Author Topic: WSJ: The Seven-Year Auto Loan: Americaís Middle Class Canít Afford Its Cars  (Read 16791 times)

PDXTabs

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Bloop Bloop

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Whatever makes them happy I guess. Car loans are an industry where I think you get what you deserve.

lost_in_the_endless_aisle

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Yet another person in the uncanny valley of self-awareness:
https://www.npr.org/2019/10/31/773409100/the-7-year-car-loan-watch-your-wallet

moof

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Wrote a check for our last car, the first time I ever did that.  It was a weird/good feeling.  I was lucky to find what I wanted as a cast off company car from my work.  The whole dealer process is like being a fish in a barrel for the un-savvy (i.e. the vast majority).
7 year loans are just the latest tool to get trusting folks out the door with a fancier car and pocket an even bigger commission check.

SwordGuy

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The correct headline should have been, "America's Middle Class can't afford luxury cars but buys them anyway, then whines about how broke they are."

RFAAOATB

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The correct headline should have been, "America's Middle Class can't afford luxury cars but buys them anyway, then whines about how broke they are."

Was poor access to credit or lack of social media making luxury seem more accessible the stronger reason that kept the middle class decades ago from purchasing luxury cars in high numbers?

Iím guessing having a two income household become the norm made a lot of budget room for bigger houses and cars, especially with fewer kids per family making such purchases make even less sense.

bbqbonelesswing

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It's amazing how much people spend on their cars. I have little sympathy.

I've paid in cash for both cars I've owned. The last was an '06 Grand Marquis that I just sold last month. I paid around $6,000 for it, got $1,400 back when I sold, and had it for 6+ years. I expect its new owner will be able to run that car at least another 200k miles if they keep up with the maintenance.

Meanwhile, we have friends spending a few hundred per month for brand new Jeeps and other ridiculous things they don't need. Nobody seems to value a good beater these days ;)

Kazyan

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There would be a silver lining for us mustachians if the whole "making more money on the loans than the cars" thing translated into new cars being sold at a loss, except that buying a new car is obviously bad even in that case. This just kinda sucks all around. Car culture is being bad again.

I wonder what the used car market will be like in 7 years.

jeff191

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84 month loans aren't new, it's just that there is now a big increase in people using them. Back in 2006 I had a coworker who was formerly a BMW salesman. He had stories then about people who would trade in cars they were upside down in just to get a BMW and to do that, they'd have to take out 84 month loans in order to get the payment manageable. Even then, there was demand for longer terms than 84 months. My co-worker said that he could have sold more cars if they went longer than 84.

I see that 96 month loans are actually offered now...

Hunny156

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I was at a work meeting last week, where a co-worker was fawning about how awesome the self driving cars are, and how she hopes that the govt steps in and requires everyone to buy them, or maybe split the streets into self driving vs manual driving.  She then complains about how "old people" refuse to give up their old cars, and need to be forced to.

I didn't think it was the appropriate time to explain that a huge portion of the population can't qualify or afford a new car, so I simply remarked that I'm not old, and I own a 19 year old car and love it!  A few other co-workers mentioned their 10-13 year old cars and the mileage they currently have on them.  A lot of us were in the 185K range for mileage.

Co-worker later made a snide comment that I didn't quite catch about old-cars.  I smiled, knowing full well it was directed at me.  She knows I'm one of those weird FIRE people, and even though she's at least 5 years older than I, she's admitted that she's nowhere near ready.  We all make choices!

jinga nation

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i bought one of these returns... purchased full-price with addons. it was returned after 18 months due to owner not keeping up with payments. sticker was over 28k, got it for 20k OTD with 18 months remaining on factory warranty. there were 6 such RAV4s sitting in the dealer's used lot. cargurus listed each one, how long it was sitting on lot, used that to negotiate with "i'm doing you a favor, that vehicle is costing you lot fees, everyone wants to lease a new one. help me to help you."
« Last Edit: November 04, 2019, 10:18:20 AM by jinga nation »

Just Joe

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Generally buy something and drive it for ten years or more. Bought something nicer last time - three year loan. Feels about right. If I can't afford it with a three year loan then its probably too much car. Our's has been paid off for several years now. In about 10-15 more years I'll check back in and let you know how the next purchase goes... ;)

Feels we are living in a parallel universe when I read these anecdotes about people who choose to be in perpetual debt and choose to be forever stressed about all topics financial just to look cute or cool in their house/car/clothes/vacations.

mm1970

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i bought one of these returns... purchased full-price with addons. it was returned after 18 months due to owner not keeping up with payments. sticker was over 28k, got it for 20k OTD with 18 months remaining on factory warranty. there were 6 such RAV4s sitting in the dealer's used lot. cargurus listed each one, how long it was sitting on lot, used that to negotiate with "i'm doing you a favor, that vehicle is costing you lot fees, everyone wants to lease a new one. help me to help you."
This is very good info.  I heard recently (somewhere...at a neighbor's potluck maybe?) that you really cannot find ANY new car that you'd want for less than $30k.  They just don't exist.  I think it was a neighbor, whose few-year-old car got totaled when someone T-boned him.  Other driver's fault, still sucks when you were going to drive that car for 15 more years.  (He ended up with a VW, probably a year or two old, so less than $30k.)

