Author Topic: Doug Demuro on why you need a car loan  (Read 9427 times)

chesebert

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Re: Doug Demuro on why you need a car loan
« Reply #50 on: July 04, 2021, 04:04:52 PM »
I am impressed you have a worksheet just for vehicles. Still think $50k for a weekend/toy car is a lot based on your net worth. You do you though.

RWD

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Re: Doug Demuro on why you need a car loan
« Reply #51 on: July 04, 2021, 05:32:19 PM »
I am impressed you have a worksheet just for vehicles. Still think $50k for a weekend/toy car is a lot based on your net worth. You do you though.
Before the pandemic we did about a third of our driving in the "toy car." And currently planning on driving it 1,700 miles next month to avoid flying (it'll be about $1k cheaper). I don't disagree that it's a lot to have tied up in a vehicle. But it's also not going to change our retirement date(s).

JLee

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Re: Doug Demuro on why you need a car loan
« Reply #52 on: July 04, 2021, 09:57:57 PM »
No way any $50k car is appreciating after taking into account maintenance. Did you buy a 15yr old Ferrari or something?

I have a coworker who paid $53k for a used Model 3 with 5000 miles on it. They’re 50k new.

Nick_Miller

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Re: Doug Demuro on why you need a car loan
« Reply #53 on: July 12, 2021, 01:51:43 PM »
Uh, isn't there an argument that financing cars leads to people buying more expensive vehicles than they would have with cash? Even the sharpest of folks can get sucked into the "monthly payment" sales focus when in reality is should be "total money spent" focus.

We'll need a newer (used) vehicle soon, and I'll consider doing it either way, but I'd want to institute a hard $ cap regardless of the means of payment.


jinga nation

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Re: Doug Demuro on why you need a car loan
« Reply #54 on: July 12, 2021, 02:53:52 PM »
Uh, isn't there an argument that financing cars leads to people buying more expensive vehicles than they would have with cash? Even the sharpest of folks can get sucked into the "monthly payment" sales focus when in reality is should be "total money spent" focus.

We'll need a newer (used) vehicle soon, and I'll consider doing it either way, but I'd want to institute a hard $ cap regardless of the means of payment.

Dealers are pushing leasing or monthly payments, not OTD price.
When you walk into their vulture cage, one of the first questions is along the lines of your budget or monthly payment.
Dealer close to my house also owns an auto insurance brokerage, so they roll insurance into the monthly payment as well.
Single stop wallet grab. Efficient :p

RWD

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Re: Doug Demuro on why you need a car loan
« Reply #55 on: July 12, 2021, 03:23:22 PM »
Uh, isn't there an argument that financing cars leads to people buying more expensive vehicles than they would have with cash? Even the sharpest of folks can get sucked into the "monthly payment" sales focus when in reality is should be "total money spent" focus.

We'll need a newer (used) vehicle soon, and I'll consider doing it either way, but I'd want to institute a hard $ cap regardless of the means of payment.

Dealers are pushing leasing or monthly payments, not OTD price.
When you walk into their vulture cage, one of the first questions is along the lines of your budget or monthly payment.
Dealer close to my house also owns an auto insurance brokerage, so they roll insurance into the monthly payment as well.
Single stop wallet grab. Efficient :p

Yeah, I noticed this too when I was at a Mazda dealer a couple years ago looking at their used cars. The salesperson told me about how if I just leased I'd be able to afford a brand new car for the same amount of money (monthly). Never mind the part about having to give the vehicle back after making all those payments.

People absolutely get tempted/tricked into buying more expensive things because of financing and/or a focus on monthly payments.

chesebert

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Re: Doug Demuro on why you need a car loan
« Reply #56 on: July 12, 2021, 08:14:36 PM »
Uh, isn't there an argument that financing cars leads to people buying more expensive vehicles than they would have with cash? Even the sharpest of folks can get sucked into the "monthly payment" sales focus when in reality is should be "total money spent" focus.

We'll need a newer (used) vehicle soon, and I'll consider doing it either way, but I'd want to institute a hard $ cap regardless of the means of payment.
Good luck with the search. Used car prices are through the roof.

RainyDay

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Re: Doug Demuro on why you need a car loan
« Reply #57 on: July 14, 2021, 11:35:11 AM »
People absolutely get tempted/tricked into buying more expensive things because of financing and/or a focus on monthly payments.

Absolutely.  A good friend of mine just bought a brand new Jeep Grand Cherokee a couple days ago.  She traded in a 3 yr old Jeep Compass.  Her rationale was that "it's only $50/month more!"  Neglecting, of course, to consider that her loan period just got extended by an additional three years.  And she's a finance professional!

