Author Topic: We're All Expected to Have Car Payments  (Read 24844 times)

Inkedup

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We're All Expected to Have Car Payments
« on: August 09, 2015, 11:11:31 AM »
Overheard a guy talking about his friend the other day. The friend drives a 20 year old car and hasn't had a car payment in about 10 years. The guy finds both items absurd, and was saying stuff like "He's due for some car payments after all this time!" Now I think his friend sounds smarter than average to hold onto his car for so long, but this guy was acting as if his friend somehow has been "cheating" at life, and deserves some karmic gut punches in the form of car payments.

I had no idea that car payments were considered standard fare.

Zamboni

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Re: We're All Expected to Have Car Payments
« Reply #1 on: August 09, 2015, 11:54:56 AM »
Yes, it's definitely the norm to have a car payment. Absurd, but the norm nonetheless.

I've face similar attitudes from people. One old boss, who oscillated from a reasonable Pontiac to an new Expedition to a new Corvette to a new Cadillac in the time we worked together, was shocked that I drove the same car the whole time and that I still drove the Corolla I'd driven in grad school. His comment was "Really? I thought you would have upgraded by now." And what can you say to that? Can't really tell the guy he's a moron right to his face. Cause he's the boss.

psinguine

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Re: We're All Expected to Have Car Payments
« Reply #2 on: August 09, 2015, 12:00:44 PM »
I have had a car payment for many years (finally free in three weeks!) and it has been the only thing that friends and family would accept as a valid reason for not buying a truck. My father, my boss, everyone would push for it. Logic reason didn't matter when you could pay in monthly installments. But if I already had a car payment?

"When are you going to buy a truck?"
"I don't need one right now."
"You will though."
"Well maybe in three to five years when I start gearing up my own work."
"Then you should buy it now and get the depreciation out of the way."
"I... Oh! I can't afford another payment."
"Oh right you have a car payment. When is it done?"
"Couple more years."
"Okay. So you'll buy a truck then."
"... sure."

A payment must be replaced with a payment. 13 years of solid monthly payments.

sixup

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Re: We're All Expected to Have Car Payments
« Reply #3 on: August 09, 2015, 12:13:39 PM »
A guy at the gym was saying how he liked the new Dodge Durango..I think.

Me: I'm not a big SUV guy.
Him: What's your dream car?
Me: Eh, don't really have one. I do like motorcycles though. (however I only have a 50cc moped at the moment, probably won't ever actually buy a full size motorcycle again)
 
Him: You should check out X-Dealership...you can get one 0% down blah blah blah.


... Great so you not only assume I'm totally broke, but also that I am an idiot that would get a 0% loan for a motorcycle I don't need while I'm broke, and recommend it to me.

People are nuts.

scottish

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Re: We're All Expected to Have Car Payments
« Reply #4 on: August 09, 2015, 12:38:46 PM »
Robert Cialdini calls this 'social proof'.   Everyone else is doing it so it must be the right thing to do. 

People on this forum do something similar by encouraging everyone to spend mindfully and invest regularly.

Inkedup

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Re: We're All Expected to Have Car Payments
« Reply #5 on: August 09, 2015, 12:54:00 PM »
Robert Cialdini calls this 'social proof'.   Everyone else is doing it so it must be the right thing to do. 

People on this forum do something similar by encouraging everyone to spend mindfully and invest regularly.

Another example is that everyone under age 50 at my work seems to have fatalistic attitudes towards retirement. The media says we're collectively "too broke" to think about ever retiring. So people have convinced themselves that it will never happen. I prefer to listen to people on this forum instead :)

Inkedup

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Re: We're All Expected to Have Car Payments
« Reply #6 on: August 09, 2015, 01:00:19 PM »
I have had a car payment for many years (finally free in three weeks!) and it has been the only thing that friends and family would accept as a valid reason for not buying a truck. My father, my boss, everyone would push for it. Logic reason didn't matter when you could pay in monthly installments. But if I already had a car payment?

"When are you going to buy a truck?"
"I don't need one right now."
"You will though."
"Well maybe in three to five years when I start gearing up my own work."
"Then you should buy it now and get the depreciation out of the way."
"I... Oh! I can't afford another payment."
"Oh right you have a car payment. When is it done?"
"Couple more years."
"Okay. So you'll buy a truck then."
"... sure."

A payment must be replaced with a payment. 13 years of solid monthly payments.

Wow. I can't fathom opting into a perpetual cycle.
Congrats on reaching the end of your payments!

LeRainDrop

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Re: We're All Expected to Have Car Payments
« Reply #7 on: August 09, 2015, 01:07:47 PM »
In 2001, while in college, I bought (cash) a 1999 Mercury Cougar (2-door couple), with low mileage and well-kept, and loved it for many years.  I started as an attorney in biglaw in 2007, still driving that car, of course.  It was just as well-maintained, looked great, and I had kept my mileage low, too.  Anyhow, there was another associate like 6 years ahead of me who occasionally would tease me about how I still have the Cougar -- haha, Cougar, all the guys laughed.

So one time, that guy, two other guys, and I decided to go out for lunch and drive somewhere.  Well, one has a two-seater Porsche; one had kids' car seats in the back; the other "forgot" to bring his keys and we were already downstairs from the office; so, I was left as the only candidate driver.  Two of the dudes had to climb in the back -- felt bad for the tall one, but the short one (the one who teased me) really fit just fine (they are full-size bucket seats) but kept acting like it was horrible.  We get to the place we're going, which has a pretty packed parking lot, and so the best thing for me to do was to back into a space near the end.  No problem.  Well, the teasing dude was seriously impressed that I could back into a parking spot.  Like, he really did not know how to do that himself and was complimenting me how awesome that was.  So, that's one time I was very thankful for my dad having taught me how to do that and to practice, practice, practice, until it was as easy as pulling in forwards.

