Car loans

[AutobahnSHO]

This.  Setting aside and saving money to be applied to your next car purchase should be a part of everyone's budget so that they are able to pay cash for their next car instead of continuously rolling payments.  This might mean, *gasp*, not financing the maximum you can afford so you can put some cash aside each month to save for your next car when you are just starting out and financing your first car or two.

All people have to do is pay off the car, put the equivalent payments into the bank as savings for the next car, and KEEP THE PAID OFF CAR.
Too many people flip cars every 2-5years and stay in perpetual "pay someone interest" mode.

Also, people finance too much car so they have to get a 7-8 year loan. They should buy a cheaper car and finance for 4-5years and then save.

[dazzleman]

Life is too short to be a slave to consumer debt.



Lots of strawman in this thread, I don't think anyone has ever refuted that financing a reliable car to get to work when you just started your first job and only have $1,000 in the bank may make sense.  I get that, but you should really only be in that situation once or twice in your adult life. If that first car you financed was new or late model used and you maintain it, you should be able to keep it at least 5-6 years, and really more like 10+ years.  5 or 6 or 7 or 10 years down the line when it's time to replace it, you're now in a position to not have to borrow to have a decent car right?  If not, why?  Why has financing become the norm way beyond that initial car purchase when starting out, to the point of perpetual car payments throughout ones adult life?  This is also the point of the article btw, the author says he didn't have a choice when he bought that first car, he's just saying he doesn't want a car loan again.

Take a 45 year old working professional who's established in his/her career and has been making a good living for the last 20+ years. Why is borrowing to buy a car the norm for this situation?  In many cases for a luxury car too.

I agree with you.

[2o6]

Who really cares tho


Idk it seems like much ado about nothing. Unless you're totally underwater, I don't care about a car payment

[r0tor]

All people have to do is pay off the car, put the equivalent payments into the bank as savings for the next car, and KEEP THE PAID OFF CAR.
Too many people flip cars every 2-5years and stay in perpetual "pay someone interest" mode.

Also, people finance too much car so they have to get a 7-8 year loan. They should buy a cheaper car and finance for 4-5years and then save.

For some people a perpetual car loan is acceptable and negligible in their overall realm of financial activity.  Everyone has their own priorities.  Everyone has their own financial case to analyze.

Stone carvings sent down from the top of My Hippocratai with absolute rules engraved in them are downright dreadful.

[2o6]

Interest on cars is IMO negligible when you spend less than 25k. On a 60 month loan, a 25k car only has 2k of interest over 5 years. That's such a negligible amount, if you had that 2k, what would you truly do with it?

I know for me, 2k over five years would probably be a night's worth of drinking every month. It seems much fuss over such a small amount of money.

[2o6]

Across the board, our society has lost all sense of proportionality.  Few things are all good or all bad.  Whether they are good or bad depends on certain factors.  Yet we insist on imposing this all good or all bad judgment to just about everything.

Car loans can be good and they can be bad.  It depends on personal circumstances, alternatives in the absence of a loan, debt to income, interest rate, etc.

I wouldn't avoid a car loan if I needed reliable transportation to get to a job, and only had $1,000 in the bank.  A broken down old car has so many repair costs that you might as well have a car loan.  On the other hand, I think it's a mistake to finance or lease expensive cars and allow loan payments to be too high a percentage of income. 

Unless it is given to us, none of us start out with a pile of money for things like cars and houses; they need to be accumulated over time and we do have to live in the interim.  Having a reliable car can enhance earning and employment options, so it would be foolish to eschew a reasonable amount of debt and lose options.  But too much debt is a significant headwind to ever accumulating any real assets.

I had car loans when I was younger, and I don't think it was a mistake.

Like most articles that are turning up in various crevices of the internet, that article is junk, based on faulty reasoning.  "Democratization"  is not always a good idea if it simply means that all standards go into the sewer, and that is the case with publishing these days.  Anybody can write an article without knowing anything on the subject, and we have to remember that when we read this junk.

I agree with this.

[r0tor]

Interest on cars is IMO negligible when you spend less than 25k. On a 60 month loan, a 25k car only has 2k of interest over 5 years. That's such a negligible amount, if you had that 2k, what would you truly do with it?

I know for me, 2k over five years would probably be a night's worth of drinking every month. It seems much fuss over such a small amount of money.

Exactly

[2o6]

I will say it was nice not having a payment, but having a payment doesn't make me feel a huge amount of dread every month.