I still think my 2006 Matrix is gonna last at least 3 more years.  It's at 145k miles, I figure 175k at least.  Originally I thought it would make it until 2024.  Not so sure anymore.  Husband is complaining that it's falling apart inside.  Well, yes, it's old.  I think his biggest complaint is that there's a hole in the carpet of the driver's side floor from wearout use...thing is, my feet are too short, so they don't rest on the floor when I drive.  That's ALL his foot making the hole.  It's my car anyway...when it seems to get a little bit less reliable then we'll start taking the 10 year old Civic on road trips instead.

In any event, I like this tip.  It's a good tip for when we need to replace.  At the potluck, I remember saying "I've never paid that much for a car."  Our most expensive car was the Civic, bought new, $18k.

Travis

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This is very good info.  I heard recently (somewhere...at a neighbor's potluck maybe?) that you really cannot find ANY new car that you'd want for less than $30k.

The Ford Focus up until a year or two ago had a price point less than $20k (2020 base model $21k).  We bought a new 2003 for $16k, and I recall seeing a 2015 model new at the time for $18k.  Ford has flirted with cancelling the line because they're not as profitable as their trucks.


Was poor access to credit or lack of social media making luxury seem more accessible the stronger reason that kept the middle class decades ago from purchasing luxury cars in high numbers?

Iím guessing having a two income household become the norm made a lot of budget room for bigger houses and cars, especially with fewer kids per family making such purchases make even less sense.

84 month loans aren't new, it's just that there is now a big increase in people using them. Back in 2006 I had a coworker who was formerly a BMW salesman. He had stories then about people who would trade in cars they were upside down in just to get a BMW and to do that, they'd have to take out 84 month loans in order to get the payment manageable. Even then, there was demand for longer terms than 84 months. My co-worker said that he could have sold more cars if they went longer than 84.

I see that 96 month loans are actually offered now...
Stretching the loan out means the same monthly payments for a more expensive car.  Car Sales Tactics 101, Lesson 1: focus on the monthly payment and ignore everything else.  I remember as a kid in the 80s seeing well known dealership owner on tv mention "folks want to replace their cars every two years." Even at that age I thought that was ludicrous, but now it has me wondering what the typical 1980s car loan looked like? Were loans that much shorter, or was everything a trade-in?
« Last Edit: November 04, 2019, 04:47:25 PM by Travis »

exterous

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i bought one of these returns... purchased full-price with addons. it was returned after 18 months due to owner not keeping up with payments. sticker was over 28k, got it for 20k OTD with 18 months remaining on factory warranty. there were 6 such RAV4s sitting in the dealer's used lot. cargurus listed each one, how long it was sitting on lot, used that to negotiate with "i'm doing you a favor, that vehicle is costing you lot fees, everyone wants to lease a new one. help me to help you."
This is very good info.  I heard recently (somewhere...at a neighbor's potluck maybe?) that you really cannot find ANY new car that you'd want for less than $30k.  They just don't exist.  I think it was a neighbor, whose few-year-old car got totaled when someone T-boned him.  Other driver's fault, still sucks when you were going to drive that car for 15 more years.  (He ended up with a VW, probably a year or two old, so less than $30k.)

I still think my 2006 Matrix is gonna last at least 3 more years.  It's at 145k miles, I figure 175k at least.  Originally I thought it would make it until 2024.  Not so sure anymore.  Husband is complaining that it's falling apart inside.  Well, yes, it's old.  I think his biggest complaint is that there's a hole in the carpet of the driver's side floor from wearout use...thing is, my feet are too short, so they don't rest on the floor when I drive.  That's ALL his foot making the hole.  It's my car anyway...when it seems to get a little bit less reliable then we'll start taking the 10 year old Civic on road trips instead.

In any event, I like this tip.  It's a good tip for when we need to replace.  At the potluck, I remember saying "I've never paid that much for a car."  Our most expensive car was the Civic, bought new, $18k.

Heh. I forget where I was but several people were discussing car purchases and how $30k was basically entry level. My first reaction was "Wait... wtf? I've never paid more than $18k!"

LiveLean

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It's amazing how hard it is to pay cash for a car at a dealer.

Dealer: "Let me take you back to the financing department."

Me: "No, I'm paying cash. I have a check for the exact amount right here."

Dealer: "Yeah, but you might find financing more attractive."

Me: "No. There is no scenario where that would be possible."

Dealer: "You sure. That will only take a minute."

