Who likes car payments?

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Let's assume an average car (Accord w/EX-L trim, 4cyl) with an average lifespan (10 years/200k). This is the local Honda dealer.

Used:



New:



Throw a couple repairs into that used one to get it to 200k and tell me how they aren't around the same cost?
 
My one owner 2005 Chevy Avalanche stickered for just over $41,000....'I have the window sticker'. It had 162,000 miles on the odometer when I bought it in January of 2014, and it now has 175,000 miles. I gave $7,000 for it and have changed the oil 3 times and the transmission fluid once. I haven't spent a dime as of yet on repair costs. There's no free lunch, but some lunches are cheaper than others.
 
Originally Posted By: Clevy


Not really.

Vehicles depreciate with time and miles.


And not in a linear fashion. Most loose in the range of 25-30% of their value/year in the first few year, but few drive a vehicle at that same rate.

My observation is that when a vehicle is half used, say 100K miles (and I've had them go beyond 250k miles) their price is anywhere from 1/4 to 1/3 of the new sticker price.


I can drive an 8 year old 100k beater for $0.12-15/mile counting purchase, fuel, maintenance and repairs. New buyer buys a $20K car and drives it 200k miles, they are still in it for $0.10/mile just to buy the car before they fuel it, maintain and repair it.

If I can drive my 100k mile 8 year old used car that I bought for 5000-6000 for $0.05-$0.06/mile, that leaves me a lot of money for maintenance and repair. Keep in mind, for the 100k-200k portion of the respective cars lives, my costs and the new owners costs are the same.

But if someone wants to spend their money on a new car every 3-5 years, who am I to say they shouldn't? As long as they are not expecting me to bail them out, what do I care?
 
Originally Posted By: GMFan
You get what you pay for. If you buy a brand new car you pay new car price. If you buy a car for half price it has half its life left. This is assuming that you don't get all those bell and whistles, TVs, navigation, power seats or whatever they throw in cars now. Just buy a base model car. Also, used cars are not nearly the same good deal they were many years ago. I remember when a $3500 car could last you 4-5 relatively trouble free years. Anyone paying 9.6% interest on a car loan needs their head examined.

The best thing you can do if you buy a new car is to drive it until it dies. Flipping cars is what hurts you financially.

Good advice , but many are so programmed to buy a new car every 5 years...it is insane, basically your giving up your retirement to look good in front of your peers who really do give a rats whatever about what you drive..imho The Joneses live on and on and on.
 
According to R.L. Polk the average age of cars in the U.S. is 11.4 years, a record and climbing. Can someone explain how perpetual car payments makes economic sense for the average person/family?
 
Originally Posted By: javacontour
Originally Posted By: Clevy


Not really.

Vehicles depreciate with time and miles.


And not in a linear fashion. Most loose in the range of 25-30% of their value/year in the first few year, but few drive a vehicle at that same rate.

My observation is that when a vehicle is half used, say 100K miles (and I've had them go beyond 250k miles) their price is anywhere from 1/4 to 1/3 of the new sticker price.


If anything, that's pricey for some vehicles. I'm car shopping now, for a Crown Victoria...I have seen several cars at ~100K for <$5000 (I'm considering a 2009 with 92K for $3800), on a car that sold for ~$25K new.
 
The current car My wife has we bought 8 years ago, it was a 3 year old car at the time.

Last years upkeep amounted to close to $1,000 dollars, this consisted of a couple of tire repairs, we live in Amish country and pick up horseshoe nails now and then, also had a body repair because some idiot hit her in WalMart, and had an oil coat/rustproofing done.

None of the above had anything to do with the age of the car.

Oh Ya, there were the regulator oil changes last year also.

It's a Kia Rio '03 BTW. Milage? 134,000.

I haven't had a car payment since 1972 when I bought a new Corvette, even then I paid it off in the first month.
 
Originally Posted By: BTW
Lol, NET 12% a year in a mutual fund for 6 years?

Also, the video leaves out maintenance costs of the used vehicle...

There are good points but the video takes only the best case scenario


Exactly, it ignores; the transaction costs of a car purchase, the increased maintenance on an older vehicle, and the lower insurance cost of the older vehicle.

The 12% return assumption is also specious - that's not an historical average for stocks, which are closer to 10%, and you should never, ever put money you need in the short term in the market. Those funds belong in cash. Consider where you would be if you had out your car funds in the S&P and needed to buy a car right now...

Those criticisms aside, this point is excellent: pay yourself first, avoid paying interest in a rapidly depreciating asset.

If you drive your old car while paying yourself, you can follow Dave's plan and keep upgrading while avoiding getting crushed by interest.

I bought the two Volvos below in 2007. I paid $12,500, cash, for the T5 wagon, for example. It "stickered" at $41,200. So, some person paid $28,000 in depreciation alone (more actually, because they traded it in) to drive it for five years. I paid less than half of that to drive it for eight years. I paid more in maintenance than the original owner, but much less in property tax and insurance and ended up well ahead.

So, the video's principles work, although the precise numbers are inaccurate.

But here's the most important point: that car payment, if applied to a retirement account, is enough to enable a comfortable retirement.

His math is off on that one too, but while 10% returns are more the norm than the 12% he claims, he fails to take into account the effect of taxes. By contributing $475/month in a 401(k), you lower your taxable income and lower your tax burden, so your net change in income is less than $475/month...making the retirement contribution more affordable.

Further, if your company matches, as 3/4 of them do, then you're picking up that money as well, meaning that your $475 contribution costs you less than $475 (because of taxes) and adds much more than $475 to,your account (because of matching) on day one of that contribution.

