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Jerry1 10-02-2019 10:32 AM

Seven year auto loans
 
Interesting article on auto loans. America’s middle class can’t afford their cars.

Apparently, auto loans have grown to seven years in length. Interest comment in the article that auto dealers now can make more on their loans than their cars. Other interesting note was that they take these loans and bundle them into a bond like product. Didn’t we learn not to do that from the 2008 credit crisis?



https://apple.news/AoTmBEHNUR86gBUFPL0gNqw

Here’s the WSJ link but you have to sign in.

https://www.wsj.com/articles/the-sev...rs-11569941215

pb4uski 10-02-2019 10:37 AM

This part was really scary....

Quote:

He paid $27,000 for the car, less than the sticker price, but took out a $36,000 loan with an interest rate of 1.9% to cover the purchase price and unpaid debt on two vehicles he bought as a teenager. It was particularly burdensome when combined with his other debt, including credit cards, he said.
So they have a $36k loan collateralized by a car that was $27k new. :facepalm::facepalm:

JDARNELL 10-02-2019 10:39 AM

So with these loans I guess people are upside down til year 3

Jerry1 10-02-2019 10:46 AM

Quote:

Originally Posted by JDARNELL (Post 2305057)
So with these loans I guess people are upside down til year 3

I bet they’re upside down the life of the loan. I couldn’t believe it when they went to six years. Now seven? I haven’t done the calculation, but I bet you’d be better off leasing. It least then you can walk away from the car at the end of the term. Assuming no over mileage charges or such.

Teacher Terry 10-02-2019 10:51 AM

They should just buy a car that they can afford. People want expensive SUV’s, trucks, etc. My first new car was when I was in my 30’s. It was small with no extras at all. Now we buy 3-4 year old cars pre-certified by the dealer with low miles and a warranty. We drive them until repairs become too costly.

calmloki 10-02-2019 11:03 AM

I've bought one new car and paid cash for it, but (not having read the article) borrowing at 1.9% and wrapping two their loans sounds like a great deal for the borrower.

Jerry1 10-02-2019 11:27 AM

Quote:

Originally Posted by calmloki (Post 2305075)
I've bought one new car and paid cash for it, but (not having read the article) borrowing at 1.9% and wrapping two their loans sounds like a great deal for the borrower.

I agree that the interested rate is great, especially compared to other consumer loan rates. However, the act of rolling auto loan debt over into another loan just screams of bankruptcy waiting to happen. The person is definitely not practicing LBYM's or any form of good financial decision making (other than getting a lower rate).

jollystomper 10-02-2019 11:29 AM

I am not really surprised to see this... they are moving the focus of car buying off of the actual cost of the car and more to the monthly payment. The assumption being made is that if you can afford the monthly payment, you can afford the car.

If dealers start making more on the loans than there cars, I will not be surprised to see them move to pitches such as "come borrow money from us, we'll throw in a car for free." :) I have already heard CarMax referred to as a finance company that happens to sell cars.

pb4uski 10-02-2019 11:57 AM

Quote:

Originally Posted by Teacher Terry (Post 2305067)
They should just buy a car that they can afford. People want expensive SUV’s, trucks, etc. My first new car was when I was in my 30’s. It was small with no extras at all. Now we buy 3-4 year old cars pre-certified by the dealer with low miles and a warranty. We drive them until repairs become too costly.

+1 I have to say that I was proud of DS when we went car shopping... he had a maximum monthly payment in mind and bought a modest entry-level one-year old Kia Forte sedan.... no status symbol but dependable A to B transportation that has served him well.... and quite affordable.

The Cosmic Avenger 10-02-2019 12:05 PM

I wonder if no-haggle dealerships are pressuring the other dealerships to make their money off the loan instead of the sales price. But then, those who would take a seven-year loan for more than the price of the car may not be shopping around as thoroughly as this crowd here.

Oakster 10-02-2019 12:22 PM

I think it is just the change of the culture and the cost of vehicles. The concept of being able to afford something used to mean that you could pay cash for it, or you could not afford it. Over time, as it has become more and more the norm to think that you will have a car payment your entire life, being able to afford something is simply a matter of being able to juggle all of the payments. Basically, you get to enjoy the product before you complete the paying of the cost of the product. I think our youth are being led to believe that you will always have rent/mortgage, car payment, cell phone plan and school loans. The thought of being able to live mostly without payments (we all use cell phones) is unheard of and thought to no longer be possible unless you are very wealthy. Its a big shift in our thought process. Kids buy digital copies of books, buy songs by the each instead of the album etc. Companies get rich off of the unknowing masses by using small, reoccurring payments. Netflix is massive, getting $7 a month. I often wonder what might happen if the acceptance of debt reversed and the masses did not spend their entire paychecks before they even received it.

Mdlerth 10-02-2019 12:34 PM

In the Middle Ages, 7 years was the standard period of indenture
 
Couldn't read the whole article due to WSJ shield so I don't know if they addressed this question: Since warranties figure strongly in car manufacturers' pitches, is the longer loan period accompanied by longer standard warranties?

My limited experience is that only a subset of the driving population ever buys new cars anyway, and that subset also tends to trade in their rides for new ones at much shorter intervals than the period of a loan or the expiration of a warranty. Therefore, whether the loan duration is 7 years or 30 or 100 may not matter to those who buy new. If I'm mistaken, perhaps someone here could educate me?

In any case, seven years is a long time to be paying on a car. And if it compounds by rolling prior car debts into each new loan, wowee!

ExFlyBoy5 10-02-2019 12:39 PM

Quote:

Originally Posted by pb4uski (Post 2305054)
This part was really scary....



So they have a $36k loan collateralized by a car that was $27k new. :facepalm::facepalm:


This is nothing new. I guy I went to HS with has been doing this for at least 20 years. I think his car payment is more than his mortgage.

kgtest 10-02-2019 01:53 PM

We financed about 30k at 1.9% APR. Paid it off early. I can't recall what we actually paid in interest but with this bull market...we were able to max 401k and save on taxes without needing to lighten up on contributions. It worked for us at the time.

Will never have another auto loan again though. And am trying as hard as I can to minimize interest on our home over our lives to about 18 years. Wish we could pay sooner, might happen, but you have to live somewhere and at 2.75% APR our home loan is hardly an interest killer of the 80s. ;D

7 of those years we had 4% APR, I am REALLY enjoying 2.75%!!

braumeister 10-02-2019 02:19 PM

I think the length of the loan is necessarily as long as it needs to be to get someone to buy.

I remember back in the 80s talking to some Germans who had 50 year mortgages on their homes. They said it was very common.

USGrant1962 10-02-2019 02:24 PM

I would never recommend a 7-year car loan. But one relevant factor is that modern cars last much longer than they used too. I saw an article the other day about how the interiors were now not lasting as long as the exteriors and mechanicals.

LRDave 10-02-2019 02:32 PM

I have a 5-year loan on my tractor - I wish it was 7-years or even more!

(Interest rate is 0.0%).

Bamaman 10-02-2019 02:47 PM

The idea that if someone is always going to have a car payment, it may as well be a less payment--from leasing. Customers know how to buy a car. Very few know how to lease a car.

Most cars leased are at MSRP--big profit makers. Potential lessors should realize that purchase price is not important, but monthly payments are what you negotiate. And dealers have a big spread in payments they can charge and still turn a profit.

If you get down to it, leasing is just balloon payment financing. But the lessor is not responsible for the vehicle at the end--other than excess mileage, wear and tear. They don't have to do anything but turn in the vehicle and pickup another. And lease monthly payments are always less than purchase payments on normal terms.

athena53 10-02-2019 03:10 PM

Quote:

Originally Posted by pb4uski (Post 2305112)
+1 I have to say that I was proud of DS when we went car shopping... he had a maximum monthly payment in mind and bought a modest entry-level one-year old Kia Forte sedan.... no status symbol but dependable A to B transportation that has served him well.... and quite affordable.

