That's almost exactly what I am working on doing getting rid of my GTI. I just want a sub 8k car, because I drive my car less than 3k miles a year and it doesn't matter if I have a 2015 GTI or a 2005 Jetta. I am still going to only drive 1-2 times every two weeks, so it doesn't matter if the car is fun and fast or slow and boring.
As a function of earnings [especially given their content] cars are more affordable today than before. People are just dumb and spending far outside of their means.
The people who contribute to political campaigns decide what gets taught in public schools. They are not going to let personal finance become a core part of the curriculum. I am 53 and retired and have two homes not because we made a ton of money but because we managed what we did have well. We leased our first vehicle together over 20 years ago. We have not had a car loan since.
I have been driving a $4,500 Toyota Echo for the last 5 years...paid with cash. This car is amazing, needs nothing, and it will not die :). Oh, and I will be mortgage free this fall!!!
Wise and extremely relevant. Spot on. Guys listen up This apply to everything. House, car, holidays and so on. Stick to what you can afford and free yourself from unnecessary leverage. Bravo Motoman
This is absolutely ridiculous! Don't buy cars you can't afford people!! I love cars, but if you have to take out a 7 year loan for it, I'll rather ride a bike. People's priorities these days are out of whack!
gotcoke795 and its diminishing returns, going from a 3 to a 5 year loan drops the payment a lot. 6-8 doesn't make a huge difference in the grand scheme and you probably give back most of the savings in higher interest
By the time they pay it off, it's worth nothing and they've paid way more than it's worth. It's one of the only "investments" that is guaranteed to lose you a crazy amount. Had they waited 7 years then bought it, they would have saved a huge amount of money.
Agree. I love cars too. I just hate paying for them. I have worked to hard to build up my net worth and hell if it's going into that nice German machine.
2016 ND Miata, 5 years, $0 down, 0% interest. I had the cash to put down 75% of the car's price, but at 0% interest, I thought it better to stick that $20k in an investment account and let it appreciate. I've earned $2k in that account in the last six months. My first car, however, I stupidly financed for seven years and learned a valuable lesson on what NOT to do. Never again.
Antenox that's a stronger version of what I did. I bought a 1 year old CPO Honda at around .75% below what my money was making sitting where it was. I probably had a lower purchase price but higher APR. Still, the loan is working for, not against me. I'm spending most of the loan right side up. Dave Ramsey style? No, but pretty responsible all the same.
Antenox if you have a savings account that gives you $2'000 on a $20'000 deposit in 6 months (20% interest per year) then you should borrow as much money as you can at any apr below 15% and put it into "your" savings account.
It's an investment account, not a savings account. The S&P has been particularly strong the last few months, but there's no guarantee this growth rate will be sustained. 1-year rate of return was 17.7%, but 3-year ROR was only 8.3%. But yes, this is the main reason I've only been making minimum payments to my car and student loans.
Yup similar but with 0.02% interest, on a 7 year loan. I didn't care about how low my payments were but I can make a lot more than 0.02% interest on the money I'm putting away every 2 weeks. Sure I'm underwater on the value for 4 of those years but I don't plan on switching cars until the 5th or longer year of the loan anyhow so the trade in value will be more than I owe. In that time I'll have garnered enough from my savings(I haven't made as much as you but I'm around the 8%) to either have a nice downpayment on the next vehicle or get myself into another 0% loan and continue on.
I'm one of those schmucks who financed $40K @ 72 months with $0 down. 1.99% APR. The best part is though that (hope you're sitting down MotoMan) the car I financed was already 3 years old when I took possession... Total interest if I'd gone full term was around $3k IIRC, which works out to about $42 per month or less than $1.40 per day. I'm on pace to pay off the loan in 3-4 years, but I wanted the flexibility to pay less because I'm in an industry (IT) and company that can see some bad turnover at any time. I also didn't want to touch the little I had in liquid savings (ie, emergency funds) for the same reason. Regardless, I find it pretty hard to really care about paying $1.40 per day in interest, but then again no one has ever accused me of being a long-term thinker. Having said that, I have no doubt most of the people on their "paying interest is for stupid people" soapboxes spend way more than $1.40 per day, ~$10 per week, or $42 per month on things that don't do a thing for their net worth and might seem frivolous to others. I've known plenty of fiscally responsible people in my lifetime, but none of them were perfect. Some people are into gourmet cooking or video games or hiking, all of which require varying levels of expenditure with no real ROI beyond one's enjoyment. So if you're a car person, and you don't just view cars as A-to-B mobiles, then I don't necessarily see it as a sin to spend more than maybe you should on a car if it brings you real enjoyment.
Point he's trying to make is if everyone thinks that way, eventually that will affect us all. No matter what way you spin it to make yourself feel better, it truly is ridiculous to feel ok with paying a much higher total cost than what it's really worth, ESPECIALLY when it's a depreciating asset.
Well said. Getting tired of people looking at car buying as strictly a simple monetary investment/expense. How much of your "net worth" is dependent on being able to travel to create your net worth? That value should be added to your car. I'm self employed in the watch repair business. My car does more than just take money from me. It provides leisure travel. It provides travel that allows me to do my business(Deliver and pickup work & payments. Make deposits at the bank. Mail(send/receive) work. My vehicle is another TOOL just like any of my other tools. It costs something up front but begins to pay for itself as it gets used. Without it, I would spend way more funds and time trying to do my job without it. I really don't understand why people don't grasp this. Heck, if I didn't have 3 kids and was able to buy a Prius or something, and I figured it all its uses, you could probably come to the conclusion that the car pays me to use it! NOTE: My current vehicle is a 2011 Dodge Durango AWD. It's around $400 a month. It was a good used buy 2 years ago. garage kept and looks like new even now at 136,000 miles. At $400 a month for what I do with it for my business alone is worth it. Not to mention being able to haul the family, friends, etc.
Some of you are missing the point...there no absolutes!!! Buying a 3 year old 40k car at 1.99% is very different than financing that same model 3 years earlier when it was 'new' selling for 70/75k + % Used cars where you've allowed the initial 'sucker' to finance the car companies R&D and advesting expense is a HUGE different ballgame..... As mentioned 20-40 months after introduction many of the exact same models can be had at 25-40% LESS to finance amounts... There is a 2 nights and 3 day difference between servicing a 72k loan for 8 years vs servicing the same vehicle 30 months later at 39k over 4/5 years.... A lot of that top heavy 'cream puff' ghost overhead 'cost' has disappeared at that point.... The issue is WHO pays for the WASTE, who FINANCES the nonsensical additional cost at the detriment of their family's expense? It's a CAR, McFly!!! One person spoke about TOOLS and pleasure usage which is a valid point....but either as a business person or just a 'logical' person, there is a value proposition or should be When one buys and uses any type of TOOL....why would a reasonable person OVERPAY for tools based primarily on ADVERTISING and slick campaigns made to make ppl 'feel' better about getting screwed FYI the girls at the strip ppl don't REALLY give a piss about you...it's about your WALLET McFly!!! I enjoy luxury vehicles but I REFUSE to pay TOP DOLLAR when the vehicles are made so well and some other sucker is willing to EAT that cost and leave a HUGE market of late model barely touched beauties at 40-50% off for the taking #Mercedes-Lexus 2 for 1
I got my first car loan for 72 months. I felt pretty bad, but that was the only way to get a small APR. It motivated me. I payed off the loan in 2 years.
