Early Retirement & Financial Independence Community

Early Retirement & Financial Independence Community (https://www.early-retirement.org/forums/)
-   FIRE and Money (https://www.early-retirement.org/forums/f28/)
-   -   Seven year auto loans (https://www.early-retirement.org/forums/f28/seven-year-auto-loans-100139.html)

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


All times are GMT -6. The time now is 12:56 PM.

Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.