Me (setting timer on phone): "You have 9 minutes to complete this transaction that we negotiated online. If not, I'm going to (name of dealer up the road) who will meet my terms."

Why is this so difficult?

Travis

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Why is this so difficult?

They're don't really make much money if they only sell you a car.  They need to sell you a loan. And if they think they can get away with it, a service warranty.
« Last Edit: November 07, 2019, 07:08:18 AM by Travis »

DadJokes

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i bought one of these returns... purchased full-price with addons. it was returned after 18 months due to owner not keeping up with payments. sticker was over 28k, got it for 20k OTD with 18 months remaining on factory warranty. there were 6 such RAV4s sitting in the dealer's used lot. cargurus listed each one, how long it was sitting on lot, used that to negotiate with "i'm doing you a favor, that vehicle is costing you lot fees, everyone wants to lease a new one. help me to help you."
This is very good info.  I heard recently (somewhere...at a neighbor's potluck maybe?) that you really cannot find ANY new car that you'd want for less than $30k.  They just don't exist.  I think it was a neighbor, whose few-year-old car got totaled when someone T-boned him.  Other driver's fault, still sucks when you were going to drive that car for 15 more years.  (He ended up with a VW, probably a year or two old, so less than $30k.)

I still think my 2006 Matrix is gonna last at least 3 more years.  It's at 145k miles, I figure 175k at least.  Originally I thought it would make it until 2024.  Not so sure anymore.  Husband is complaining that it's falling apart inside.  Well, yes, it's old.  I think his biggest complaint is that there's a hole in the carpet of the driver's side floor from wearout use...thing is, my feet are too short, so they don't rest on the floor when I drive.  That's ALL his foot making the hole.  It's my car anyway...when it seems to get a little bit less reliable then we'll start taking the 10 year old Civic on road trips instead.

In any event, I like this tip.  It's a good tip for when we need to replace.  At the potluck, I remember saying "I've never paid that much for a car."  Our most expensive car was the Civic, bought new, $18k.

Heh. I forget where I was but several people were discussing car purchases and how $30k was basically entry level. My first reaction was "Wait... wtf? I've never paid more than $18k!"

I'm still pretty embarrassed that I bought a used Ford Fusion from a dealer for $17k five years ago. I don't see any reason to spend more than $10k on a vehicle now. I can just go to Facebook/Craigslist and find great deals on used cars.

jinga nation

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It's amazing how hard it is to pay cash for a car at a dealer.

Dealer: "Let me take you back to the financing department."

Me: "No, I'm paying cash. I have a check for the exact amount right here."

Dealer: "Yeah, but you might find financing more attractive."

Me: "No. There is no scenario where that would be possible."

Dealer: "You sure. That will only take a minute."

Me (setting timer on phone): "You have 9 minutes to complete this transaction that we negotiated online. If not, I'm going to (name of dealer up the road) who will meet my terms."

Why is this so difficult?

you're doing it wrong. you don't negotiate payment with the sales person. instead just agree verbally to the final price... and tell them you'll pick the finance options presented in the finance office.
once you're in the finance office, look at the finance options, simply decline and pay cash. they may or may not be surprised, but they'll accept a check. I did this on a Sunday afternoon this past August.

TL;DR: talk final sale numbers with salesperson. talk financing vs cash with the finance person.

PDXTabs

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This is very good info.  I heard recently (somewhere...at a neighbor's potluck maybe?) that you really cannot find ANY new car that you'd want for less than $30k.

The Ford Focus up until a year or two ago had a price point less than $20k (2020 base model $21k).  We bought a new 2003 for $16k, and I recall seeing a 2015 model new at the time for $18k.  Ford has flirted with cancelling the line because they're not as profitable as their trucks.

Yes, I paid $18K for my 2014 Focus SE with a manual transmission. They gave me a 0% 60 month loan. The only car left that I know of like that is the Kia Soul, right now you can pick one up in my neighborhood for $18k with 60 months of 0% financing, and a manual transmission.

EDITed to add - but there are TONS of options for less than $30K, like the VW Alltrack or SportWagen.
« Last Edit: November 05, 2019, 08:38:55 AM by PDXTabs »

ender

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you're doing it wrong. you don't negotiate payment with the sales person. instead just agree verbally to the final price... and tell them you'll pick the finance options presented in the finance office.
once you're in the finance office, look at the finance options, simply decline and pay cash. they may or may not be surprised, but they'll accept a check. I did this on a Sunday afternoon this past August.

TL;DR: talk final sale numbers with salesperson. talk financing vs cash with the finance person.

This.

Also on the topic of nice new cars, I paid $16.5k for a brand new Escape a few years ago. Not all new cars are overpriced, lol.


