Buying cars

[poundwise]

I doubt seriously that I will ever buy a brand new vehicle again. The virtually instant depreciation hit is just intolerable.

Buying new doesn't guarantee anything especially anyway as many vehicles bought new become long-term headaches, warranty or no, while others disappoint in other ways, like the 2002 Camry which had dreadful crash-test rating results unlike the 2001 model or the 2003 model, which are excellent but you wouldn't have known that if/when you bought a Camry when the 2002 models came out, etc.

I like the idea, once I am out of debt, of buying vehicles with low mileage and well-maintained... perhaps 'dealer certified' of some sort... and letting that initial depreciation hit be taken by someone else while still owning a fresh car with many years of solid use left in them.

[twins0203]

Originally Posted by Ima saver

Twins, what color is your vette!! Some people spend as much on playing golf as we spend on car payments each month! Plus, our house is paid for. Cars are my husband's passion.

Picked up a Millenium Yellow one



Picture isn't the greatest, but it's one that the dealer took.

Originally Posted by PauletteGoddard

Maybe I'm just an addled underearner, but I find car payments very depressing. Every payment coupon said to me: "Oh look you can't afford to pay in cash for a depreciating asset. Sucks to be you. Wouldn't you rather be giving yourself this much money in a savings account or your Roth?"

Paulette you certainly aren't alone.


I drive a '97 S-10 pickup with a 120,000 miles on it and detest the thought of a car payment with a hatred that would scare most people.

I bought it new because I was young and stupid -- I could have bought the same truck 2 years older with 20,000 miles already on it and driven it just as long for a lot less money.

now to be fair, I am a bit extreme in the other direction, I probably really need to consider replacing it but I had the 100,000 mile tune up done last year and it needs brakes, a tranny tune, and shocks up front but those are not recurring expenses, they are expected at a certain point and once done there's no reason not to expect another 2 years at least out of it.

my biggest concern was my regular trip home I make about once a month (1000 miles round trip), that was motivating me to consider an upgrade more than anything as work isn't an issue - I intentionally relocated to 1/2 mile away. but when I sat down and thought about it, it's cheaper to rent a car for those trips by far than what any car payment plus the increased insurance would cost me so that's what I do now.

with the rental car in the mix for now, the mileage on the truck is likely to be no more than maybe 5000 per year if even that.


but all that said, I too am as red blooded a Texan-American car loving guy as you are ever going to find but age has fortunately brought me some small sliver of wisdom to recognize that the ROI/pleasure does not even remotely approach the debt/pain of having "what I want."

[TinyFish]

Well Paulette, I think paying 'cash' (well, check I suppose, I dunno what a car dealer would do if you turned up with the money in a big wad) is probably better than financing in that you avoid the interest. But I wouldn't beat yourself up too much, I think most people here in America finance, and many finance more than they can afford. I know plenty of people with big SUVs or luxury or sports cars with big, big credit card debt too, and I bet the cars are financed.


But nobody here it seems has a car fund or recommendations as to how/where to keep it for the eventuality of replacing one's car?
-TinyFish

[Snoopy2645]

Well what I do is trade up usually each time I buy a car I take my old car & a little cash not much maybe 1k or 2k & buy a little nicer newer car. Funny about above post with checks & cash my brother being in the car business now prefers cash he has amazingly enough gave people cars who wrote bad checks & these were no small checks we are talking 10k & up!!! Can you imagine?!!!

BTW these posts kinda make me jealous maybe someday I will have a new car just once I would like a brand new one just one time in my life but will have to wait until I can pay cash or have enough to almost pay cash!!

[PauletteGoddard]

I know plenty of people with big SUVs or luxury or sports cars with big, big credit card debt too, and I bet the cars are financed.

I don't know those types of people, TinyFish. My friends have paid for their cars in full, most of them used, or have inherited them, or like my husband won them, and the cars are hybrids, compacts or subcompacts. One inherited vehicle was a Saturn wagon.

Maybe I don't live in a car culture, or among car people.

I did have a car fund, but I used it for staying at home for 1.5 years. I think it'll be 2008 before we have another car fund (my husband does not want a car, he wants a scooter, and I've told him we can't set money aside until I've paid mine off in October.)

[autoxer]

Originally Posted by TinyFish

(well, check I suppose, I dunno what a car dealer would do if you turned up with the money in a big wad)

My friend worked at a motorcycle shop just outside of the city & about once a week someone would come in with $8 - $9k in cash to buy a brand new motorcycle. Very shady behavior if you ask me, but some people just don't use banks.