Of course, this outing only bolstered this guy in telling me I need to get a new car.  Oh, yeah, please let me buy a new car just so I can haul my co-workers out to lunch!!!  Anyhow, not to make this guy sound all that bad -- he actually still is my friend and it was all in good fun, but I do think he genuinely had the belief that lawyers should have more expensive cars just because.
« Last Edit: August 09, 2015, 01:10:25 PM by LeRainDrop »

Inkedup

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Re: We're All Expected to Have Car Payments
« Reply #8 on: August 09, 2015, 02:46:38 PM »

Of course, this outing only bolstered this guy in telling me I need to get a new car.  Oh, yeah, please let me buy a new car just so I can haul my co-workers out to lunch!!!  Anyhow, not to make this guy sound all that bad -- he actually still is my friend and it was all in good fun, but I do think he genuinely had the belief that lawyers should have more expensive cars just because.

Well...getting a two-seater Porche would get you OUT of having to haul your co-workers to future lunch outings :)

I have a 99 car as well, and I love it!


zing12

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Re: We're All Expected to Have Car Payments
« Reply #9 on: August 09, 2015, 04:06:27 PM »
Robert Cialdini calls this 'social proof'.   Everyone else is doing it so it must be the right thing to do. 

People on this forum do something similar by encouraging everyone to spend mindfully and invest regularly.

Another example is that everyone under age 50 at my work seems to have fatalistic attitudes towards retirement. The media says we're collectively "too broke" to think about ever retiring. So people have convinced themselves that it will never happen. I prefer to listen to people on this forum instead :)

I'm a relatively left-of-center guy. I read those articles about how screwed up our student loan system is (as another example) and I agree that it's a problem. But at the same time they all talk about how all millennials are just completely screwed for life and have no hope so they shouldn't even bother. A lot of young liberals and "occupy" types carry this same attitude and it sucks.

If you're smart and learn the rules and take responsibility for your own life, you can still navigate and beat the system, whatever your opinion on that system may or may not be. That's what MMM is all about to me. If you go through life mad that everything isn't totally perfect and therefore give up, you're going to have a bad time. Wasn't it Gandhi who said "be the change you want to see in the world?"

10dollarsatatime

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Re: We're All Expected to Have Car Payments
« Reply #10 on: August 09, 2015, 04:14:54 PM »
My hero is the university professor who is still driving the same car she bought in college... a 70 something bright orange Mustang.  It was once stolen and used in a bank robbery.  Still has bullet holes in the front grill.  You always know it's her, because while there may be other orange mustangs driving around town, this is the only one being driven by a 60 something year old lady with big white curly hair. :)

Syonyk

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Re: We're All Expected to Have Car Payments
« Reply #11 on: August 09, 2015, 07:20:23 PM »
I've absolutely seen this belief before.  It's usually phrased as, "Well, we pay [husband or wife's] car off in another year, so we can upgrade [wife or husband's] car then!" - it's utterly incomprehensible that you wouldn't have car payments, and the only reason you can't have a newer car is because you're still paying off another one!

MrsPete

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Re: We're All Expected to Have Car Payments
« Reply #12 on: August 10, 2015, 10:16:55 AM »
I'd estimate 2/3 of the people I know consider a car payment a "forever thing".  Well, actually, half of them are buying and half of them are leasing, but it amounts to the same thing. 

No one ever comments on my same-old car that I've been driving for 8 years now, the car I was able to buy outright without payments. 

Syonyk

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Re: We're All Expected to Have Car Payments
« Reply #13 on: August 10, 2015, 10:34:14 AM »
My comment for many, many years was, "I don't have a car payment.  I have parts payments.  They're superior.  If you don't pay a car payment, the bank takes your car.  If you can't make a parts payment, you spend a while walking."

I did literally pull a car from the junkyard and drive it for a long while, and snagged a few others on their way to the junkyard - phone call of "Hey, I replaced my car, junkyard offered me $125, yours if you beat it."  "I'll be over in half an hour with $150!"

Slee_stack

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Re: We're All Expected to Have Car Payments
« Reply #14 on: August 10, 2015, 10:48:59 AM »
I have car payments by choice. I couldn't bring myself to pay cash when I could get a 1.99% used auto loan and bank the funds in an index investment instead.  Paying cash just screams STUPID to me.  I do realize this is an exception in the car payment world, but it always bugs me when someone suggests paying 'cash' for a car. Noooooo!!!!

Yeah, cash...easy, no auto payment setup, over and done with......and incredibly short sighted.  NEVER pay cash for a car unless your credit score is so bad that it will cost you 5% or more on that loan, you have a pending mortgage/investment purchase, or something similar.  Bank the loan-investment rate spread.  That installment loan will also actually help you maintain a stellar credit score too...

Now the actual buying of a car to begin with is what's folly.  But not the financing aspect. 

Personally, I just don't have a good non-car commute option....yet.

kudy

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Re: We're All Expected to Have Car Payments
« Reply #15 on: August 10, 2015, 11:15:09 AM »
This seems like a good place to make an observation about my neighbors... a married couple with no kids, and like clockwork there is a new car in their driveway every 6 months. I think they alternate and each get a new car each year. This has been the pattern for at least the past 3 years. Crazy!