[AutobahnSHO]

Interest on cars is IMO negligible when you spend less than 25k. On a 60 month loan, a 25k car only has 2k of interest over 5 years. That’s such a negligible amount, if you had that 2k, what would you truly do with it?

I know for me, 2k over five years would probably be a night’s worth of drinking every month. It seems much fuss over such a small amount of money.

2k over the next 5 years, invested at your age, would be some nice money at retirement age.  Could also buy someone a computer and cellphone, books for college, whatever.

Again, debt is not totally evil but too many over-extend. People that lock themselves into perpetual payments are slaves to that bank.

[MexicoCityM3]

Interest on cars is IMO negligible when you spend less than 25k. On a 60 month loan, a 25k car only has 2k of interest over 5 years. That's such a negligible amount, if you had that 2k, what would you truly do with it?

I know for me, 2k over five years would probably be a night's worth of drinking every month. It seems much fuss over such a small amount of money.

I like the way you think. I think it will drive you to make more money over time. As has already been happening the last few years.

I once attended an entrepreneurship talk where part of the advice was, seriously, to get a yacht. Because keeping and maintaining that thing can ONLY be done if you make money.

Here there's a lot of talk about being a "slave"to debt. Well, that is only if the debt keeps you awake at night. If you can carry the debt with calm that leverage can enable you to make a lot more money. Debt can be a multiplier of worth if used wisely. In the end, personal risk tolerance plays a huge factor.

Some people can't sleep at night with even very little debt. For them, being debt free I think is a good goal, because in the end, life is about some sort of happiness.

Some can carry large amounts of debt with no worries. If used wisely, it can make a lot of money. Not wisely, bankruptcy and pain.

[AutobahnSHO]

ALSO, the biggest problem with debt is that it is soooooo EASY to get.

People get a loan for something they "need" and then before they know it, they owe tens (sometimes hundreds) of thousands of dollars on stuff they can't sell off to pay off the debt. It's a big trap that gets lots of Americans.

[AutobahnSHO]

Some people can't sleep at night with even very little debt. For them, being debt free I think is a good goal, because in the end, life is about some sort of happiness.

Some can carry large amounts of debt with no worries. If used wisely, it can make a lot of money. Not wisely, bankruptcy and pain.

It all depends on how much and what the debt is for, and how they manage the rest of their finances.

[r0tor]

ALSO, the biggest problem with debt is that it is soooooo EASY to get.

People get a loan for something they "need" and then before they know it, they owe tens (sometimes hundreds) of thousands of dollars on stuff they can't sell off to pay off the debt. It's a big trap that gets lots of Americans.

That's not a debt/spending issue, it's a personal control issue.  Substitute spending/debt with drugs/alcohol/hookers/smoking or anything else people do that is terrible for them but they do anyway

[RomanChariot]

I like the way you think. I think it will drive you to make more money over time. As has already been happening the last few years.

I once attended an entrepreneurship talk where part of the advice was, seriously, to get a yacht. Because keeping and maintaining that thing can ONLY be done if you make money.

Here there's a lot of talk about being a "slave"to debt. Well, that is only if the debt keeps you awake at night. If you can carry the debt with calm that leverage can enable you to make a lot more money. Debt can be a multiplier of worth if used wisely. In the end, personal risk tolerance plays a huge factor.

Some people can't sleep at night with even very little debt. For them, being debt free I think is a good goal, because in the end, life is about some sort of happiness.

Some can carry large amounts of debt with no worries. If used wisely, it can make a lot of money. Not wisely, bankruptcy and pain.

It's funny that you mentioned a yacht. The owner of the last company that I worked for bought a yacht and a Porsche early in his career when his first company was just starting to take off. He wrecked the yacht on its maiden voyage and got rid of the Porsche when he sold the company to his partner. Fast forward 30 years or so and he sold his second company to a larger corporation for a handsome sum and he bought a 911 turbo and another yacht. This time he hired someone to captain the yacht.

[Lebowski]

For some people a perpetual car loan is acceptable and negligible in their overall realm of financial activity.  Everyone has their own priorities.  Everyone has their own financial case to analyze.

The obvious logical fallacy being if the dollar amount is so negligible, why borrow it?


There may be some subsegment of the population who leases for convenience (this argument doesn't extend to financing, there is no convenience benefit to financing) and for whom the dollar amount truly is negligible. I'm going to go out on a limb and say such people are IMO in the exteme minority, in fact I think it's fair to say they are a negligible portion of the car shopping population.   

Sorry, no absolute rules from on high, that strawman's gonna remain unsatisfied.