Just Joe

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i bought one of these returns... purchased full-price with addons. it was returned after 18 months due to owner not keeping up with payments. sticker was over 28k, got it for 20k OTD with 18 months remaining on factory warranty. there were 6 such RAV4s sitting in the dealer's used lot. cargurus listed each one, how long it was sitting on lot, used that to negotiate with "i'm doing you a favor, that vehicle is costing you lot fees, everyone wants to lease a new one. help me to help you."
This is very good info.  I heard recently (somewhere...at a neighbor's potluck maybe?) that you really cannot find ANY new car that you'd want for less than $30k.  They just don't exist.  I think it was a neighbor, whose few-year-old car got totaled when someone T-boned him.  Other driver's fault, still sucks when you were going to drive that car for 15 more years.  (He ended up with a VW, probably a year or two old, so less than $30k.)

I still think my 2006 Matrix is gonna last at least 3 more years.  It's at 145k miles, I figure 175k at least.  Originally I thought it would make it until 2024.  Not so sure anymore.  Husband is complaining that it's falling apart inside.  Well, yes, it's old.  I think his biggest complaint is that there's a hole in the carpet of the driver's side floor from wearout use...thing is, my feet are too short, so they don't rest on the floor when I drive.  That's ALL his foot making the hole.  It's my car anyway...when it seems to get a little bit less reliable then we'll start taking the 10 year old Civic on road trips instead.

In any event, I like this tip.  It's a good tip for when we need to replace.  At the potluck, I remember saying "I've never paid that much for a car."  Our most expensive car was the Civic, bought new, $18k.

You can buy new carpet... Or "floor liners" which are huge fitted floor mats that cover most of the floor in front of a seat. I recommend people pay to have their old car detailed and replace a few appearance things when they get the "new car itch". $200 detail job is much cheaper than years of payments. The majority of my cars have been fixer-uppers that were nice, cheap cars after a little TLC.

https://www.accmats.com/

I'm in the same boat with our 20 year old daily driver. Carpet around the driver's feet is wearing out. Will probably replace the entire carpet, clean the upholstery, detail the interior, soon. Expect to drive it another 5 years or so.
« Last Edit: November 05, 2019, 09:02:10 AM by Just Joe »

mm1970

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i bought one of these returns... purchased full-price with addons. it was returned after 18 months due to owner not keeping up with payments. sticker was over 28k, got it for 20k OTD with 18 months remaining on factory warranty. there were 6 such RAV4s sitting in the dealer's used lot. cargurus listed each one, how long it was sitting on lot, used that to negotiate with "i'm doing you a favor, that vehicle is costing you lot fees, everyone wants to lease a new one. help me to help you."
This is very good info.  I heard recently (somewhere...at a neighbor's potluck maybe?) that you really cannot find ANY new car that you'd want for less than $30k.  They just don't exist.  I think it was a neighbor, whose few-year-old car got totaled when someone T-boned him.  Other driver's fault, still sucks when you were going to drive that car for 15 more years.  (He ended up with a VW, probably a year or two old, so less than $30k.)

I still think my 2006 Matrix is gonna last at least 3 more years.  It's at 145k miles, I figure 175k at least.  Originally I thought it would make it until 2024.  Not so sure anymore.  Husband is complaining that it's falling apart inside.  Well, yes, it's old.  I think his biggest complaint is that there's a hole in the carpet of the driver's side floor from wearout use...thing is, my feet are too short, so they don't rest on the floor when I drive.  That's ALL his foot making the hole.  It's my car anyway...when it seems to get a little bit less reliable then we'll start taking the 10 year old Civic on road trips instead.

In any event, I like this tip.  It's a good tip for when we need to replace.  At the potluck, I remember saying "I've never paid that much for a car."  Our most expensive car was the Civic, bought new, $18k.

Heh. I forget where I was but several people were discussing car purchases and how $30k was basically entry level. My first reaction was "Wait... wtf? I've never paid more than $18k!"
I was reading one of the linked articles here to my officemate, about the 7 year loans, and he said - no joke "well, there really AREN'T any cars that you would want for less than $30k".  AH HA HA.  I read the rest of the article to him, including the fact that MOST of the reason the average new car price is $37,800 is because people are buying more expensive cars (SUVs, trucks, crossovers, with more bells and whistles) and NOT because the cost of a given car has gone up.  He drives a big truck.

In any event, I was shocked that 33% of trade ins end up tacking on another $5000 on their loans because they are underwater.

mm1970

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You can buy new carpet... Or "floor liners" which are huge fitted floor mats that cover most of the floor in front of a seat. I recommend people pay to have their old car detailed and replace a few appearance things when they get the "new car itch". $200 detail job is much cheaper than years of payments. The majority of my cars have been fixer-uppers that were nice, cheap cars after a little TLC.

https://www.accmats.com/

I'm in the same boat with our 20 year old daily driver. Carpet around the driver's feet is wearing out. Will probably replace the entire carpet, clean the upholstery, detail the interior, soon. Expect to drive it another 5 years or so.
I should just bite the bullet and get detailing done.  Even the Civic is 10 years old, dirty and gross.  I don't know WHAT my boys do in that back seat, yuck.

kite

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When I read that statistic that 30% of car buyers are making a ridiculous personal financial decision, I'm less worried their own fiscal soundness than I am about the fact that many of them take that recklessness into the voting booth.  There is a more prudent option than the one they are choosing.  These people should not be trusted. 