MilesTeg

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Re: Doug Demuro on why you need a car loan
« Reply #58 on: July 14, 2021, 10:56:20 PM »
Uh, isn't there an argument that financing cars leads to people buying more expensive vehicles than they would have with cash? Even the sharpest of folks can get sucked into the "monthly payment" sales focus when in reality is should be "total money spent" focus.

We'll need a newer (used) vehicle soon, and I'll consider doing it either way, but I'd want to institute a hard $ cap regardless of the means of payment.

Of course, but this isn't an argument against financing. It's an argument against not sticking to your budget...

OurTown

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Re: Doug Demuro on why you need a car loan
« Reply #59 on: July 18, 2021, 06:45:24 AM »
I came to the conclusion that 100 percent cash purchase was less than optimal because I would be tempted to skimp on quality and safety.  I was already aware of the dangers or overspending bc of easy financing.  So here it is: for a car purchase I put 50 percent down and pay off the balance in 12 months.  That puts me in a state of mind where I neither overdo it nor underdo it.

cerat0n1a

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Re: Doug Demuro on why you need a car loan
« Reply #60 on: July 18, 2021, 08:14:55 AM »
Good luck with the search. Used car prices are through the roof.

Yes, car manufacturers tried to play hardball with semiconductor manufacturers, losing all goodwill in the process, and then cancelled their orders at the start of the pandemic. As the latter are operating at full capacity, the auto companies went to the back of a very long line. It takes time and money to build new fabs, so there's now a worldwide shortage of new cars, and used car prices are up everywhere.

Interesting to read this thread. Seems like US car insurance is incredibly expensive. You all seem to be paying more per month than I pay per year, for a lower level of coverage. Is it because car insurance includes some degree of medical cover that wouldn't be needed here? Or just because lots of expensive lawyers need to be involved? It can't be that accidents are much more common, or that car mechanics are supremely well paid....

Car dealers here seem to have mostly moved on somewhat from offering loans - leasing accounts for more than 80% of new cars - lower monthly payments than a loan, no worry about resale, a new car every 2-3 years and unlikely to have any big maintenance spend. Of course, you never actually end up owning anything.

ender

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Re: Doug Demuro on why you need a car loan
« Reply #61 on: July 18, 2021, 08:42:24 AM »
Interesting to read this thread. Seems like US car insurance is incredibly expensive. You all seem to be paying more per month than I pay per year, for a lower level of coverage. Is it because car insurance includes some degree of medical cover that wouldn't be needed here? Or just because lots of expensive lawyers need to be involved? It can't be that accidents are much more common, or that car mechanics are supremely well paid....

Well what do you pay on what types of vehicles?

I'm pretty sure you don't pay as much for a year worth of insurance as I do for a month (on two brand new cars). Unless you pay 72£ or less a year.  Our premium is less than $100/month for two cars.

In which case, well I guess yeah you're right.

nick663

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Re: Doug Demuro on why you need a car loan
« Reply #62 on: July 18, 2021, 09:47:10 AM »
The insurance price discussion in this thread seems to ignore state to state differences.  Our insurance increased significantly going from Illinois to Michigan (highest auto insurance rates in the nation).  Comparing rates in different states is not useful.

cerat0n1a

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Re: Doug Demuro on why you need a car loan
« Reply #63 on: July 18, 2021, 09:51:01 AM »
Interesting to read this thread. Seems like US car insurance is incredibly expensive. You all seem to be paying more per month than I pay per year, for a lower level of coverage. Is it because car insurance includes some degree of medical cover that wouldn't be needed here? Or just because lots of expensive lawyers need to be involved? It can't be that accidents are much more common, or that car mechanics are supremely well paid....

Well what do you pay on what types of vehicles?

I'm pretty sure you don't pay as much for a year worth of insurance as I do for a month (on two brand new cars). Unless you pay 72£ or less a year.  Our premium is less than $100/month for two cars.

No - I paid £128 this year, which is just short of $180.

Having done some googling, it seems like there's a few things. The obvious one is that US car insurers have to pay out big sums on medical bills, plus there seems to be an issue with uninsured drivers. I guess insurance companies in the UK have probably never paid a penny out for earthquake or hurricane damage either and parts of the US have tornadoes, wildfires, hail storms...

Looks like most states have pretty low requirements for how much insurance is legally required - and quite big premium differences between states - Michigan being well over double Maine for example.

sonofsven

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Re: Doug Demuro on why you need a car loan
« Reply #64 on: July 31, 2021, 08:16:13 AM »
Doug should send Andy Rooney a percentage of his income for stealing his schtick (I enjoy Doug's reviews, occasionally).