[Lebowski]

Interest on cars is IMO negligible when you spend less than 25k. On a 60 month loan, a 25k car only has 2k of interest over 5 years. That's such a negligible amount, if you had that 2k, what would you truly do with it?

I know for me, 2k over five years would probably be a night's worth of drinking every month. It seems much fuss over such a small amount of money.

Your original point was WRT people who finance because they don't have any money.  To someone with <$1,000 in the bank, $2,000 is not negligible.

[Lebowski]

I once attended an entrepreneurship talk where part of the advice was, seriously, to get a yacht. Because keeping and maintaining that thing can ONLY be done if you make money.

This is the dumbest advice in the world.

[dazzleman]

I like the way you think. I think it will drive you to make more money over time. As has already been happening the last few years.

I once attended an entrepreneurship talk where part of the advice was, seriously, to get a yacht. Because keeping and maintaining that thing can ONLY be done if you make money.

Here there's a lot of talk about being a "slave"to debt. Well, that is only if the debt keeps you awake at night. If you can carry the debt with calm that leverage can enable you to make a lot more money. Debt can be a multiplier of worth if used wisely. In the end, personal risk tolerance plays a huge factor.

Some people can't sleep at night with even very little debt. For them, being debt free I think is a good goal, because in the end, life is about some sort of happiness.

Some can carry large amounts of debt with no worries. If used wisely, it can make a lot of money. Not wisely, bankruptcy and pain.

Yes, debt can be a multiplier of wealth when used wisely, but not really when it's used for depreciating assets that coat more than optimally necessary for the function they play.

[12,000 RPM]

This.  Setting aside and saving money to be applied to your next car purchase should be a part of everyone's budget so that they are able to pay cash for their next car instead of continuously rolling payments.  This might mean, *gasp*, not financing the maximum you can afford so you can put some cash aside each month to save for your next car when you are just starting out and financing your first car or two.

Why? The only difference between these two scenarios is the cost of interest, and for people who need them, moral victories on the internet

This analysis is absent of context, just as it always is. Say you have someone saving a good chunk towards retirement, sitting on a decent nest egg, carrying no high interest consumer debt (i.e. pay day loans, personal loans, CC debt for non-emergencies). How is this person a "consumer debt slave"? The only difference between them and someone putting that money aside every month to pay cash is the cost of interest, their account balance, and again, if they need it, that meaningless ability to say "im better than people who take out loans". I mean Lebowski you said if someone's interest is cars then spending more/financing makes sense, just as it would for any other interest. What's changed?

[MexicoCityM3]

This is the dumbest advice in the world.

Taken out of context it sounds like it, yeah. But the main gist is that for some people challenging themselves by locking into a high level of expenses can be a financial success driver. Not for everyone.

[Lebowski]

Taken out of context it sounds like it, yeah. But the main gist is that for some people challenging themselves by locking into a high level of expenses can be a financial success driver. Not for everyone.

In any context it's terrible advice.  I don't really buy that people need to put a consumer debt gun to their head to "stay motivated", IMP that's mostly a lie people tell themselves to justify buying toys.  If it really is the case, maybe do some internal reflection and find something healthier to motivate you.

[Lebowski]

Why? The only difference between these two scenarios is the cost of interest, and for people who need them, moral victories on the internet

This analysis is absent of context, just as it always is. Say you have someone saving a good chunk towards retirement, sitting on a decent nest egg, carrying no high interest consumer debt (i.e. pay day loans, personal loans, CC debt for non-emergencies). How is this person a "consumer debt slave"? The only difference between them and someone putting that money aside every month to pay cash is the cost of interest, their account balance, and again, if they need it, that meaningless ability to say "im better than people who take out loans". I mean Lebowski you said if someone's interest is cars then spending more/financing makes sense, just as it would for any other interest. What's changed?

Not sure what you mean what's changed - personally I'd never use debt to buy a toy, there's no change there.

Sure, a car enthusiast can justify spending more on a car, all else equal, than a non car enthusiast.  If having a fun car is important to the enthusiast, spend less money elsewhere (presumably the non car enthusiast has other interests they spend money on that the car enthusiast doesn't), save up, and buy the car

[MexicoCityM3]

In any context it's terrible advice.  I don't really buy that people need to put a consumer debt gun to their head to "stay motivated", that's a lie people tell themselves to justify buying toys.

This is why you keep getting called on throwing "absolute truths" around. How can you really tell that those people lie to themselves? Is it impossible for someone who loves yachts or cars or whatever to motivate himself to financial success that way?

