Author Topic: How to not buy a car.  (Read 4143 times)

RethinkTheRatRace

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How to not buy a car.
« on: August 07, 2017, 02:30:21 PM »
https://ratracerejects.wordpress.com/2017/08/14/how-to-not-buy-a-car/



***Edited to add link to my second post. I hope everyone gets some enjoyment out of this. My first few posts will be broadly targeted between the uninitiated and the FIRE aficionados. But I'm looking forward to digging deeper into some fun topics. Feel free to comment either here or on the blog post and let me know what you think. If you enjoy it, go ahead and sign up for the email updates on the left side of the blog. You'll only get one update a week because I'm posting new articles every Monday. Thanks guys!
« Last Edit: August 14, 2017, 07:41:36 AM by RatRaceRejects »
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Babybalrog

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Re: I wrote my first FI blog post.
« Reply #1 on: August 07, 2017, 03:22:10 PM »
I love the point your making!

I've read else ware that it just seems that peoples brains shut down with numbers over $100. People clip coupons and drive 10 miles out of their way to save 50 cents on some groceries. Yet won't shop around for savings when buying a big ticket item, when even a 1% savings really matters.
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esq

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Re: I wrote my first FI blog post.
« Reply #2 on: August 07, 2017, 06:31:58 PM »
Read and commented. Most excellent.
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marshdesign

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Re: I wrote my first FI blog post.
« Reply #3 on: August 07, 2017, 08:33:28 PM »
Great post! I did enjoy reading it. I hate the whole "just stop your morning latte and you can retire a millionaire" nonsense. I like to go to starbucks to relax. I can focus on big deal stuff and focus less on the small mundane savings avenues and be much better off. Thanks for posting!
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hgjjgkj

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Re: I wrote my first FI blog post.
« Reply #4 on: August 07, 2017, 08:48:03 PM »
Hey how do you find working with word press? Would you be able to add a table of contents or tile layout to that blog format?

RethinkTheRatRace

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Re: I wrote my first FI blog post.
« Reply #5 on: August 07, 2017, 09:31:29 PM »
First off, thanks everybody for the kind words. My goal right now is to post at least once a week, potentially just on Monday's. I don't want to churn out 10 good articles in a week and then stagnate with shitty ones once a month or something.

Hey how do you find working with word press? Would you be able to add a table of contents or tile layout to that blog format?
Frankly, I like word press, but I haven't really explored it enough yet. I just signed up for it on a whim and just got around to writing the article today. Most of the website stuff was done after I had finished the article. But, I'm pretty sure I could add a table of contents. It seems like the ability to do tile layout is there, but it could be one of the premium features they you pay for. I chose the free option at least until I get a few posts under my belt and potentially gain some traction.
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RethinkTheRatRace

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Re: I wrote my 2nd FI blog post.
« Reply #6 on: August 14, 2017, 07:40:16 AM »
bump for second post.
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runewell

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Re: How to not buy a car.
« Reply #7 on: August 14, 2017, 11:38:32 AM »
Taking out a car loan can make financial sense if it is a very low interest rate.  Better to keep that money invested in the stock market to get a better return.
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RethinkTheRatRace

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Re: How to not buy a car.
« Reply #8 on: August 14, 2017, 01:10:08 PM »
Taking out a car loan can make financial sense if it is a very low interest rate.  Better to keep that money invested in the stock market to get a better return.

I agree that it's a matter of preference. I personally wouldn't want to pay any interest on a depreciating liability. The better choice would be to buy a cheap enough car that had you invested that amount it would be negligible so you are neither paying interest, or not investing because you've tied up too much money in the purchase of a car. 
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DangleStash

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Re: How to not buy a car.
« Reply #9 on: August 14, 2017, 01:27:28 PM »
Nice post!

Car loans can be a touchy subject.  It's not uncommon on newer (non-mustachian but we all have our vices) cars to be able to achieve either 0% or 0.9% financing.  At my current Ally Savings 1.15% interest rate, it makes more sense to finance and leave the cash in the bank.
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craiglepaige

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Re: How to not buy a car.
« Reply #10 on: August 14, 2017, 01:34:13 PM »
But...but...but you build equity and you're really paying yourself...



