Who Pays $700 (SEVEN HUNDRED) per month on a car??

[Xer0]

I didn't say you're wasting it, and in a number of ways you and Dave are correct. For a lot of people this would be the sensible way to go. But for the more fiscally mature people, assuming the interest rate on the car was low, investing that $5000 elsewhere would be better than applying it to a 5 year car loan. Houses are a different animal. You want the highest down payment possible. Why? Because your money down is applied to an appreciating asset, and you can pay it off much faster, unlike a car loan where you are commited to paying the full 5 years on a depreciating asset.

I disagree with this.  To me, the fiscally mature people are the ones to put that 5000 down if they have it on the car.  Keep in mind, by investing that 5000 instead of using it as a downpayment you have ended up spending 10000 in a way.  An investment isnt a gaurantee that you will make that money back, however, that loan for the car is a contract that you have to pay that money.  I cant for the life of me think that someone that is financially mature would take a loan out on a car so that he can invest the downpayment instead, it just doesnt make sense.  Beyond that, for your house example, you put a large down payment on a house for the same reason that you put a large down payment on anything you buy really, so that it costs you less in the long run.  As we have seen, houses arent gauranteed to appreciate and its that mentality that partly led us into this financial mess. 

Dazzle and Lebowski - I agree

[Vinsanity]

If you qualify for one of those 0% financing deals, then you might as well pocket as much cash as you can, granted you can still comfortably make the monthly payment

[Payman]

If you qualify for one of those 0% financing deals, then you might as well pocket as much cash as you can, granted you can still comfortably make the monthly payment

Thank you. Maybe I'm not explaining my reasoning very good.

[dazzleman]

Thank you. Maybe I'm not explaining my reasoning very good.

I understand what you mean.  I don't disagree with you necessarily, but I think you have to account for the risk of the unknown in investing the money, vs. the certainty of the cost of the car.  So the expected rate of return on the investment made in lieu of the down payment would have to be some amount higher than the interest rate on the car loan.

[MX793]

I understand what you mean.  I don't disagree with you necessarily, but I think you have to account for the risk of the unknown in investing the money, vs. the certainty of the cost of the car.  So the expected rate of return on the investment made in lieu of the down payment would have to be some amount higher than the interest rate on the car loan.

If the car loan is 0%, you can invest the money in something with a guaranteed return (like a CD) and not have to worry about risk of losing the money.  Granted, you're not going to get a lot of return on a sure-fire investment of that nature, but it's better than nothing.

[dazzleman]

If the car loan is 0%, you can invest the money in something with a guaranteed return (like a CD) and not have to worry about risk of losing the money.  Granted, you're not going to get a lot of return on a sure-fire investment of that nature, but it's better than nothing.

Yes, that's true.  The fact that the financing is at 0% would certainly figure into the decision of how much to put down.  But keep in mind, the 0% loans are usually very short term (like 2 years), so they end up being used by people who don't really need financing, but want to get the benefit of 0% financing for the reason you stated, and that benefit helps clinch their decision to buy.  The person who really needs financing probably wouldn't be able to afford the payment on such a short term.

[MX793]

Yes, that's true.  The fact that the financing is at 0% would certainly figure into the decision of how much to put down.  But keep in mind, the 0% loans are usually very short term (like 2 years), so they end up being used by people who don't really need financing, but want to get the benefit of 0% financing for the reason you stated, and that benefit helps clinch their decision to buy.  The person who really needs financing probably wouldn't be able to afford the payment on such a short term.

True, and the 0% scenario is the only in which I would consider, or recommend to someone, holding back on money down in favor of investing that money elsewhere.

[Payman]

I guess as a general rule, making the largest down payment you can is a good thing. But for most people, saving $5000 cash is a big deal, and to me, using it to make your car payments lower isn't the best use of this money. Keeping it in the bank and/or investing it is the better option. Or buying new mouldings and paint for your house to increase its appearance and value. I increased the value of my old house by $20,000 by installing $7000 worth of kitchen cupboards. If I made a $7000 down payment on my '98 Chev Venture instead back then, I don't see how I would have come out better.

[Payman]

True, and the 0% scenario is the only in which I would consider or recommend that someone hold back on money down in favor of investing that money elsewhere.

