Suze said...

[hopefulfirefly]

that you should be able to pay off your car loan within 3 years, otherwise, your car is too expensive. Do you agree with this?

I have to have an SUV size car (dh is extremely tall-and literally will not fit in smaller vehicles). I'm wanting to buy a car when my lease is up (instead of leasing again), but my payment is $250/month now, and if I was to buy a car and have payments for only 3 years....I couldn't hardly afford much of a car. What are your thoughts?

[gamecock43]

I think her formula came out of a formula based on prices of new cars and how much they depreciate. New cars depreciate so fast in the first two years, then the depreciation slows down. So that by the time you get to year three, the car is somewhat of an asset provided you dont have a big loan on it. I'm sure there is the factoring in that by year 3 many people are past 50,000 miles, and maintance will start to become the new "car payment" and she does not want people to get caught in a downward spiral because all they budgeted for just the car payment.
In addition~ I think it's hard to predict our life 3 or more years out, so many things can happen and she does not want people to be stuck with a car loan when they might need the money for other things like unemployment, babies, emergencies, illness, ect.

[bjl584]

I would think that it depends more on how long you keep your car as opposed to how long it takes to pay off. If you keep a car well maintained that takes you 5 years to pay off but manage to drive it another 10 years beyond that, then you are probably ahead of the game.

[sweeps]

I think it's a good rule of thumb. Of course the Ramseyphiles will say you should be able to pay cash for a car, but I don't think that's always reasonable. On the other extreme if you must have a car to get to work, then it doesn't really matter how many years it will take to pay it off.

[noppenbd]

She is probably recommending this because a lot of people finance their cars for 5, 6, or even 7 years, but only end up keeping the cars for 4 or 5 years. So they still owe money on the car when they trade it in. Then they roll the loan balance into their new car and begin the cycle again. So they are just digging themselves deeper and deeper.

OP, let me ask you this- have you considered a gently used car? Buying a 2-3 year old car can get you a great deal if the car is in good shape (have an independent mechanic look it over first). You can stretch your dollars a lot farther when you go used.

[simpletron]

If your current car is in good shape, then try buying the car when the lease is up. there should be a end value in your lease contract and this would be the most I would pay for it. you should be able to get it for less than that because suv-like car sales are way down. a 3 year loan for 8k @ 8% is 250, and 8k goes a long way in the used car market and problably is enough to cover your suv-like car.

[DebbieL]

How tall is your husband? I ask because my DH is 6'6" and one of my coworkers is 6'7". Is your husband much taller than that? If he is in the same range I can tell you what they drive, if he's much taller than that I guess I can't help.

[hopefulfirefly]

OP, let me ask you this- have you considered a gently used car?

Yes, I would definately consider that, but the purchase price still would have to be extremely cheap to be able to keep the payments anywhere near where I am at right now (if I finance for 3 years). If I stretched it to 5 (which is the max I would do), then it becomes more affordable.

I've never purchased a car before (only leased), is there a certain % of downpayment that is typically required?

How tall is your husband?

He's 6'8" and ALL LEGS. When we were dating, I had a Jeep Liberty, and even that was too small. He literally could not drive it because his knees would be jammed into the dash board. Also, we plan to start a family in the next year or two, and with our Jeep Commander if his seat is all the way back AND leaned back so that he can comfortably drive, you would not be able to put a carseat behind him. So, essentially, we could only have the two of us plus the baby (on my side of the backseat). I'd really like to get a large SUV because that is the only type of vehicle that he's comfortable driving and will accomodate everyone.

[disneysteve]

I think Suze's advice is good, and I've given the same rule of thumb here many times. The 3-year rule might not work on your first car purchase when you are young and have limited assets, but it should work by your 2nd purchase when you've had time to save up a substantial downpayment.

I think far too many people don't look beyond the monthly payment. "Sure, I can afford $300/month" so they buy the car. It doesn't matter if it is $300/month for 3 years or 5 years or 7 years. As long as they can handle the payment, they think they can "afford" the car. Many of these people also think that having a car loan is just a natural thing and that they will always have one. When I say that we haven't had a car loan for 6 years, they look at me like I'm from another planet.

OP, can you give us some specifics? What vehicles would you be considering?

[maat55]

As a Dave Ramsey fan, I will tell you that it is entirely possible to pay cash for a car. If your starting out with no money and no car, You could look for a car that your monthly payment allowance could buy in two years, to get started.