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RethinkTheRatRace

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Re: How to not buy a car.
« Reply #11 on: August 14, 2017, 04:00:12 PM »
Nice post!

Car loans can be a touchy subject.  It's not uncommon on newer (non-mustachian but we all have our vices) cars to be able to achieve either 0% or 0.9% financing.  At my current Ally Savings 1.15% interest rate, it makes more sense to finance and leave the cash in the bank.

I agree that car loans are a touchy subject. In my opinion it's the one thing that most people have issues with. I was in this boat too, but I also think that's why I've rejected it and gone to the polar opposite side. I have to do that otherwise I'll rationalize a loan that's at a higher rate, or on a car I don't even need.

The depreciation to me is bigger than the interest rate at that point. Sure, you're only paying 0.9%. But, the loan amount isn't a variable rate that is 0.9% of $35k when you sign the papers and it drops to a 0.9% of $31k. And if you bought cheaper car with cash, then that 1.15 would be all yours instead of only netting 0.25% on your money.
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Capt j-rod

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Re: How to not buy a car.
« Reply #12 on: August 14, 2017, 04:19:30 PM »
Length of ownership plays in heavily on vehicle decisions. I drive a Toyota Tacoma and my wife drives a corolla. The tacoma is my work truck. Pumbing HVAC and rentals. I usually own a vehicle for 10 years and over 150,000 miles. If you are switching car after two years, then you are getting smoked in depreciation. When I am done with a vehicle it is literally tired. My last truck had 235,000. It is just part of the business plan.

bobechs

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Re: How to not buy a car.
« Reply #13 on: August 14, 2017, 04:49:18 PM »
Nice post!

Car loans can be a touchy subject.  It's not uncommon on newer (non-mustachian but we all have our vices) cars to be able to achieve either 0% or 0.9% financing.  At my current Ally Savings 1.15% interest rate, it makes more sense to finance and leave the cash in the bank.

You delude yourself that 0% financing is an effective zero percent loan.  It represents a choice to take a discount from the list price of the car in the form of an illusory no-interest loan in lieu of taking a cash discount for immediate settlement of the transaction.  The best price you can obtain from a dealer is not the list price, but you cannot get the maximum discount and 0% financing in one and the same transaction.

RethinkTheRatRace

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Re: How to not buy a car.
« Reply #14 on: August 14, 2017, 05:04:34 PM »
Length of ownership plays in heavily on vehicle decisions. I drive a Toyota Tacoma and my wife drives a corolla. The tacoma is my work truck. Pumbing HVAC and rentals. I usually own a vehicle for 10 years and over 150,000 miles. If you are switching car after two years, then you are getting smoked in depreciation. When I am done with a vehicle it is literally tired. My last truck had 235,000. It is just part of the business plan.

And this is the exception to the rule regarding pickup trucks. If you are actually utilizing it more often than not then it makes sense. On the other hand, I grew up in Alabama where every man, woman, and child owns a pickup truck. And none of them are mid sized and less than 1/4 are ever used for truck duties. They're used as commuters, mud toys, and status symbols. Honestly, you'd be amazed at how many people would talk shit to me at the gas station while I'm filling up my car. The last time someone said something they said, "well ain't that a cute car. I'll fill yours up if you fill up mine." I said, "as long as you don't make me trade bank accounts with you too." It's weird that he didn't think my joke was as funny as his.
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o2bfree

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Re: How to not buy a car.
« Reply #15 on: August 16, 2017, 01:31:02 PM »
I see a mistake in the post:

People don’t go out and take out a loan to buy an over-sized luxury European dishwasher.

Sure they do! Dishwashers, refrigerators, clothes washers and dryers, etc., on credit because who can afford the thousands of dollars the top of the line models cost these days?

dogboyslim

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Re: How to not buy a car.
« Reply #16 on: August 16, 2017, 01:49:47 PM »
Taking out a car loan can make financial sense if it is a very low interest rate.  Better to keep that money invested in the stock market to get a better return.

I agree that it's a matter of preference. I personally wouldn't want to pay any interest on a depreciating liability. The better choice would be to buy a cheap enough car that had you invested that amount it would be negligible so you are neither paying interest, or not investing because you've tied up too much money in the purchase of a car.