Sounds like your DS did well, but buying based on monthly payment is what gets people into these longer-term loans. I HATE the car-buying BS; DH and I bought cars off-rental the last 3 times and were very happy. Here's the price, take it or leave it, get your own financing, show up with the check and get the car. If a dealer were to start the conversation with, "So... what monthly payment did you have in mind?" I'd leave. They can get you to the monthly payment you want by giving you a not-so-great deal on a cheaper car and/or extending the loan term.

joeea 10-02-2019 03:55 PM

IMHO, if you cannot afford a 2 year loan for a car, you cannot afford that car.

Chuckanut 10-02-2019 04:41 PM

The nice thing about a three auto loan is that after you pay it off, there are usually at least two or three more years of no payments and no repairs. With a seven year loan one could have repair costs and the loan payments. :eek:

Markola 10-02-2019 05:40 PM

Quote:

Originally Posted by USGrant1962 (Post 2305204)
I would never recommend a 7-year car loan. But one relevant factor is that modern cars last much longer than they used too. I saw an article the other day about how the interiors were now not lasting as long as the exteriors and mechanicals.



Yeah, so people should buy used cars and pay cash. Heresy in this consumer culture, I know.

pb4uski 10-02-2019 05:47 PM

Quote:

Originally Posted by athena53 (Post 2305239)
Sounds like your DS did well, but buying based on monthly payment is what gets people into these longer-term loans. I HATE the car-buying BS; DH and I bought cars off-rental the last 3 times and were very happy. Here's the price, take it or leave it, get your own financing, show up with the check and get the car. If a dealer were to start the conversation with, "So... what monthly payment did you have in mind?" I'd leave. They can get you to the monthly payment you want by giving you a not-so-great deal on a cheaper car and/or extending the loan term.

I probably should have mentioned that his maximum payment was only $215/month.

always_learning 10-02-2019 06:58 PM

Quote:

Originally Posted by Jerry1 (Post 2305049)
Interesting article on auto loans. America’s middle class can’t afford their cars.

Apparently, auto loans have grown to seven years in length. Interest comment in the article that auto dealers now can make more on their loans than their cars. Other interesting note was that they take these loans and bundle them into a bond like product. Didn’t we learn not to do that from the 2008 credit crisis?



https://apple.news/AoTmBEHNUR86gBUFPL0gNqw

Here’s the WSJ link but you have to sign in.

https://www.wsj.com/articles/the-sev...rs-11569941215


I can't read the article, but I'm not surprised at the story. It seems that things are shaping up for a repeat of history, if the podcasts and call-in shows I listen to are any indication of what's happening "out there".

Not only are car loans being made for *8* years now, but it seems that it's not all that uncommon for households to have two of these loans, sort of a 'his and hers' if you will.

These callers/posters on other forums are also talking about financing for houses and finding that lenders are relaxing minimum down amounts, credit scores, and even proof of income. That doesn't sound too good.

GalaxyBoy 10-02-2019 07:07 PM

As a kid, I remember Dear Old Dad seeing a 48-month loan in the paper and erupting in disbelief. I got my first car, used, when I graduated from college with ten bucks in my pocket and DOD was good enough to co-sign the loan so I could get the unbelievably low interest rate of 17%. He insisted I not go longer than 36 months, and although I grumbled through those three years of payments I was eternally grateful to him for his advice in the long run.

Fast forward 15 years and DW and I paid cash for our first car together and discovered the joy of never having a car payment again. Save your money, then buy the car. Not easy starting out, of course, but once you pay off the first loan you simply LBYM, as we all know.

When I bought my new truck two years ago just before ER a coworker asked if I got a good interest rate. I've learned generally not to mention paying cash for such a large purchase, but my puzzled look gave me away instantly. He glared at me and walked off, not needing a verbal response. LOL

But seven years? [shakes head]

brewer12345 10-02-2019 07:07 PM

Folks, these loans have been popular for several years. Get out of the rich man's ghetto once in a while.

Is this a good idea? Obviously not. But Cars last a lot longer than 7 years and most people buy based on the payment.

pb4uski 10-02-2019 07:14 PM

Quote:

Originally Posted by brewer12345 (Post 2305335)
Folks, these loans have been popular for several years. Get out of the rich man's ghetto once in a while.

Is this a good idea? Obviously not. But Cars last a lot longer than 7 years and most people buy based on the payment.

I get it. But the article said:

Quote:

He paid $27,000 for the car, less than the sticker price, but took out a $36,000 loan with an interest rate of 1.9% to cover the purchase price and unpaid debt on two vehicles he bought as a teenager. It was particularly burdensome when combined with his other debt, including credit cards, he said.
Are they really writing loans in excess of the value of the collateral?

joeea 10-02-2019 07:18 PM

Quote:

Originally Posted by brewer12345 (Post 2305335)
Folks, these loans have been popular for several years. Get out of the rich man's ghetto once in a while.

LOL! Rich man's ghetto?

:laugh:

Gumby 10-02-2019 07:20 PM

Some oldtimers may remember this thread from 2006. Same hymn, second verse.

https://www.early-retirement.org/foru...ngs-22533.html

Walt34 10-02-2019 07:21 PM

Quote:

Originally Posted by pb4uski (Post 2305341)
Are they really writing loans in excess of the value of the collateral?

Yes.

If the buyer has good credit they've been doing that for years. I first learned of it when a SIL (the one I sometimes refer to here as "Spendarina") bought a new car because the "old one" all of three years old, need a $250 brake job. She was happy with the deal because her payments were only $15 a month more.:facepalm:

Senator 10-02-2019 09:48 PM

Quote:

Originally Posted by LRDave (Post 2305209)
I have a 5-year loan on my tractor - I wish it was 7-years or even more!

(Interest rate is 0.0%).

I am getting ready to by a Kubota MX5200. Hopefully they have a 5-year loan at 0.00%. From what I see, the initial price of the tractors are $500+ higher with the 0.00%.

CoolRich59 10-02-2019 10:19 PM

Quote:

Originally Posted by pb4uski (Post 2305054)
This part was really scary....

My thoughts exactly.

This was pretty scary too: "... a growing share of car buyers won’t pay off the debt before they trade in their cars for new ones, either because the car is in need of repairs or because they want a newer model."

What a recipe for disaster. :eek:

Badger 10-03-2019 03:35 AM

I hate borrowing money especially since any item would depreciate while still having to make payments. So I started paying for everything with cash/check except for a credit card that is paid off every month. I really don't like the monthly inconvenience of having to remember to write out a check on a loan. The last time I did that was around 1992. I like to simplify as much as possible as I get older and forgetful.



Cheers!

Andre1969 10-03-2019 04:12 AM

Quote:

Originally Posted by ExFlyBoy5 (Post 2305142)
This is nothing new. I guy I went to HS with has been doing this for at least 20 years. I think his car payment is more than his mortgage.

I almost let myself get seduced into this back in 2002. I had a 2000 Intrepid that I had bought new, in November 1999. 0.9% for 60 months. In early 2002, I looked at a Nissan Altima. It was all-new that year, and I was really smitten. At the time, I still owed about $11,300 on the Intrepid, and they offered me $6500 in trade. Those cars depreciated fast, as I discovered, and I already had about 56,000 miles on it at that point.

They offered to let me roll the negative equity into the new car, but I would have been financing something like $28,000, on a fairly basic Altima. My payment would have gone from $347/mo to about $525, and pushing it back out to 5 years. Thankfully, common sense got ahold of me.

I came somewhat close to getting back into the payment trap again. In September 2003, I went car shopping with my Dad. We saw a used '03 Regal that he really liked, and ended up buying. But, while we were there, I saw this '02 Intrepid R/T that I really liked. I think they wanted something like $16K for it. By this time, my 2000 had about 87,000 miles on it. I owed around $4800 on it, and they gave it a trade in value of $3500. They said they'd give me what I owed for it, though. I was tempted, but that '02 gave me a bit of a bad vibe, the more I thought about it. One nitpick was the dealership wouldn't give me an answer as to how much factory warranty it had left. Back then, Chrysler switched up a bit, so not all 2002 models had the same warranty. Some had a 3/36K bumper to bumper, but some had that, plus a longer powertrain warranty. One of its headlights was also misaligned, and made me think it had been in a minor accident. And the sales manager said that a mechanic had owned the car, so it had been well maintained. BUT, they couldn't produce any service records. So, it just seemed...iffy.