I know that when I went through a company bankruptcy back in the early '00s holding on to my goddam 328Ci was important to me. Now that I am older with different priorities it probably wouldn't be but back then it was.

[Lebowski]

This is why you keep getting called on throwing "absolute truths" around. How can you really tell that those people lie to themselves? Is it impossible for someone who loves yachts or cars or whatever to motivate himself to financial success that way?

I know that when I went through a company bankruptcy back in the early '00s holding on to my goddam 328Ci was important to me. Now that I am older with different priorities it probably wouldn't be but back then it was.

An absolute rule would be saying something like "never finance a car under any circumstances", which I haven't said, and have given specific examples where doing so makes sense. Not sure how you got "absolute truth" from that, there are absolute truths in the world. 2+2=4, that's an absolute truth, call me out for saying that all you'd like.

Of course people can be motivated by yachts. If you really want a yacht, make money, save money, make cuts to less important parts of your budget, and buy a yacht.  That's not what you said, going out and buying something on credit today and basically using the ensuing high overhead as a "motivator" is retarded, sorry.

[MexicoCityM3]

An absolute rule would be saying something like "never finance a car under any circumstances", which I haven't said, and have given specific examples where doing so makes sense. Not sure how you got "absolute truth" from that, there are absolute truths in the world. 2+2=4, that's an absolute truth, call me out for saying that all you'd like.

Of course people can be motivated by yachts. If you really want a yacht, make money, save money, make cuts to less important parts of your budget, and buy a yacht.  That's not what you said, going out and buying something on credit today and basically using the ensuing high overhead as a "motivator" is retarded, sorry.

Because I guess only Lebowski Approved Motivators (TM) work, right? Counterexamples be damned.

[Lebowski]

Because I guess only Lebowski Approved Motivators (TM) work, right? Counterexamples be damned.

Consumer debt and high overhead related to yesterday's discretionary purchases are lousy motivators, sorry.


If you're a boating enthusiast (which only a small % of the population are fwiw, and I don't recall being mentioned at all in your story), go buy a boat you can afford and maybe even save for a nicer one down the line. The advice in your example is stupid, I hope you didn't pay for it.

[12,000 RPM]

Sure, a car enthusiast can justify spending more on a car, all else equal, than a non car enthusiast.  If having a fun car is important to the enthusiast, spend less money elsewhere (presumably the non car enthusiast has other interests they spend money on that the car enthusiast doesn't), save up, and buy the car

What is gained by doing this rather than financing? And this doesn't jive with what you said here:

Buy a reasonable used car and keep it for awhile, is not overly extravagant at all.

People make decisions based on their own values, wants, and needs, spend money on what brings you value. If a nice car is important enough for someone to go into debt for, fair enough

So yes, something has changed. Here going into debt for a nice car was "fair enough", now you are back to prescribing that the only acceptable way to buy a car is to pay cash. Make up your mind

[Lebowski]

What is gained by doing this rather than financing? And this doesn't jive with what you said here:

So yes, something has changed. Here going into debt for a nice car was "fair enough", now you are back to prescribing that the only acceptable way to buy a car is to pay cash. Make up your mind

You're digging deep here. I'm sure you've got a point in there somewhere, I'm not sure what it is other than taking my statements to the literal extreme and misrepresenting my opinions and personal habits as some sort of unbending rules.

I personally would never finance a toy and I don't think doing so is a very good idea. If you want to, have at it


As if "fair enough" is a ringing endorsement of consumer debt, Jesus Christ Sporty you're desperate to score a point.

[MX793]

The person relying on the loan has less flexibility if a financial hardship falls on them.

[r0tor]

The obvious logical fallacy being if the dollar amount is so negligible, why borrow it?


There may be some subsegment of the population who leases for convenience (this argument doesn't extend to financing, there is no convenience benefit to financing) and for whom the dollar amount truly is negligible. I'm going to go out on a limb and say such people are IMO in the exteme minority, in fact I think it's fair to say they are a negligible portion of the car shopping population.   

Sorry, no absolute rules from on high, that strawman's gonna remain unsatisfied.

A person strapped for cash can choose to stop going to bars (or some other habit) for 3 years in exchange for a modest loan on a car that's not a piece of crap and will get them reliably to their job and perhaps even give them some satisfaction in life.... Instead of cutting the same activities for 3 years and having to risk employment and spend money on repairs on a beater while they save up.  That's pretty much the foundation of credit/debt.

That's their decision and it can be made rationally without a stone carved set of financial rules.