Author Topic: "I will never be without a car payment'  (Read 8501 times)

abuzzyisawesome

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"I will never be without a car payment'
« on: June 17, 2013, 01:28:16 PM »
Conversation in car with a coworker. Carpooling to a business meeting in her brand new car, which she just got 6 months ago after trading in her 1 year old car. To quote:
"I will never be without a car payment, so I may as well get a new car every year and still pay the same $500 payment." There is no telling how many times she has rolled those loans. Yeah, $500 a month, for the rest of your life.  I said nothing.

lithy

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Re: "I will never be without a car payment'
« Reply #1 on: June 17, 2013, 01:48:59 PM »
It is an incredible success story for the car sales industry that they have gotten people to believe that a monthly car payment to use a car is something akin to the electric bill or maybe even the grocery budget.  Just something that you have to pay no matter what. 

$500/month from age 25 to age 65 = $240,000, this makes the huge assumption that the payments would never increase.

Ouch.  And at the end of paying almost a quarter million dollars towards various car loans, it will be unlikely that you actually own any cars.

footenote

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Re: "I will never be without a car payment'
« Reply #2 on: June 17, 2013, 02:01:34 PM »
"If you tell a lie that's big enough and keep repeating it, people will eventually come to believe it."

"We will always be at war with Oceania."


Joet

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Re: "I will never be without a car payment'
« Reply #3 on: June 17, 2013, 04:26:24 PM »
Unless we no longer own a car/need to drive aren't we all amortizing a car of some sort anyways? Semantics? I suppose. Having a beater/10+ year old car/high mileage hoopty of course puts you a bit further down the effective cost spectrum.

footenote

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Re: "I will never be without a car payment'
« Reply #4 on: June 17, 2013, 05:13:48 PM »
Unless we no longer own a car/need to drive aren't we all amortizing a car of some sort anyways? Semantics? I suppose. Having a beater/10+ year old car/high mileage hoopty of course puts you a bit further down the effective cost spectrum.

Big, Big difference between borrowing money to drive a car and accepting that it's a piece of equipment you buy that depreciates. I took out my last car loan in 1993. Then I figured out I could save tens of thousands of dollars by never doing that again. I bought a car in 1998 for cash that I'm still driving.

I've read all your posts about various topics. You are intelligent and know better than this, right dude?

Rural

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Re: "I will never be without a car payment'
« Reply #5 on: June 17, 2013, 07:45:00 PM »
I don't know that a car always depreciates, and I'm sure they don't have to depreciate much. I've sold a couple for a few hundred less than they cost me after several years of use, and the most recent car I lost in a wreck, and the insurance payout to total it was more than I'd paid, over two years and nearly 100k miles later, plus I got to keep the car. For parts, not to drive, but still.

dragoncar

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Re: "I will never be without a car payment'
« Reply #6 on: June 17, 2013, 08:59:06 PM »
Unless we no longer own a car/need to drive aren't we all amortizing a car of some sort anyways? Semantics? I suppose. Having a beater/10+ year old car/high mileage hoopty of course puts you a bit further down the effective cost spectrum.

Let's put it a different way:

"I will never be without a phone payment... so it doesn't really matter if I pick the most expensive plan vs. the least expensive plan."

SnackDog

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Re: "I will never be without a car payment'
« Reply #7 on: June 18, 2013, 02:47:22 AM »
Or, "I will never be without a phone payment or an Internet payment"...

cbr shadow

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Re: "I will never be without a car payment'
« Reply #8 on: June 18, 2013, 08:49:56 AM »
I don't know that a car always depreciates, and I'm sure they don't have to depreciate much. I've sold a couple for a few hundred less than they cost me after several years of use, and the most recent car I lost in a wreck, and the insurance payout to total it was more than I'd paid, over two years and nearly 100k miles later, plus I got to keep the car. For parts, not to drive, but still.

So either there was a mistake on the insurance side and they gave you more than the car was worth, or you got the car for nearly free?  You're implying that someone can buy a car, use it for 100k miles and then sell it for a profit..?  If this did happen to you then it's the exception and definitely not the rule.  I would be truely impressed if it was repeatable.

When buying a new car there's no way around it depreciating.. FAST.  Of course someone could bring up that they bought a limited edition Camaro track car for $70k and since there was such high demand and low supply they were able to sell it for a profit.


prodarwin

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Re: "I will never be without a car payment'
« Reply #9 on: June 18, 2013, 09:50:55 AM »
I don't know that a car always depreciates, and I'm sure they don't have to depreciate much. I've sold a couple for a few hundred less than they cost me after several years of use, and the most recent car I lost in a wreck, and the insurance payout to total it was more than I'd paid, over two years and nearly 100k miles later, plus I got to keep the car. For parts, not to drive, but still.