Scandium

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Re: We're All Expected to Have Car Payments
« Reply #16 on: August 10, 2015, 11:23:25 AM »
I have car payments by choice. I couldn't bring myself to pay cash when I could get a 1.99% used auto loan and bank the funds in an index investment instead.  Paying cash just screams STUPID to me.  I do realize this is an exception in the car payment world, but it always bugs me when someone suggests paying 'cash' for a car. Noooooo!!!!

Yeah, cash...easy, no auto payment setup, over and done with......and incredibly short sighted.  NEVER pay cash for a car unless your credit score is so bad that it will cost you 5% or more on that loan, you have a pending mortgage/investment purchase, or something similar.  Bank the loan-investment rate spread.  That installment loan will also actually help you maintain a stellar credit score too...

Now the actual buying of a car to begin with is what's folly.  But not the financing aspect. 

Personally, I just don't have a good non-car commute option....yet.

I'll have to do the math some more, but just quick "back-of-excel" using payment numbers for 2% at 48 months give:
$8000 loan = $9120 in payments
Earnings on $8k at 7% = $10,486.
(This is the cost after trade in for a prius I'm looking at)

So total extra earned is $1,366 vs paying the $8k in cash. Of course assuming 7% return over that time which is a big if..

Yeah I guess that's money, but not sure it's enough for me to choose to have four years of payments on a depreciating asset.

edit: a 60 month, 2% loan will "earn" an extra $2,000 over cash. But again I'm concerned about the assumption of 7% return over such a short time frame
« Last Edit: August 10, 2015, 11:33:13 AM by Scandium »

lemanfan

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Re: We're All Expected to Have Car Payments
« Reply #17 on: August 10, 2015, 11:51:34 AM »

"Then you should buy it now and get the depreciation out of the way."


That is some flawed financial thinking right there. :)

Making Cookies

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Re: We're All Expected to Have Car Payments
« Reply #18 on: August 10, 2015, 12:39:25 PM »
I've absolutely seen this belief before.  It's usually phrased as, "Well, we pay [husband or wife's] car off in another year, so we can upgrade [wife or husband's] car then!" - it's utterly incomprehensible that you wouldn't have car payments, and the only reason you can't have a newer car is because you're still paying off another one!

Actually the idea of having car payments is delaying the replacement of our trusty two '99 vehicles. They continue to do what we bought them to do so why replace them? Eventually I want something new(er) for out of town travel though. Don't want to drive a vehicle with north of 300K miles to the beach (8-10 hrs) away.

In case we need a reminder - we have a perpetual car payment person close to us. We get to hear about the pain and heart ache of that consumer choice. ;) And their car is STILL broken more frequently than our aged bread and butter vehicles.
« Last Edit: August 10, 2015, 10:13:08 PM by Joe Average »

vhalros

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Re: We're All Expected to Have Car Payments
« Reply #19 on: August 10, 2015, 01:01:00 PM »
I don't even own a car; I just bicycle every where. While this is somewhat normal around here (or at least not totally abnormal), I still do occasionally get a comment asking why my licence was taken away (I do in fact have a valid drivers licence, and enough cash to just go buy a car if I really wanted one).
« Last Edit: August 10, 2015, 01:03:28 PM by vhalros »

Blonde Lawyer

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Re: We're All Expected to Have Car Payments
« Reply #20 on: August 10, 2015, 01:13:09 PM »
At one point, my state's child support worksheet (where you have to list your family budget) would not allow a $0 in the "car payment" line.  It assumed you had missed the line and prompted you to fix your error.  I only discovered this error in my third year of doing that type of work when I had my first client with no car payment.  We just put $1 in instead to get passed the error message.

Scandium

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Re: We're All Expected to Have Car Payments
« Reply #21 on: August 10, 2015, 02:07:06 PM »
At one point, my state's child support worksheet (where you have to list your family budget) would not allow a $0 in the "car payment" line.  It assumed you had missed the line and prompted you to fix your error.  I only discovered this error in my third year of doing that type of work when I had my first client with no car payment.  We just put $1 in instead to get passed the error message.

that is amazing

zephyr911

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Re: We're All Expected to Have Car Payments
« Reply #22 on: August 10, 2015, 02:08:38 PM »
I have had a car payment for many years (finally free in three weeks!) and it has been the only thing that friends and family would accept as a valid reason for not buying a truck. My father, my boss, everyone would push for it. Logic reason didn't matter when you could pay in monthly installments. But if I already had a car payment?

"When are you going to buy a truck?"
"I don't need one right now."
"You will though."
"Well maybe in three to five years when I start gearing up my own work."
"Then you should buy it now and get the depreciation out of the way."
"I... Oh! I can't afford another payment."
"Oh right you have a car payment. When is it done?"
"Couple more years."
"Okay. So you'll buy a truck then."
"... sure."

A payment must be replaced with a payment. 13 years of solid monthly payments.
Yup. Officially the dumbest shit I have heard all day long.

But these are the people who we count on to eat the depreciation for us, so we can get the things we need for far cheaper. So maybe we should avoid educating them :/

psinguine

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Re: We're All Expected to Have Car Payments
« Reply #23 on: August 10, 2015, 06:31:42 PM »
I have had a car payment for many years (finally free in three weeks!) and it has been the only thing that friends and family would accept as a valid reason for not buying a truck. My father, my boss, everyone would push for it. Logic reason didn't matter when you could pay in monthly installments. But if I already had a car payment?

"When are you going to buy a truck?"
"I don't need one right now."
"You will though."
"Well maybe in three to five years when I start gearing up my own work."
"Then you should buy it now and get the depreciation out of the way."
"I... Oh! I can't afford another payment."
"Oh right you have a car payment. When is it done?"
"Couple more years."
"Okay. So you'll buy a truck then."
"... sure."