I don't think of it as paying interest on a depreciating asset.  I took a loan on my most recent car (used) and the credit union gave me 2% for 60 months.  So I can either take the cash out of my investment fund that yields a long term average 8%, missing out on all that return, or I can leave it in, take the loan and take a 2 point penalty on my investment, but still make money.  I accept that there is a risk that it won't always be the better choice, but over the 3 loans I've taken on cars, it has worked out every time that I made more by borrowing than I would have by taking the money out of the account to pay off the car.

This is not sound advice for anyone who cannot cash flow the loan payment and already has the money in the bank, so I have no issue with your blog suggestion.  I just personally find a different solution to work for me.

RethinkTheRatRace

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Re: How to not buy a car.
« Reply #17 on: August 17, 2017, 09:34:37 AM »
Taking out a car loan can make financial sense if it is a very low interest rate.  Better to keep that money invested in the stock market to get a better return.

I agree that it's a matter of preference. I personally wouldn't want to pay any interest on a depreciating liability. The better choice would be to buy a cheap enough car that had you invested that amount it would be negligible so you are neither paying interest, or not investing because you've tied up too much money in the purchase of a car.

I don't think of it as paying interest on a depreciating asset.  I took a loan on my most recent car (used) and the credit union gave me 2% for 60 months.  So I can either take the cash out of my investment fund that yields a long term average 8%, missing out on all that return, or I can leave it in, take the loan and take a 2 point penalty on my investment, but still make money.  I accept that there is a risk that it won't always be the better choice, but over the 3 loans I've taken on cars, it has worked out every time that I made more by borrowing than I would have by taking the money out of the account to pay off the car.

This is not sound advice for anyone who cannot cash flow the loan payment and already has the money in the bank, so I have no issue with your blog suggestion.  I just personally find a different solution to work for me.

I completely understand your position. Another thing to think about is that particular post is targeted more to the uninitiated. It's hard for me to condone vehicle loans on it because if I do, that's all the typical consumers on my facebook will take away from it. Nothing that I say is a hard and fast rule, even though that might be the way I present it. All of us here are on the same journey even though we might take different paths. I'm just trying to get people to come along for the ride.
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JohnSteed

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Re: How to not buy a car.
« Reply #18 on: August 17, 2017, 10:37:52 PM »
Quote
I personally wouldn't want to pay any interest on a depreciating liability.

It's a depreciating asset.  The loan is the liability.

I hear this argument all the time, but I don't get it.  What difference does it make if the car depreciates or appreciates.  You decided you needed this car in your life, and you need to pay for it somehow. 

Once this decision is made, the question is should you pay cash or finance it?  given that I'm willing to hold onto a 3% mortgage, why wouldn't I also take advantage of 1% or 2% interest car loans in order to keep my money invested at a potentially higher return?

Optimiser

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Re: How to not buy a car.
« Reply #19 on: August 17, 2017, 10:57:10 PM »
But what was it like owning an Exocet?

I really wanted to buy a 2nd car and do that to my Miata for a while, then I found MMM.

RethinkTheRatRace

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Re: How to not buy a car.
« Reply #20 on: August 18, 2017, 08:20:52 AM »
Quote
I personally wouldn't want to pay any interest on a depreciating liability.

It's a depreciating asset.  The loan is the liability.

I hear this argument all the time, but I don't get it.  What difference does it make if the car depreciates or appreciates.  You decided you needed this car in your life, and you need to pay for it somehow. 

Once this decision is made, the question is should you pay cash or finance it?  given that I'm willing to hold onto a 3% mortgage, why wouldn't I also take advantage of 1% or 2% interest car loans in order to keep my money invested at a potentially higher return?

I'm glad you feel so strongly about this that you decided to create a profile and make your first post.

Feel free to read my reply right above yours. Trying to explain the concept of (money made on investment > interest paid) is based on the idea that you understand what you are doing. This post was targeted to the mindless consumer with nothing invested, and a car loan.

Also, my point is if you buy a car further along the depreciation scale, you are going to lose less. I bought a 2007 Versa for $2k. If/when I decide to sell it, I'll be able to get that much out of it for the next 5+ years.

But what was it like owning an Exocet?

I really wanted to buy a 2nd car and do that to my Miata for a while, then I found MMM.