So either there was a mistake on the insurance side and they gave you more than the car was worth, or you got the car for nearly free?  You're implying that someone can buy a car, use it for 100k miles and then sell it for a profit..?  If this did happen to you then it's the exception and definitely not the rule.  I would be truely impressed if it was repeatable.

Pretty easy to do, if you put on miles quickly.  Buy a cheap old car with >100k miles.  Put on 100k, and it will have depreciated a negligible amount.  Take decent care of it and/or get a good deal on it to begin with, and you can sell it for more than you paid.  There is a "sweet spot" on the depreciation curve that will result in deals like this, or very close to this, but it varies from car to car and you need to know a little about cars to accomplish it.  Certainly not the norm - but most people don't care enough to try.

My last DD I purchased for $1K, put about $1K in parts into it, got rear ended (just scratched the bumper) and got ~$800 for repairs and sold it for $2K (un-repaired).. 15K miles later

My DD before that, I purchased for $1K, got rear ended and received $1600 for repairs.  Continued to drive the car (un-repaired) until I had put 40K miles on it, then sold it for $1300.  So yes, I basically got paid $1900 to drive that car.

Even discounting insurance money, I'd still have profited quite a bit off the above car.

Current DD I [over]paid $3K for with 100k miles.  I've put 29k miles on it.  Hope to keep it another 50-100k miles, then sell for $2k.  Not a profit, but pretty damn low cost of ownership.

kms

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Re: "I will never be without a car payment'
« Reply #10 on: June 18, 2013, 11:33:01 AM »
"I will never be without a car payment, so I may as well get a new car every year and still pay the same $500 payment."
I have a colleague like that as well, although in his case it's only around US $400.

I still have to marvel at success of the automotive industry. Although in many cases they're supported by politics. Get this: in 2008, with the financial crisis and sh*t hitting the fans world-wide, the German automotive industry (BMW, Mercedes, and Volkswagen) lobbied strongly for some sort of financial support because people were to scared to purchase new cars worth thousands of Euros. In 2009, the German government issued a law that came to be known as the "Abwrackprämie". The way it worked was that if you had a car at least nine years old and purchased a brand-new car while scrapping the old one, you got a 2.500€ cash back from the government. People went ball-busting crazy about this, the automotive industry couldn't keep up with demand and waiting times kept rising and rising to more than a year! 2009 became a record year for car sales, everybody wanted to cash in.

Now that may sound decent, and it allowed people to purchase new cars at prices of used models, but more often than not the car turned in for scrapping was worth significantly more than the 2.500€ cash back. All around me I've watched in horror as many friends of mine basically threw money out the window for the prospect of having a new car without doing the basic math of 'my car is worth more than 2.500€'. Needless to say that the number of car loans exploded in the same way that car sales did...
« Last Edit: June 18, 2013, 11:36:30 AM by mj0 »

mlipps

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Re: "I will never be without a car payment'
« Reply #11 on: June 18, 2013, 11:41:22 AM »
"I will never be without a car payment, so I may as well get a new car every year and still pay the same $500 payment."
I have a colleague like that as well, although in his case it's only around US $400.

I still have to marvel at success of the automotive industry. Although in many cases they're supported by politics. Get this: in 2008, with the financial crisis and sh*t hitting the fans world-wide, the German automotive industry (BMW, Mercedes, and Volkswagen) lobbied strongly for some sort of financial support because people were to scared to purchase new cars worth thousands of Euros. In 2009, the German government issued a law that came to be known as the "Abwrackprämie". The way it worked was that if you had a car at least nine years old and purchased a brand-new car while scrapping the old one, you got a 2.500€ cash back from the government. People went ball-busting crazy about this, the automotive industry couldn't keep up with demand and waiting times kept rising and rising to more than a year! 2009 became a record year for car sales, everybody wanted to cash in.

Now that may sound decent, and it allowed people to purchase new cars at prices of used models, but more often than not the car turned in for scrapping was worth significantly more than the 2.500€ cash back. All around me I've watched in horror as many friends of mine basically threw money out the window for the prospect of having a new car without doing the basic math of 'my car is worth more than 2.500€'. Needless to say that the number of car loans exploded in the same way that car sales did...

We basically did the exact same thing here in the US; you got $2500-$4500 for trading in low gas mileage cars for higher gas mileage ones. http://en.wikipedia.org/wiki/Car_Allowance_Rebate_System

kms

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Re: "I will never be without a car payment'
« Reply #12 on: June 18, 2013, 11:42:18 AM »
Cross-continental stupidity ftw! :)

Rural

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Re: "I will never be without a car payment'
« Reply #13 on: June 19, 2013, 04:27:30 AM »

When buying a new car there's no way around it depreciating.. FAST. 