[cschin4]

Paula - You should read "The Millionaire Next Door". The people with the new fancy cars are often in debt up to their eyeballs. As for what you should spend? It really depends on what you want and what it is worth to you.
I see nothing wrong with financing a car at a low interest rate. You may be a few K in interest on a car. But, you will pay 10's - 100's K of interest on your home. You need to print out the amortization table for you home loan and see for yourself how much you will pay in interest over 30 or 15 years. I did this with my home and when I saw that I would pay 150K just in interest in addition to the principal, I was highly motivated to pay my home off. We took any and all money and continually added to principal every month. We paid our home off in 3 years. So, for us to finance a car at 5% for a few years is no big deal. Don't get sold a bill of good about what a "great tax deduction" your mortgage is. Spending a dollar to get back 20cents is never a "good deal".
People get all bent out of shape about a little car loan interest but ignore the fact that they are paying thousands upon thousands for their home.
And, whatever you do, DO NOT use a HELOC to buy a car. If for some reason you couldn't make your car payments, you are putting your home on the line. I personally would not take out a HELOC for anything unless it was an absolute necessity. I am very averse to risking my home. Once you gain equity in your home, keep it sacred and don't plunk it down on other things. Just my opinion.

[poundwise]

Originally Posted by cschin4

I see nothing wrong with financing a car at a low interest rate. You may be a few K in interest on a car. But, you will pay 10's - 100's K of interest on your home. ... People get all bent out of shape about a little car loan interest but ignore the fact that they are paying thousands upon thousands for their home.

That isn't a good comparison/contrast, however, because there is at least one significant difference. In general, a house will appreciate in value, while vehicles depreciate and do so at a relatively quick pace.

In other words, your house payment, despite interest, will build some equity and you will gain from appreciation in value while your car payment, even with a low interest loan, will not likely even keep up with depreciation.

Of course, there are variants that would change that last statement, such as putting down a significant amount and obtaining a low interest, short-term vehicle loan (24-36 months), however, most people do not do this.

Also, regardless of how we parse it, paying interest (auto loan) as opposed to not paying interest (paying cash) is no contest. And, before someone chimes in with the 0% interest comment, do you really believe you pay 0% interest? Take an accounting class and/or work for a dealer for a little while. You are paying interest in the form of an amount equal to interest in the cost. Besides this, the 0% interest offers are on new vehicles; i.e. - the ones with the greatest rate of depreciation.

None of this even factors in the interest you earn on the cash you've set aside for a vehicle purchase prior to spending it.

Just food for thought.

[puppypal]

OOOOOO I so wish I had had the finanical respourses to buy DH's car out-right. We did manage to buy the boys four wheelers for 7500.00 (2) of them and put 5000.00 down. Seems our budget has never gotten us in the situation where we could actually save that much $ at once! LOL But then again living off of $46,432.00 a Year takes a huge amount of tricks! LOL We were married for the 2nd time and he had one child and I myself have one. No incoming child support and well We pay 5460.00 a year to the ex plus buy SS things and complete christmas. That takes a toll on the overall budgeting system. But I am here to tell ya even though we live VERY modestly not to mention country fried (LOL) We have a 3 yr old home with a 565.50 note, two cars one brand new and one 2 yrs old and no credit card debt. So it is possible to be on the low end of the pole and sit fill the pantry and supper table....I am living proof!
CAR FUND? Well I am thinking seriously about when SS turns 18 February 22, 2009 we will take that money and set one up. Good idea if you can manage it!

[cashqueen]

We currently have 3 vehicles. A 1995 Honda Passport that DH bought used before we knew each other (has been paid off for a while) with about 186,000 miles. He uses this to commute to work - he drives about 60 miles rt and we usually use it to run around on the weekends. I drive a 1999 Honda Civic that was given to us by DH's grandmother about 3 1/2 years ago. I think it has about 82,000 miles - it is my primary vehicle. Then we have a 2005 GMC truck that we bought a year ago (just paid it off). We bought it for several reasons - we got a GREAT deal on it, DH uses it to trail his boat and we won't be in a position to NEED a car when the Passport eventually dies. We will drive all the vehicles as long as they are functioning well enough to do so. We don't mind buying used, we just chose a new one this time around.

[Ima saver]

Twins, thank for the picture. That yellow is really pretty, we are thinking about that for next time. I do have a car fund. I have about $9000 in it so far. I paid off my husband's van(for work) and I put that payment in the car fund inside my money market fund, every month!

[Elgin526]

DH and I are total oposits. But to be fair I've only bought 2 cars in my life, and one was from my parents!

DH (up until the day we got married 10 months ago, that is) "bought" a new car every two years, did little to no negotiating and rolled his current debt on the current car to the new car loan. Yikes! Let's just say, he won't be doing THAT anymore...

I bought my Saturn new in '98, financed for 60 months (didn't know any better) and didn't negotiate, since Saturn's prices are fixed. And still drive that car to this day. My next "new" car will be 1 to 2 years old and, God willing, paid for in cash or financed for l3 years or less.

My rule is that if you can't pay for a car in 3 years, you can't afford it!

[JBinKC]

IMO cars are the 3rd biggest obstacle to obtaining wealth. They cost you money to operate, depreciate and most people borrow money to have them and in some models may be an attractant for crime. I currently drive a 1994 Ford Escort Station wagon purchased for $2900 cash in 2000 and has averaged about $400 in repairs annually.