Anyway, I passed on that car, ended up paying off the Intrepid in late '04, and ended up driving it until it was about 10 years old and 150,000 miles, when it got totaled.

LRDave 10-03-2019 04:50 AM

Quote:

Originally Posted by Senator (Post 2305396)
I am getting ready to by a Kubota MX5200. Hopefully they have a 5-year loan at 0.00%. From what I see, the initial price of the tractors are $500+ higher with the 0.00%.

On mine, the deal from the dealer was independent of the financing. In my case, I got the tractor from family in the business, so slightly discounted. Mine is a sub-compact - the margins on the small tractors are quite low. They make their profit in implements and parts/service. (Sounds familiar:))

Perryinva 10-03-2019 05:08 AM

Whenever one purchases a depreciating asset, it cannot be looked at as any kind of investment but as an asset net value judgment. The money is going away as you use up the asset. The way I have always looked at it is “what is the cost per month and is there value in that cost?” The value part is where we all have different judgments. In BLow the Dough threads, excess money is spent on expensive food, drink, and travel. Judgment calls are being made. For financially saavy people leveraging debt makes you money or simply reduces net costs. Whether you pay for a service, or expensive food, it is a choice you make for the use of your money, ie: the reason You worked.

Being able to afford that cost is a different discussion. You can pay cash for a well negotiated $70k car. You want the car, and you have made the judgement that it is worth its cost to you, which is peanuts to your bottom line. Then the dealer offers you a 7 year loan for $50k at 0.9%. You would be a fool not to take it. Even if you parked the money at 2% you are getting a discount over paying cash. Preaching to the choir, I’m sure.

The terrible part is of course as everyone has said, is that the same loans are being made to people that can’t really afford the item, just like the housing bust if 2008. I applaud 7 year loans for those that can make money on them, though like others here, I cannot see myself doing that. Just too much ingrained aversion, plus I have never seen the favorable rates for that long a period on my purchases.

But once I won the game, and decided to spend my winnings at my awarded rate (isn’t that what we all are doing?), then it is simply a game to get the most of what you want for the least. I do my homework and negotiated my last 2 new car purchases (out of only 4 lifetime new cars) till the dealers cried impossible and walked away. When they came back to ask if my offer was still good, I was satisfied that I was getting what I wanted at the best price. I make no bones about the loss of that money for the depreciating use of the vehicle. It is easy to predict (usually) what the residual value will be over time, and whether that net cost is worth it to you. I have two car loans, (after maybe 20+ years of not having one) one with 8 months left, and the other 44 months left. I saved about $400/yr having those loans vs paying cash. In fact, BMW actually offered a further incentive if you financed over a certain amount as part of the negotiation, if your credit score qualified you. All payments are automatically made so that is effortless and I don’t even notice them.

I aim for a net cost (not including operating expenses except insurance ) of less than $2k/yr over the life of a used vehicle, and a bit more for a new one, as the warranty period carries a definite value that used does not. Of course, the longer you own the car, the lower the cost per year unless the repairs go on the rise. And no new car has any reasonable cost per year for the first 5 years at least. My 99 Dakota beater truck I have owned for 13 years is down to $300/yr, and my Porsche (11 years) is down to $1300/yr. (Both bought used of course)

pb4uski 10-03-2019 06:06 AM

Quote:

Originally Posted by Badger (Post 2305430)
I hate borrowing money especially since any item would depreciate while still having to make payments. So I started paying for everything with cash/check except for a credit card that is paid off every month. I really don't like the monthly inconvenience of having to remember to write out a check on a loan. ....

No inconvenience at all... I just set up a recurring check with my bank for the payments and for the number of payments of the loan and from there it happens automatically... also automatically imports into Quicken. Easy peasy.

Chuckanut 10-03-2019 09:13 AM

FWIW, twice I did sign up for a 5 year loan when buying a car. The first time the interest rate was 0% (which beat the cash discount taking inflation and the time value of money into account) and the second time it was 0.9% (same factors taken into account).

One thing I had to watch for was buying gap insurance since the value of the car would sink faster than the amount I owed for the first few years. The dealership wanted to sell me a gap policy for about $140 a year. :eek: The company that insured my home and car charged me about $12 a year. :) After three years I figured I no longer needed the gap insurance and cancelled it.

Like PB4 I setup my bank's bill payer system to automatically make my loan payment each month.

jazz4cash 10-03-2019 09:25 AM

Quote:

Originally Posted by brewer12345 (Post 2305335)
Folks, these loans have been popular for several years. Get out of the rich man's ghetto once in a while.

Is this a good idea? Obviously not. But Cars last a lot longer than 7 years and most people buy based on the payment.



+1

Andre1969 10-03-2019 10:23 AM

This thread got me thinking...my Mom didn't have a car payment until 1986. That year, she bought a new '86 Monte Carlo at the end of the model year. I don't know how much she put down on it, but I seem to recall it was $282 per month for four years. MSRP on the car was just under $15K, but I don't know what she paid out the door, with discounts and such. I think cars like that were actually becoming a bit of a hot item. There was starting to be a bit of an FWD backlash at that point, but good, old-fashioned RWD V-8 cars were getting harder to find as the auto makers discontinued some, and reduced output on others to avoid getting CAFE fines. So, even though it was the end of the year, it might not have been discounted *that* much.


Still, it's interesting to see how much car payments HAVEN'T gone up over the years, as long as you stick to something somewhat modest. For instance, my 2000 Intrepid was $347.66/mo. I financed $20,389 for 60 months at 0.9%. I think they would have given me another $1500 off if I went with "regular" financing, but in those days, that was something like 6.5-7.5%.


In 2012, I bought a new Ram at the end of the model year. I financed about $19,400. The payment was around $358/mo for 60 months, and I think the interest rate was 3.99%

Neither of these were fancy vehicles. The Intrepid was a base model, but still pretty well-equipped. Power windows, locks, cruise control, nice stereo, etc. All pretty much standard equipment these days, but once upon a time it would have been a luxury car. The Monte Carlo just had crank windows and manual locks, but it did have a V-8, and a nice sound system. The Ram is a basic RWD truck, regular cab, 8-foot bed, but it has power windows/locks, a nice sound system, and the Hemi V8.

Adjusting for inflation, my Mom's $282/mo payment back in 1986 would be like $660 today! :yuk: My Intrepid would be like $535 in today's dollars. And even the Ram would be around $400. Now, Mom's car skews the results a bit, because it was a 4 year term versus a 5-year. But, I think it still shows how, as long as you don't go hog wild on a new car, you should still be able to get a reasonable payment, and for a term that won't outlive you.

Andre1969 10-03-2019 10:57 AM

One other historical tidbit I forgot. Lee Iaccocca came up with the marketing slogan "$56/mo for a '56 Ford", whereby the buyer put 20% down, and the monthly payments were $56/mo for 36 months.

I've always wondered about the details behind that, though. For instance, what was the original MSRP of the car? $56 over 36 months comes out to $2,016. Even at 0% interest, when you factor in the 20% down, that would put the total purchase price at around $2500. Which, admittedly, wouldn't get you much of a car, even back then. My grandparents bought a '57 Ford, and it was around $3500.

FWIW, adjusting for inflation, that $56/mo would be around $528 in today's dollars. Not *too* bad, I guess, considering it was for 3 years.

scrabbler1 10-03-2019 11:09 AM

Quote:

Originally Posted by Badger (Post 2305430)
I hate borrowing money especially since any item would depreciate while still having to make payments. So I started paying for everything with cash/check except for a credit card that is paid off every month. I really don't like the monthly inconvenience of having to remember to write out a check on a loan. The last time I did that was around 1992. I like to simplify as much as possible as I get older and forgetful.