.09% interest is way lower than the Fed's 2% inflation target. Assuming your income is steady because you get annual pay raises based on inflation (if you don't, your boss is basically stealing back 2% of your salary every year and you need to start job hunting elsewhere), the bank is essentially paying you to pay off your car loan. The longer you can stretch out your sub-inflation APR, the more money you'll save over the car's MSRP in real dollar terms. Another 9 months is another ~1.7% off, if paying the smallest total amount for your car is worth it to you over not having your budget constrained by car payments for any longer than necessary. Also, the less goes into your car payment every month, the more can go into your 401(k). Indexed 401(k)s grow as a function of time spent in the market, so when you put money in is as important as how much you put in. Let's say you have $600 per month. You could take out a 6-year car loan at $300/month, and put the other $300 into your 401(k) every month for the next 6 years. Or you could take out a 3-year loan at $600/month, and for the other 3 years you would've spent paying off the 6-year loan, put the entire $600 into your 401(k). Assuming the APR is sub-inflation in either case, which it probably is if you have perfect credit, the 6-year option will leave you with a larger retirement fund because you'll have money growing in the market for 6 years instead of 3. How much larger? I don't know, nobody can predict the next 40 years of stock values and bond yields. But it will be larger.
32 years old from Canada here. I've spent about 6 months shopping "car payments", as you so well put. I've considered 5-7 years, especially the so-called 0,9%. To be honest, I was extremely tempted by a number of vehicles. But I was making about 42k a year at the time, and putting less than 5k a year in savings. Instead, I ended up spending about 2k on an old Infiniti that actually runs really well, and putting the payments I had planned in a savings account. I've north of 30k in savings now, 0 debt, and I've just started making real money at work with the last promotions. So yeah, I profoundly subscribe to what you've been saying. It would've been cool to drive a brand new Beamer or Audi, but at what cost? I've been paying attention to car loans since about 2006, and the trend has been going nothing but up. Cars are not the only ones though. I've recently learned most people get 25 year loans on boats worth 100k, and 25k pools are typically financed over 10 years. 10 years, for a pool, in a house you will likely not even live in 10 years from now! We're not doing as well as we think we are.
Smart frank, but as hot as BMW and Audi cars are never own one. Lease only. 15 k warranty work on a brand new e430 4 matic Benz year one. Multiple issues. Each year. Stick with Japan. Replaced E430 with Lexus LS 430 took a bath on Benz. 0f 90 k. Used Lexus saved me 80 k. So used luxurious executive wheels are the way to go. See Kia 9000 {Middle East name} as u are young, u most likely need more racing DNA , but it has high resale and likely was abused. Besides shopping for used wheels is so exhilarating.
You're quite right. I'm sold on Japan used luxury cars. A bit disappointed in the new direction Infiniti has taken, but there's a lot of good options out there.
It's all about slightly used luxury cars, especially newer brands (Kia K900/Genesis). You can save a good 50% on most 2 year old cars which will still be much better than newer lower end cars, and ideally you can buy it outright.
There are no exact numbers out there, but all signs point to yes. The largest financial institutions report around 60% of their car loan portfolio are 6 years or more.
I guess this guy has been living under a rock . The average cost of a new car has increased 500% over the past 40 years . There's no choice other than to extend the terms of car loans . Unless your a money manager CHA CHING !
oldtwins I purchased a used 2008 Benz C300 and it's been pretty reliable. But I agree ideally an, appliance, car like a civic Corolla is ideal for maximum savings
Jameel Ja if you think paying thousands of dollars in repairs is safer then more power to you. i can count on one hand the friends i have had who were forced to pay thousands for repairs for new vehicles(buy the warranty). On the other hand, every single friend who owned a used car was either in the shop every year dropping $1000+ , or if they're skilled enough, doing it themselves. Also, buy gap insurance or you're a fool. If you total your car (which is much easier than you would believe) you'll need it. TL;DR buy a new car and pay over time but not repairs-- payments . buy a used car and pay over time but get stranded more-- not only will you have payments you'll have repairs--massive repairs. oil changes work but eventually you'll need expensive repairs at 100000 200000 and 300000 miles.
TacticsTechniques&Procedures while i do agree to a point, but that is a chance you take when purchasing a used car. I've had my C300 for 6 years, I paid half the price of a new one when I got it 6 years ago and it was 3 years old. I've spent around $3000 (in 6 years on repairs, this does not include oil changes). plus cars have become more reliable, but when things go wrong they do get expensive especially with electronic stuff.
I had a 6 year loan on a 2008 Nissan Altima 2.5s . The amount was $20,000 and the interest rate was 7.49 my payments per month was $348 and some change every month never again lol
Got to keep up with the Jones somehow! It all about appearances and what people think about you! Millionaires do what they want; since they have money. Many drive around in junkers. Warren Buffett drives around in a 10 year old car and nobody said a thing!
"I'm a car guy, and I want you all to be driving a super cool car..." Kind of an oxymoron, considering the exorbitant cost of new cars continues to rise year over year. In 2016, USA Today reported that the average new auto loan reached a record $29,551, up 4% from a year earlier. The stats presented at the beginning of this whining video were accurate, but specific to PURCHASED cars only. Today, nearly 1/3 of new vehicle transactions are LEASED because the cost of BUYING a new car is moving further beyond the reach of most buyers who can't afford to purchase new on a 3 - 5 year term. While I'm not in the market for a new car, I'd sooner take out a 7 year loan before getting into the cycle of leasing a new car every three years, which is becoming way more common, and (in my opinion) a bigger problem than a 7 year loan, which for some consumers can be a good finance tool. Four years ago, I purchased my dream car, a 2013 certified used Cadillac CTS Premium, with a 7 year loan at a 1.9% interest rate, with a down payment of 15%. I opted for the longer term because I wanted a comfortable REQUIRED monthly payment, but I doubled up on the payments, and added more whenever I had extra money available. Ultimately, I paid it off in May of 2015 (after 34 months) and now I'm enjoying a (nearly) new, payment and defect free car, with factory warranty that has less than 50,000 miles on the odometer.
In my opinion, finance a reasonable + reliable vehicle. Buying a $3,000 car may save you some money up front, but it isn’t going to last, then you’ll be sinking hundreds of dollars a month for repairs on a car that isn’t worth anything... So get that almost new (used of course) reliable car... Interest rates are super important but, they’re more important when you refinance the car. Getting the loan is kind of the harder part for most people. I did a 4.5 year loan at 9%, skipped the GAP and warranty to lower my payment. When I refinanced 2 years later, I’m down to 3.2% (saving almost $2300) with a $80 lower payment. I skipped the gap insurance because I use that extra money to pay the car down sooner (effectively making the gap insurance obsolete) now I make 2 payments a month, one for the primary payment and one towards the principal. Expecting to pay it off much sooner now. Regarding the loan terms, I don’t see a huge problem with a six or seven year loan, just as long as you use that as a safety net. You should really try to pay more towards the principal each month. Btw I’m 22
Buy a 2 year old car and let some other sucker take the biggest hit. i.e. 20-30% depreciation. I got a loan at 1.9% and invested the money in something making more than 2% while I made payments. Then I kept driving the same car without payments for 6 more years. Now I am going to buy another 2 year old car.
right on! I always tell this to people. cars haven't changed much in the past 5 or so years. only minor infotainment system tweaks every year. so a 2013/14 is practically the same as 2016/17 but cost 2/3.
80386 Cars don't change every year, only new models bring a lot of improvements. The chevy Cruze for example didn't change since 2009 until this year. So 2017 is a lot better than 2016 which is basically the same as 2009.
you're right, major refreshes bring some bigger change but even then, mostly electronic gadget change rather than anything fundamental. for example, new audi A8 is coming soon. I think the current a8 will be a great buy once the new one drops in. it will become significantly cheaper and it's already an excellent car.