Just Joe

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You can buy new carpet... Or "floor liners" which are huge fitted floor mats that cover most of the floor in front of a seat. I recommend people pay to have their old car detailed and replace a few appearance things when they get the "new car itch". $200 detail job is much cheaper than years of payments. The majority of my cars have been fixer-uppers that were nice, cheap cars after a little TLC.

https://www.accmats.com/

I'm in the same boat with our 20 year old daily driver. Carpet around the driver's feet is wearing out. Will probably replace the entire carpet, clean the upholstery, detail the interior, soon. Expect to drive it another 5 years or so.
I should just bite the bullet and get detailing done.  Even the Civic is 10 years old, dirty and gross.  I don't know WHAT my boys do in that back seat, yuck.

One of my kids and I sometimes watch YT videos where very dirty cars are cleaned for that before and after reveal similar to home renovation shows.

This guy is pretty good: www.youtube.com/user/AMMONYCdotcom

Has nothing to do with guns. ;)

jinga nation

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You can buy new carpet... Or "floor liners" which are huge fitted floor mats that cover most of the floor in front of a seat. I recommend people pay to have their old car detailed and replace a few appearance things when they get the "new car itch". $200 detail job is much cheaper than years of payments. The majority of my cars have been fixer-uppers that were nice, cheap cars after a little TLC.

https://www.accmats.com/

I'm in the same boat with our 20 year old daily driver. Carpet around the driver's feet is wearing out. Will probably replace the entire carpet, clean the upholstery, detail the interior, soon. Expect to drive it another 5 years or so.
I should just bite the bullet and get detailing done.  Even the Civic is 10 years old, dirty and gross.  I don't know WHAT my boys do in that back seat, yuck.

One of my kids and I sometimes watch YT videos where very dirty cars are cleaned for that before and after reveal similar to home renovation shows.

This guy is pretty good: www.youtube.com/user/AMMONYCdotcom

Has nothing to do with guns. ;)
Yeah, AMMONYC is awesome. There's a few others too, some chaps in UK and Australia as well. Night and day diff in these cars after a little elbow grease. I love watching ChrisFix, Car Throttle, and Engineering Explained as well.

marty998

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I still think my 2006 Matrix is gonna last at least 3 more years.  It's at 145k miles, I figure 175k at least.  Originally I thought it would make it until 2024.  Not so sure anymore.  Husband is complaining that it's falling apart inside.  Well, yes, it's old.  I think his biggest complaint is that there's a hole in the carpet of the driver's side floor from wearout use...thing is, my feet are too short, so they don't rest on the floor when I drive.  That's ALL his foot making the hole.  It's my car anyway...when it seems to get a little bit less reliable then we'll start taking the 10 year old Civic on road trips instead.

In any event, I like this tip.  It's a good tip for when we need to replace.  At the potluck, I remember saying "I've never paid that much for a car."  Our most expensive car was the Civic, bought new, $18k.

You can buy new carpet... Or "floor liners" which are huge fitted floor mats that cover most of the floor in front of a seat. I recommend people pay to have their old car detailed and replace a few appearance things when they get the "new car itch". $200 detail job is much cheaper than years of payments. The majority of my cars have been fixer-uppers that were nice, cheap cars after a little TLC.

https://www.accmats.com/

I'm in the same boat with our 20 year old daily driver. Carpet around the driver's feet is wearing out. Will probably replace the entire carpet, clean the upholstery, detail the interior, soon. Expect to drive it another 5 years or so.
[/quote]

Yeah I was just about to say.... floor mats are a much better choice than replacing the entire car lol.


Yes, I paid $18K for my 2014 Focus SE with a manual transmission. They gave me a 0% 60 month loan. The only car left that I know of like that is the Kia Soul, right now you can pick one up in my neighborhood for $18k with 60 months of 0% financing, and a manual transmission.

EDITed to add - but there are TONS of options for less than $30K, like the VW Alltrack or SportWagen.

How does a dealer make money on a 0% loan? They have to finance it.... do they borrow from a bank at -2% in order to lend it to you at 0%? Terrible use of working capital, unless their finance department has made the calculation that its better to lose money on finance instead of losing more in inventory holding costs.

Perhaps they tack on high fees and charges? Or the loan amount advanced to you exceeds the sticker price of the car?

Goldielocks

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The correct headline should have been, "America's Middle Class can't afford luxury cars but buys them anyway, then whines about how broke they are."

I sense a theme here..