Cheers!

I tend to agree. Other than my apartment, I have never bought anything which required recurring monthly payments over several years. That includes 3 cars, all of which I paid with cash, in 1986, 1992, and 2007.

One time, I agreed to a special offer at an home electronics store for 0% if I took out a store charge card. Because I knew I would be buying 3 expensive items over the next few months there, I thought this would be a good idea. The 0% rate applied only if I paid off the entire balance on each item in full within a few more billing cycles, the equivalent of an expanded grace period. Because this extended grace period overlapped for the 3 items I bought, it was somewhat confusing how much of the running total I had to pay in order to maintain the 0% interest rate the whole time. I did see in the statement that any partial payment would be applied to the purchased items bought first (which is what I expected).

It all worked out just fine.

With my mortgage, I was able to set up with two lenders (the loan changed hands 3 or 4 times) an automatic payment feature, something not very common in the early 1990s, so I didn't have to worry about mailing a check to them every month.

gwraigty 10-03-2019 12:16 PM

Quote:

Originally Posted by Chuckanut (Post 2305539)
FWIW, twice I did sign up for a 5 year loan when buying a car. The first time the interest rate was 0% (which beat the cash discount taking inflation and the time value of money into account) and the second time it was 0.9% (same factors taken into account).

I won't share all the boring details behind our car and financing sagas, but I/we did some of what is frowned upon and have managed to be in a great place despite it. I rolled one car loan into another, twice, because my first 2 used cars broke down frequently and didn't last the duration of the car loans. I bought my 3rd car new and it lasted over 11 years. We took out a 401k loan to buy a used minivan to accommodate our growing family, so we could rebuild our taxable savings after we paid cash for our newly built home.

We paid cash for a few new cars, until I read that you should compare what your investments are yielding vs. the loan interest rate. So we financed our last 2 new cars because most of our investments yield more than we're paying in interest. When that isn't the case anymore, the loans will be paid off immediately. Or if anyone can point out a flaw with that logic. ;D

ExFlyBoy5 10-03-2019 12:25 PM

Quote:

Originally Posted by pb4uski (Post 2305341)
Are they really writing loans in excess of the value of the collateral?

Yes, and have been doing it for YEARS.

As far as haggling, I found that buying my last car through Carmax was about as painless as it can be. The price is the price, no haggling. I found what I wanted and it was shipped to the store. They happened to damage it (and didn't tell me until I showed up) but gave me $1500 off another model that was in the lot. It took me about 45 minutes to drive, sign the paperwork and then leave in the new car. I didn't finance it, but had I been able to get 0% for XXX years, I would have probably taken it.

HadEnuff 10-03-2019 12:29 PM

I've been buying cars for 45 years, and for at least that long car dealers and their salespeople have been trying to sell cars based upon "what is your budget for a monthly payment?"
I currently drive a 4 year old Highlander, I bought new, and paid cash for. (I guess I live in the rich man's ghetto.) For about a year I have been getting regular emails from the dealer, urging me to take advantage of a really great opportunity to trade it in, and get into a new one, and they'll arrange t make sure my monthly payments are less than what I pay now.
From the sales pitch it's obvious that they assume I took out a longterm loan.
So far I have resisted the urge to buy a new car.

The Cosmic Avenger 10-03-2019 01:00 PM

Quote:

Originally Posted by gwraigty (Post 2305657)
I won't share all the boring details behind our car and financing sagas, but I/we did some of what is frowned upon and have managed to be in a great place despite it. I rolled one car loan into another, twice, because my first 2 used cars broke down frequently and didn't last the duration of the car loans. I bought my 3rd car new and it lasted over 11 years. We took out a 401k loan to buy a used minivan to accommodate our growing family, so we could rebuild our taxable savings after we paid cash for our newly built home.

We paid cash for a few new cars, until I read that you should compare what your investments are yielding vs. the loan interest rate. So we financed our last 2 new cars because most of our investments yield more than we're paying in interest. When that isn't the case anymore, the loans will be paid off immediately. Or if anyone can point out a flaw with that logic. ;D


Well, by the time your investments are doing worse than the loan interest rate, we may be deep in the trough of a recession, and that plus the recovery could take five years to rebound over what it was when you took out the loan. So you'd either wind up paying more in interest than you made on your investments, or selling off investments during the recession to pay off the loan, which kind of defeats the purpose of trying to outperform the loan.



I'm glad it's worked for you so far, though! If I was feeling lucky, I might do the same, but I'd rather take that risk on a retirement/snowbird home, as the loan will be for somewhere in the 15-30 year range, and market performance might be less volatile over the longer term.

Gumby 10-03-2019 02:08 PM

Quote:

Originally Posted by HadEnuff (Post 2305668)
I currently drive a 4 year old Highlander, I bought new, and paid cash for. (I guess I live in the rich man's ghetto.)


Oh. my, what a conundrum. Now I don't know if my location should be "In the rich man's ghetto" or "The lumpen slums of cyberspace."

ckelly78z 10-03-2019 02:18 PM

I see all my friends, and family driving nice new cars/trucks, and bitching about the payments. I have been driving a nice $2500 2004 (triple black) Mustang GT convertible for 5 years now, and have had very few maintenance costs even with 178,000 miles,

My wife drives a 2006 Jeep Liberty with similar miles, and we have several other cheap, high miles cars at the ready.

These folks are living the American dream, they "deserve" that new car, and will do nearly anything to keep up with the Joneses, and stay current.

pb4uski 10-03-2019 02:35 PM

Quote:

Originally Posted by pb4uski (Post 2305341)
....Are they really writing loans in excess of the value of the collateral?

Quote:

Originally Posted by Walt34 (Post 2305345)
Yes.

If the buyer has good credit they've been doing that for years. I first learned of it when a SIL (the one I sometimes refer to here as "Spendarina") bought a new car because the "old one" all of three years old, need a $250 brake job. She was happy with the deal because her payments were only $15 a month more.:facepalm:

Quote:

Originally Posted by ExFlyBoy5 (Post 2305666)
Yes, and have been doing it for YEARS. ...

Then if it blows up on the lenders they deserve it and should absorb the losses.

timemoveson 10-03-2019 02:50 PM

Car stories are painful to read if you've been there...
 
Despite my, relatively speaking, strong financial success, cars were definitely a low-point for us.

I was the key driver of those decisions and it's embarrassing on reflection to tote up over perhaps 15 key years how many $10's of thousands of additional capital was wasted on purchases, leases, depreciation, and trading losses. Capital that would have been deployed to pretty much ANYTHING better.

Frequent trading of expensive vehicles before they were paid off and subsuming the portion underwater into the next loan? Been there in spades too many times.

It didn't kill our trajectory but we were not normal. I out-earned and out-saved our way past this. But, for "normal" people struggling against all the normal life pressures and the hedonic treadmill, this is a disaster waiting to happen.

Chuckanut 10-03-2019 03:20 PM

Seven year auto loans
 
Quote:

Originally Posted by timemoveson

It didn't kill our trajectory but we were not normal. I out-earned and out-saved our way past this. But, for "normal" people struggling against all the normal life pressures and the hedonic treadmill, this is a disaster waiting to happen.


+1

This group is probably much better equipped to recover from a financial mistake than Jane and Joe Average.

I really wanted to drive my 2012 Camry quarter of a million miles. Then I could claimed I drove the car to the moon. But not back. Uh Oh.......

gwraigty 10-03-2019 05:08 PM

Quote:

Originally Posted by The Cosmic Avenger (Post 2305680)
Well, by the time your investments are doing worse than the loan interest rate, we may be deep in the trough of a recession, and that plus the recovery could take five years to rebound over what it was when you took out the loan. So you'd either wind up paying more in interest than you made on your investments, or selling off investments during the recession to pay off the loan, which kind of defeats the purpose of trying to outperform the loan.