Ah, there's your problem. Why would anyone buy a new car? There are plenty of nice people out there who will take the depreciation for you, and you can buy the car for pennies on the dollar when they get tired of it...

Christof

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Re: "I will never be without a car payment'
« Reply #14 on: June 19, 2013, 05:49:26 AM »
When buying a new car there's no way around it depreciating.. FAST.

Not necessarily... It depends on the situation. A new car depreciates fast only, because there are not many people who want to buy an almost new car at an almost new car price. Three examples from Europe where that's not the case:

In 2011 Belarus increased import customs on Western cars quite dramatically due to pressure from Russia to support their car industry. As a result many people with contacts to Europe bought cars just before the increase and sold them for more after the increase.

Within Europe we have different VAT rates. If done non-commercially, you can buy a car in a country with a low tax-rate and sell it in a country with higher tax-rates.

In Eastern Germany there was a waiting list for cars. You would apply and ten years later you got notified to pick up your car at the factory. Similar to US student loans where people would start saving right after birth, it was common to buy a car for your baby or kid so that they have one in time when leaving home. If someone wanted a new car without waiting 10 years they had to pay a premium and buy an almost new car from someone who didn't want theirs. New cars actually gained value initially.

mpbaker22

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Re: "I will never be without a car payment'
« Reply #15 on: June 19, 2013, 10:59:56 AM »
I don't know that a car always depreciates, and I'm sure they don't have to depreciate much. I've sold a couple for a few hundred less than they cost me after several years of use, and the most recent car I lost in a wreck, and the insurance payout to total it was more than I'd paid, over two years and nearly 100k miles later, plus I got to keep the car. For parts, not to drive, but still.

So either there was a mistake on the insurance side and they gave you more than the car was worth, or you got the car for nearly free?  You're implying that someone can buy a car, use it for 100k miles and then sell it for a profit..?  If this did happen to you then it's the exception and definitely not the rule.  I would be truely impressed if it was repeatable.

When buying a new car there's no way around it depreciating.. FAST.  Of course someone could bring up that they bought a limited edition Camaro track car for $70k and since there was such high demand and low supply they were able to sell it for a profit.

It happens sometimes.  Oftentimes insurance will pay the private salesman lot value, not the KBB value.  The guy could have purchased it from the previous owner and insurance may have paid out based on a dealer's mark-up.
My Honda Civic Hybrid was totaled by hail in April, 2012.  The KBB value before hail was 8,000.  Insurance gave me 12,000 and I bought it back for 4,000.  Net gain was 8,000 and I kept the car.
It might not be common, but it does happen.

Jack

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Re: "I will never be without a car payment'
« Reply #16 on: June 19, 2013, 12:15:22 PM »
I don't think it's fair to factor in insurance payouts when claiming that you "made a profit" owning a car. An insurance payout is a windfall, not a savvy deal.

Now, I can in fact believe that you can legitimately sell for more than you paid in two situations:
  • You managed to buy a brand new hot model (e.g. Fiat 500 Abarth, Tesla Model S (?), 2013 Beetle TDI, etc.) with limited availability without paying a markup and then you sell it a few months later before the waiting list has dissipated.
  • You bought a classic car at the bottom of its depreciation curve (i.e., when it was still considered to be "old" but not yet "classic.")

Forcus

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Re: "I will never be without a car payment'
« Reply #17 on: June 19, 2013, 12:15:40 PM »
Unless we no longer own a car/need to drive aren't we all amortizing a car of some sort anyways? Semantics? I suppose. Having a beater/10+ year old car/high mileage hoopty of course puts you a bit further down the effective cost spectrum.

You got smacked around a bit but I'm not sure why. I always use Total Cost of Ownership to get monthly cost so that I understand my monthly cost drivers. Even if I have a paid off car, there is still a monthly cost associated with the opportunity to sell it for a given amount vs. owning and operating some other vehicle. It's how a new or newer car can actually be cheaper to operate, over time, over a used paid for car. It is actually cheaper for me to own a used 2012 Focus with 30k-ish miles than my paid for 2005 Volvo S40, a fact not lost on me when I have to order parts.

Forcus

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Re: "I will never be without a car payment'
« Reply #18 on: June 19, 2013, 12:30:40 PM »
I don't think it's fair to factor in insurance payouts when claiming that you "made a profit" owning a car. An insurance payout is a windfall, not a savvy deal.

Insurance payouts are "supposed to be" based on market value so I'd think it was still a valid statement. Just a thought.

mpbaker22

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Re: "I will never be without a car payment'
« Reply #19 on: June 19, 2013, 12:41:04 PM »
I don't think it's fair to factor in insurance payouts when claiming that you "made a profit" owning a car. An insurance payout is a windfall, not a savvy deal.