20-30% of a car is used up in 2 years? Hahahahahhaaha. I was being conservative with my numbers. Usually after 1 year a car has lost 25-30%. Also pick a car that has a history of good resale and reliability so it will last.
have you checked the prices of new cars recently? They are all $30k-$50k ; Thats why you have those loans. Back when cars were 15k-30k, 3 year -5 year loans were the norm
Y10Q yup. That's the reason. Getting a good car takes a ludicrous amount of money. I know plenty of people with these long term loans. I myself would never do it, but I make my cars last. Mine is 13 years old right now and runs great because I take care of it. When it's time to buy a new car I'll pay cash. I've been saving for 13 years!
There are plenty of new cars in the $20-25k range. There are plenty of good used cars for $10k. There is no reason to finance if you have basic money management skills.
Matt Stevens Look into Tony Seba and his research on autonomous cars. If you knew what I know about the future of cars, you'd keep your current one until the wheels fall off, or autonomous cars get cheaper to use per month than maintaining and insuring your existing car, whichever comes first. That cash for a new car is better spent on paying down other debts, putting a down payment for a home (when the next recession hits), and/or investing for the long term (30/40 years) in a Roth IRA, index fund, ETF, or mutual fund.
I have to admit, I was one of these idiots until I went through Dave Ramseys FPU. I bought a 2015 Mustang GT, 8% down for 72 months at 0%. I sold it 6 months later and took a $4,000 loss because I was going through FPU. Now I have a 2008 Honda Accord that is owned outright and money that goes into the bank every paycheck instead of to a loan. Absolutely no regrets, and I know I made the right choice to sell the Mustang.
one year ago I bought a 16 year old (2000) bmw 320i, with 20K miles on the clock, (yes, you read right: 20,000 miles) for a whopping 1100 dollars. the car was soooo "new," it even still smelled new after 16 years. Never ever ever buy any depreciating asset new. common sense.
The leading reason for these loans that isn't really being mentioned here is that the average transaction price for a new vehicle (light non-commercial) in the US has now surpassed $35,000. Take that price and set a "traditional" 36 month loan up, a generous $5,000 down, 4% interest rate, 5% tax. You now have yourself a $940/mo payment on an average car. Clearly the average person can't afford an average new car. Hence 72 month terms.
Thank you for the honest content. I have no doubt we are in an economic bubble, and your stats are sure pointing that way...and you haven't even mentioned a single fact about the housing market or student loan debt. I bought a new Toyota three years ago. Paid cash for it despite Toyota offering 0% financing. Why? Because I got $6,000 off sticker by paying cash versus only $2,500 off if financing at 0%. Zero percent financing is such a scam... $3,500 was cash back (not available if taking the 0% financing, and the other $1K was Military discount (also not available if using 0% financing).
I have to disagree on this one.... I have a finance degree + an MBA in finance and I work in the financial services industry in NYC. I have perfect credit and more than enough $$ to get a 36 month loan. That stated, the interest cost difference between a 36 month loan and 72 month loan for an average car - like a Honda Accord is less than $1000 if you have good credit. When you factor in inflation and opportunity cost it is actually smarter to extend the term if you can get favorable rates. Also - the fact that it depreciates is the exact reason you want to extend payments. You want to invest as little over time into a depreciating asset - particularly one that doesn't have any tax write off benefits.
Worth noting, this only applies if you're using credit responsibly. Clearly - if are doing this because you can't afford a car then you have different issues.
Strunz0 Cars if I take out a loan of $15,000 for a car that takes 6 years to pay off. Let's say with interest, total I pay $17,000. Now with the car depreciates as years go on, I'm locked in with paying $17,000 while the car values goes down to $12,000 by the time I pay off the loans. Wouldn't long term loans be disadvantageous?
Lin Xu no. In this example at a 2.75% rate, a 72 month loan would have total interest of just over $1500 while a 36 month loan would have about $800. If you factor in inflation of 2% your real rate would be less than 1% - you're essentially paying 0% in real terms. With respect to depreciation, it becomes an accounting thing... if you plan to keep the car then depreciation doesn't really matter since the car will have a remaining useful life that exceeds its market value to you as an owner....e.g. A Honda Accord worth $12k probably has another 10 or more years of trouble free service left
Lin Xu I mean the opportunity cost of sinking monthly cash flow into a shorter term loan. In your example, the 72 month car payment would be more than $200 more per month. The opportunity cost of the short loan term is to not invest the extra $200+ in a more equitable investment like a dividend paying stock at 5%.
Last finance of a car was in 2008. Toyota yaris with a purchase price of 14,750, put 8,000 down. Super low rate as the recession had just hit. 24 mo loan @ 300. Still driving it at 200k waiting for the next bubble burst.
LOL why would buy a new econobox? You could've bought a used civic for less than the 8 grand you put down and it would've cost less in the long run even with repairs and higher miles.
I'd advise you keep your current Yaris as long as it remains reliable, because of the upcoming autonomous car revolution. Stanford professor Tony Seba is a good place to start researching. On-demand autonomous cars will be too cheap for those with financial struggles (read: most Americans) to resist, so this sudden demand in autonomous cars will cause depreciation on non-autonomous cars to hit like a hammer. This will drive many loans wildly underwater, and the resulting defaults will cause the over-$1 trillion auto debt bubble to burst. There may be another bubble that bursts before that, but if so, it will simply be the first of the two hammer blows on the economy.
I put down $8,000 on a 2016 subaru outback slightly used (12,000 miles) that was $14,000 (Saved nearly 50% of the new cars value buying it slightly used the same model year lol just proof cars depreciate in value tremendously) after negotiating. I'm on a 26 month payment plan. I couldn't imagine paying off a car for 80 months! That's just ridiculous. If you can't afford to bring your payment down to under 400 a month for 4 years via down payment, there's no point in owning the car.
I completely agree with you, unless I can make money on my money by putting it somewhere else. Hence my latest purchase was a 0% interest, 72month loan on a 4 month old service loaner CPO that was negotiated to be 20% below MSRP. Several reasons I took the 6 year loan. First, 0% allows me to invest my money into other areas that make me at least 3-5%. Compound that over the 6 year period, and I'm happy. Second, the negotiated purchase price along with the payments on the loan put me ahead of the depreciation schedule compared to leasing. This leaves me with not being concerned with having GAP insurance. Third, the CPO comes with an extended warranty that just so happens to cover the vehicle over the life of the loan. As far as cash down payment goes, just 3%. I would have taken a 5year or even 4year 0% loan if they offered. They didn't so I didn't.
Gary DePriest this is exactly right. With favorable rates, extending the term is exactly what you want to do. With inflation at around 3%, any rate at or below 3% is essentially a 0% or better loan.
Gary DePriest this is the same reasoning I had with my latest vehicle purchase. I had a 72 month loan with a 2.94% interest rate. I could have paid cash for the vehicle, but it would have meant taking my money out of stocks. My money in stocks has tripled in the last 3 years. Also because I bought an exotic supercar, the value hasn't depreciated that much and is worth quite a bit more than the original loan value still. I feel like I made a smart choice, not a bad one.
I am 62. Over the years, I have bought ten vehicles. I paid cash for every one of them. Most I bought new and drove for a LONG time. Two were used, when I saw a deal on something I needed at a price that I could not resist. When I think of borrowing to buy a car or truck, I ask myself "Do I really want to pay twice for this thing?"