I'm glad it's worked for you so far, though! If I was feeling lucky, I might do the same, but I'd rather take that risk on a retirement/snowbird home, as the loan will be for somewhere in the 15-30 year range, and market performance might be less volatile over the longer term.

Thanks! Though when I say "yield", I've referring to the actual cash flow from the investments, not capital appreciation at all. I have more than enough invested that's receiving 5% + in interest and dividend payments.

jazz4cash 10-03-2019 05:14 PM

Quote:

Originally Posted by Andre1969 (Post 2305611)
One other historical tidbit I forgot. Lee Iaccocca came up with the marketing slogan "$56/mo for a '56 Ford", whereby the buyer put 20% down, and the monthly payments were $56/mo for 36 months.

I've always wondered about the details behind that, though. For instance, what was the original MSRP of the car? $56 over 36 months comes out to $2,016. Even at 0% interest, when you factor in the 20% down, that would put the total purchase price at around $2500. Which, admittedly, wouldn't get you much of a car, even back then. My grandparents bought a '57 Ford, and it was around $3500.

FWIW, adjusting for inflation, that $56/mo would be around $528 in today's dollars. Not *too* bad, I guess, considering it was for 3 years.



$3500 in 1956 was a top of the line Ford. I looked it up and the price range was $17xx-3500. I don’t think Iaccocca was touting the budget plan for a top of the line car. My first new car in 1974 cost around $2k and the payment was ~$60/mo for 3 yrs. I was in college and could afford the payments from my summer jobs.

https://www.reference.com/history/mu...8c29771bb78135

joeea 10-03-2019 05:23 PM

Quote:

Originally Posted by Andre1969 (Post 2305611)
I've always wondered about the details behind that, though. For instance, what was the original MSRP of the car? $56 over 36 months comes out to $2,016. Even at 0% interest, when you factor in the 20% down, that would put the total purchase price at around $2500. Which, admittedly, wouldn't get you much of a car, even back then.

1956 Fords cost about $1750 to $3150.

Quote:

My grandparents bought a '57 Ford, and it was around $3500.
In 1957 Fords cost about $1850 to $3400. You could get a T-Bird for about $3150.

Arizona1 10-03-2019 05:46 PM

I met a 60yo guy ( not retired ) in an Rv Park that was selling his 2016 1/2 ton truck to buy a new $75,000 one ton to pull his new fifth wheel trailer. He wanted $27,000 and he owed $42,000. His new fifth wheel was $87,000 and he was upside down $7,000 on his old travel trailer. I didn’t want the truck because it had 56000 miles, but asked him how he was paying the difference on both. He was rolling it into the new loans and was buying the hitch and all new camping stuff using his $10,000 equity from his house he owned in Reno for 20 years.
Both the truck and fifth wheel will be worth less than 50% in five years.

Andre1969 10-03-2019 06:02 PM

You guys are thinking base price on those '56 and '57 Fords. Remember, cars came just about totally stripped in those days. The most popular Ford in 1956 was the Fairlane 4-door "Town Sedan", with a base price of $2,093. In those days wagons tended to be the most expensive body style, above convertibles. The Country Squire 3-seat wagon, had a base price of $2,533. The T-bird was $3,151.

As for my grandparents' '57 Ford? It was a Fairlane 500 Victoria 4-door hardtop. The Fairlane 500 was the top line Ford series that year, and "Victoria" was what Ford christened their hardtop (No B-pillar, for those not in the know) coupes and sedans. Hardtops required extra beefing up to compensate for the lack of a B-pillar, although the compensation was rarely enough. They often ran $100-200 more than their pillared counterparts.

Anyway, that '57 Fairlane 500 Victoria had a base MSRP of $2404. But wait, there's more. Or, less. For that base MSRP, you got a 223 CID inline 6. Manual transmission. No power assist for the brakes or steering. No heater. No radio. I'm not sure about blackwall tires and monotone paint. Being a top series, it might have at least had whitewalls.

My grandparents got the V-8. But, not the 272. Not the 292. They went full-bore and got the 312 "Thunderbird" V-8, with 245 hp gross. Plus the automatic and all that other stuff that was optional. Throw on tax and tags, and even with some haggling, that $2404 could have easily bloated to $3500. If the car had been equipped with power windows, locks, and a/c, it would have easily topped $4,000. A/C was usually a $450-500 option in those days, and that made it more of a plaything for the rich. It was common in Cadillacs, Lincolns, Imperials, maybe an upper echelon Buick or New Yorker. But not so common in the more medium-priced cars (Olds, Mercury, DeSoto, Dodge, Pontiac), and quite rare in low-priced cars like Ford, Chevy, and Plymouth.

1957 proved to the the last year of unbridled faith in "Longer/Lower/Wider" in the auto industry, and a recession in 1958 helped usher in a backlash against those behemoths, a whole new generation of small cars and, for a brief time, it held the line on car prices.

For example, a 1957 New Yorker 4-door sedan had a base MSRP of $4173. Ten years later, in 1967, a New Yorker 4-door sedan started at $4208.

As for my grandparents, they traded that '57 Ford on a '61 Galaxie Victoria 4-door hardtop. Different name, but basically the same place in the Ford hierarchy. The auto makers in those days had a bad habit of bringing out a new name for the top model, and then moving the old name down a notch, maybe move the name below that down. and at the very bottom, retire a name. That '61 had a base MSRP of $2,664. I'm not sure if it had any more standard equipment than the '57. Same base engine, the 223. I'm not sure when they made a heater standard...probably not until the feds forced them to. Anyway, I remember Granddad saying that '61 was also around $3,500. However, I don't know which V-8 he ordered. There was a 292, 352, and a 390 big block. Somehow, I don't think he ordered the 390, but who knows?

He traded the '61 on a '63 Mercury Monterey. I remember he said the Monterey was around $3500, but he got it for the '61, plus $1200. With the Monterey you got a 390 big block standard. However, that year, there was a Monterey and a Monterey Custom. I don't know which one he bought, but I do know it was another 4-door hardtop, and it had the "Breezeway" rear window, which rolled down for ventilation, but he wanted it to haul long items, such as lumber, ladders, etc.

Andre1969 10-03-2019 06:04 PM

On the subject of '57 Fords, this is post #57 :p

tb001 10-03-2019 08:51 PM

I am all for taking out a loan vs paying cash when we’re being offered interest rates sub 1%. Debt is not always bad. We’re not ER yet, but it seems like it would be especially attractive when the alternative is withdrawing a big chunk of $ that may have tax consequences on top of it.

HadEnuff 10-04-2019 06:25 AM

My dad bought the stripped down '57 Ford, 4-door, 3 on the column. I still remember seeing it brand new in the garage, I was only 4 years old, and it is among my earliest, albeit foggy memories.
Dad was 6'2", and often over 230lbs, Mom was 4'11" and under 100lbs. Somehow they both managed to drive that car. I was black and blue in the chest from my mom's child restraint technique, although she probably saved me a few teeth along the way.
I think we had the car about 6 or 7 years, which seems like forever when you are 4 years to 10 years old. My memory of the old car was the springs poking out of the front bench on the driver side, with exposed foam, and that crater stuffed with a couple of pillows so my mom could see over the dash.
We always had the oldest nastiest cars in the neighborhood.
After Dad retired, they drove a nice Lexus, and lived in a condo on the beach in Bonita Springs, so those early days of scraping along and not squandering money needlessly on fancy cars paid off eventually.
I should have paid closer attention.

drb391 10-04-2019 07:45 AM

after doing a 5-yr loan, for the first time, and staying under water for WELL into it, swore I wouldn't go more than 4 again. driving back and forth across country every year, don't want to keep a vehicle more than the (original) extended warranty will cover

The Cosmic Avenger 10-04-2019 09:02 AM

Quote:

Originally Posted by drb391 (Post 2305929)
after doing a 5-yr loan, for the first time, and staying under water for WELL into it, swore I wouldn't go more than 4 again. driving back and forth across country every year, don't want to keep a vehicle more than the (original) extended warranty will cover


I dunno, there's nothing inherently wrong with a 5-year loan, especially if it's your first car, and you're young and still ramping up your retirement savings....but especially if you keep the car for 10-15 years, and once it's paid off you put that "car payment" into CDs to pay for your next car in cash! ;)

Chuckanut 10-04-2019 09:23 AM

If one is going to buy a car with a 5-7 year loan geting a reliable one is even more important. Otherwise one will be stuck with loan payments and repair bills at the same time. Not so good.