Hash Brown

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Re: Doug Demuro on why you need a car loan
« Reply #65 on: August 04, 2021, 02:13:25 PM »
I financed our $50k car in Feb 2018 (at 1.69%) to keep from having to sell any of our $150k in investments in our taxable account. Perhaps it's a little hindsight, but I'm very glad we didn't pay cash. $50k in investments have gained an order of magnitude more than we've paid in interest. In fact, I believe in this case the benefit of financing vs paying cash is more than the total cost of ownership so far (i.e. paying cash would have been a bigger financial mistake than buying the car in the first place).

We are living in unusual times.  When somebody gets lucky with something like this, they are more likely to assume that it'll work again.  Conversely, if someone's first attempt at such trickery ends in disaster, they might remain irrationally risk-averse for decades if not the remainder of their lives. 

I think the greatest argument for paying cash is one that has already been mentioned - you are fixated on the sales price and additional fees rather than the monthly payment.  You will stick to your budget and not allow things to creep upwards $5,000-$10,000. 














JLee

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Re: Doug Demuro on why you need a car loan
« Reply #66 on: August 04, 2021, 02:17:07 PM »
I financed our $50k car in Feb 2018 (at 1.69%) to keep from having to sell any of our $150k in investments in our taxable account. Perhaps it's a little hindsight, but I'm very glad we didn't pay cash. $50k in investments have gained an order of magnitude more than we've paid in interest. In fact, I believe in this case the benefit of financing vs paying cash is more than the total cost of ownership so far (i.e. paying cash would have been a bigger financial mistake than buying the car in the first place).

We are living in unusual times.  When somebody gets lucky with something like this, they are more likely to assume that it'll work again.  Conversely, if someone's first attempt at such trickery ends in disaster, they might remain irrationally risk-averse for decades if not the remainder of their lives. 

I think the greatest argument for paying cash is one that has already been mentioned - you are fixated on the sales price and additional fees rather than the monthly payment.  You will stick to your budget and not allow things to creep upwards $5,000-$10,000.

Choosing to finance something below 2% isn't luck - it's taking advantage of low rates.

I pulled equity out of a car at 1.99% to pay off something at 3.99% - that's not "getting lucky," it's using open market interest rates to your advantage.

Edit: For the snarky arrogant ones among us, the "something" at 3.99% was a solar array that is so heavily subsidized in my state that it was cash flow positive on day 1, and is presently earning about $680/mo vs the ~$20/mo in interest I am paying after rolling the balance into a different loan.  I am not aware of anything else that would give this significant of a guaranteed return with no work, but if there is please, share with the class!
« Last Edit: August 06, 2021, 10:02:41 AM by JLee »

Hash Brown

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Re: Doug Demuro on why you need a car loan
« Reply #67 on: August 04, 2021, 02:54:22 PM »
^We've got so many people pulling these little stunts right now that it'll make any sort of pullback much more severe.  I had a temp job working for Nationwide Insurance back in 2007 doing the retirement account early withdrawal applications and there was a lot of this stuff going on then.  It causes people to think a) that they have more money than they do, which motivates overspending in other realms and b) that they're more clever than they are, which makes people think they'll quickly and cleverly climb their way out of whatever hole their failed enterprise digs them. 

I have a younger brother who makes a lot more money that I do but spends his free time researching airline ticket deals to justify weekend trips.  I was over there one time and told him the real way to save money is to not take the trip.  The suggestion made his head go haywire. 

JLee

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Re: Doug Demuro on why you need a car loan
« Reply #68 on: August 06, 2021, 09:56:37 AM »
^We've got so many people pulling these little stunts right now that it'll make any sort of pullback much more severe.  I had a temp job working for Nationwide Insurance back in 2007 doing the retirement account early withdrawal applications and there was a lot of this stuff going on then.  It causes people to think a) that they have more money than they do, which motivates overspending in other realms and b) that they're more clever than they are, which makes people think they'll quickly and cleverly climb their way out of whatever hole their failed enterprise digs them. 

I have a younger brother who makes a lot more money that I do but spends his free time researching airline ticket deals to justify weekend trips.  I was over there one time and told him the real way to save money is to not take the trip.  The suggestion made his head go haywire.

You had a lot of people at Nationwide financing below inflation instead of pulling cash out of non-retirement investments to pay for it?  Fascinating, tell us more!

Hash Brown

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Re: Doug Demuro on why you need a car loan
« Reply #69 on: August 09, 2021, 01:18:45 PM »
You had a lot of people at Nationwide financing below inflation instead of pulling cash out of non-retirement investments to pay for it?  Fascinating, tell us more!

To clarify, people's retirement accounts were recovering by 2006-07 after the dot-com bust.  For anyone who was investing steadily, they were seeing higher account balances in 2007 than they had 7 years earlier, even though the S&P didn't match its 2000 high until 2011.  This caused people to think they were doing very well and that they could afford to take money out of their retirement accounts to buy toys.  Boats, kitchen remodels, etc.