Honestly, that's just a long term lease NOT a purchase...because by the time one has 'paid' off the 'purchase' the car is so old and nowhere near what was paid what was the point? Why not lease and move to a newer ride earlier vs being 'stuck' paying the last few years, where the car's value is to upside down vs the principle left where financially you can't move...making a large payment on an outdate by that time model. By the time the 7 years is up, who wants that now 'old' out of warranty vehicle? Why not just lease/rent in the 1st place then move on the a different newer ride every 3/4 years because the likelihood is after a 7yr loan with 24 months you're back on the car note treadmill again or paying enough towards repair that you may as while be. Cars are a losing proposition, it just comes down to minimizing the lossess and balancing what's acceptable in terms of feeling good about what one is driving and IMO being 'made in the shade' "comfortable" about the amount one 🔥 monthly for the privilege. A decent portion of ppl might be better of using Uber primarily and renting unlimited mileage cars as required and/or maintaining an older paid off model when Uber won't cut it vs paying TOP DOLLAR for a vehicle that sits in the parking lot 9 hours a days at work and is parked 8-10 hours in the garage while folks sleep.... Again ROI for many is horrible, when compared to the opportunity cost, being burned due to 🚗 loans vs stuffing 401ks, college funding, investments or small biz ownership
MANY PEOPLE BUY THE CARS WITH A 7 YEAR LOAN, BUT LIKE ME I PAY THEM IN 1 OR LEES THAN 2 YEARS. JUST FOR THE PAYMENTS TO BE LOW FOR AN EMERGENCY I DONT HAVE MONEY... DUHH come on can we use some brain here. does that mean I'm exactly broke?
you should have put some examples of car loans calculations to illustrate your points, showing total interest, total amount that will be paid at the end of the loan ...etc.
I'm 39 married and 2 kids, always paid cash for my cars and I am a car nut to date i have owned 167 cars, until I got married never had a car payment bought a certified used Buick a week before we got married for $13k and a 3 year loan with $1000 down in 2003. Shortly after paying on it for a few months we traded it in as my wife totaled our 1993 Camry we bought a 2002 Corolla and a 2001 Camry kept the same 3 year term on both and put $4k down after paying those off early. I bought a 2003 Lexus ES300 cash for $6k and bought her a 2001 Lexus Rx300 for $8k cash drove both for 2 years and the es300 for $7k and sold the rx300 for 8k took the $15k bought us a 2005 Lexus Rx330 fully loaded and bought my friends Honda Accord for $2k then in sold accord in 2011 Bought a 2009 Honda Odyssey touring for $17k with $7k down and a 3 year loan. Sold Odyssey and Rx330 in 2015 bought 2 cars a low mileage 2009 Lexus Gx470 put $12k down and got a 2 year loan @ 3.9% and bought me a certified pre owned 2013 Hyundai Azera limited this was the first time I ever got a 5 year loan even with 1.9% I never want to do that again. My rule is around 150,000 to 160,000 miles I sell them or if they become a nickle and dime me with repairs. But I will never sign a 5 year loan again.
I purchased my home and drive a 1994 Cadillac Fleetwood (super clean). Paid $3,500 when I was 17 and I'm only in my mid 20s. I'm buying a 2 year old Audi A7 in 6 months with 50% down. Most idiots pay expensive rent for apartments and leasing cars. *Always broke and don't even own anything!* 🤣🤣🤣
HA! Let's just say this side of me *doesn't* just come from reading books. I was flat broke, deeply in debt and had zero support system to help me out of a mess of my own creation. . .
Peter Fabian If you're at such a point in your life that you can get a new car but barely, you definitely shouldn't get a used one unless you're mechanically inclined and have a lot of time on your hands. I spent the better part of my life driving old crap. Spending your every non-working hour fixing the dumb thing makes a shitty life. Better off buying something warrantied than wasting away underneath an old POS.
dchawk81 I can scarcely believe that any car in America has a timer installed that flips the switch from good enough to everything falls apart immediately. If you get a $5000 used car and set aside $5000 for repairs, you're still $10000 ahead from a new $20000 car, and I'm not even counting the cost of buying the money
Outstanding observation; forget about climate or hating the President - pay attention to economic issues THAT MATTER 2004 Volvo S80, 20% down, 4 year loan at 4.5% paid it off 6 months early, still have the car now at 201,000 miles
On the contrary, I think the smarter thing to do is to finance for as long of a period as possible as long as you have the cash in hand for what the vehicle's financed amount is and you invest that same money for a higher rate of return than the financed interest rate. This reduces your monthly payment incredibly and puts your own money in an appreciating asset(s).
This also assumes that a monthly payment fits within someone's budget. If someone got a cash bonus at work, they might be able to buy a car wish cash, but a bi-weekly payment of whatever $$$ might be pushing the budget a bit.
More importantly it assumes that the financing is in a very good terms - but seriously, do you expect car loans to be as good as you can get bigger returns by putting your money into a fund or something?
Absolutely correct. Another point to make is when you're younger and looking to buy into a home. Debt to income ratio for a young professional can be radically affected by simply stretching the paper-spec'd monthlies. Most younger folks also carry student loans (too late to do anything about it by this point) so this is even more important.
The problem I've noticed is that many people tell themselves "being old sucks, so I don't care if I have to work when I'm 65, I will hate life anyway, so I will live it up today".
Last car I financed (an Audi S4) I paid nearly 80% of it thru trade in and cash and financed the remainder at 0.9% at 36 months. Ended up paying it off a year early. I ended up doing an even trade in for a hybrid commuter after 3 1/2 yrs of ownership and didn't pay a cent to drive the car off the lot
I personally have only bought cars in cash, granted I'm only 18. I've thought about financing a car many a time but I dont want to be paying out the ass every month for insurance and a car payment. I realize from just this video that you are wholeheartedly against getting a loan (understandably) but my question to you is. Is there a way to find a cheaper way to purchase a reliable vehicle with or without a loan that isn't going to cost me an arm and leg?
MotoManTV: to answer your question (s), I have financed a car, my current car is financed over 3 years and I put down a little over 10% (I purchased it a year ago, and I am 30y/o now). Also, I did ask the what my interest rate would be. I traded in a car I had a 6 year loan on (I did get a decent deal on it), but the two main reasons I switched cars was that we wanted something bigger for our growning family, and I wanted to pay it off more quickly. Now a question of my own. If you were to start over completely, to where you had no more than $5000 to spend on a car, and had to build your finances back up, what would you start with and why? I think that would make a great video. Thanks for your great channel!!! On a side note, I think that one of the only vehicles that would make any sense what so ever to finance over more than 5 years would be a desiel (heavy duty) truck. They seem to hold their value far longer than cars of the same initial price.
MotoManTV Bought a New 2014 KIA Optima $24,000 for 6 years with KIA Finance for $410/month (includes Gap Insurance). Put $1500 down. Have 3 years left on the loan. 6-7 years is the only way to afford with the car prices today. Most lease because car prices are so high.
It sounds like you'll be really spending around 29k and after 6-7 years the car will be worth almost nothing if you own and try to sell it. Imagine if you bought the 2014 model in 2016 or 2017 for maybe ~15k instead. You could save $10-20k and have the same exact product. Do this a couple of times and suddenly you can afford to buy a car cash. It's easy to think that this is the only way to afford a car, but in reality you end up spending tens or hundreds of thousands of dollars over your lifetime which you could have saved or invested, all because you chose not to wait. I think this is what this video was pointing out.