Had I bought my 85 Pontiac with a 7 year loan, I would have had three to four years of ever increasing repair costs on top of my monthly payments. The car was bad enough. The thought of making payments on it while I also paid to get it repaired, is just horrible.

Austin704 10-04-2019 09:27 AM

I just paid cash for a 4 year old car with 18k easy miles on it. Traded a 10 year old, 100k car to help finance.

While I can appreciate the benefits of financing when the spread between the loan rate and the interest rate on cash is significant, my thoughts are these: 1) I hate debt and making payments on anything and 2) paying cash keeps me from spending too much.

Feeling the immediate pain of pulling money out of savings does more to reduce the costs of car buying than earning a few coins on interest rate spread ever could. And, it feels like a victory to pay cash when for years I too was on the monthly payment treadmill.

gwraigty 10-04-2019 09:38 AM

Quote:

Originally Posted by Austin704 (Post 2306000)
While I can appreciate the benefits of financing when the spread between the loan rate and the interest rate on cash is significant, my thoughts are these: 1) I hate debt and making payments on anything and 2) paying cash keeps me from spending too much.

Feeling the immediate pain of pulling money out of savings does more to reduce the costs of car buying than earning a few coins on interest rate spread ever could. And, it feels like a victory to pay cash when for years I too was on the monthly payment treadmill.

Yes, if the discomfort of having debt outweighs any other issue for you, it's the right decision to pay cash. Though it's much more than a "few coins on interest rate spread" for us. Try several hundred dollars annually through the life of the loan.

Austin704 10-04-2019 12:13 PM

Quote:

Originally Posted by gwraigty (Post 2306009)
Yes, if the discomfort of having debt outweighs any other issue for you, it's the right decision to pay cash. Though it's much more than a "few coins on interest rate spread" for us. Try several hundred dollars annually through the life of the loan.



If you have the discipline not to buy more car on credit than with cash, then yes you could benefit. But if buying on credit leads you to spend even a few thousand more on a car than you would by paying cash (e.g. more options, later year model, etc), then any savings through financing is likely an illusion. It’s mighty tempting to “upgrade” when you’re talking a few thousand dollars spread over several years. For me, paying cash lessens that temptation.

gwraigty 10-04-2019 02:18 PM

Quote:

Originally Posted by Austin704 (Post 2306084)
If you have the discipline not to buy more car on credit than with cash, then yes you could benefit. But if buying on credit leads you to spend even a few thousand more on a car than you would by paying cash (e.g. more options, later year model, etc), then any savings through financing is likely an illusion. It’s mighty tempting to “upgrade” when you’re talking a few thousand dollars spread over several years. For me, paying cash lessens that temptation.

We aren't tempted to spend more regardless of how we pay. We're interested in absolute costs, not just how much the payments are.

pb4uski 10-04-2019 03:46 PM

Quote:

Originally Posted by gwraigty (Post 2306009)
Yes, if the discomfort of having debt outweighs any other issue for you, it's the right decision to pay cash. Though it's much more than a "few coins on interest rate spread" for us. Try several hundred dollars annually through the life of the loan.

Absolutely! We bought a new car in Dec 2015. We planned to pay cash but the manufacturer was offering 1.9% financing so we accepted it.

If I go to Portfolio Visualizer and enter an investment equal to our $30,291 loan in Jan 2016 and fixed monthly withdrawals equal to our $530 monthly payments and my 60/35/5 AA at the end of Sept 2019 my investment balance is $13,787.

My loan balance is $7,836.... so my few coins is $5,951. IOW, I could pay off the loan from the investment balance and still have $5,951 left! and that is after the portfolio made all the monthly car payments!

https://www.portfoliovisualizer.com/...al2=0&total3=0

ncbill 10-04-2019 06:45 PM

I'd take a 2% or less loan...even for 7 years on a new vehicle.

I'd be sure that it had gap insurance...even if I had to buy that separately.

jazz4cash 10-04-2019 08:03 PM

How much does gap coverage run? I never considered it but it seems reasonable if you’re gonna take a loan that long.

SmallCityDave 10-04-2019 09:29 PM

Quote:

Originally Posted by tb001 (Post 2305847)
I am all for taking out a loan vs paying cash when we’re being offered interest rates sub 1%. Debt is not always bad. We’re not ER yet, but it seems like it would be especially attractive when the alternative is withdrawing a big chunk of $ that may have tax consequences on top of it.


Debt is all bad especially when you borrow on a new car that depreciates 20% as soon as you drive it off the lot.

ncbill 10-05-2019 06:57 AM

Quote:

Originally Posted by jazz4cash (Post 2306304)
How much does gap coverage run? I never considered it but it seems reasonable if you’re gonna take a loan that long.

Usually a flat fee, normally cheaper through your local credit union/bank than the dealer.

E.g. my credit union charges $325 for gap coverage (up to $50,000):

https://www.ncsecu.org/AutoLoans/GAPCoverage.html

pb4uski 10-05-2019 07:53 AM

Quote:

Originally Posted by SmallCityDave (Post 2306329)
Debt is all bad....

Disagree! See post #67. 1.9% debt is good.

Jerry1 10-05-2019 08:11 AM

Quote:

Originally Posted by SmallCityDave (Post 2306329)
Debt is all bad especially when you borrow on a new car that depreciates 20% as soon as you drive it off the lot.

Agree with pb4uski. Not all debt is bad. More importantly, there is no connection between depreciation and debt. It does not make any difference if you pay cash, that car still depreciates 20% (from your example) as soon as you drive it off the lot. If you buy a $50K car with cash and you have to sell it the next day, you’re still out $10K. I guess if you borrowed the money you’d be out a bit more because there was probably loan fees that you had to pay up front. However, if depreciation is your concern, buy a used car. If making the best financial decision is your concern, there are times when debt can work very well in your favor.

gwraigty 10-05-2019 08:47 AM

Another example of good debt is when there's a discount off the purchase price for financing the vehicle, with no prepayment penalty. We took advantage of that once, when we'd intended to pay cash. I can't even remember the loan rate now, but for financing at least $5,000, we got $1,500 off the purchase price. We paid the loan off within a few weeks.

The Cosmic Avenger 10-05-2019 08:51 AM

Quote:

Originally Posted by pb4uski (Post 2306423)
Disagree! See post #67. 1.9% debt is good.


0% is even better! We took the cash we had put aside for that vehicle and paid off our mortgage even earlier than planned, giving us more to save & invest every month.

tb001 10-05-2019 08:54 AM

Quote:

Originally Posted by Jerry1 (Post 2306428)
Agree with pb4uski. Not all debt is bad. More importantly, there is no connection between depreciation and debt. It does not make any difference if you pay cash, that car still depreciates 20% (from your example) as soon as you drive it off the lot. If you buy a $50K car with cash and you have to sell it the next day, you’re still out $10K. I guess if you borrowed the money you’d be out a bit more because there was probably loan fees that you had to pay up front. However, if depreciation is your concern, buy a used car. If making the best financial decision is your concern, there are times when debt can work very well in your favor.

Yes, this.

If I *want* to drop 50k on a brand new car, you can argue that’s a dumb financial decision, but it has nothing to do with the debt piece. And we’re lucky to be in a place we can fund our wants, even if they’re not the best use of money. I’m happy to take advantage of cheap money to do so. Agree that this is probably not the reasoning many people have when taking out loans for a product.

mystang52 10-05-2019 09:37 AM

I don't see a problem, here. Sooner or later some government candidate will propose a plan to pay off all auto loans.