Like I said, if the interest rate was 8 or 10%, it's a non-issue, and you would be stupid NOT to make the biggest downpayment you could afford.

[dazzleman]

I guess as a general rule, making the largest down payment you can is a good thing. But for most people, saving $5000 cash is a big deal, and to me, using it to make your car payments lower isn't the best use of this money. Keeping it in the bank and/or investing it is the better option. Or buying new mouldings and paint for your house to increase its appearance and value. I increased the value of my old house by $20,000 by installing $7000 worth of kitchen cupboards. If I made a $7000 down payment on my '98 Chev Venture instead back then, I don't see how I would have come out better.

Maybe it's just your terminology, but you're really not 'saving' it, just paying over time versus up-front.

I understand your point, though.  There is benefit to keeping some money liquid, or allocating it differently on a short-term basis.  I think there's merit to your thinking, and it really depends on your overall financial picture.

I don't finance my cars anymore, but I still have a mortgage on my house.  I have enough money to pay it off, but I don't because I don't want such a high percentage of my money tied up in my house, and I want to have money liquid in case things come up.  So I understand exactly what you're saying.

[Payman]

Maybe it's just your terminology, but you're really not 'saving' it, just paying over time versus up-front.

I understand your point, though.  There is benefit to keeping some money liquid, or allocating it differently on a short-term basis.  I think there's merit to your thinking, and it really depends on your overall financial picture.

I don't finance my cars anymore, but I still have a mortgage on my house.  I have enough money to pay it off, but I don't because I don't want such a high percentage of my money tied up in my house, and I want to have money liquid in case things come up.  So I understand exactly what you're saying.

Whew! Good. Its been a long day at work and my brain's fried.

[dazzleman]

Whew! Good. Its been a long day at work and my brain's fried.

My brain is fried most of the time, man.....

[Payman]

Oooohhhh... I thought of another way to bail myself out of this losing argument. 

You have $5000 saved up in the bank, and you need a car.

Option one: Pay $5000 cash for a 2002 Fucko Magucko. You have no money in the bank, but you don't have a car payment either.

Option two: Put $5000 down payment on a 2009 Fucko Magucko.  You have no money in the bank, AND you have a $300/month car payment.

Option three: Keep the $5000 in the bank. Buy a 2009 Fucko Magucko, no down payment.  You have $5000 in the bank, AND you have a $400/month car payment.

To me, option 2 isn't the most attractive option. And call me retarded, but I've option one'd for the last five cars. 

[Vinsanity]

I went with option 3 for my last purchase, except my Fucko Magucko was already 3 years old when I bought it. And it wasn't quite a zero-down purchase, but I feel "naked" not having money in the bank.

[AutobahnSHO]

It's been option #1 since 2000 for me..   

One Eagle, one Ford, one Honda, 2 "Chrysler" minivans and a Subaru later,
I'm still broke. I only have about $700 in savings.. 

[hotrodalex]

I wait until I can buy the car with cash and still have money left over.

[rohan]

Yes, that's true.  The fact that the financing is at 0% would certainly figure into the decision of how much to put down.  But keep in mind, the 0% loans are usually very short term (like 2 years), so they end up being used by people who don't really need financing, but want to get the benefit of 0% financing for the reason you stated, and that benefit helps clinch their decision to buy.  The person who really needs financing probably wouldn't be able to afford the payment on such a short term.

Not always our Durango has a 5 year 0% loan and we don't intend on spending anymore for it monthly then the minimum payment.  Basically they're letting us use their money to buy the car without charge- there's no downside to that for the buyer in my book- anywhere.   The 5er has 2.9% so it's almost the same.  They're both 5 year loans and we've got 2 1/2 lft on the truck and about 3 1/2 left on the car thanks to making $50 per month bigger payments.  We also don't owe anything on the GTO anymore- that's someone else's bill now.

[dazzleman]

0% for 5 years is a great deal.  I'd definitely finance if that kind of deal were available.  I've never really bought a car at a time of economic distress, so I've never had those sweet financing deals available to me.

[Lebowski]

Oooohhhh... I thought of another way to bail myself out of this losing argument. 

You have $5000 saved up in the bank, and you need a car.

Option one: Pay $5000 cash for a 2002 Fucko Magucko. You have no money in the bank, but you don't have a car payment either.