A payment must be replaced with a payment. 13 years of solid monthly payments.

Wow. I can't fathom opting into a perpetual cycle.
Congrats on reaching the end of your payments!

Thanks. It's been a long and annoying road. That's half the reason why I also can't wrap my head around why you would opt into it. Plus there's the fact that circumstances change so much over those five short years. I went from living with my parents to a married man with a child living in my own house with a rental property and a fledgling business. I would have never planned for that!

I have had a car payment for many years (finally free in three weeks!) and it has been the only thing that friends and family would accept as a valid reason for not buying a truck. My father, my boss, everyone would push for it. Logic reason didn't matter when you could pay in monthly installments. But if I already had a car payment?

"When are you going to buy a truck?"
"I don't need one right now."
"You will though."
"Well maybe in three to five years when I start gearing up my own work."
"Then you should buy it now and get the depreciation out of the way."
"I... Oh! I can't afford another payment."
"Oh right you have a car payment. When is it done?"
"Couple more years."
"Okay. So you'll buy a truck then."
"... sure."

A payment must be replaced with a payment. 13 years of solid monthly payments.
Yup. Officially the dumbest shit I have heard all day long.

But these are the people who we count on to eat the depreciation for us, so we can get the things we need for far cheaper. So maybe we should avoid educating them :/

Sometimes education doesn't help anyway. People get all sorts of weird ideas. Like this sudden wave of DIYers destroying their homes because they watch the DIY network and think they're Mike Holmes.

Jack

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Re: We're All Expected to Have Car Payments
« Reply #24 on: August 11, 2015, 11:42:17 AM »
I have car payments by choice. I couldn't bring myself to pay cash when I could get a 1.99% used auto loan and bank the funds in an index investment instead.  Paying cash just screams STUPID to me.  I do realize this is an exception in the car payment world, but it always bugs me when someone suggests paying 'cash' for a car. Noooooo!!!!

Yeah, cash...easy, no auto payment setup, over and done with......and incredibly short sighted.  NEVER pay cash for a car unless your credit score is so bad that it will cost you 5% or more on that loan, you have a pending mortgage/investment purchase, or something similar.  Bank the loan-investment rate spread.  That installment loan will also actually help you maintain a stellar credit score too...

Now the actual buying of a car to begin with is what's folly.  But not the financing aspect. 

Your argument fails to consider the fact that, in order to get financing (especially at a low interest rate), you have to buy a much newer and thus more expensive car.

I recently bought a 25-year-old car with 80K miles on it for $3600. It'll almost certainly last me just as long as a financed 7-year-old car with the same mileage (i.e., a car driven the average yearly amount, 12K miles/year), but the same model 7-year-old car would have cost at least $8000 (probably more). Even after considering the opportunity cost of not investing that $3600, I still come out way ahead.


JR

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Re: We're All Expected to Have Car Payments
« Reply #25 on: August 11, 2015, 12:06:57 PM »
My FIL who has a household income of around $150,000 (in an area where the median HH income is $45k) told my wife that a married couple will always have at least one car payment. He was impressed when my wife told him that we didn't have car payments on either of our cars (but our cars were only $8-$9k each, not $20k+ that they spend on their cars).

Travis

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Re: We're All Expected to Have Car Payments
« Reply #26 on: August 11, 2015, 01:54:25 PM »
I have car payments by choice. I couldn't bring myself to pay cash when I could get a 1.99% used auto loan and bank the funds in an index investment instead.  Paying cash just screams STUPID to me.  I do realize this is an exception in the car payment world, but it always bugs me when someone suggests paying 'cash' for a car. Noooooo!!!!

Yeah, cash...easy, no auto payment setup, over and done with......and incredibly short sighted.  NEVER pay cash for a car unless your credit score is so bad that it will cost you 5% or more on that loan, you have a pending mortgage/investment purchase, or something similar.  Bank the loan-investment rate spread.  That installment loan will also actually help you maintain a stellar credit score too...

Now the actual buying of a car to begin with is what's folly.  But not the financing aspect. 

Your argument fails to consider the fact that, in order to get financing (especially at a low interest rate), you have to buy a much newer and thus more expensive car.

I recently bought a 25-year-old car with 80K miles on it for $3600. It'll almost certainly last me just as long as a financed 7-year-old car with the same mileage (i.e., a car driven the average yearly amount, 12K miles/year), but the same model 7-year-old car would have cost at least $8000 (probably more). Even after considering the opportunity cost of not investing that $3600, I still come out way ahead.

Last week I paid cash for a 2008 Prius.  In order to finance a car that old I'd have to pay well into the 4% range and I my credit score is just shy of 800.

This qualifies as a Found on Facebook as well, but today Cracked.com posted one of their satire commercials "If car salesmen were honest."  In the comments section someone countered that "Never buy a depreciating asset. Lease. Understand the terms, become well-versed in leases, and then hand it back to them; then the depreciating asset is their problem."  The commenter pretty much advocated perpetual leases because "depreciation."  So continue to pay nearly full price forever so you can somehow stick it to the man?

Jack

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Re: We're All Expected to Have Car Payments
« Reply #27 on: August 11, 2015, 02:10:17 PM »
Don't get me wrong: if, inexplicably, I did want to insist on a car new enough to finance, I certainly would do so for exactly the reasons Slee_stack mentioned. Heck, if I could finance my 25-year-old car at 1% I would! But I can't, so I didn't.

EricP

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Re: We're All Expected to Have Car Payments
« Reply #28 on: August 11, 2015, 03:56:25 PM »
Don't get me wrong: if, inexplicably, I did want to insist on a car new enough to finance, I certainly would do so for exactly the reasons Slee_stack mentioned. Heck, if I could finance my 25-year-old car at 1% I would! But I can't, so I didn't.