GravitySucks 10-05-2019 09:48 AM

Good point.
Could you tell me where the closest Buggati dealership is?

Chuckanut 10-05-2019 09:49 AM

Quote:

Originally Posted by ncbill (Post 2306400)
Usually a flat fee, normally cheaper through your local credit union/bank than the dealer.

E.g. my credit union charges $325 for gap coverage (up to $50,000):

https://www.ncsecu.org/AutoLoans/GAPCoverage.html

That's quite a bit more than what I paid about 10 years ago ($12 a year compared to over $100 for the dealer provided policy). But, then I was buying a car around $23,000. I can't imagine the gap being much more than $5000 or so.

This site might be helpful. I guess gap insurance has gone up to match the increased costs of buying and insuring cars. Lucky us. :(

https://www.howmuchisit.org/gap-insurance-cost/

Qs Laptop 10-05-2019 10:11 AM

Quote:

Originally Posted by Perryinva (Post 2305439)
Whenever one purchases a depreciating asset, it cannot be looked at as any kind of investment but as an asset net value judgment. The money is going away as you use up the asset. The way I have always looked at it is “what is the cost per month and is there value in that cost?” The value part is where we all have different judgments. In BLow the Dough threads, excess money is spent on expensive food, drink, and travel. Judgment calls are being made. For financially saavy people leveraging debt makes you money or simply reduces net costs. Whether you pay for a service, or expensive food, it is a choice you make for the use of your money, ie: the reason You worked.

Being able to afford that cost is a different discussion. You can pay cash for a well negotiated $70k car. You want the car, and you have made the judgement that it is worth its cost to you, which is peanuts to your bottom line. Then the dealer offers you a 7 year loan for $50k at 0.9%. You would be a fool not to take it. Even if you parked the money at 2% you are getting a discount over paying cash. Preaching to the choir, I’m sure.

The terrible part is of course as everyone has said, is that the same loans are being made to people that can’t really afford the item, just like the housing bust if 2008. I applaud 7 year loans for those that can make money on them, though like others here, I cannot see myself doing that. Just too much ingrained aversion, plus I have never seen the favorable rates for that long a period on my purchases.

+100

This is the reason I lease vehicles. I know I'm spending a bit more than I would by buying the vehicle, I figure $500-$600 over three years, but I'm not out $35,000. Instead, that $35,000 is working for me, instead of depreciating. I'm simply buying the depreciation by leasing.

I'm making a decision that the extra money I'm spending on the lease is getting me a bumper to bumper warranty for those 36 months which gives me peace of mind, I'm getting the latest safety features (more peace of mind) and I'm getting the latest in electronics and creature comforts. To me that is worthwhile.

My brain just can't process having a seven year auto loan. If it were 0% or 0.9% and you knew you were going to keep the car for at least 5 years I can see where it would be attractive to some people.

While cleaning out an old dresser full of documents, I recently found a new car purchase agreement from 1985. I took out a 60 month new car loan on a $15,000 vehicle at 8.8%. (Yeah, I was young and dumb. And interest rates were quite high back then.) But my monthly payment was only $173 and I kept the car for 10 years.

Markola 10-05-2019 04:09 PM

Seven year auto loans
 
Interesting. I’ve never looked into a car lease. Your logic is much the same as for having a 30 year mortgage, i.e. keeping your principal working hard in the stock and bond market rather than sinking it into a physical asset. I guess I’d want to understand and factor in all fees for the car, plus transaction costs to get into the next vehicle, as well as compare those factors with a three year car loan.

REWahoo 10-05-2019 04:17 PM

Quote:

Originally Posted by Markola (Post 2306676)
Interesting. I’ve never looked into a car lease. Your logic is much the same as for having a 30 year mortgage, i.e. keeping your principal working hard in the stock and bond market rather than sinking it into a physical asset. I guess I’d want to understand and factor in all fees for the car, plus transaction costs to get into the next vehicle, as well as compare those factors with a three year car loan.

Be sure to pay close attention to sales taxes on leases. There are a few "gotcha" states:

Quote:

There are a few states that don't charge sales tax on monthly payments, including Ohio, Texas, North Dakota, and New Jersey. They have higher charges and require sales tax to be fully paid up-front, based on the value of the vehicle purchase price and the sum of all lease payments.
https://www.carlease.com/posts/2018/...your-car-lease

brett 10-06-2019 12:48 AM

Cannot imagine a seven year car loan. Or a car loan for that matter. Our 2006 and 2009 are running just fine. Not even thinking about buying a replacement for either.

Lots of expensive pickup trucks and SUV’s where we live. Economy is down. Repo men are very busy.

Badger 10-06-2019 04:17 AM

So if the choice is either taking out a loan for a car and make monthly payments with interest or drive the present car that is paid for and make the monthly payments to yourself that can earn interest for you until you have enough to buy a car with cash then which is preferable. I have done the later for the past 25 yrs. I started with used inexpensive cars while I saved for the next car. Kept this up for quite a number of years until I can now buy pretty much anything I want with cash (maybe would not spring for a Ferrari though).


Cheers!

athena53 10-06-2019 06:29 AM

Quote:

Originally Posted by Markola (Post 2306676)
Interesting. I’ve never looked into a car lease. Your logic is much the same as for having a 30 year mortgage, i.e. keeping your principal working hard in the stock and bond market rather than sinking it into a physical asset. I guess I’d want to understand and factor in all fees for the car, plus transaction costs to get into the next vehicle, as well as compare those factors with a three year car loan.

What bothers me about leasing (never done it) is that typically there are mileage limitations and you can end up paying a big surcharge when you turn it in if you go over. There's also some built-in assumption of what the car will be worth when you turn it in. If there's too much wear and tear you may have to pay for that, too. Gap insurance may cover; I'm not sure.

Quote:

Originally Posted by brett (Post 2306788)
Cannot imagine a seven year car loan. Or a car loan for that matter. Our 2006 and 2009 are running just fine. Not even thinking about buying a replacement for either.

Lots of expensive pickup trucks and SUV’s where we live. Economy is down. Repo men are very busy.

I figure I can afford fancy cars or an extravagant travel budget. I took my first trip to Europe in 1977 when I was 24 and when my coworkers said, "must be nice", I reminded them that I lived in an apartment and my car was a POS 1973 Hornet I'd bought used. (I'm now driving a 2012 Sentra and live in a house I love, so I've upgraded a bit.)

It's sad to see people get over-extended on cars and trucks and lose them to repossession, but I almost have to laugh when, every time the price of gas spikes, there are sob stories in the media about people who say they can't afford gas for their Mileage Hog trucks and SUVs. Like, they never expected the price of gas to increase?

pb4uski 10-06-2019 08:24 AM

Quote:

Originally Posted by athena53 (Post 2306812)
What bothers me about leasing (never done it) is that typically there are mileage limitations and you can end up paying a big surcharge when you turn it in if you go over. There's also some built-in assumption of what the car will be worth when you turn it in. If there's too much wear and tear you may have to pay for that, too. Gap insurance may cover; I'm not sure. ...

While I have yet to lease, I have look into it a few times. IIRC the per mile charge is often about the same as the regular lease rate... IOW if you take the lease payments divided by the miles covered it is about the same as the rate per mile if you go over.

I know people who hae leased and turned in but have never had wear and tear adustments... I suspect that is for vehicles that have numerous dings and dents or have otherwise been abused.

My understanding is that gap insurance covers you if you have an incident and what you receive from your car insurer is less than your remaining payments.

The lessor is taking the risk that the car is worth less than the value used in doing the lease payments... the lessor essentially has a option on the vehicle... if the vehicle ends up being worth a lot more then they can exercies that option... if it is close or a lot less then they can put it onto the lessor.

Chuckanut 10-06-2019 09:06 AM

Quote:

Originally Posted by athena53 (Post 2306812)
(I'm now driving a 2012 Sentra and live in a house I love, so I've upgraded a bit.)