Option two: Put $5000 down payment on a 2009 Fucko Magucko.  You have no money in the bank, AND you have a $300/month car payment.

Option three: Keep the $5000 in the bank. Buy a 2009 Fucko Magucko, no down payment.  You have $5000 in the bank, AND you have a $400/month car payment.

To me, option 2 isn't the most attractive option. And call me retarded, but I've option one'd for the last five cars. 

Financing does make sense for people who can't scrounge up the cash for a bigger down payment ... however, IMO in this case the buyer should be looking at a very basic car.

There's a big difference between financing a $15-20k car that you need to get you to work and back, and financing a $35k+ car that you can't otherwise afford.

IMO, if coming up with a $5k down payment is difficult for someone, that person would be extremely foolish to take on a $700/mo car payment.

[dazzleman]

Financing does make sense for people who can't scrounge up the cash for a bigger down payment ... however, IMO in this case the buyer should be looking at a very basic car.

There's a big difference between financing a $15-20k car that you need to get you to work and back, and financing a $35k+ car that you can't otherwise afford.

That's exactly what I was saying.  If you're financing not by choice, but by necessity, then you shouldn't get a luxury car, IMO.

[Madman]

Oooohhhh... I thought of another way to bail myself out of this losing argument. 

You have $5000 saved up in the bank, and you need a car.

Option one: Pay $5000 cash for a 2002 Fucko Magucko. You have no money in the bank, but you don't have a car payment either.

Option two: Put $5000 down payment on a 2009 Fucko Magucko.  You have no money in the bank, AND you have a $300/month car payment.

Option three: Keep the $5000 in the bank. Buy a 2009 Fucko Magucko, no down payment.  You have $5000 in the bank, AND you have a $400/month car payment.

To me, option 2 isn't the most attractive option. And call me retarded, but I've option one'd for the last five cars. 

You forgot option 4.

Option 4 is to buy a 1995 Fucko Magucko for $2,000 and a Haynes repair manual.  When it breaks, get your hands dirty and fix it yourself.  This has worked for me for most of my 24 years of driving.

Being a former car salesman, I saw people who willingly put themselves into debt far beyond what they could afford, just because they had to have that brand spanking new Fucko Magucko!  Newsflash: It's not always the salesman's fault!  Customers screw themselves over more than any dealership ever did.  I just gave people what they wanted.  If I didn't, somebody else would.

This is why I've always been a strong advocate of option 4.  Well, I'm also a cheap bastard, too!  But at least I'm a debt-free cheap bastard with money in the bank!  Keep in mind the 1995 Fucko Magucko is at the bottom of it's depreciation curve.  It's worth $2,000 today and three years from now it will still be worth $2,000.  This is the miracle of depreciation-free motoring and the whole philosophy behind my SOTW thread.  You can make fun of my old Volvos all you want, but at least they're in good condition and, best of all, they're paid for!  Go ahead and laugh.  I'll be laughing, too.  All the way to the bank!


Cheers,
Madman of the People

[AutobahnSHO]

Madman-
I buy in the $3k range. Otherwise your philosphy works for me. 

(Actually my Current Caravan was $4500 in 2006..)

[dazzleman]

Being a former car salesman, I saw people who willingly put themselves into debt far beyond what they could afford, just because they had to have that brand spanking new Fucko Magucko!  Newsflash: It's not always the salesman's fault!  Customers screw themselves over more than any dealership ever did.  I just gave people what they wanted.  If I didn't, somebody else would.

You're right.  Blaming other people for your own bad decisions, whether they involve credit cards, car loans or mortgages, is just another sign of our society's endemic refusal to take responsibility for their own decisions.  It's like the drug addict blaming the dealer.  I think those who provide credit made it too easy, but people were doing what they wanted.  Nobody had a gun to their head.

[the Teuton]

The family philosophy here is to buy under book value and try to sell the car for more than you paid for it or more than it's worth.

The Civic sold 3 years after the fact for the same as we bought it for and it needed a fair amount of work when we sold it.  I bet I could sell my car for what I paid for it, and it's gone through hell.  The Accord is worth $6k or so, and my bro bought it for $4k...the only recent outlier seems to be the Venture, which has turned out to be a POS.  We've dumped 65,000 miles on it in a short time, so I guess it was to be expected, but it's not going to be worth as much when it's sold as when we bought it.