I feel like the requirement to have full insurance would more than eat up any gains.  Sure, it's only an $8k car or so, but collision insurance is fairly expensive.  That's what I think is always missing from these discussions about financing cars at 1% because the market makes so much more is the requirement to carry collision is expensive.

Jack

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Re: We're All Expected to Have Car Payments
« Reply #29 on: August 11, 2015, 03:57:45 PM »
Don't get me wrong: if, inexplicably, I did want to insist on a car new enough to finance, I certainly would do so for exactly the reasons Slee_stack mentioned. Heck, if I could finance my 25-year-old car at 1% I would! But I can't, so I didn't.

I feel like the requirement to have full insurance would more than eat up any gains.  Sure, it's only an $8k car or so, but collision insurance is fairly expensive.  That's what I think is always missing from these discussions about financing cars at 1% because the market makes so much more is the requirement to carry collision is expensive.

Damn, you're right! Never mind.

Chris22

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Re: We're All Expected to Have Car Payments
« Reply #30 on: August 11, 2015, 04:31:21 PM »
I have car payments by choice. I couldn't bring myself to pay cash when I could get a 1.99% used auto loan and bank the funds in an index investment instead.  Paying cash just screams STUPID to me.  I do realize this is an exception in the car payment world, but it always bugs me when someone suggests paying 'cash' for a car. Noooooo!!!!

Yeah, cash...easy, no auto payment setup, over and done with......and incredibly short sighted.  NEVER pay cash for a car unless your credit score is so bad that it will cost you 5% or more on that loan, you have a pending mortgage/investment purchase, or something similar.  Bank the loan-investment rate spread.  That installment loan will also actually help you maintain a stellar credit score too...

Now the actual buying of a car to begin with is what's folly.  But not the financing aspect. 

Your argument fails to consider the fact that, in order to get financing (especially at a low interest rate), you have to buy a much newer and thus more expensive car.

I recently bought a 25-year-old car with 80K miles on it for $3600. It'll almost certainly last me just as long as a financed 7-year-old car with the same mileage (i.e., a car driven the average yearly amount, 12K miles/year), but the same model 7-year-old car would have cost at least $8000 (probably more). Even after considering the opportunity cost of not investing that $3600, I still come out way ahead.

Last week I paid cash for a 2008 Prius.  In order to finance a car that old I'd have to pay well into the 4% range and I my credit score is just shy of 800.

This qualifies as a Found on Facebook as well, but today Cracked.com posted one of their satire commercials "If car salesmen were honest."  In the comments section someone countered that "Never buy a depreciating asset. Lease. Understand the terms, become well-versed in leases, and then hand it back to them; then the depreciating asset is their problem."  The commenter pretty much advocated perpetual leases because "depreciation."  So continue to pay nearly full price forever so you can somehow stick it to the man?

Eh?  That's not what leasing is.  Leasing is essentially agreeing on the depreciation up front and locking it in and then incurring only what you use.  You say "I think this $20k car will be worth $15k in 2 years, I will give you $5k (+ small money factor/interest) over the next 24 months and then hand the car back to you."  It removes the risk of additional depreciation (ie, you have an accident and now the car is worth a bunch less because it has a bad CarFax, or the car is subject to a highly publicized recall and as a result has fallen out of favor in the market) and places that burden on the seller.  It also includes a call option, so if for some reason at month 24 the car you thought was going to be worth $15k is worth $18k (rare, but happens) you can buy it at $15k and flip it for profit or keep it. 

Leasing gets a bum rap because of what it's compared to.  There's no question that the buy and hold for a long time way of buying a car is superior in a financial sense.  But if you want to drive a new car every 2-3 years, leasing is generally favorable financially versus buying a car in cash and selling it every 2-3 years, or financing it and trading it in over the same period.  For plenty of high-income people, spending $400-500/mo in perpetuity is a small portion of their monthly take and it guarantees an up to date car at a fixed cost (car is under warranty, etc).  Not financially "smart" but not exactly disastrous either. 


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Re: We're All Expected to Have Car Payments
« Reply #31 on: August 11, 2015, 07:35:10 PM »
I have car payments by choice. I couldn't bring myself to pay cash when I could get a 1.99% used auto loan and bank the funds in an index investment instead.  Paying cash just screams STUPID to me.  I do realize this is an exception in the car payment world, but it always bugs me when someone suggests paying 'cash' for a car. Noooooo!!!!

Yeah, cash...easy, no auto payment setup, over and done with......and incredibly short sighted.  NEVER pay cash for a car unless your credit score is so bad that it will cost you 5% or more on that loan, you have a pending mortgage/investment purchase, or something similar.  Bank the loan-investment rate spread.  That installment loan will also actually help you maintain a stellar credit score too...

Now the actual buying of a car to begin with is what's folly.  But not the financing aspect. 

Your argument fails to consider the fact that, in order to get financing (especially at a low interest rate), you have to buy a much newer and thus more expensive car.

I recently bought a 25-year-old car with 80K miles on it for $3600. It'll almost certainly last me just as long as a financed 7-year-old car with the same mileage (i.e., a car driven the average yearly amount, 12K miles/year), but the same model 7-year-old car would have cost at least $8000 (probably more). Even after considering the opportunity cost of not investing that $3600, I still come out way ahead.

Last week I paid cash for a 2008 Prius.  In order to finance a car that old I'd have to pay well into the 4% range and I my credit score is just shy of 800.