America's Middle Class can't afford luxury cars out of state post secondary education but buys it anyway, then whines about how broke they are."

exterous

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Quote
I still think my 2006 Matrix is gonna last at least 3 more years.  It's at 145k miles, I figure 175k at least.  Originally I thought it would make it until 2024.  Not so sure anymore.  Husband is complaining that it's falling apart inside.  Well, yes, it's old.  I think his biggest complaint is that there's a hole in the carpet of the driver's side floor from wearout use...thing is, my feet are too short, so they don't rest on the floor when I drive.  That's ALL his foot making the hole.  It's my car anyway...when it seems to get a little bit less reliable then we'll start taking the 10 year old Civic on road trips instead.

In any event, I like this tip.  It's a good tip for when we need to replace.  At the potluck, I remember saying "I've never paid that much for a car."  Our most expensive car was the Civic, bought new, $18k.

You can buy new carpet... Or "floor liners" which are huge fitted floor mats that cover most of the floor in front of a seat. I recommend people pay to have their old car detailed and replace a few appearance things when they get the "new car itch". $200 detail job is much cheaper than years of payments. The majority of my cars have been fixer-uppers that were nice, cheap cars after a little TLC.

https://www.accmats.com/

I'm in the same boat with our 20 year old daily driver. Carpet around the driver's feet is wearing out. Will probably replace the entire carpet, clean the upholstery, detail the interior, soon. Expect to drive it another 5 years or so.

Yeah I was just about to say.... floor mats are a much better choice than replacing the entire car lol.


Yes, I paid $18K for my 2014 Focus SE with a manual transmission. They gave me a 0% 60 month loan. The only car left that I know of like that is the Kia Soul, right now you can pick one up in my neighborhood for $18k with 60 months of 0% financing, and a manual transmission.

EDITed to add - but there are TONS of options for less than $30K, like the VW Alltrack or SportWagen.

How does a dealer make money on a 0% loan? They have to finance it.... do they borrow from a bank at -2% in order to lend it to you at 0%? Terrible use of working capital, unless their finance department has made the calculation that its better to lose money on finance instead of losing more in inventory holding costs.

Perhaps they tack on high fees and charges? Or the loan amount advanced to you exceeds the sticker price of the car?

I think the dealer gets a lump sum payment from the financial institution making the loan per loan finalized. I'm assuming the lump sum is an average payout the financial institution thinks it can afford and still make money in aggregate of all the loans made. So the 0% loan might be a money loser for them but is offset but higher APR loans on more desirable vehicles and/or fees over the life of all their outstanding loans
« Last Edit: November 06, 2019, 05:06:52 PM by exterous »

gooki

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The loans are never money losers for the dealer even at 0%.

The dealer get their cut of the sale price, and the manufacturers financing arm offsets the 0% rate by having a higher profit margin on the vehicle, and loan fees.

PDXTabs

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and the manufacturers financing arm offsets the 0% rate by having a higher profit margin on the vehicle

Yes, but when we are talking about the big three you need to remember that there were many quarters where they lost money. "[H]igher profit margin" in this sense just means "less negative." Not to mention pressure to his quarterly sales number and revenue targets for wall street.

EDITed to add - also CAFE. They need to sell those Ford Focuses and Fiestas so that they can sell more SUVs.
« Last Edit: November 07, 2019, 07:08:07 PM by PDXTabs »

GreenToTheCore

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The correct headline should have been, "America's Middle Class can't afford luxury cars but buys them anyway, then whines about how broke they are."

I sense a theme here..

America's Middle Class can't afford luxury cars out of state post secondary education but buys it anyway, then whines about how broke they are."

Ooo, I'm game.
"America's Middle Class can't afford luxury cars the newest pocket computer to replace last year's model (even though it functions perfectly fine) and with a high data plan but buys it anyway, then whines about how broke they are. Especially when the screen cracks within a month of purchase."

TempusFugit

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And when they offer 12 year loans, people will happily sign up for those too because this is what people do.

When the statistics show that people who buy “average” houses and “average” cars can barely afford the basics, its because people will always spend as much as they can to buy the biggest , nicest house and the nicest car they can possibly buy. By definition this leaves them stretched and barely able to support themselves.  This is what makes the “average” house and the “average” car so expensive. 

Its how the human brain works with the inputs that we have in our society. The quest for status, the desire for feeling like part of the group, the reaching for something to make us happy, all leads to the consumerist mindset when we are bombarded with advertising and cultural norms that expect us to spend what we make (and then whatever we can borrow, because if someone will lend it, we must be able to afford it).  We rationalize by comparing to other people, which is so much worse now due to the “highlight reel” presentations that we get from social media that make everyones lives look so great. 

Now, we make fun of cars all the time, but how much does the “average” wedding cost now in the US? And the diamond that guys are told should cost, what, 3 months (!) salary?  Logically this is so much worse than even buying an expensive car!  This at the exact time in most peoples lives where saving money should be a priority and would have the most potential compounding power.   


