Car Loans - keeping America poor?

[Ucsdryder]

The mortgage thread got me thinking about auto loans. Dave Ramsey has been a hot topic and he talks about vehicles keeping America poor. My wife and I have talked about a new vehicle a few times, but dang…

Obviously these numbers are made up, but realistic. They don’t take into consideration increased fees for registration and insurance on a new vehicles, but I still think it paints a picture. Of course, everyone needs a vehicle so it’s not quite as simple.

Based on the screen shots below. If a potential buyer invests the down payment, plus the monthly payment over 84 months, it would result in $115,000 with an 8% return. If that potential buyer buys a 70k Tahoe, after paying their last payment they have a $25,000 Tahoe.

Curious how everyone balances this…

 

[Tahoe1305]

I bought a new $60k Tahoe in 1999. Still drive it. Been paid off for a long time. I’m retiring in two weeks and after 26 years I finally want a new car, so I’m going to have my first car payment in a very long time this month. I think it was worth it….20 years of discipline and saving that $700 a month payment.

The only reason I’m willing to buy a new car is my goal is to drive it 20+ years (like the last one…that I still plan to drive).

 

[rookieforever33]

Very true that interest rates and the quick nature of dealers to offer long loans for cheaper payments. But we as consumers need to be smarter. With your example there the tahoe is still worth 25 grand so that should be the down payment amount. Not 5 grand. If you drove the tahoe until its worth only 5 grand hopefully you have gone without payments and saved some money for a down payment. Also even if you think you need the 70k tahoe does your budget really allow it? My wife and I have always bought decent vehicles and drove them into the 150-200 thousand mile range. We would have loved to have nicer ones and move into the next ones sooner. Budget didnt allow. Now as we get older we only have 1 payment at a time. Cars are getting nicer also. Took time. Still no 70k tahoe yet though.

 

[Ucsdryder]

I bought a 60k Tahoe in 1999. Still drive it. Been paid off for a long time. I’m retiring in two weeks and after 26 years I finally want a new car, so I’m going to have my first car payment in a very long time this month. I think it was worth it….20 years of discipline and saving that $700 a month payment.

The only reason I’m willing to buy a new car is my goal is to drive it 20+ years (like the last one…thats always still I’ll still drive).

Now is a good time to buy new. Lots of deals out there, employee pricing, etc.

 

[Marble]

I pay cash for vehicles. I save every month and have it available. It mostly sits in high interest savings at 4.75%. When i need cash, besides what's in my main savings, I withdraw from my other account.

My wife gets new vehicles. I do not. I do plan on getting one in the next few years, possibly. Her car is 5 years old and we may or may not replace it. But the loss after purchase is painful. My 401k, Roth are both maxed yearly. I'm just holding cash to pay off a home. After that, I'll be able to do what I want.

Moat people are financially ignorant.

Keeping money and staying out of debt is a behavior. It is a choice. However, life sometimes places you in circumstances where it is necessary to borrow money.

The great majority of people shouldn't be buying a new car. But they justify it somehow and get screwed.

Sent from my SM-S918U using Tapatalk

 

[rclouse79]

I have never owned a new car and probably never will. A GMC Yukon Xl went for 45k in 2004. I bought one with 90k miles on it for 11,000. I got it up to 180k miles with no major problems. Considering the original owner probably traded it in for 10k they paid more than 3x per mile than I have to this point.
You could replace everything in the vehicle and it would still be half the price of a new one. I get vehicles are a hobby or status symbol for a lot of people. I have always been happy as long as it gets me to work and my hunting spots.

 

[Jkr61]

I buy brand new and keep it till it’s nickel and diming me to death. 2007 Nissan Murano we just gave to my parents last year. 2015 Tundra I’m still driving. We have a 2023 tundra now as well replaced the Nissan with it. Paid cash for 2023 no payment with savings from no other payment. 2015 tundra is just crossing 200,000 mile mark I was putting 20,000 miles a year on it hopefully the changes we just made in life cut that down to 10,000. Hopefully can get 10 more years out of iteverything in life has gone up in $. My house I bought in 2013 for $212,000 I could sell for $900,000 now. $3.99 Big Mac meal costs $11 now. Unfortunately price jumps are a fact of life.

 

[ianpadron]

We buy used vehicles with reliable, widely available parts. We drive them til the wheels fall off.

The newest vehicle I've ever purchased was my current F150 when it had 16,000 miles on it, and was 4 years old. I saw the early COVID market shake up the dealer industry and scored a $75k truck (when new) for $32k, financed in house at 2.9%....those were the days. I hope to get 300k miles out of it, at 120k now. No desire for anything newer.

My other vehicle is a 1998 4Runner with 313k miles on it, had to have my mom co-sign on a $5k loan for it in 2015 right before I graduated college lolol. Had 160k on the dash at the time. Orders of magnitude cooler than anything made today.

I try not to give a rip about what people spend their money on, but brand new vehicles are absolutely one of the worst financial decisions, regardless of how much $$$ you're making.