Because my wife and I need two cars. (One each) We set aside 500.00 per month. That is 6000 per year. We buy a slightly used car every 2.5 to 3 years. (Each cars is used 5 to 6 years) Now we can pay cash for the cars we buy immediatly or sell the car being replaced to add to the purchase or invest.

With this plan, we never owe anyone. We have additional funds in case of an unexpected emergency. And, we earn interest on our money instead of paying interest to a bank.

This plan also allows us to search for a good deal from the public, hence we have cash ready to go. I hope that you will realize that you can pay cash for cars and other purchases if you truly wish to.

[MonkeyMama]

I've never bought a car I couldn't pay off in 1 year, and I don't intend to.

So I would say 3 years is generous, personally.

We've probably paid cash for half of our cars and financed the other half of our cars for about a year.

Even when we were teens. I think mostly we follow Dave's philosophy. When you are a teen you drive an old clunker; will probably destroy it anyway. & with age and maturity and income you just slowly trade up. Our last 2 cars cost about $10k each. & I don't really see the point to pay more than that for a car.

I think life is infinitely easier without a car payments. We only save up about $150/month for our next 2 car purchases. Plenty...

[disneysteve]

I'm wanting to buy a car when my lease is up (instead of leasing again), but my payment is $250/month now, and if I was to buy a car and have payments for only 3 years....I couldn't hardly afford much of a car. What are your thoughts?

This just illustrates a big problem with leasing. At the end of the lease, you've got nothing. Had you bought a car instead, you would now have a car to trade in or sell and put that money toward the purchase of your next car. As long as a car is still in working condition, it will never depreciate to zero. It is always worth something to somebody.

I think I would consider this a first-time purchase and the 3-year rule of thumb might need to be stretched a bit unless you have savings that you can put toward the purchase to minimize the amount you have to borrow. I just checked kbb.com and a 2001 GMC Denali (which I think would be big enough for your needs) has a suggested retail of $16,890. If you can put down $6,890 and finance $10,000 at 7.25% for 48 months, your payment would be $240.62. If you can put down more or find a lower price, the numbers get better. If you buy a little newer, put down less/borrow more, the numbers get a little higher, but that puts you in the ballpark of that $250/month payment.

[ActYourWage]

What's wrong with a good used pickup truck? Pay cash.

[hopefulfirefly]

OP, can you give us some specifics? What vehicles would you be considering?

I really am not sure, I'm open to anything really as long as it is safe and reliable and can accomodate our needs. I don't know my cars very well-I can tell you if I think one is cute or not, but I have no idea what kind of car it actually is. I suppose I should start paying attention to the models of cars out there.

I think I would consider this a first-time purchase and the 3-year rule of thumb might need to be stretched a bit unless you have savings that you can put toward the purchase to minimize the amount you have to borrow. I just checked kbb.com and a 2001 GMC Denali (which I think would be big enough for your needs) has a suggested retail of $16,890. If you can put down $6,890 and finance $10,000 at 7.25% for 48 months, your payment would be $240.62. If you can put down more or find a lower price, the numbers get better. If you buy a little newer, put down less/borrow more, the numbers get a little higher, but that puts you in the ballpark of that $250/month payment.

Thank you!

What's wrong with a good used pickup truck? Pay cash.

I'm not opposed to a good used pickup truck, as long as it has a extended cab (we need room for kids). Although, I'd have to check the safety, I'm not sure if those extended cabs are equally as safe for children?? Also, there has to be enough room when dh slides the seat all the way back that a carseat will fit behind him.

[SusanP]

I'm not opposed to a good used pickup truck, as long as it has a extended cab (we need room for kids). Although, I'd have to check the safety, I'm not sure if those extended cabs are equally as safe for children?? Also, there has to be enough room when dh slides the seat all the way back that a carseat will fit behind him.

An infant carseat typically should go in the center of the back seat, so if the vehicle is wide enough you would be able to move passenger or driver seat back. My handy-dandy tape measure says my son's seat is about 18 inches wide and 30 inches long, you can use those measurements when looking for a vehicle to see if there's that much room in the center of the back seat when your husband is comfortably sitting in the front. (Assuming you only put ONE baby seat in the vehicle.)

ETA: You may also want to look for built-in baby seat attachment things in vehicles. There should atleast be 2 U-shaped metal rods about where the seat belts come out for the center passenger in the backseat, and usually another harness attachment at the upper-center part of the backseat. Most family-sized vehicles made since the late 90's should have these.

(I know this isn't the info you were asking for, but it came to mind as I was reading your thread since you are concerned about safety of a baby as well as hubby's comfort.)