Excellent advice! I'm in my 60's and have been leasing my vehicles over the past 9 years. This works out well for me given the low miles I drive these days and I NEVER put a cash down payment on a new vehicle. Oh, and thank Kumo for his expertise on this subject, too. ;)
is this guy for real? we indoctrinate our littlest most smallest minds from a very very young age in the idea of now and me first. advertising agencies employ teams of psychological experts and researchers to manipulate the human mind to act this way in the name of corporate profit. what we are seeing here, in this example are their fruits of their labour. millenials have now grown up to be consumerist robots we have set out to make them. advertising and mass media culture has tought us the me and now holds more value then someday or no. those growing up today have a slim chance at humility and virtue. its only going to get worse. and to those that have played the game the correct way, you will not be insulated from the masses as their greed and self centeredness will bring the ehole system down once again although probably bigger than '08
I seriously considered buying a Ford Fusion Hybrid last year. Ford was offering 0% financing for 72 months. In an instance where 0% (or 0.9% or maybe 1.9%) is being offered by the finance company, it would be crazy not to take advantage of it. Pay the vehicle off early by saving the dollars you save with the lower car payment. If those 72-84-month loans have ballooned due to super low interest rates, then I really don't see a problem.
Tom Eisenmenger exactly - at 0% it is a no brainer so long as you can afford the payment. I wish I could borrow more than the value of the car when rates are 0%!!
76ers you are incorrect. Most assets, according to GAAP, depreciate. This is why, in the accounting business, we use depreciation schedules to valuate assets.
Everybody always says I can't wait to not have a car payment yet they'll finance a house for 30 years. And you'll always have payments as in healthcare, property taxes, insurance, phone bill etc.
While the housing crisis of 2008-2011 is an exception to this, most people sell their homes for very close to what they purchased them for; or more. The same cannot be said for most cars ("classics" being the exception here).
DarthRegis true but if you sold your house for what you paid for then you actually lost money considering taxes, interest, insurance, realtor fees and commission and closing costs.
A house is a completely different investment than a car. Houses in the right neighborhoods almost never depreciate and they are an asset that lasts unlike cars, which don't have a life as long lasting as a home.
BIGWEBB88 lol hahahaha in America pay til death, even in death the post man still has that bill in envelopes with your name on it, they will deliver that shit to your grave site.
my house is worth more now then when i bought it..and ive only been in it 5 yrs and it shot up 15,000..because of the growing area..cars dont do that..
you can get really cheap used cars. yes you will have to work a little bit harder but they are worth it. brand new cars are really not worth it, waste of money.
Timothy Dorsey that's a low interest rate, the catch is , it's available at recommended retail price. Get the loan from a bank and use it to pay cash and save 15% by negotiating the cost is a better and even cheaper option. I personally would not takeout a loan for a car that depreciate at a rapid rate. Having said that better still, find the car you want in a show room . . . . Wait 12 month and get it used for 1/3 price. It is still a new car.
Schools teach ignorance not personal finance so that companies can keep the employees working. that is just one facet of the big machine to keep people obediently working towards retirement.
John C in general the depreciation is much more drastic, tesla might be the exception, but if you look at chevy Volt, leaf, BMW i3 and others it is true.
Yeah right now the lower end cars suffer from obsolescence since they're not 100% replacements for all people but those are on the horizon (model3). So leasing is probably the way to go. One of the truly great deals in cars right now is the i3 lease. Almost cheaper than gas, and includes free charging.
Seriously, I thought I was a got damn loser because I couldn't pay for my current car in cash. Thought I was a loser because I usually paid my car of in 2.5 years on a 5 year car loan. Even though my credit score is a 815, thought I was still a loser because I graduated 3 years ago, at the age of 32 with my Ph.D, and paid of $55,000.00 off on a $70,000.00 student loan. Thought I was a loser for moving in back with my parents to pay of all my debts off as soon as possible, including child support, my daughters tuition, medical insurance, and so forth. Always see people at the gym driving really nice cars like Mercedes C and E classes, Audi's and so forth. Maybe most of these people aren't as wealthy as I think they are.
ErwinSchrodinger64 They aren't and you should feel proud of yourself because you actually have discipline unlike a majority of people here who feel that it is ok to finance a car for 7 years they don't understand the risk
Nah, that's too simplistic of an analysis. Taking out a loan on a car makes perfect sense if interest rates are low. You can put that money to better use elsewhere in the meantime. I took out a 6 year loan at a 0.9% interest. Rather than plunking down that 75,000 all at once (on an asset whose value is going nowhere but down), I paid zero down and invested it in an index fund that is almost definitely going to grow at a rate higher than 0.9%. The other thing to think about is the value of the car as a percentage of your total cash/liquid investments. If you literally do not have the cash in the bank or in highly liquid investments to pay for it in full (at least once), you do seriously need to ask why you're getting it in the first place
Totally false. My wife's car was 72 months at 0.0% making it the logical choice. As far as can't afford it? I paid cash for my 14 Mustang GT new off the lot. Now as far as the theme of this video goes, there are people that need reliable transportation to get to work. Old used cars simply do not provide that security, and I can get deals any day of the week on a new car that are below used prices. If someone can get a car like a Hyundai with a 10 year 100K warranty that will last the duration of the loan, who gives a rats ass what it is worth at the end of the note? I generally get from 25-33% off of sticker when I negotiate for a car. Can you do this with every new car? Of course not, but using volume dealers and knowing when and how to buy are everything.
bigger question is, what was the avg. amt. fin. of those 6-7 year terms. cars are seriously overpriced and most Americans are seriously underpaid. Not to mention overtaxed but I digress. our commute is too long to risk driving a beater for a few years. you need to look at the reality of life, not everyone is trying to keep up with the Joneses...some are just trying to keep up.
I know my interest rate, I did go 6 yrs for a lower payment, it's a honda, my wife drives it like 6 miles a day, honda and toyota do hold more value than American cars, u can research it, so it will still have some value when it is paid off
Last two cars I've financed was for 7 years both were paid off before the 3 year mark. Don't know what the rate was for my Wife's 2012 BMW 535i (purchased new; bad idea because of depreciation) was paid off in 2013. Just paid off my 2011 M3 (June 14, 2017) Germany time. I purchased the M3 January 2015 for mid $45K range, 0 down and an interest rate of 3.49%.
The sad thing is that many people taking out 84 month loans are not investing the savings. They are buying more stuff they can't afford. 2-3 years into the loan they are so far upside down that they can't afford to sell it without rolling the negative equity into another car loan, digging a deeper hole.
texasyank48 so you kerp the car until its worth more than you owe on it. 4 to 5 years will give you some money back on it. Or do like I did. Bought a new car in nov.2003 and still driving it. ort
There are plenty of credit unions here in New York City which will finance a car for 86 months. Banks will even do 12 year car loans. There are some cars which people don't mind having long-term car loans on but those cars are typically cars which have very low maintenance and well-known reliability. There is nothing wrong with purchasing a car on a long-term car loan simply because the monthly payments will be cheaper even though the long-term interest accrued will be higher. Example : if I wanted to buy a Lamborghini Aventador and there was some bank that was stupid enough to give me a loan for 600 years: that Aventador would become affordable to me even if I never could live to possibly pay it off. More realistically: I could purchase an inexpensive Toyota for my kids and it would be easily affordable. But just because you have a long-term Car loan doesn't necessarily mean that it has to take that long to pay off. There really are no more prepayment penalties on car loans or mortgages. If you have lots of money you can make over payments in order to knock down the principal and reduce the term of your loan on your own. There is no prepayment penalty. But if you are going through hard times and you absolutely need a car in order to get back-and-forth to work then you may have to take a long time car loan in order to get a more affordable monthly payment. You can overpay on the principal when things get back to normal and you can afford to but you are under no obligation to pay more than you have a greed to on the long term Car loan you can overpay on the principal when things get back to normal and you can afford to but you are under no obligation to pay more than you have agreed to on the long term Car loan. I wouldn't mind having a long term loan on a vehicle that barely changes style for 8-10 years.