But buying used chances are you eventually will be a victim of a used car lemon as I had one time in the past.


I definitely had my best luck buying a used vehicle directly from an individual and not from a dealership. For some reason dealerships do a much better job of hiding major problems with cars than an individual can. When I target a model make sure the car has an above average long term service rating from Consumer Reports and when you test drive the car pay careful attention to engine knocking and how the car shifts when you test drive the car and then ask for service records and I would definitely avoid cars with a rebuilt engine.

[Jaynen]

If you're able to get a really good rate, I say definitely go new car or used car from someone you know is not going to take you (how do you ever really know?). There's not really too much sense in paying a big ticket car cash; with the excess you have trapped in that depreciating liability you could be investing in something making you some kind of ROR. Now, if you cannot get a good rate (credit or what have you) I would go the 2nd mortgage, re-fi if rates are favorable, or HELOC to buy the car. Your rate is most always going to be less than the auto-finance and if you're disciplined you can just make your payment as if it were an auto-finance and pay it off fairly quickly (3 - 5 years).

[Jaynen]

Originally Posted by JBinKC

IMO cars are the 3rd biggest obstacle to obtaining wealth. They cost you money to operate, depreciate and most people borrow money to have them and in some models may be an attractant for crime. I currently drive a 1994 Ford Escort Station wagon purchased for $2900 cash in 2000 and has averaged about $400 in repairs annually.

But buying used chances are you eventually will be a victim of a used car lemon as I had one time in the past.


I definitely had my best luck buying a used vehicle directly from an individual and not from a dealership. For some reason dealerships do a much better job of hiding major problems with cars than an individual can. When I target a model make sure the car has an above average long term service rating from Consumer Reports and when you test drive the car pay careful attention to engine knocking and how the car shifts when you test drive the car and then ask for service records and I would definitely avoid cars with a rebuilt engine.

Personally, I think driving a "nicer" (not a S-class, but an ok VW) car has attributed to me actually generating more income. When I am not upset about the car I'm driving or the problems it's giving me, I am happier, more productive, more sociable, and inherently make more money (I'm an entrepreneur).

Couldn't agree more about the dealers hiding major defects. Bought my VW used and got taken (the check engine light came on in a week, the side-view mirror fell out when I hit a speed bumb, and the clutch went out in about a month). They wanted me to pay $700 to fix these things and I of course will not, but it's a hassle none the less.

Well what if you just paid cash for the car, split the cost into 12 parts and invest that amount once per month for a year? You get the investment plus no car payment. (If it would take you more than a year to pay for it, you bought too expensive a car for your income so you should have no trouble recouping the amount paid over a year's time)

That's just a suggestion, I take a middle road, whatever car I want I have to be able to cover at least half up front (cash and trade) and the rest will be paid off in a year.

And I love the rationale about the productivity....nice

[disneysteve]

Originally Posted by cschin4

I see nothing wrong with financing a car at a low interest rate. You may be a few K in interest on a car. But, you will pay 10's - 100's K of interest on your home.

And, whatever you do, DO NOT use a HELOC to buy a car. If for some reason you couldn't make your car payments, you are putting your home on the line.

poundwise already gave my answer to the first part of your post. Comparing buying a car, a depreciating asset that you might have for 5-7 years then sell for a fraction of it's original cost, to buying a home, an appreciating asset that you could have for a lifetime or sell at some point for a substantial profit, makes no sense at all.

As for using a HELOC to buy a car, it really depends on your situation. When I bought my last car, I financed it at the dealer. A couple of months later, I took out a home equity loan and paid off the car loan. The HEL interest was 2% lower than the car loan plus it was tax deductible which made the effective rate even lower. I had plenty of money in savings so I could pay off the loan at any time if I chose to, but my investments were outperforming the meager interest on the HEL so it made no sense to pay it off. My home was never at any risk at all.

[Jaynen]

Originally Posted by disneysteve

poundwise already gave my answer to the first part of your post. Comparing buying a car, a depreciating asset that you might have for 5-7 years then sell for a fraction of it's original cost, to buying a home, an appreciating asset that you could have for a lifetime or sell at some point for a substantial profit, makes no sense at all.

As for using a HELOC to buy a car, it really depends on your situation. When I bought my last car, I financed it at the dealer. A couple of months later, I took out a home equity loan and paid off the car loan. The HEL interest was 2% lower than the car loan plus it was tax deductible which made the effective rate even lower. I had plenty of money in savings so I could pay off the loan at any time if I chose to, but my investments were outperforming the meager interest on the HEL so it made no sense to pay it off. My home was never at any risk at all.

[Ima saver]

Well, I just kept my car til it was worth what I paid for it. I paid $13,000 in 1978 for a tu toned blue vette and I could sell it for that amount. I got an antique tag which is cheap and so is my insurance because it is keep garaged all the time!