Car Loans - keeping America poor?

[survivalistd]

For all I know you mite be selling yourself short.
There has to be a Haiku market of some sort.

Senryū is my go to

 

[william schmaltz]

This might have something to do with it as well. Saw this at a sportsman show last weekend and had to snap a picture. Twenty years of payments totaling $150k for a camper that will be worth almost nothing in 20 years. But zero down!


After reading Rich Dad Poor Dad about a decade ago, I started a vehicle fund. Basically his thing is that if he wants a vehicle with a $500/month payment he first has to buy an investment that makes $500/month to pay for it. That fund continues to grow beyond its original intent. I can’t get myself to part with my trusty 2005 duramax that I paid cash for 13 years ago.

 

[HuntHarder]

Where we have gone with loans is terrible. Almost everyone i know with a car loan, has an 84 month loan. It's sad. I can only imagine in 10 more years, it will be 120 month loans. Champagne taste and beer wallets. Stay within your means.

 

[TSAMP]

Alright I'll play on this one. I had a 2014 f150 that I bought and financed. I sold it this year and it was paid off and right at 200k miles. No issues but I'm an engineer and had my eyes on some things but nothing major.

I paid cash for a 2023 f150 lariat. I could of paid my house off, but decided the fact my mortgage was half an auto loan rate was an easy decision.

I ended up having 3 weeks and 7k worth of issues with the new truck, but it was warrantied and all seems well now. Front differential issue for those that care.

The kicker was I sold my old truck to a dude across the street from me. So i got to observe it about 4 months now with zero issues. I was very good about maintenance on my truck and I just wanted somthing nicer for longer road trips. I hope it treats him well, I'm sure I made the wrong financial decision and should of kept that truck, but I could afford to make the call.

 

[Speaks]

Lets say you want to buy a $50k truck and have the cash.

Option 1 pay the $50k and own it outright.

Option 2 pay $10k finance $40k at 4% and pay 400 per month for a super long time.

In 10 years the truck is worth $20k. Option 1 you own it, option 2 you would have nearly $23k left on the loan? Upside down right? Except if you put that $40k in SPY 5 years ago its worth $75k today so you could fully pay off the truck and be $50k ahead.

Though if you paid cash and then used that $400 ever month to buy spy you would have ended up at $37k putting you only $13k ahead if you took the loan.

Taking a lone because you cant afford it is a bad deal financially, taking one to take advantage of the spread between interest and returns is not a bad deal though does introduce some moderate risk. If the rate is low enough risk can be eliminated nearly entirely.

 

[pacoalcracker]

Well, 85% of middle and upper middle-class retirees die with 90% of their retirement money intact and unspent. They could have lived a better life all along but didn't for 2 reasons....they were too thrifty and/or they were afraid to spend the money "in case they need it next year". Moral of the story...either you enjoy your money or somebody else that didn't work for it will enjoy it for you. That, and the tax man is getting his share no matter what.

You absolutely can live a very good life, save for kids college, have a nice home, go on family vacations, have nice new or newer auto's and save for a comfortable retirement without sacrificing and squeezing the buffalo shit out of every nickel. I live an upper middle-class life and I did it. Retired 6.5 years ago at 58. Debt free and living very comfortably....but not vise-gripping every dollar "because I might need it next year". Last summer I bought a new F450 CC 4x4 and a new Kubota SVL 75-3 track loader to putz around with. I'm going to try and not cash in the chips with 90% of my money unspent while I live like a pauper. I suspect many here will be the 85% doing just that.

 

[william schmaltz]

Where we have gone with loans is terrible. Almost everyone i know with a car loan, has an 84 month loan. It's sad. I can only imagine in 10 more years, it will be 120 month loans. Champagne taste and beer wallets. Stay within your means.

We will see 50 year mortgages in the next 5 years IMO. People will be making $2500/mo payments on $500k houses and about $100/mo will be going to the principal. Appreciation won’t outpace the interest/insurance/taxes for the first two decades of the loans. And they will cheer the government and politicians for “helping” them out!

 

[Tahoe1305]

Lets say you want to buy a $50k truck and have the cash.

Option 1 pay the $50k and own it outright.