35k car bought in 2017. 12k in trade in equity, 4,000 downpayment. Been making overpayments all year, I owe 6k until paid in full @ .9% interest on 5 or 6 yr loan. It should be paid off by June 1st, 2019.
So say you get a 48 month loan on a $30000 car at 2.9%. That's $662.70 per month and a total of $1809.79 interest. If you had the same terms for 72 months it would be $454.47 per month with total interest of $2721.74. So you end up paying $911.95 more over 2 more years. I mean sure that's not ideal but its not exactly an earth shattering amount of money to get a lower payment. I don't think its so bad if you buy something with good resale value and actually hold onto it for a long time. The bigger problem is trading cars in constantly and rolling one loan into another, that's my addiction lol.
72 mos at 5% here... Sounds like a disaster, but wait there is more! Put down 50% (Sold previous car). Got 20% off with incentives. Paying off $5000 of the principal at the end of the month after only 8mos. Will do the same next year and have the loan paid off in a year or so. The 72mos loan for me was used to keep the cost low enough per month to build up savings and "in case of emergency" (Job loss, pay cut, economic collapse, family emergency, whatever) still afford the car.
Getting what you want at an affordable monthly payment makes you happier that getting what you need. 72 months works if you know numbers. Sadly, 36 months does not work for most people. Also, GAP insurance cost you more. Good point about purchasing a normal car versus that Ferrari.
I got a 6 year loan on my 2023 CPO TLX $352/mo. with lots of equity. I pay it like an 18 month though 5.99% APR. Oct 2023 - Would have financed $23,500 but put $2k down to bring it down to $21,500. March 2024 I owe $15,321. Warranty until 2/2030 or 100k miles. Will have a million net worth by the time I’m 50 10 years from now. Will probably take a break from my car habit to buy a house in the next 2 years.
I drive a 2000 toyota camry with 229k miles and still runs like a champ. But recently had to get my 70 year old mom a new suv due to her altima hurting her back due to how low it is and she can't afford another car. Got her a new 2017 Nissan Rogue SL. 2.1 Apr at 72 months through my credit union. I put down $10k. Payments are $325 and total financed $22k. Car will be paid off within 2 years anyways.
I've been talking about this for YEARS. People HATE it when you say that this is a terrible idea, even if you find the nicest most considerable way to say it. They might say "Yeahhh, BUT". Basically they KNOW they are getting screwed over, and they don't care. I don't care either to be honest. It's none of my business.....as long as I don't have to hear them complain about their financial problems.
Yesss financed 72 months 16.9% Toyota Highlander with 2 year contract for maintenance. Traded 2007 paid Pacifica with no money 💰. And I'm a NYer as well. Did it for convenience ( the PACIFICA was starting to nickel and dime me in repairs)
I traded in my 2000 Lexus rx300 and financed a 2009 Hyundai genesis v8 for 72 months car got repo now I OWN A 2001 ACURA MDX AND 2000 INFINITI I30 but I wish I would have known better when I was under 35.
Your rant has me fuming. It should be against the law to provide loans that are guaranteed to self destruct. I previously had a car, 5 year term, $500 down payment. It was the lowest end model off a 2 year lease. By the time I paid it off, it was worth nothing (I had paid at least 1.5x what it was originally worth) and a few months before I paid it off I had to replace the engine due to a defect which was no longer covered by warranty. I will never finance a car again. Now, my fiancé and I pay cash for our cars. I just bought a mint 2004 BMW for $4k, all in, and will be doing all of my own service work. I've noticed Canada is starting with these longer car loans too. Bye bye economy.
okay, Devil's advocate... I'm driving a 2004 Chevy Cavalier. looks bad, runs fine. I paid for outright back in 2006. Given that the car has already lasted 13+ years, when the time comes what's wrong with getting another Chevy to drive into the ground and financing over 7 years? (I'm looking at Chevy Volt, with the current insensitives a new volt cost as much as an old volt). Payments are 240 biweekly at 2.49%.
I hope a lot of people take away from this that they might want to try the used car route instead. Sure, there's always a risk involved but if you buy a used 2014 Civic, Corolla, or Mazda 3 you're probably going to save at least 5 grand and it'll run just fine. Don't let these car companies and banks trick you into paying over 20 grand for a car..only pay cash from now on!
I have never had a car Payment! All my cars have always been purchased in cash. I have 2 Jeeps worth over 20k each (Classic Jeeps) and a Classic Jag that are all paid for. From My first car all the way to my current cars, all have been purchased in cash and I couldn't be happier that I have done so. Save the funds, then buy what you want!
Even the dog couldn't stay awake for the whole video. Overall, good advice but I have to disagree with a lot of what he said. The difference in cost of a 5 year loan vs a 6 year loan for $25,000 at 3% is about $400 total. If $400 is the back-breaker for your net worth, you have more serious problems.
You know people laugh at cheapskates, but they're the ones making it and living the lives. People in my neighborhood own $6,000,000 homes and still hang their laundry up to air dry and drive Honda Accords. You accumulate wealth by making money work for you.
I walked into the dealership with cash in my bank but ended up financing the car with 0% APR over 60 months and my 30k is sitting in an index fund making 8% a year ;-)
I bought my 2013 F150 brand new 0 down for 33k Canadian with a 7 year term. drove it just under 3 years and made 4k on the trade in. traded for a 2016 F150 for 45k for 6 years. just sold it the other day and made over 1000$. could of traded it for another 2017 f150 for another 4k win. glad I'm staying a head of the game.
Paid down 20% , 48months, interest rate 13.9% but I will end up before the 48 months, i can put money in, that goes directly to the debt every month without any penalty.
Jay Z - "If you can't afford to buy it twice, you can't afford it."
MotoMan - "If you can't afford at most a 4 year finance, you can't afford it."
If you'e making $200k you're going to buy a $12,000 mazda 3 with 60k miles?
Joseph DAgostino Uh yea I would
That's almost exactly what I am working on doing getting rid of my GTI. I just want a sub 8k car, because I drive my car less than 3k miles a year and it doesn't matter if I have a 2015 GTI or a 2005 Jetta. I am still going to only drive 1-2 times every two weeks, so it doesn't matter if the car is fun and fast or slow and boring.
don't have to bay that cheap plastic shit box cars restore the old its much better than anyone new easy to maintain no worries new cars are garbage
John Doe not true, some cars are worth more than u paid for it, just u have to have the right car
everything you say is true , people's income hasn't gone up but car prices are threw the sunroof
car prices are going way down like for like, but people want better bigger newer etc. throwing themselves down the sink.
People are moving up to luxury in their car purchases too. Is it worth it? No but they do it because other people do it!
As a function of earnings [especially given their content] cars are more affordable today than before. People are just dumb and spending far outside of their means.
banstaman yeah a $15- $20k car is more loaded then a luxury car from 20 years ago.
Ron Bernard - as qz
Agreed! Personal Finance should be required throughout high school. Its just simply not taught and parents often don't understand it themselves.
Justin Loving I had a good teacher in high school that dedicated a week to talking about this kind of stuff. It wasn't even an economics teacher.
glad you did....its rare.
I've advocated the same thing for many years. This should start in the high school years and STILL be required to complete the college education.
I work in education. The state of NJ requires personal finance for all students to graduate from high school. Very good move.
The people who contribute to political campaigns decide what gets taught in public schools. They are not going to let personal finance become a core part of the curriculum. I am 53 and retired and have two homes not because we made a ton of money but because we managed what we did have well. We leased our first vehicle together over 20 years ago. We have not had a car loan since.
I have been driving a $4,500 Toyota Echo for the last 5 years...paid with cash. This car is amazing, needs nothing, and it will not die :). Oh, and I will be mortgage free this fall!!!