It's sad to see people get over-extended on cars and trucks and lose them to repossession, but I almost have to laugh when, every time the price of gas spikes, there are sob stories in the media about people who say they can't afford gas for their Mileage Hog trucks and SUVs. Like, they never expected the price of gas to increase?

Your 2012 Sentra brings back memories of my 2012 Camry that was totaled. I was going to drive in 250,000 miles - the distance to the moon. After that I might have bought something "Made on the Moon" to get back to Earth. Or, perhaps a used Rover from one of the Apollo missions?:)

The nice thing about the 2012 Camry was that it came with a very nice yearly vacation trip. ;D Now that's an option worth getting.

athena53 10-06-2019 10:43 AM

Quote:

Originally Posted by pb4uski (Post 2306868)
My understanding is that gap insurance covers you if you have an incident and what you receive from your car insurer is less than your remaining payments.

You're right- I think the appropriate coverage is residual value insurance. I did a search on it and although there is such a thing, I'm not sure how easy it is to find or what it costs.

pb4uski 10-06-2019 10:46 AM

Quote:

Originally Posted by athena53 (Post 2306956)
You're right- I think the appropriate coverage is residual value insurance. I did a search on it and although there is such a thing, I'm not sure how easy it is to find or what it costs.

But the lessee would not need residual value insurance because the lessee isn't responsible for the residual value.... the lessor might want it though.

Mdlerth 10-06-2019 11:08 AM

Also, there's no gas tax on the moon... yet
 
Quote:

Originally Posted by Chuckanut (Post 2306893)
Your 2012 Sentra brings back memories of my 2012 Camry that was totaled. I was going to drive in 250,000 miles - the distance to the moon. After that I might have bought something "Made on the Moon" to get back to Earth. Or, perhaps a used Rover from one of the Apollo missions?:)

The return trip should have been easy. It's all downhill!

seraphim 10-06-2019 11:40 AM

Quote:

Originally Posted by jollystomper (Post 2305092)
I am not really surprised to see this... they are moving the focus of car buying off of the actual cost of the car and more to the monthly payment. The assumption being made is that if you can afford the monthly payment, you can afford the car.

If dealers start making more on the loans than there cars, I will not be surprised to see them move to pitches such as "come borrow money from us, we'll throw in a car for free." :) I have already heard CarMax referred to as a finance company that happens to sell cars.



Sales personnel are trained to speak in terms of monthly payment, not total cost. They can almost always bring the monthly cost down to something someone can live with, but don’t want to advise how they do so. It’s never really to the buyer’s advantage. Don’t let them do the paperwork for your bank loan, either. They charge a ‘finance fee’ for doing so, and can also up the interest a bit from what the bank’s actually offering. All profit for them at your expense.

Last time I bought a car, I went to each dealer and told them to give me their best price - I wouldn’t dicker, I was asking numerous dealerships and different models, and I’d choose the best offer. Got a TLX for the same price as the Accord, and they offered a better trade-in on the old car - though it was the previous model year. Still, worked out nicely.

As to the article, I think car prices have just out-distance pay increases. Our son leased his last car, in college, then bought it after the lease was up because he knew it was in great condition. We’re looking at leasing next time, ourselves.

seraphim 10-06-2019 11:48 AM

Quote:

Originally Posted by GalaxyBoy (Post 2305334)
As a kid, I remember Dear Old Dad seeing a 48-month loan in the paper and erupting in disbelief. I got my first car, used, when I graduated from college with ten bucks in my pocket and DOD was good enough to co-sign the loan so I could get the unbelievably low interest rate of 17%. He insisted I not go longer than 36 months, and although I grumbled through those three years of payments I was eternally grateful to him for his advice in the long run.

Fast forward 15 years and DW and I paid cash for our first car together and discovered the joy of never having a car payment again. Save your money, then buy the car. Not easy starting out, of course, but once you pay off the first loan you simply LBYM, as we all know.

When I bought my new truck two years ago just before ER a coworker asked if I got a good interest rate. I've learned generally not to mention paying cash for such a large purchase, but my puzzled look gave me away instantly. He glared at me and walked off, not needing a verbal response. LOL

But seven years? [shakes head]



Yea - but taking cash from an investment which will return - on average - about 8% a year, to buy a car one could finance today at 4% (thereabouts) doesn’t make sense to me. Even on a 5 year car loan, you’re coming out ahead.

Gumby 10-06-2019 12:01 PM

Quote:

Originally Posted by seraphim (Post 2306998)
Yea - but taking cash from an investment which will return - on average - about 8% a year, to buy a car one could finance today at 4% (thereabouts) doesn’t make sense to me. Even on a 5 year car loan, you’re coming out ahead.

The 8% investment return is not guaranteed (if it is, please let us know where to send our money), but the 4% financing cost surely is. You have to risk adjust alternative uses for your money.

Walt34 10-06-2019 05:56 PM

Quote:

Originally Posted by brett (Post 2306788)
Cannot imagine a seven year car loan. Or a car loan for that matter.

While I have to say I'd also choke on a seven year loan for a car, I can't agree that all car loans are bad. Lots of people have a job and need a reliable car (given that public transportation is not an option). One can debate the relative values of new vs. used vs. warranty/reliability issues, but when someone will get fired for being unreliable because their transportation arrangements are unreliable they need a reliable car. And most often a car loan is the only way to get it.

Lessee - shall I take the loan and stay employed, or refuse it and get fired the next time the old clunker breaks down????

I'll take the loan.

pb4uski 10-06-2019 06:07 PM

Quote:

Originally Posted by Walt34 (Post 2307117)
....Lessee - shall I take the loan and stay employed, or refuse it and get fired the next time the old clunker breaks down????

I'll take the loan.

Or get a lease and become a lessee.

Markola 10-06-2019 06:49 PM

Seven year auto loans
 
After all this complication, methinks I’ll just continue paying cash for 2-3 year old Honda or Toyota products, buying the extended warranty, then keeping them for 15-20 years.

Timeisprecious 10-07-2019 08:32 AM

Quote:

Originally Posted by Teacher Terry (Post 2305067)
They should just buy a car that they can afford. People want expensive SUV’s, trucks, etc. My first new car was when I was in my 30’s. It was small with no extras at all. Now we buy 3-4 year old cars pre-certified by the dealer with low miles and a warranty. We drive them until repairs become too costly.

+1

This is my plan as well, and my first new car was also in my 30's - an almost bare Honda Civic. I can't fathom taking out a seven-year loan on a car - very strong possibility the car will quit on you with two to three more years to pay. Not an enviable situation.

pb4uski 10-07-2019 09:37 AM

Quote:

Originally Posted by Markola (Post 2307135)
After all this complication, methinks I’ll just continue paying cash for 2-3 year old Honda or Toyota products, buying the extended warranty, then keeping them for 15-20 years.

What complication? For my last auto loan I set up the autopay with my bank's bill pay for 60 payments on the xth of each month.... done.... easy peasy.

The Cosmic Avenger 10-07-2019 09:47 AM

Quote:

Originally Posted by pb4uski (Post 2307276)
What complication? For my last auto loan I set up the autopay with my bank's bill pay for 60 payments on the xth of each month.... done.... easy peasy.


My 4 year 0% loan is on autopay. <shrug> It also is scheduled to deduct the payment around when we used to pay our mortgage payment, so it's really NBD. ;D

Qs Laptop 10-07-2019 01:42 PM

Quote:

Originally Posted by Markola (Post 2307135)
After all this complication, methinks I’ll just continue paying cash for 2-3 year old Honda or Toyota products, buying the extended warranty, then keeping them for 15-20 years.

Keep a car for 20 years in this day and age of rapidly changing technology? I couldn't imagine driving a car without remote start, bluetooth, a USB port for my music, voice commands, rear view camera, etc.

What are you going to do when gas engine cars are becoming obsolete, which could happen in 10-15 years? Self-driving cars will be here about the same time.


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