I bought a cheap miata just to convert it, and ended up finding this one for sale so I sold my miata and got this one.

It was extremely fun. 0-60 in under 4 seconds. Flyin' Miata turbo and intercooler and Megasquirt fuel management. and once you warmed up the tires, it was glued to the road. In my defense, it is the mustachian supercar....if there is a such a thing.
« Last Edit: August 18, 2017, 08:24:11 AM by RethinkTheRatRace »
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MrSal

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Re: How to not buy a car.
« Reply #21 on: August 18, 2017, 02:59:06 PM »
Nice post!

Car loans can be a touchy subject.  It's not uncommon on newer (non-mustachian but we all have our vices) cars to be able to achieve either 0% or 0.9% financing.  At my current Ally Savings 1.15% interest rate, it makes more sense to finance and leave the cash in the bank.

Not really because then you have to have much more expensive insurance... depends on the numbers and savings you'd amount

Plugra

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Re: How to not buy a car.
« Reply #22 on: August 18, 2017, 04:17:29 PM »
I've had pretty good experiences buying new cars. I usually drive away leaving the manager in a very pissed-off mood and the salesman feeling sorry for himself.  I believe that is the goal. 

Their ideal customer is the one who has done no homework and is math phobic.  So my advice to a first-time car buyer would be ...

  • Save up so you can pay cash for the car, or if that's out of the question arrange finance through a credit union
  • Research real consumer prices before you step into the showroom
  • Question every charge aggressively. Ask to see all numbers in writing before you agree to anything.   If you think something might be bullshit, it probably is. Don't believe that any charge is 'required' unless they can convince you it really is required under state law.
  • Bring a calculator and don't be shy to use it.  Check all the sums as often as needed until you are sure that every item on the invoice is correct. 

Monkey Uncle

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Re: How to not buy a car.
« Reply #23 on: August 20, 2017, 04:45:09 AM »
Nice post!

Car loans can be a touchy subject.  It's not uncommon on newer (non-mustachian but we all have our vices) cars to be able to achieve either 0% or 0.9% financing.  At my current Ally Savings 1.15% interest rate, it makes more sense to finance and leave the cash in the bank.

You delude yourself that 0% financing is an effective zero percent loan.  It represents a choice to take a discount from the list price of the car in the form of an illusory no-interest loan in lieu of taking a cash discount for immediate settlement of the transaction.  The best price you can obtain from a dealer is not the list price, but you cannot get the maximum discount and 0% financing in one and the same transaction.

This.  Plus the fact that financing encourages you to buy more car than you need.  Plus MrSal's point about needing more expensive insurance - because the bank makes you buy the amount of insurance that they think you need, and because your collision and comprehensive coverage is more expensive than it would have been on a cheaper car (if you even need it at all on the cheap car).
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neonlight

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Re: How to not buy a car.
« Reply #24 on: August 21, 2017, 07:28:24 PM »
I always track my expenses with an excel, and whenever I am low on cash, tweaks on car purchases does wonder. It's a sunk cost and unlikely to get much resale value (if any) after 7-10 years of using it.

Yes, bring a calculator or a smartphone, the sales person will auto filter some BS if he sees you being math savvy.

TheAnonOne

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Re: How to not buy a car.
« Reply #25 on: September 03, 2017, 11:24:39 PM »
But...but...but you build equity and you're really paying yourself...



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Mr Mark

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Re: How to not buy a car.
« Reply #26 on: September 12, 2017, 01:46:28 AM »
Quote
I personally wouldn't want to pay any interest on a depreciating liability.

It's a depreciating asset.  The loan is the liability.

I hear this argument all the time, but I don't get it.  What difference does it make if the car depreciates or appreciates.  You decided you needed this car in your life, and you need to pay for it somehow. 

Once this decision is made, the question is should you pay cash or finance it?  given that I'm willing to hold onto a 3% mortgage, why wouldn't I also take advantage of 1% or 2% interest car loans in order to keep my money invested at a potentially higher return?

The key point is by financing a car people tend to spend too much on the car in the first place. So instead of paying cash for a cheap mode of transport that will have little depreciation or insurance cost, you spend large sums on a car you should never buy in the first place.
Mr. Mark