This qualifies as a Found on Facebook as well, but today Cracked.com posted one of their satire commercials "If car salesmen were honest."  In the comments section someone countered that "Never buy a depreciating asset. Lease. Understand the terms, become well-versed in leases, and then hand it back to them; then the depreciating asset is their problem."  The commenter pretty much advocated perpetual leases because "depreciation."  So continue to pay nearly full price forever so you can somehow stick it to the man?

Eh?  That's not what leasing is.  Leasing is essentially agreeing on the depreciation up front and locking it in and then incurring only what you use.  You say "I think this $20k car will be worth $15k in 2 years, I will give you $5k (+ small money factor/interest) over the next 24 months and then hand the car back to you."  It removes the risk of additional depreciation (ie, you have an accident and now the car is worth a bunch less because it has a bad CarFax, or the car is subject to a highly publicized recall and as a result has fallen out of favor in the market) and places that burden on the seller.  It also includes a call option, so if for some reason at month 24 the car you thought was going to be worth $15k is worth $18k (rare, but happens) you can buy it at $15k and flip it for profit or keep it. 

Leasing gets a bum rap because of what it's compared to.  There's no question that the buy and hold for a long time way of buying a car is superior in a financial sense.  But if you want to drive a new car every 2-3 years, leasing is generally favorable financially versus buying a car in cash and selling it every 2-3 years, or financing it and trading it in over the same period.  For plenty of high-income people, spending $400-500/mo in perpetuity is a small portion of their monthly take and it guarantees an up to date car at a fixed cost (car is under warranty, etc).  Not financially "smart" but not exactly disastrous either.

+1 Yes, if you're image conscious or just have to have up to date cars leasing is the way to go.  It's just that this strategy doesn't apply to most people on this board.

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Re: We're All Expected to Have Car Payments
« Reply #32 on: August 11, 2015, 09:05:59 PM »
Quote
For plenty of high-income people, spending $400-500/mo in perpetuity is a small portion of their monthly take and it guarantees an up to date car at a fixed cost (car is under warranty, etc).  Not financially "smart" but not exactly disastrous either.

I don't know many people who could afford that, and that was the disconnect with this commenter. Leasing forever CAN make sense, but for a very small population.

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Re: We're All Expected to Have Car Payments
« Reply #33 on: August 12, 2015, 01:40:38 AM »
Don't leases usually require several K paid up front, in addition to the $400-500/month?  And then you have your operating costs as well. Car leases always seemed like overpriced renting to me. 

The poster above who advocated financing over cash, the assumptions are of course that: (a) you have the equivalent in cash, and (b.) you put that cash immediately into an investment.  Most people (certainly the people who finance vehicles) simply do NOT have that cash on hand, and even if they did, I would venture to say most would not then invest and compare the costs/benefits over the lifetime of the car. 

In theory, it works, but in reality, I find that people just use this justification as an excuse to get a huge loan without actually having had any cash on hand in the first place, much less any real intention to invest it all. 



« Last Edit: August 12, 2015, 01:42:16 AM by Ryo »

birdman2003

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Re: We're All Expected to Have Car Payments
« Reply #34 on: August 12, 2015, 02:04:44 AM »
I have an 11 year old car, 10 year old minivan, and a new motorcycle.  All paid for with cash.  That's dumb.  I am just one guy, I don't need three vehicles.

But I would feel even more dumb if I had paid for them on payments.

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Re: We're All Expected to Have Car Payments
« Reply #35 on: August 12, 2015, 01:48:33 PM »
This qualifies as a Found on Facebook as well, but today Cracked.com posted one of their satire commercials "If car salesmen were honest."  In the comments section someone countered that "Never buy a depreciating asset. Lease. Understand the terms, become well-versed in leases, and then hand it back to them; then the depreciating asset is their problem."  The commenter pretty much advocated perpetual leases because "depreciation."  So continue to pay nearly full price forever so you can somehow stick it to the man?
Because dealers don't factor depreciation into lease payments. *facepalm*

Chris22

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Re: We're All Expected to Have Car Payments
« Reply #36 on: August 12, 2015, 01:56:12 PM »
Don't leases usually require several K paid up front, in addition to the $400-500/month?  And then you have your operating costs as well. Car leases always seemed like overpriced renting to me. 

Most people suggest you roll that downpayment into the lease (for practical reasons, such as if you total the car in month 1 of the lease, you've lost your downpayment, but if it's rolled into the life of the  lease you can walk away assuming adequate insurance coverage). 

Leasing IS renting, but I don't really know how one can call it "overpriced."  You have an agreed upon depreciation amount (financed with a small interest rate or money factor) and then you have the call/put option at the end.  Basically, if depreciation is lower than expected, you have the call option to buy the car at the lower rate; if it's higher, you exercise the put and make them take it back at no loss to you. 

FTR, I've never leased a car because it doesn't fit my buy and hold pattern.

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Re: We're All Expected to Have Car Payments
« Reply #37 on: August 12, 2015, 02:44:37 PM »
Most people suggest you roll that downpayment into the lease (for practical reasons, such as if you total the car in month 1 of the lease, you've lost your downpayment, but if it's rolled into the life of the  lease you can walk away assuming adequate insurance coverage). 

Leasing IS renting, but I don't really know how one can call it "overpriced."  You have an agreed upon depreciation amount (financed with a small interest rate or money factor) and then you have the call/put option at the end.  Basically, if depreciation is lower than expected, you have the call option to buy the car at the lower rate; if it's higher, you exercise the put and make them take it back at no loss to you. 