 

[Jkr61]

Re read the title- yes payments and interest are killing the majority of people. It’s interesting to see the amount of guys on this site avoiding that trap wish more people had a group that shared ideas that could really help so many people

 

[ianpadron]

I pay cash for vehicles. I save every month and have it available. It mostly sits in high interest savings at 4.75%. When i need cash, besides what's in my main savings, I withdraw from my other account.

My wife gets new vehicles. I do not. I do plan on getting one in the next few years, possibly. Her car is 5 years old and we may or may not replace it. But the loss after purchase is painful. My 401k, Roth are both maxed yearly. I'm just holding cash to pay off a home. After that, I'll be able to do what I want.

Moat people are financially ignorant.

Keeping money and staying out of debt is a behavior. It is a choice. However, life sometimes places you in circumstances where it is necessary to borrow money.

The great majority of people shouldn't be buying a new car. But they justify it somehow and get screwed.

Sent from my SM-S918U using Tapatalk

Where you getting 4.75% at right now? I've got ours parked at Wealthfront, was 5% until late last year, now down to 4.0 and exploring alternatives

 

[2buffalo]

If you need to take out an 84 month loan to afford a vehicle you can't actually afford the vehicle. Anything past 4 years is not a good idea.

 

[Slickhill]

If nobody jumped in on the new ones and lost their ass there wouldn’t be any deals on low mileage used ones to buy.

Somebody has to take the beating to keep the system rolling. Make sure it isn’t you and don’t worry about it.

And for the record, I buy used stuff and know how to cuss and put bandaids on my knuckles well enough to keep them on the road.

 

[Tahoe1305]

If you need to take out an 84 month loan to afford a vehicle you can't actually afford the vehicle. Anything past 4 years is not a good idea.

So I disagree with this…it’s the same argument as the early mortgage payoff thread.

I just bought a new car. I financed for about that time frame. I make over double with other investments than the finance rate. I could pay cash for the car but choose to use my money to make more money.

 

[TaperPin]

I look at cost per mile of our cars. We can afford a new car in the driveway without a payment, and enjoy a couple of highly reliable low mile vehicles for peace of mind, but I still like to have an early 2000s suv or midsize sedan that is dirt cheap to drive around town or to work because it cuts the average cost per mile in half. When my beater gets passed down to one of our adult kids at about 175k miles they use it the same way, to save miles on their nicer car and often get nearly 100k of inexpensive miles before it’s towed away by Pick-and-Pull.

Most younger folks, poor or not, should never own a new car, but also shouldn’t own a single used car, because it puts them out of commission if it breaks down and they spend way too much for urgent repairs. Just like a good loaner rifle, my secondary car makes a good loaner if someone visits and wants to save on rental fees or lives nearby and has car issues.

Dealership service departments used to be trustworthy, but those days are long gone. A reasonable mechanic with a good heart should be on everyone’s Christmas card list. Used cars are more expensive to fix now than ever.

 

[cnelk]

Add on full coverage for a financed vehicle and you really take a hit

 

[CorbLand]

So I disagree with this…it’s the same argument as the early mortgage payoff thread.

I just bought a new car. I financed for about that time frame. I make over double with other investments than the finance rate. I could pay cash for the car but choose to use my money to make more money.

To be fair, he did say need. If you could have paid for it in cash, you didn’t NEED to take out the loan to afford a new vehicle.

 

[Reburn]

This thread will expose many more people that dont understand how money and interest rates work and how to use it to your advantage.

 

[Tahoe1305]

To be fair, he did say need. If you could have paid for it in cash, you didn’t NEED to take out the loan to afford a new vehicle.

Yup. Fair point.

 

[fngTony]

The average worker raising a family (not business owner or lotto winner) can’t truly afford a $1000 payment. If you have $70k cash then you should consider how you got it. If it was a one time inheritance and you don’t make good money then you shouldn’t get that Tahoe period. If that $70k comes easily via income or investments then do what you want.

People not only over spend but they also buy the wrong vehicles for their situation. Personally I’d buy a new Corolla and a reliable used truck with that $70k. Different situation if I need a truck for work and play, then I’m just buying the truck.

 

[thinhorn_AK]

I have a buddy who had a brand new truck and an SUV, he convinced himself that he needed another, bigger truck because sometime on his 5 minute commute his knees hit the dash when he was riding passenger because his kids car seat was taking up space.

He dropped a ton of $$$ on the 2nd truck while still paying for the first and taking a huge hit on the SUV. He’s usually broke, blames it on having kids, swears up and down he paid cash for the truck.

I was at his place the other day, he passed me a paper to write a number down on….it was his monthly truck bill of 1700.00+.

I can’t imagine making a 1700 dollar monthly payment on a vehicle. Cars make people stupid for some reason. I drive a 20 year old truck and work on it myself. My wife is in a 2013 vehicle that I work on myself.

Some people don’t mind paying tons of bills I guess. I like keeping it simple. Mortgage, phone and credit card.

That’s not even the worse though, I’ve known people that took out loans for 20k snowmachines and 80k boats.

Next think I know, these clowns will be letting their wives quit work to stay at home and they will blame something else for being poor.