Insurance payouts are "supposed to be" based on market value so I'd think it was still a valid statement. Just a thought.

It's essentially the difference between buying from private party and buying from a used car dealer.  The used car dealer obviously has an arbitrage/mark-up allowing him to make a profit.  The vehicle still depreciated on his lot, he was just able to cover the small depreciation in his mark-up.  To claim the car did not depreciate is invalid except in the specific classic car scenarios already discussed.  I simply gave my story to refute that getting more than the actual value from insurance is incredibly rare.

Christof

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Re: "I will never be without a car payment'
« Reply #20 on: June 19, 2013, 12:43:10 PM »
I don't think it's fair to factor in insurance payouts when claiming that you "made a profit" owning a car. An insurance payout is a windfall, not a savvy deal.

I do think I made a tiny profit on insurance recently. I had an collision with a deer last year, an accident that is covered by insurance. The insurance company sent someone to estimate repair cost. They came up with over 3000 Euros for repair and 1500 Euros to get a comparable used car. As such they declared the car a total loss and paid 1200.

In a Mustachian spirit I searched scrap yards in Germany for damaged cars of the precise same model and color. Thanks to the internet I found some, shipped them home and convinced our local repair shop to fix my car with used parts. In the end I paid around 1000 Euros for everything, including a small gift to the car repair shop for being flexible.

It took effort, talking with lots of people, to save this money. Therefore I don't consider this to be a windfall.

mindaugas

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Re: "I will never be without a car payment'
« Reply #21 on: July 05, 2013, 04:47:41 PM »
Back before I read MMM I said this to justify getting a new car. Still working on getting rid of two car loans.

olivia

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Re: "I will never be without a car payment'
« Reply #22 on: July 05, 2013, 05:46:31 PM »
I'm another one who got an insurance payout for essentially the same price I paid for a car years earlier.  I had a 1997 Toyota Camry I bought used for $5k in 2004, and I drove it for over 5 years until a drunk driver totaled it while it was parked.  (No people were injured, just cars, luckily!)  My insurance payout was $4800...I was fine with the $200 hit. :P

Self-employed-swami

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Re: "I will never be without a car payment'
« Reply #23 on: July 07, 2013, 10:07:46 PM »
I don't know that a car always depreciates, and I'm sure they don't have to depreciate much. I've sold a couple for a few hundred less than they cost me after several years of use, and the most recent car I lost in a wreck, and the insurance payout to total it was more than I'd paid, over two years and nearly 100k miles later, plus I got to keep the car. For parts, not to drive, but still.

So either there was a mistake on the insurance side and they gave you more than the car was worth, or you got the car for nearly free?  You're implying that someone can buy a car, use it for 100k miles and then sell it for a profit..?  If this did happen to you then it's the exception and definitely not the rule.  I would be truely impressed if it was repeatable.

When buying a new car there's no way around it depreciating.. FAST.  Of course someone could bring up that they bought a limited edition Camaro track car for $70k and since there was such high demand and low supply they were able to sell it for a profit.

It happens sometimes.  Oftentimes insurance will pay the private salesman lot value, not the KBB value.  The guy could have purchased it from the previous owner and insurance may have paid out based on a dealer's mark-up.
My Honda Civic Hybrid was totaled by hail in April, 2012.  The KBB value before hail was 8,000.  Insurance gave me 12,000 and I bought it back for 4,000.  Net gain was 8,000 and I kept the car.
It might not be common, but it does happen.

In December 2010, I bought a 2006 Toyota Tundra for $15,500.  I put ~60,000km on it, and in February of 2013, I wrote it off, and insurance valued it at something like $15,465.  After the deductible was taken off, I got just under $600 less than I paid for it.

In March, I bought a 1995 Tercel for $575.  I had a random guy in a parking lot, offer me $800 for it.  I'm not even trying to sell it right now.
« Last Edit: July 07, 2013, 10:11:35 PM by Self-employed-swami »

ep114

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Re: "I will never be without a car payment'
« Reply #24 on: July 09, 2013, 02:49:58 AM »
Yep, it's very possible to buy a car, drive it for a while then sell it for more than you paid for it. In most cases, it probably only works for used cars though.  Especially now that Craigslist is so common.   If you get a good deal, then sell to someone who isn't so concerned about driving a hard bargain, viola.

mgreczyn

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Re: "I will never be without a car payment'
« Reply #25 on: July 10, 2013, 01:31:55 PM »
Unless we no longer own a car/need to drive aren't we all amortizing a car of some sort anyways? Semantics? I suppose. Having a beater/10+ year old car/high mileage hoopty of course puts you a bit further down the effective cost spectrum.

Yes.  I'm busily trying to depreciate my 2002 pontiac sunfire from $1,000 down to $0.  Might take a few more years.