FTR, I've never leased a car because it doesn't fit my buy and hold pattern.
Those options are the only thing that *can* make it a good deal for certain people, but I fall into the same category as you. As long as I can make the car run, I'm going to keep it. Leasing cars means paying for depreciation at the average rate of an 18-month-old car. I like to stay on the other end of that inverse exponential curve.

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Re: We're All Expected to Have Car Payments
« Reply #38 on: August 12, 2015, 03:02:21 PM »
I've found "I just don't care much about cars" to be a fairly well-received answer when my 2000  Toyota Echo comes up in conversation.  Much easier than getting into finances and depreciation and opportunity cost and all that.  People seem to accept that and move on.  Occasionally I get an "If you ever drove something nicer, you'd never go back" or similar, to which I respond casually and with a laugh, "all the more reason never to tempt myself", and the conversation moves on.  No one feels challenged or that my choices somehow make them need to defend theirs, and everyone is happy. 


Chris22

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Re: We're All Expected to Have Car Payments
« Reply #39 on: August 12, 2015, 03:25:09 PM »
Most people suggest you roll that downpayment into the lease (for practical reasons, such as if you total the car in month 1 of the lease, you've lost your downpayment, but if it's rolled into the life of the  lease you can walk away assuming adequate insurance coverage). 

Leasing IS renting, but I don't really know how one can call it "overpriced."  You have an agreed upon depreciation amount (financed with a small interest rate or money factor) and then you have the call/put option at the end.  Basically, if depreciation is lower than expected, you have the call option to buy the car at the lower rate; if it's higher, you exercise the put and make them take it back at no loss to you. 

FTR, I've never leased a car because it doesn't fit my buy and hold pattern.
Those options are the only thing that *can* make it a good deal for certain people, but I fall into the same category as you. As long as I can make the car run, I'm going to keep it. Leasing cars means paying for depreciation at the average rate of an 18-month-old car. I like to stay on the other end of that inverse exponential curve.

Yeah, it's just a matter of perspective.  I hate to read "leasing is stupid versus buying a $2000 used car and limping it along for 10 years."  Well, yeah, it is.  But that's like saying buying a house is stupid expensive versus living in a tent.  True, but you're giving something up.  Compare apples to apples.

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Re: We're All Expected to Have Car Payments
« Reply #40 on: August 12, 2015, 10:58:32 PM »
I had a car payment for for my current vehicle, but I had it because I spent the cash I had saved up for a new car on a new house instead, and I kept the old,house as a rental. Then, I drove a lot for work for the next two years (like 2,000 miles a month) and plowed the reimbursements back into the car loan.  So, I haven't had a car payment on that car in 9 years, and since it only has 256,000 miles on it, I have a couple more years to go before I need something new (used).

Having a car payment can sometimes be a pretty smart way to go.  But life feels better without one.

libertarian4321

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Re: We're All Expected to Have Car Payments
« Reply #41 on: August 13, 2015, 01:11:28 AM »
Car Payment?  What's a car payment?

Seriously, the only time I've ever had a car payment was when it was financially advantageous to do so.  For my current vehicle, I took a 3 year 0% loan because it would be insane not to (it was paid off 11 years ago, and I'm still driving it).  We took out a "loan" on my wife's Beemer, but only because they gave us a $2500 discount after we made out best deal (we paid it off in 30 days, paying about $8 in interest).  Of course, in both cases, we had more than enough money to pay cash at any time.

I never even had a "payment" on my first car.  I saved up until I could pay cash for a decent used car.

Best rule for car purchases:  If you can't afford to pay cash for it, you can't afford it. 

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Re: We're All Expected to Have Car Payments
« Reply #42 on: August 13, 2015, 01:06:16 PM »
Car Payment?  What's a car payment?

Seriously, the only time I've ever had a car payment was when it was financially advantageous to do so.  For my current vehicle, I took a 3 year 0% loan because it would be insane not to (it was paid off 11 years ago, and I'm still driving it).  We took out a "loan" on my wife's Beemer, but only because they gave us a $2500 discount after we made out best deal (we paid it off in 30 days, paying about $8 in interest).  Of course, in both cases, we had more than enough money to pay cash at any time.

I never even had a "payment" on my first car.  I saved up until I could pay cash for a decent used car.

Best rule for car purchases:  If you can't afford to pay cash for it, you can't afford it.
I suppose it all depends upon your capital allocation strategy, doesn't it? ;)

Chris22

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Re: We're All Expected to Have Car Payments
« Reply #43 on: August 13, 2015, 02:20:56 PM »
Car Payment?  What's a car payment?

...

Best rule for car purchases:  If you can't afford to pay cash for it, you can't afford it.

...But that doesn't mean you SHOULD pay cash for it, you just should be ABLE to.  Big difference.

zephyr911

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Re: We're All Expected to Have Car Payments
« Reply #44 on: August 14, 2015, 12:23:50 PM »
It's good Ramsayesque advice for your classic spendypants mess, but like most of that stuff it borders on oversimplification.

I financed my used Volt 100% when I had $125K NW (almost entirely in retirements) and zero cash. It's been saving me over $200/mo since then. I had a paid-off trade worth $12K. I sold it separately and invested the entire proceeds because beating 2.25% was too easy. Reduced operating costs alone will eventually pay for the entire purchase, which is why I'd do it exactly the same today. It's not necessarily a prescription for others, but an illustration of comparative value. I gained capabilities and reduced total costs over time, and used both to accelerate FIRE, so I can stand by that approach with confidence.

Closer to FIRE, like many, I will be thinking less about debt APR vs investment returns and more about amortizing all debt to reduce risk. For now, I know what makes the most sense for me.