Option 2 pay $10k finance $40k at 4% and pay 400 per month for a super long time.

In 10 years the truck is worth $20k. Option 1 you own it, option 2 you would have nearly $23k left on the loan? Upside down right? Except if you put that $40k in SPY 5 years ago its worth $75k today so you could fully pay off the truck and be $50k ahead.

Though if you paid cash and then used that $400 ever month to buy spy you would have ended up at $37k putting you only $13k ahead if you took the loan.

Taking a lone because you cant afford it is a bad deal financially, taking one to take advantage of the spread between interest and returns is not a bad deal though does introduce some moderate risk. If the rate is low enough risk can be eliminated nearly entirely.

My point. The math is still the math. But agree with others it’s not as sexy on a car that depreciates so fast. But can still work out.

 

[MuleyFever]

This thread, and the mortgage one by the OP, really shows the demographic of this forum.

 

[ColPenguin]

This is not legal or financial advice

When you roll up into a car dealership and plunk down over $10K in cash the dealership has to file a suspicious activity report. As a result of the SAR, that transaction might be flagged for money laundering or tax evasion scrutiny as a result.

It's not a bad idea to put aside the cash for a large purchase. Depending on your personal circumstances or financial situation it might not be a good idea to do a lump sum cash transaction and subject yourself to scrutiny.

One could take a short-term loan to get a slightly better interest rate. Then pay off that loan in no less than six months with money set aside, or liquidated from investments, for the purchase.

Paying off a car in 6 installments minimizes the interest hit as a few extra hundred dollars. The 6 installments establishes a credit record with the lender and keeps one in good standing. The dealership will get a small cut from selling the loan product which is part of the modern auto dealer business model, to sell financing.

 

[go_deep]

This is not legal or financial advice

When you roll up into a car dealership and plunk down over $10K in cash the dealership has to file a suspicious activity report. As a result of the SAR, that transaction might be flagged for money laundering or tax evasion scrutiny as a result.

It's not a bad idea to put aside the cash for a large purchase. Depending on your personal circumstances or financial situation it might not be a good idea to do a lump sum cash transaction and subject yourself to scrutiny.

One could take a short-term loan to get a slightly better interest rate. Then pay off that loan in no less than six months with money set aside, or liquidated from investments, for the purchase.

Paying off a car in 6 installments minimizes the interest hit as a few extra hundred dollars. The 6 installments establishes a credit record with the lender and keeps one in good standing. The dealership will get a small cut from selling the loan product which is part of the modern auto dealer business model, to sell financing.

Bought our last car for $22k, cash at a dealership. No questions, no investigation, paid them, signed the papers, walked out the door.

 

[Hnthrdr]

Cars, houses, just about everything is crazy expensive right now. Leveraged debt is definitely a tool, not sure it’s great to do with a vehicle, especially with the seemingly lackluster quality that is coming from nearly everything these days. Wife and I are looking at “new” to us vehicles, I think wife will lease probably through her business and I will get a somewhat used truck, like a 19-21 tundra. 20-40k miles and they want 45k or so…

 

[CorbLand]

Cars, houses, just about everything is crazy expensive right now. Leveraged debt is definitely a tool, not sure it’s great to do with a vehicle, especially with the seemingly lackluster quality that is coming from nearly everything these days. Wife and I are looking at “new” to us vehicles, I think wife will lease probably through her business and I will get a somewhat used truck, like a 19-21 tundra. 20-40k miles and they want 45k or so…

As much as I am a “don’t buy new” guy, the last 5 or so years, it’s definitely in your best interest to run the numbers and see how they shake out.

 

[thinhorn_AK]

So many people fall into the point of the title on this thread. Look at housing areas usually associated with low income like crappy apartments and trailer parks and some of the vehicles parked there. I see vehicles worth more than the trailer home. Rather than save for a decent home people will spend half their income on a vehicle. Part of the issue is that in this country we have made the vehicle a status symbol. I also think that people have lost hope of affording a home so they say screw it and and go finance an expensive vehicle.

Where I live, I can just drive around the HUD neiborhoods and apartments if I want to look at brand new trucks, boats and snowmachines. It’s like window shopping except you sort of feel sad when you do it.

