cars, never had a payment. i buy cars with 100k, and have no problems. i get pissed if i have to spend $500 a year on an 'unexpected' repair..

my finance professor in college said the first thing to do out of school is but a house. then anyone will give you a car loan. if you buy the car first, your screwed. he also said if your cant afford it in 2 years you can't afford it!

watch this video...(repost)

http://www.daveramsey.com/media/flash/elearning/drive-free/player.html

my only advice to anyone planning on buying a new car is to buy a house now (or investment property). it is a buyers market. your house will climb in value, your car will decline. simple as that.

jhaas wrote: my finance professor in college said the first thing to do out of school is but a house. then anyone will give you a car loan. if you buy the car first, your screwed. he also said if your cant afford it in 2 years you can't afford it!

Huh? Show me anybody who can get a mortgage without having the credit history of a successful car loan first. Was your finance professor on crack?

Duke wrote:

jhaas wrote: my finance professor in college said the first thing to do out of school is but a house. then anyone will give you a car loan. if you buy the car first, your screwed. he also said if your cant afford it in 2 years you can't afford it!

Huh? Show me anybody who can get a mortgage without having the credit history of a successful car loan first. Was your finance professor on crack?

Me? Here? "Showing myself?"

They always ran my credit when we bought our houses. I'm not sure what would have happened if I didn't have any!

Poopshovel did they run your credit? And you had none, but still got a conventional mortgage?

Duke wrote:

jhaas wrote: Huh? Show me anybody who can get a mortgage without having the credit history of a successful car loan first. Was your finance professor on crack?

My wife and I both did. I've never had a "real" car loan. Bought my first new one cash ('94 Civic), 2nd one mostly cash w/ a $7k loan from Dad ('99 Civic Si). Paid off the Si shortly thereafter (now a garage queen) and drove beaters since.

My wife's 99 CR-V was paid cash new and it's about to be replace at 212k miles.

We got a mortgage no problem back in '03--granted, that was at the peak of the boom. We both had good credit from responsible credit card use.

I expect to put $5-7k down on her next car--most likely a Fit Sport. I'm assuming we'll get decent financing for it.

gamby wrote:

Duke wrote:

jhaas wrote: Huh? Show me anybody who can get a mortgage without having the credit history of a successful car loan first. Was your finance professor on crack?

My wife and I both did. Bought my first new one cash ('94 Civic),\ We got a mortgage no problem back in '03

Well yeah, you had at least 9 years of credit history on your side. If you had applied for that mortgage back in '94 (or today), that might have been a whole different story.

My dad always bought new daily drivers. I bought one, got screwed and said 'no more'. I have gotten loans for used cars but have always kept the terms short and paid them off early if at all possible. I have bought new dirt bikes with loans but again kept the terms short and paid them off early.

The type of person who screws themselves up with car loans is generally the same one who handles other parts of their financial lives poorly. I see that a lot with used luxury car buyers; these people don't make that much money but will buy a high end brand for 'stylin' and profilin'. Expensive cars have expensive repairs, I can't count the number of times someone is faced with a $2500 bill and lets it slip that they are already upside down in the loan. These people slip further and further down the slope into the quagmire, all in the name of looking rich.

BTW, the average new Mercedes owner is NOT a 'rich' person; most have a family income of less than $100K a year. That sounds like a lot until you factor in the obligatory $300,000 house etc to match that Mercedes, then suddenly it doesn't look so great. The number 1 vehicle of the average American millionaire? The Ford F150 pickup.

A book well worth reading: The Millionaire Next Door.

http://en.wikipedia.org/wiki/The_Millionaire_Next_Door

^Are you serious? How do you "know" they have family incomes that small?

To people really stretch themselves THAT much for a car? The fiancee and I are DINK's with a $97k house, and above your threshold for income mentioned and I would NEVER DREAM of buying a car that expensive.

I feel bad considering a $23k new car even though it won't affect our lifestyle or savings/retirement contributions.

I don't feel so bad anymore.

z31maniac wrote: ^Are you serious? How do you "know" they have family incomes that small? To people really stretch themselves THAT much for a car? The fiancee and I are DINK's with a $97k house, and above your threshold for income mentioned and I would NEVER DREAM of buying a car that expensive. I feel bad considering a $23k new car even though it won't affect our lifestyle or savings/retirement contributions. I don't feel so bad anymore.

If my house were only $97k (Northeast cost of living FTL) I'd be able to pay cash for a new Benz--no joke.

That said, My wife's CR-V was $20k or so back in '99 and the Fit will be all of $17k 11 years later. Priorities change...

We've bought one car new - our 2006 RAV4. At the time, it was about $2K more to buy new with a warranty than a used one without a warranty. The financing was a good deal, and we paid it off early. With that being said, I don't think I'd ever buy new again. My friend put a Total Cost of Ownership spreadsheet together on his '04 G35 Coupe, and I did the same on the RAV4. After seeing the depreciation hit we've taken so far, I'm planning to go used for every other purchase.

My E36 was bought at the very bottom of the depreciation curve, I drove down to VA with a good friend to pick it up. The day of travel was worth it to get a car with zero rust.

The Odyssey was a Certified Pre-Owned. Ironically, it had a better warranty when we bought it than a new Odyssey. We added the extended warranty for a few extra bucks, and it has already paid for itself (transmission output seal an broken airbag wire). I think 3 years old or so is a good sweet spot for buying a used vehicle that you need to be reliable.

I bought the K1500 about 6 years ago, it's been a great truck. Currently looking to replace it with a newer extended or crew cab. Trying to find the right balance and not spend a lot on its replacement, yet still get something that'll be reliable for us over the next 5-7 years. I'm enjoying the search so far!

Duke wrote:

jhaas wrote: my finance professor in college said the first thing to do out of school is but a house. then anyone will give you a car loan. if you buy the car first, your screwed. he also said if your cant afford it in 2 years you can't afford it!

Huh? Show me anybody who can get a mortgage without having the credit history of a successful car loan first. Was your finance professor on crack?

Also showing myself. Moved in Sept 12th of last year.

z31maniac wrote: ^Are you serious? How do you "know" they have family incomes that small? To people really stretch themselves THAT much for a car? The fiancee and I are DINK's with a $97k house, and above your threshold for income mentioned and I would NEVER DREAM of buying a car that expensive. I feel bad considering a $23k new car even though it won't affect our lifestyle or savings/retirement contributions. I don't feel so bad anymore.

The car companies research the hell out of their customers and those of their competitors so they know how to target advertising, etc. Over the last several years there has been a trend toward cross training service advisors with salespeople, meaning I saw a LOT of that type stuff. And yes it is true.

Of course there are always those who fall at the far ends of the spectrum, but statistically speaking the great majority of luxury car buyers fall in the definition of 'middle class'.

zomby woof wrote: Years ago, my wife and I were discussing what she should do if something were to happen to me. I told her, as far as cars go, get the lowest lease price on an econo model, and turn it in every 3 - 4 years.

I've thought of doing this for auto-x. Lease a MINI, throw on some Koni Yellows and a cat-back and a couple of sets of SSR's w/ r-comps... run it for the lease term, swap back on the OE parts and give it back. No worries about out-of-warranty work... Then go find the next "car to have" for a class and repeat...

Chris's comments about not always waiting rings true to me as well. And in a way, it is this concept taken to the extreme that has gotten us into so much trouble (which I know all too well...). Like anything, the key is moderation.