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Re: We're All Expected to Have Car Payments
« Reply #45 on: August 15, 2015, 02:57:12 PM »
Overheard a guy talking about his friend the other day. The friend drives a 20 year old car and hasn't had a car payment in about 10 years. The guy finds both items absurd, and was saying stuff like "He's due for some car payments after all this time!" Now I think his friend sounds smarter than average to hold onto his car for so long, but this guy was acting as if his friend somehow has been "cheating" at life, and deserves some karmic gut punches in the form of car payments.

I had no idea that car payments were considered standard fare.

"Karmic gut punches" brilliant - I'm gonna use that

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Re: We're All Expected to Have Car Payments
« Reply #46 on: August 17, 2015, 08:04:48 PM »
Maybe I'm dense, but I still don't see why you would come out ahead by leasing a new vehicle.
The downsides, as I can see them:
- you have to pay several K up front (someone above advised "rolling it into the lease", but you're still paying it)
- you have a (relatively) high monthly payment
- you have no asset at the end of the lease to show for that money you've paid
- if you drive it more than their mileage limits, you're liable for potentially heavy penalties
- you're locked into a multi-year contractual obligation from which it's hard to extract yourself
- as you're left with nothing, you'll need to arrange to get yet another vehicle after the 3-4 year term

Am I missing something blatantly obvious here?  Why is leasing better?  I've always believed leasing was just for suckers ...
 




Syonyk

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Re: We're All Expected to Have Car Payments
« Reply #47 on: August 17, 2015, 09:47:58 PM »
You get to drive a new car for a few years then get another new car!!!

In exchange for monthly payments which everyone will always have, duh, you're never stuck with a 5 year old clunker or having to sell or trade in!

bsmith

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Re: We're All Expected to Have Car Payments
« Reply #48 on: August 17, 2015, 09:59:57 PM »
Quote
Quote from: Chris22 on August 11, 2015, 04:31:21 PM

    Quote from: Travis on August 11, 2015, 01:54:25 PM

        Quote from: Jack on August 11, 2015, 11:42:17 AM

            Quote from: Slee_stack on August 10, 2015, 10:48:59 AM

                I have car payments by choice. I couldn't bring myself to pay cash when I could get a 1.99% used auto loan and bank the funds in an index investment instead.  Paying cash just screams STUPID to me.  I do realize this is an exception in the car payment world, but it always bugs me when someone suggests paying 'cash' for a car. Noooooo!!!!

                Yeah, cash...easy, no auto payment setup, over and done with......and incredibly short sighted.  NEVER pay cash for a car unless your credit score is so bad that it will cost you 5% or more on that loan, you have a pending mortgage/investment purchase, or something similar.  Bank the loan-investment rate spread.  That installment loan will also actually help you maintain a stellar credit score too...

                Now the actual buying of a car to begin with is what's folly.  But not the financing aspect.


            Your argument fails to consider the fact that, in order to get financing (especially at a low interest rate), you have to buy a much newer and thus more expensive car.

            I recently bought a 25-year-old car with 80K miles on it for $3600. It'll almost certainly last me just as long as a financed 7-year-old car with the same mileage (i.e., a car driven the average yearly amount, 12K miles/year), but the same model 7-year-old car would have cost at least $8000 (probably more). Even after considering the opportunity cost of not investing that $3600, I still come out way ahead.


        Last week I paid cash for a 2008 Prius.  In order to finance a car that old I'd have to pay well into the 4% range and I my credit score is just shy of 800.

        This qualifies as a Found on Facebook as well, but today Cracked.com posted one of their satire commercials "If car salesmen were honest."  In the comments section someone countered that "Never buy a depreciating asset. Lease. Understand the terms, become well-versed in leases, and then hand it back to them; then the depreciating asset is their problem."  The commenter pretty much advocated perpetual leases because "depreciation."  So continue to pay nearly full price forever so you can somehow stick it to the man?


    Eh?  That's not what leasing is.  Leasing is essentially agreeing on the depreciation up front and locking it in and then incurring only what you use.  You say "I think this $20k car will be worth $15k in 2 years, I will give you $5k (+ small money factor/interest) over the next 24 months and then hand the car back to you."  It removes the risk of additional depreciation (ie, you have an accident and now the car is worth a bunch less because it has a bad CarFax, or the car is subject to a highly publicized recall and as a result has fallen out of favor in the market) and places that burden on the seller.  It also includes a call option, so if for some reason at month 24 the car you thought was going to be worth $15k is worth $18k (rare, but happens) you can buy it at $15k and flip it for profit or keep it.

    Leasing gets a bum rap because of what it's compared to.  There's no question that the buy and hold for a long time way of buying a car is superior in a financial sense.  But if you want to drive a new car every 2-3 years, leasing is generally favorable financially versus buying a car in cash and selling it every 2-3 years, or financing it and trading it in over the same period.  For plenty of high-income people, spending $400-500/mo in perpetuity is a small portion of their monthly take and it guarantees an up to date car at a fixed cost (car is under warranty, etc).  Not financially "smart" but not exactly disastrous either.


+1 Yes, if you're image conscious or just have to have up to date cars leasing is the way to go.  It's just that this strategy doesn't apply to most people on this board.

Thread hijack: So the spouse leases a car. I'm trying to move the prevailing attitude over to buy and hold for as long as it runs. Any advice for making the switchover?

bsmith

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Re: We're All Expected to Have Car Payments
« Reply #49 on: August 17, 2015, 10:00:51 PM »
Sidenote: This is the best thing I've read on the forum today:

Quote
Robert Cialdini calls this 'social proof'.   Everyone else is doing it so it must be the right thing to do.

People on this forum do something similar by encouraging everyone to spend mindfully and invest regularly.

Useful information will be used.