Now, debt used as leverage in business is a whole different animal.

This thread is about the pitfall, the trap, of consumer debt. Folks think "the system is rigged against the little guy"...but it's only rigged if you don't understand the consequences of your actions. Consequences that you could easily discover, without cost, by spending a little time educating yourself at your local library...so, yeah, the system is rigged against the lazy, who don't want to learn...or think...or plan...or budget....
 
Originally Posted By: dishdude
Let's assume an average car (Accord w/EX-L trim, 4cyl) with an average lifespan (10 years/200k). This is the local Honda dealer.

Used:



New:



Throw a couple repairs into that used one to get it to 200k and tell me how they aren't around the same cost?


Add in warranties that come with new vehicles, increased reliability, free roadside assistance and new tires. Not to mention the average person isn't a BITOGer and pays an arm and leg for maintenance and repairs. The 1/2 price vehicle with 1/2 life holds true especially for high demand reliable cars such as your Toyotas and Hondas. I don't know where folks get these insanely good used car prices but around here what you posted is the norm. Also, unless you pay cash the financing will likely be less on the new car too.

I just checked the book value of my Mazda in my signature and what I paid for it. It's value is 47% of what I paid with 70k miles on it. With another 20k miles on it the book value only drops $1,200 which is then 43% of what I paid. Add in the fact that I had 0% APR, two free years of roadside assistance (canceled my AAA membership temporarily) and had trouble free driving. Not to mention that I maintain it very well. I stand by my belief that buying a brand new base model car with good reliability history and driving to the ground with good maintenance along the way is the most financially sound decision. The 7 or 8% loss assuming a 200k mile lifespan was well worth not buying someones lemon or abused car.
 
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When I started buying my own beaters in the late 90's "everyone knew" cars lasted 100k and a person could buy an eight year old Cutlass Ciera for $2000 and drive it another 100k. It helps that the economy was go-go and midsize American sedans were nerdy and unwanted.

There has always been an underappreciated, reliable, boring car out there but you can't just say American/Japanese/German, or Dodge/Chevy/Ford, or even "Ford Fusion". The internet has brought the picky (cheap) buyer's level of education up, and their confidence level up. Now people expect a car to last to 200k and you'll see a 25k MSRP vehicle with 150k trying to sell for $6250. There's lots less fun and satisfcation. Throw in crabby OBDII systems needed to be happy for inspection, low lead solder making electronic gremlins, expensive, big, tires, and it's a rough life for the beater owner now.
 
Originally Posted By: Astro14


But here's the most important point: that car payment, if applied to a retirement account, is enough to enable a comfortable retirement.



Originally Posted By: eljefino
When I started buying my own beaters in the late 90's "everyone knew" cars lasted 100k and a person could buy an eight year old Cutlass Ciera for $2000 and drive it another 100k. It helps that the economy was go-go and midsize American sedans were nerdy and unwanted.



My ciera is my drive to work and beat around car( keeps the miles low on my tow vehicle too). A few of my coworkers laught at it but not when i refer to it as my 403/b car!!! When i explain how driving that nets me a nice contribution they think about it and say hey, thats not a bad idea. Its all about the mindset.
 
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Since we are in a low interest rate environment, a bit of leverage on a vehicle isn't a terrible thing. If the loan is under 4% go with it, your better off putting the money elsewhere. IMHO if the car has an MSRP over $50k its also better to lease it since tying up that much capital in a car is a horrible idea.

In a high interest rate environment naturally everything changes.

Dave Ramsey can also go stuff it; he runs the financial equivalent of AA and gets rich selling CD's to people who are financial alcoholics.

As for driving beaters been their done that, but I paid my dues and worked hard to not have to drive $2k cars for the rest of my life. Although I think when your young driving a junk car is a great thing, it shows you that being broke sucks.
 
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Originally Posted By: GMFan
The best thing you can do if you buy a new car is to drive it until it dies. Flipping cars is what hurts you financially.


I agree, although we used to go with 1-2 year old CPO BMWs as opposed to new- that strategy is now defunct ever since Munich started building RWD Camrys...
 
Originally Posted By: Astro14

This thread is about the pitfall, the trap, of consumer debt. Folks think "the system is rigged against the little guy"...but it's only rigged if you don't understand the consequences of your actions. Consequences that you could easily discover, without cost, by spending a little time educating yourself at your local library...so, yeah, the system is rigged against the lazy, who don't want to learn...or think...or plan...or budget....


People, this the salient point. The system is not rigged, but it is geared to make the "easy" path seem most appealing.

The lesson was taught in school, if you don't do your homework, you are probably not going to do well on the test. This is true for most things in life.
 
Originally Posted By: spasm3
Originally Posted By: Astro14


But here's the most important point: that car payment, if applied to a retirement account, is enough to enable a comfortable retirement.



Originally Posted By: eljefino
When I started buying my own beaters in the late 90's "everyone knew" cars lasted 100k and a person could buy an eight year old Cutlass Ciera for $2000 and drive it another 100k. It helps that the economy was go-go and midsize American sedans were nerdy and unwanted.



My ciera is my drive to work and beat around car( keeps the miles low on my tow vehicle too). A few of my coworkers laught at it but not when i refer to it as my 403/b car!!! When i explain how driving that nets me a nice contribution they think about it and say hey, thats not a bad idea. Its all about the mindset.
good answer, you will retire well why your friends light bulbs stay in the dark. They will not understand it till its to late, then they will wonder what went wrong and will never remember what you said 30 years ago..
 
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