 

[StuckInTheEast]

Don't envy anyone looking for a vehicle new or used last 5 years or so... But most Americans choose to be car poor as a status symbol and that's got no small part to play in why they've gotten so expensive...and why so many folks finances are a train wreck.
A mandatory basic personal finance and automotive maintenance, operation, repair course in high-school would save so many people so much heartache and misery.
Two things that affect and are involved in nearly every adults life EVERYDAY...and our education system doesn't teach a thing about either....But Hey, gotta learn that foreign language and history they seem to keep wanting to bend, delete and change around.
If you can get sub 2%, or especially 0% auto loan with low or no down payment and you have the cash on hand to buy it outright...Id say take the loan and invest the cash. Especially since, unlike a home, an vehicle is a rapidly depreciating commodity, not an appreciating asset. If you invest the cash and just make the payments, your investment growth helps offset the depreciation of the vehicle a fair bit.
If you got a 0% loan and invested the hypothetical $70k purchase price and just let it ride at 5% over 84 months...you'd earn about $29k in interest. Subtract for taxes lets call it $24k in interest... at the end of the loan term you have a paid off vehicle worth $25k...that only COST you $21k to own for 84 months factoring in interest earnings and retained equity in said vehicle...obviously there are lots of variables here, just using OPs numbers.
In other words that vehicle only cost you $250/month to own for 84 months...not counting maint/repair costs obviously.
Super low or 0% auto loans are the only way this makes sense.
Either way, the real question is....do you really NEED a $70k vehicle?
personally my thought is if you can't write a check for it without stressing your finances, you probably should lower your expectations when it comes to vehicles. Live within your means.
Champagne taste on PBR budget seldom ends well for ones finacial outlook when it comes to vehicles.

 

[thinhorn_AK]

So many people fall into the point of the title on this thread. Look at housing areas usually associated with low income like crappy apartments and trailer parks and some of the vehicles parked there. I see vehicles worth more than the trailer home. Rather than save for a decent home people will spend half their income on a vehicle. Part of the issue is that in this country we have made the vehicle a status symbol. I also think that people have lost hope of affording a home so they say screw it and and go finance an expensive vehicle.

I know a few people that have houses and drive awesome brand new cars but they are broke. Nothing in savings, living paycheck to paycheck so they can have a brand new car for their 9 minute commute.

 

[Hnthrdr]

As much as I am a “don’t buy new” guy, the last 5 or so years, it’s definitely in your best interest to run the numbers and see how they shake out.

I’m not totally against it, I would just rather have a more proven engine with the tundra’s V8, than the new V6’s. I mean it’s been a couple years since the new model was released but I’m not sure they are proven like the gen 2’s yet

 

[ColPenguin]

Bought our last car for $22k, cash at a dealership. No questions, no investigation, paid them, signed the papers, walked out the door.

They don't announce to you that they must file the SAR form.

 

[IDVortex]

We live a life style of things, and making ourselves appear wealthy even though we are poor or rich. (Rich is way different than wealthy)

This is a interesting thread, ill be keeping a eye on it.

 

[ODB]

Well, 85% of middle and upper middle-class retirees die with 90% of their retirement money intact and unspent. They could have lived a better life all along but didn't for 2 reasons....they were too thrifty and/or they were afraid to spend the money "in case they need it next year". Moral of the story...either you enjoy your money or somebody else that didn't work for it will enjoy it for you. That, and the tax man is getting his share no matter what.

You absolutely can live a very good life, save for kids college, have a nice home, go on family vacations, have nice new or newer auto's and save for a comfortable retirement without sacrificing and squeezing the buffalo shit out of every nickel. I live an upper middle-class life and I did it. Retired 6.5 years ago at 58. Debt free and living very comfortably....but not vise-gripping every dollar "because I might need it next year". Last summer I bought a new F450 CC 4x4 and a new Kubota SVL 75-3 track loader to putz around with. I'm going to try and not cash in the chips with 90% of my money unspent while I live like a pauper. I suspect many here will be the 85% doing just that.

I dig this post. I can tell you the “what happens when you get sick” Damocles sword has kept a lot of accounts flush and unspent, while their owners worried themselves to death.