Stocks lost half their value 18 months after I left that job.       

Car Jack

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Re: Doug Demuro on why you need a car loan
« Reply #70 on: August 10, 2021, 02:49:56 PM »
As already mentioned, it depends what you'll do with that extra money.  If you plan to put it into your 0.5% "high" yield savings account, then it's stupid.  Some people can't be bothered with payments (ok, me) and have even passed on 0% financing of things because its not worth the bother.

Doug has fallen into the Ric Edelman side of finance.  Ric has quite a few millions but famously recently put his money where his mouth is and took out a mortgage on his house, backing up his words to not pay off your mortgage.  Of course, there's a counter to this, who is Dave Ramsey who considers a mortgage or a car loan to be a debt that must be eliminated.

I suppose I fall into the Dave side of things, having done avalanche debt elimination before that term was even invented, continuing from personal and car loans right into the mortgage.  It has served me very well.

For some people, Doug is right.  And I do subscribe to his channels and like his reviews.  Heck, his review of the Honda S2000 CR showed the second storage compartment behind the seats in the middle.  Neither my son (who owns one) or I knew it was there.  I went out to the garage, pulled back the cover and checked.  Sure enough, it's there.  He is car knowledgeable and had a successful writing career with autotrader.  Does he know everything?  Of course not.  And finance is outside of his wheelhouse.

I do plan to potentially buy a $100k car in the near future (Porsche 718 Cayman GT4) and go to Germany to pick it up, when that program re-opens (yes, I know it doesn't save me money to do that).  I plan to pay cash.  For people who are having convulsions reading that, too bad.

Hash Brown

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Re: Doug Demuro on why you need a car loan
« Reply #71 on: August 11, 2021, 01:52:51 PM »

I do plan to potentially buy a $100k car in the near future (Porsche 718 Cayman GT4) and go to Germany to pick it up, when that program re-opens (yes, I know it doesn't save me money to do that).  I plan to pay cash.  For people who are having convulsions reading that, too bad.

A couple who lives a few blocks from me recently bought a new Corvette and picked it up from the factory in Bowling Green, KY.  What do they do for a living?  He owns a tattoo parlor and she owns a bar.  Both business were completely closed for part of 2020.  Another neighbor, who is an accountant, speculates that they abused the CARES Act funding each surely received. 










BudgetSlasher

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Re: Doug Demuro on why you need a car loan
« Reply #72 on: August 13, 2021, 10:04:52 AM »
I see Doug Demuro (the "quirks and features" car review YouTuber) has unwisely decided to step into the realm of personal finance with a video on "Why You Should Finance Your Car".

I am not so sure that it unwise for a somewhat well know, and well liked by some, reviewer cars many of which are very expensive and known to drive expensive cars to consider wade into discussing the purchase of those assets. Perhaps even more so that he owns and runs a car enthusiast auction website.

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Aside from going overboard in ridiculing the "personal finance types"

That is kind of his general persona a little bit over the top and opinionated.

But, also as I see it, this isn't anything out of the normal for society. Take this forum for example, we have people posting stories of their badassery here because society at large belittles what members here view as financially responsible. And this forum isn't immune, there is a big debate over whether it is stupid to pay off a mortgage, occasional belittling of bogleheads, and I've seen more than a little venom towards Dave Ramsey.

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he even has the audacity to try and shame them into getting a car loan by accusing them of outright child endangerment.  Just wow.

I agree it is over the top, but then again he is generally over the top and that is why some people don't like his "reviews". I think he should have lead with his big three found at 15:20, anti-lock brakes, air bags, and curtain side airbags (somehow backup camera didn't make the list though he spent a good bit of time on that) and that he wasn't saying a 2021 with blind spot and lane keep assist.

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And his primary financial argument (that cash would be better off deployed in the market) conveniently fails to mention the key caveat of "if you have the cash on hand", and ignores the fact that the majority of those taking car loans do not, in fact, have cash in hand.

What?  Grant it is 10:48 into the video but "I only support this strategy if you are financing a car you can otherwise comfortably afford. That's a big point to mention here." If the strategy is to finance rather than buy outright then would it not follow that otherwise afford means you do have the cash/liquid investments to cover the purchase?

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https://youtu.be/LDRlc4EIB2o

Yes his presentation is a little handy flaily, over the top, eccentric, and even condescending towards people that hold different views than him.

But,in the end what I took away from his video was that he said, if you can afford a vehicle without financing it and you can get financing at a rate below the long term expected return on that money, you on average will be better off financially (averaged across all cars you will own in your lifetime) to finance the car and place/leave the money in the investment that were used in the rate above. With the exception that you might want to spend a little more than that if it means the difference between having and not having ABS/front airbags/side impact airbags.