AO1FireTo

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Yeah I can't believe people spend so much on a deprecating asset that just sits parked for most of the time.  I am driving a 13 year old car and it's by far the oldest in the parking lot at work.  I wish that all cars on lease/financed had to have a different color plate until you actually owned it.  Might take a little bit of the prestige away.  Sure you are driving a TESLA/Mercedes/Land Rover etc., but you're just renting it correct?  So you really can't afford it then eh...


SwordGuy

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The correct headline should have been, "America's Middle Class can't afford luxury cars but buys them anyway, then whines about how broke they are."

I sense a theme here..

America's Middle Class can't afford luxury cars out of state post secondary education but buys it anyway, then whines about how broke they are."

@Goldielocks  has a talent for finding what's "just right". :)

SwordGuy

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Yeah I can't believe people spend so much on a deprecating asset that just sits parked for most of the time.  I am driving a 13 year old car and it's by far the oldest in the parking lot at work.  I wish that all cars on lease/financed had to have a different color plate until you actually owned it.  Might take a little bit of the prestige away.  Sure you are driving a TESLA/Mercedes/Land Rover etc., but you're just renting it correct?  So you really can't afford it then eh...

Reminds me of the comic's spiel, "Here's your sign!"   Damn, but I like this.  It would totally change the social dynamics on purchased status.   Wow.  Have to think this one thru.

PDXTabs

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When the statistics show that people who buy ďaverageĒ houses and ďaverageĒ cars can barely afford the basics, its because people will always spend as much as they can to buy the biggest , nicest house and the nicest car they can possibly buy. By definition this leaves them stretched and barely able to support themselves.  This is what makes the ďaverageĒ house and the ďaverageĒ car so expensive. 

But one of those is a depreciating asset, and one of those is an asset that almost always usually* goes up in value and has tax deductible interest payments. Those are very different.

* - housing prices go up adjusted for inflation on average, but there are times and places where you can't sell
« Last Edit: November 07, 2019, 11:31:08 PM by PDXTabs »

TempusFugit

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When the statistics show that people who buy ďaverageĒ houses and ďaverageĒ cars can barely afford the basics, its because people will always spend as much as they can to buy the biggest , nicest house and the nicest car they can possibly buy. By definition this leaves them stretched and barely able to support themselves.  This is what makes the ďaverageĒ house and the ďaverageĒ car so expensive. 

But one of those is a depreciating asset, and one of those is an asset that almost always usually* goes up in value and has tax deductible interest payments. Those are very different.

* - housing prices go up adjusted for inflation on average, but there are times and places where you can't sell

I agree, I'm just pointing out a the stupidity of buying something you can only just barely afford and then complaining about being too stretched financially. 

mm1970

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Yeah I can't believe people spend so much on a deprecating asset that just sits parked for most of the time.  I am driving a 13 year old car and it's by far the oldest in the parking lot at work.  I wish that all cars on lease/financed had to have a different color plate until you actually owned it.  Might take a little bit of the prestige away.  Sure you are driving a TESLA/Mercedes/Land Rover etc., but you're just renting it correct?  So you really can't afford it then eh...
Years ago, people would make fun of my old cars, and the fact that I brought lunch every day.  Then one day, as a few of them were eating their bought burritos and sandwiches, and I was eating my homemade lunch, they teased me again.  I said "well, you know, I did the math.  If I pack lunch for me, husband, and kiddo every day, it saves me about $16,500 every five years, over buying lunch.  That's a new car, every five years.  And you see that brand new Civic out there?  Bought it, with cash, when our last car got T-boned."

Funny now, 10 years later...nearly everyone brings lunch most of the time.  The exception: one young guy (whose car is older than my 13 yo car, his is 20 yrs old).  One old guy, who is nearing retirement but also drives an old car and eats a $5 lunch every day, so he's not spending big bucks out.

In fact, due to just people coming and going, no longer do I have the second oldest car.  I think there are 3-4 cars older than mine.  We do have a few Teslas though too.

SheWhoWalksAtLunch

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The correct headline should have been, "America's Middle Class can't afford luxury cars but buys them anyway, then whines about how broke they are."

I sense a theme here..

America's Middle Class can't afford luxury cars out of state post secondary education but buys it anyway, then whines about how broke they are."

Ooo, I'm game.
"America's Middle Class can't afford luxury cars the newest pocket computer to replace last year's model (even though it functions perfectly fine) and with a high data plan but buys it anyway, then whines about how broke they are. Especially when the screen cracks within a month of purchase."

I'll play.

America's Middle Class can't afford luxury cars out of state post secondary education McMansions in the suburbs but buys one anyway, then whines about how broke they are."

SwordGuy

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The correct headline should have been, "America's Middle Class can't afford luxury cars but buys them anyway, then whines about how broke they are."

I sense a theme here..

America's Middle Class can't afford luxury cars out of state post secondary education but buys it anyway, then whines about how broke they are."