Wise and extremely relevant. Spot on. Guys listen up This apply to everything. House, car, holidays and so on. Stick to what you can afford and free yourself from unnecessary leverage. Bravo Motoman
that dog got bored at the end of the video LOL 😂
ahmed mido 🤣🤣🤣😂😂😂😂😂
ahmed mido he looks like he's about ready to go. Thinking is this guy ever gonna shut up.
ahmed mido He worked out the compound interest of that car over 7 years.
This is absolutely ridiculous! Don't buy cars you can't afford people!! I love cars, but if you have to take out a 7 year loan for it, I'll rather ride a bike. People's priorities these days are out of whack!
gotcoke795 and its diminishing returns, going from a 3 to a 5 year loan drops the payment a lot. 6-8 doesn't make a huge difference in the grand scheme and you probably give back most of the savings in higher interest
you can thank Obangyomama and the instant everything is me generation
j parks
your plain stupid.
By the time they pay it off, it's worth nothing and they've paid way more than it's worth. It's one of the only "investments" that is guaranteed to lose you a crazy amount. Had they waited 7 years then bought it, they would have saved a huge amount of money.
Agree. I love cars too. I just hate paying for them. I have worked to hard to build up my net worth and hell if it's going into that nice German machine.
2016 ND Miata, 5 years, $0 down, 0% interest.
I had the cash to put down 75% of the car's price, but at 0% interest, I thought it better to stick that $20k in an investment account and let it appreciate. I've earned $2k in that account in the last six months.
My first car, however, I stupidly financed for seven years and learned a valuable lesson on what NOT to do. Never again.
Antenox that's a stronger version of what I did. I bought a 1 year old CPO Honda at around .75% below what my money was making sitting where it was. I probably had a lower purchase price but higher APR. Still, the loan is working for, not against me. I'm spending most of the loan right side up. Dave Ramsey style? No, but pretty responsible all the same.
Antenox I'm similarish. 2016 Prius - 5 years $2000 down with 0% interest
Antenox
if you have a savings account that gives you $2'000 on a $20'000 deposit in 6 months (20% interest per year)
then you should borrow as much money as you can at any apr below 15% and put it into "your" savings account.
It's an investment account, not a savings account. The S&P has been particularly strong the last few months, but there's no guarantee this growth rate will be sustained. 1-year rate of return was 17.7%, but 3-year ROR was only 8.3%. But yes, this is the main reason I've only been making minimum payments to my car and student loans.
Yup similar but with 0.02% interest, on a 7 year loan. I didn't care about how low my payments were but I can make a lot more than 0.02% interest on the money I'm putting away every 2 weeks. Sure I'm underwater on the value for 4 of those years but I don't plan on switching cars until the 5th or longer year of the loan anyhow so the trade in value will be more than I owe. In that time I'll have garnered enough from my savings(I haven't made as much as you but I'm around the 8%) to either have a nice downpayment on the next vehicle or get myself into another 0% loan and continue on.
I'm one of those schmucks who financed $40K @ 72 months with $0 down. 1.99% APR. The best part is though that (hope you're sitting down MotoMan) the car I financed was already 3 years old when I took possession... Total interest if I'd gone full term was around $3k IIRC, which works out to about $42 per month or less than $1.40 per day. I'm on pace to pay off the loan in 3-4 years, but I wanted the flexibility to pay less because I'm in an industry (IT) and company that can see some bad turnover at any time. I also didn't want to touch the little I had in liquid savings (ie, emergency funds) for the same reason.
Regardless, I find it pretty hard to really care about paying $1.40 per day in interest, but then again no one has ever accused me of being a long-term thinker. Having said that, I have no doubt most of the people on their "paying interest is for stupid people" soapboxes spend way more than $1.40 per day, ~$10 per week, or $42 per month on things that don't do a thing for their net worth and might seem frivolous to others. I've known plenty of fiscally responsible people in my lifetime, but none of them were perfect. Some people are into gourmet cooking or video games or hiking, all of which require varying levels of expenditure with no real ROI beyond one's enjoyment. So if you're a car person, and you don't just view cars as A-to-B mobiles, then I don't necessarily see it as a sin to spend more than maybe you should on a car if it brings you real enjoyment.
Point he's trying to make is if everyone thinks that way, eventually that will affect us all. No matter what way you spin it to make yourself feel better, it truly is ridiculous to feel ok with paying a much higher total cost than what it's really worth, ESPECIALLY when it's a depreciating asset.
Well said. Getting tired of people looking at car buying as strictly a simple monetary investment/expense. How much of your "net worth" is dependent on being able to travel to create your net worth? That value should be added to your car. I'm self employed in the watch repair business. My car does more than just take money from me. It provides leisure travel. It provides travel that allows me to do my business(Deliver and pickup work & payments. Make deposits at the bank. Mail(send/receive) work. My vehicle is another TOOL just like any of my other tools. It costs something up front but begins to pay for itself as it gets used. Without it, I would spend way more funds and time trying to do my job without it. I really don't understand why people don't grasp this. Heck, if I didn't have 3 kids and was able to buy a Prius or something, and I figured it all its uses, you could probably come to the conclusion that the car pays me to use it!
NOTE: My current vehicle is a 2011 Dodge Durango AWD. It's around $400 a month. It was a good used buy 2 years ago. garage kept and looks like new even now at 136,000 miles. At $400 a month for what I do with it for my business alone is worth it. Not to mention being able to haul the family, friends, etc.
Good for you. I don't think he's addressing just you.
Some of you are missing the point...there no absolutes!!!
Buying a 3 year old 40k car at 1.99% is very different than financing that same model 3 years earlier when it was 'new' selling for 70/75k + %
Used cars where you've allowed the initial 'sucker' to finance the car companies R&D and advesting expense is a HUGE different ballgame.....
As mentioned 20-40 months after introduction many of the exact same models can be had at 25-40% LESS to finance amounts...
There is a 2 nights and 3 day difference between servicing a 72k loan for 8 years vs servicing the same vehicle 30 months later at 39k over 4/5 years....
A lot of that top heavy 'cream puff' ghost overhead 'cost' has disappeared at that point....
The issue is WHO pays for the WASTE, who FINANCES the nonsensical additional cost at the detriment of their family's expense?
It's a CAR, McFly!!!
One person spoke about TOOLS and pleasure usage which is a valid point....but either as a business person or just a 'logical' person, there is a value proposition or should be
When one buys and uses any type of TOOL....why would a reasonable person OVERPAY for tools based primarily on ADVERTISING and slick campaigns made to make ppl 'feel' better about getting screwed
FYI the girls at the strip ppl don't REALLY give a piss about you...it's about your WALLET McFly!!!
I enjoy luxury vehicles but I REFUSE to pay TOP DOLLAR when the vehicles are made so well and some other sucker is willing to EAT that cost and leave a HUGE market of late model barely touched beauties at 40-50% off for the taking
#Mercedes-Lexus 2 for 1
Y’all getting suckered into staying in debt. The middle class is dumb
I got my first car loan for 72 months. I felt pretty bad, but that was the only way to get a small APR. It motivated me. I payed off the loan in 2 years.
I put down around 15-20%
I have a 36 month loan at .09% but I will have it pay off in 27 months. I can't wait to not have anymore car payments.
Will Gonzalez
Nice man. What car are you currently paying for?
That8oySimba9302 I have a 2016 nissan maxima. How about your self ?