[The Pirate]

The family philosophy here is to buy under book value and try to sell the car for more than you paid for it or more than it's worth.

The Civic sold 3 years after the fact for the same as we bought it for and it needed a fair amount of work when we sold it.  I bet I could sell my car for what I paid for it, and it's gone through hell.  The Accord is worth $6k or so, and my bro bought it for $4k...the only recent outlier seems to be the Venture, which has turned out to be a POS.  We've dumped 65,000 miles on it in a short time, so I guess it was to be expected, but it's not going to be worth as much when it's sold as when we bought it.

Per KBB (a bit high, I know) my car is worth about the same right now as what I paid for 2.5 years ago.  I got a good price when I bought it, the guy had already purchased another car and was eager to get rid of this one, and I was the first person who didn't try to haggle him down (I saw what the car was worth vs. what he was asking) or ask if he would take monthly payments.

I've had to pump some money into it, yes, but I would have spend a similar amount on most any used car in that price range.  I'm still ahead of the game, and the car has been superb mechanically and is pretty easy to work on.

[ChrisV]

As I've said before, out of the hundred plus cars I've owned, only 3 have been new, and they've been financed. I got them because I wanted them at the time. I rarely play the lottery, I don't have an idea for the next multi-billion dollar invention, so I'm going to be working all my life. I could either save little bits aside for decades and get what I want when I'm too old to enjoy it, or enjoy it now, and pay for it little bits at a time. Either way, little bits at a time are going out for the things I want. The difference is how long I get to enjoy them for. And I worked to get myself into a position where I'm not making minimum wage specifically so I could have more than the minimum living requirements. Anything above minimum food and shelter is gravy after growing up below the poverty line... I've never worried about resale with any of my cars. Some I've made money on when I sold them, some I've broke even, and some I've lost money on. But in every case, I bought them because I enjoyed them, or their potential. And that didn't matter if it was a $100 Falcon or a $7500 BMW.

Yeah, I could lose work at any time and thus lose anything that's being financed. But, if I was saving for the nice things to have later, then I'd never get to have them at all. This way, I'll at least have had them and I won't be any worse off than if I had been saving for later and lost the job (though, I've worked in a number of different industries and have made sure that my skill set is as wide and varied as possible to be able to take advantage of any situation. Even in this economy, I can find work pretty easily). Luckily, I'm in a pretty recession-proof job...

[AutobahnSHO]

Along that line, why don't they give all young people a ginormous loan to be paid off over time?

Like you said, I don't want to be an old fart when I can FINALLY afford the stuff I can only enjoy now.. (Or stuff I could enjoy the rest of my life! )

[GoCougs]

I have always gotten infinitely more joy from paying cash for a vehicle than financing a much more expensive vehicle.

[ChrisV]

I have always gotten infinitely more joy from paying cash for a vehicle than financing a much more expensive vehicle.

I've always traded a car and a little cash for another car, or even gotten a couple cars in trade for one I've had, or sell one and use the money to buy/build the next one or two. But, the few times i've financed something, it's because I wanted it. sorry, but I'm not going to save $200/month aside for 5 years and have the thing 5 years from now, when I could have the thing now and spend the $200/month while I get the enjoyment out of having it. The $200 a month would be spent/saved aside the same either way, the difference is in when and for how long I can enjoy what that $200 a month would buy. I don't consider HOW I pay for something as even a tiny part of the enjoyment of the thing, especially when it comes to cars.

[L. ed foote]

I've always traded a car and a little cash for another car, or even gotten a couple cars in trade for one I've had, or sell one and use the money to buy/build the next one or two. But, the few times i've financed something, it's because I wanted it. sorry, but I'm not going to save $200/month aside for 5 years and have the thing 5 years from now, when I could have the thing now and spend the $200/month while I get the enjoyment out of having it. The $200 a month would be spent/saved aside the same either way, the difference is in when and for how long I can enjoy what that $200 a month would buy. I don't consider HOW I pay for something as even a tiny part of the enjoyment of the thing, especially when it comes to cars.

Which is all well and good, but I know far too many people who are scrambling to pay their car note.

Of course, I'm the type to buy something then run it into the ground, then start anew.  Maybe throw a little $$ into it if I feel like it.

Different strokes for different folks.