Ooo, I'm game.
"America's Middle Class can't afford luxury cars the newest pocket computer to replace last year's model (even though it functions perfectly fine) and with a high data plan but buys it anyway, then whines about how broke they are. Especially when the screen cracks within a month of purchase."

I'll play.

America's Middle Class can't afford luxury cars out of state post secondary education McMansions in the suburbs but buys one anyway, then whines about how broke they are."

America's Middle Class can't afford luxury cars out of state post secondary education McMansions in the suburbs luxury vacation trips but buys one anyway, then whines about how broke they are."

six-car-habit

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 Reading about all those dummies with 7 year car loans, -  I am feeling pretty smug about having a 6 yr loan on my latest automobile....
  { looks down toward feet in shame}

mies

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The correct headline should have been, "America's Middle Class can't afford luxury cars but buys them anyway, then whines about how broke they are."

I sense a theme here..

America's Middle Class can't afford luxury cars out of state post secondary education but buys it anyway, then whines about how broke they are."

Ooo, I'm game.
"America's Middle Class can't afford luxury cars the newest pocket computer to replace last year's model (even though it functions perfectly fine) and with a high data plan but buys it anyway, then whines about how broke they are. Especially when the screen cracks within a month of purchase."

I'll play.

America's Middle Class can't afford luxury cars out of state post secondary education McMansions in the suburbs but buys one anyway, then whines about how broke they are."

America's Middle Class can't afford luxury cars out of state post secondary education McMansions in the suburbs luxury vacation trips but buys one anyway, then whines about how broke they are."

"America's Middle Class can't afford luxury cars out of state post secondary education McMansions in the suburbs luxury vacation trips but buys one to eat at a restaurant for lunch everyday but does it anyway, then whines about how broke they are."

PDXTabs

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GreenToTheCore

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Yeah I can't believe people spend so much on a deprecating asset that just sits parked for most of the time.  I am driving a 13 year old car and it's by far the oldest in the parking lot at work.  I wish that all cars on lease/financed had to have a different color plate until you actually owned it.  Might take a little bit of the prestige away.  Sure you are driving a TESLA/Mercedes/Land Rover etc., but you're just renting it correct?  So you really can't afford it then eh...

Reminds me of the comic's spiel, "Here's your sign!"   Damn, but I like this.  It would totally change the social dynamics on purchased status.   Wow.  Have to think this one thru.
I had the same reaction. It's brilliant. I wonder if we could spin in to the DMV with the angle that they could make money: pay a $5 fee to get your "owned" license plate...

Travis

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The correct headline should have been, "America's Middle Class can't afford luxury cars but buys them anyway, then whines about how broke they are."

I sense a theme here..

America's Middle Class can't afford luxury cars out of state post secondary education but buys it anyway, then whines about how broke they are."

Ooo, I'm game.
"America's Middle Class can't afford luxury cars the newest pocket computer to replace last year's model (even though it functions perfectly fine) and with a high data plan but buys it anyway, then whines about how broke they are. Especially when the screen cracks within a month of purchase."

I'll play.

America's Middle Class can't afford luxury cars out of state post secondary education McMansions in the suburbs but buys one anyway, then whines about how broke they are."

America's Middle Class can't afford luxury cars out of state post secondary education McMansions in the suburbs luxury vacation trips but buys one anyway, then whines about how broke they are."

"America's Middle Class can't afford luxury cars out of state post secondary education McMansions in the suburbs luxury vacation trips but buys one to eat at a restaurant for lunch everyday but does it anyway, then whines about how broke they are."

"America's Middle Class can't afford luxury cars out of state post secondary education McMansions in the suburbs luxury vacation trips but buys one to eat at a restaurant for lunch everyday but does it anyway features they claim are necessities in their cars, homes, and appliances that didn't exist five years ago, then whines about how broke they are."

js82

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And another from the WSJ. A $45,000 Loan for a $27,000 Ride: More Borrowers Are Going Underwater on Car Loans

That article just made me sad.  Several of the people in the article(particularly the guy who purchased 4 cars in 2 years, and the 2 young women from Hawaii with the pricey pickup) clearly haven't been taught the basics of personal financial discipline.  Makes me wish public high schools required learning about personal finance somewhere in their curricula.

Bloop Bloop

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I was never taught personal finance, but (1) such books are widely available at libraries, (2) it's common sense not to spend more than you earn, (3) even loan contracts spell out the interest rate in big type. At some stage it is no longer a matter of education, but of stupidity and bad judgment.

PDXTabs

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I was never taught personal finance, but (1) such books are widely available at libraries, (2) it's common sense not to spend more than you earn, (3) even loan contracts spell out the interest rate in big type. At some stage it is no longer a matter of education, but of stupidity and bad judgment.

But at what point did you learn the mathematics behind interest? Because I learned as a freshman in college.