I put 30% down on 2015 Mazda Cx-5 in July 2014. Dealer had 0.0% interest special for 5 years. I just pay principal, so monthly payment is small.
whatever that's great zero interest
.09% interest is way lower than the Fed's 2% inflation target. Assuming your income is steady because you get annual pay raises based on inflation (if you don't, your boss is basically stealing back 2% of your salary every year and you need to start job hunting elsewhere), the bank is essentially paying you to pay off your car loan. The longer you can stretch out your sub-inflation APR, the more money you'll save over the car's MSRP in real dollar terms. Another 9 months is another ~1.7% off, if paying the smallest total amount for your car is worth it to you over not having your budget constrained by car payments for any longer than necessary.
Also, the less goes into your car payment every month, the more can go into your 401(k). Indexed 401(k)s grow as a function of time spent in the market, so when you put money in is as important as how much you put in. Let's say you have $600 per month. You could take out a 6-year car loan at $300/month, and put the other $300 into your 401(k) every month for the next 6 years. Or you could take out a 3-year loan at $600/month, and for the other 3 years you would've spent paying off the 6-year loan, put the entire $600 into your 401(k). Assuming the APR is sub-inflation in either case, which it probably is if you have perfect credit, the 6-year option will leave you with a larger retirement fund because you'll have money growing in the market for 6 years instead of 3. How much larger? I don't know, nobody can predict the next 40 years of stock values and bond yields. But it will be larger.
Kudos MotoMan on someone who makes a living touting new cars having the character to tell people not to overbuy .
He's a very sincere guy. Learned and articulate as well as honest. Being honest garners trust and I think that is the reason so many of us watch him.
Bruno TaTa m
If you default on your home, you can still live in the car if you've been making the payments.
32 years old from Canada here. I've spent about 6 months shopping "car payments", as you so well put. I've considered 5-7 years, especially the so-called 0,9%. To be honest, I was extremely tempted by a number of vehicles. But I was making about 42k a year at the time, and putting less than 5k a year in savings. Instead, I ended up spending about 2k on an old Infiniti that actually runs really well, and putting the payments I had planned in a savings account. I've north of 30k in savings now, 0 debt, and I've just started making real money at work with the last promotions. So yeah, I profoundly subscribe to what you've been saying. It would've been cool to drive a brand new Beamer or Audi, but at what cost?
I've been paying attention to car loans since about 2006, and the trend has been going nothing but up. Cars are not the only ones though. I've recently learned most people get 25 year loans on boats worth 100k, and 25k pools are typically financed over 10 years. 10 years, for a pool, in a house you will likely not even live in 10 years from now! We're not doing as well as we think we are.
Smart frank, but as hot as BMW and Audi cars are never own one. Lease only. 15 k warranty work on a brand new e430 4 matic Benz year one. Multiple issues. Each year. Stick with Japan. Replaced E430 with Lexus LS 430 took a bath on Benz. 0f 90 k. Used Lexus saved me 80 k. So used luxurious executive wheels are the way to go. See Kia 9000 {Middle East name} as u are young, u most likely need more racing DNA , but it has high resale and likely was abused. Besides shopping for used wheels is so exhilarating.
You're quite right. I'm sold on Japan used luxury cars. A bit disappointed in the new direction Infiniti has taken, but there's a lot of good options out there.
It's all about slightly used luxury cars, especially newer brands (Kia K900/Genesis). You can save a good 50% on most 2 year old cars which will still be much better than newer lower end cars, and ideally you can buy it outright.
Are people falling for these loans up there as much as people below the 49th parallel?
There are no exact numbers out there, but all signs point to yes. The largest financial institutions report around 60% of their car loan portfolio are 6 years or more.
I guess this guy has been living under a rock . The average cost of a new car has increased 500% over the past 40 years . There's no choice other than to extend the terms of car loans . Unless your a money manager CHA CHING !
the best thing to do is buy a car a few years old (4 years old) and drive it into the ground.
jjs_ playground that's what I'm doing next!
Just make sure you buy an appliance type of car to substantially minimize any unknown problems, i.e. Camry.
oldtwins I purchased a used 2008 Benz C300 and it's been pretty reliable. But I agree ideally an, appliance, car like a civic Corolla is ideal for maximum savings
Jameel Ja if you think paying thousands of dollars in repairs is safer then more power to you. i can count on one hand the friends i have had who were forced to pay thousands for repairs for new vehicles(buy the warranty). On the other hand, every single friend who owned a used car was either in the shop every year dropping $1000+ , or if they're skilled enough, doing it themselves. Also, buy gap insurance or you're a fool. If you total your car (which is much easier than you would believe) you'll need it. TL;DR buy a new car and pay over time but not repairs-- payments . buy a used car and pay over time but get stranded more-- not only will you have payments you'll have repairs--massive repairs. oil changes work but eventually you'll need expensive repairs at 100000 200000 and 300000 miles.
TacticsTechniques&Procedures while i do agree to a point, but that is a chance you take when purchasing a used car. I've had my C300 for 6 years, I paid half the price of a new one when I got it 6 years ago and it was 3 years old. I've spent around $3000 (in 6 years on repairs, this does not include oil changes). plus cars have become more reliable, but when things go wrong they do get expensive especially with electronic stuff.
I had a 6 year loan on a 2008 Nissan Altima 2.5s . The amount was $20,000 and the interest rate was 7.49 my payments per month was $348 and some change every month never again lol
Got to keep up with the Jones somehow! It all about appearances and what people think about you! Millionaires do what they want; since they have money. Many drive around in junkers. Warren Buffett drives around in a 10 year old car and nobody said a thing!
"I'm a car guy, and I want you all to be driving a super cool car..."
Kind of an oxymoron, considering the exorbitant cost of new cars continues to rise year over year. In 2016, USA Today reported that the average new auto loan reached a record $29,551, up 4% from a year earlier.
The stats presented at the beginning of this whining video were accurate, but specific to PURCHASED cars only. Today, nearly 1/3 of new vehicle transactions are LEASED because the cost of BUYING a new car is moving further beyond the reach of most buyers who can't afford to purchase new on a 3 - 5 year term.
While I'm not in the market for a new car, I'd sooner take out a 7 year loan before getting into the cycle of leasing a new car every three years, which is becoming way more common, and (in my opinion) a bigger problem than a 7 year loan, which for some consumers can be a good finance tool.
Four years ago, I purchased my dream car, a 2013 certified used Cadillac CTS Premium, with a 7 year loan at a 1.9% interest rate, with a down payment of 15%. I opted for the longer term because I wanted a comfortable REQUIRED monthly payment, but I doubled up on the payments, and added more whenever I had extra money available. Ultimately, I paid it off in May of 2015 (after 34 months) and now I'm enjoying a (nearly) new, payment and defect free car, with factory warranty that has less than 50,000 miles on the odometer.
In my opinion, finance a reasonable + reliable vehicle. Buying a $3,000 car may save you some money up front, but it isn’t going to last, then you’ll be sinking hundreds of dollars a month for repairs on a car that isn’t worth anything... So get that almost new (used of course) reliable car... Interest rates are super important but, they’re more important when you refinance the car. Getting the loan is kind of the harder part for most people. I did a 4.5 year loan at 9%, skipped the GAP and warranty to lower my payment. When I refinanced 2 years later, I’m down to 3.2% (saving almost $2300) with a $80 lower payment. I skipped the gap insurance because I use that extra money to pay the car down sooner (effectively making the gap insurance obsolete) now I make 2 payments a month, one for the primary payment and one towards the principal. Expecting to pay it off much sooner now.
Regarding the loan terms, I don’t see a huge problem with a six or seven year loan, just as long as you use that as a safety net. You should really try to pay more towards the principal each month.
Btw I’m 22
Buy a 2 year old car and let some other sucker take the biggest hit. i.e. 20-30% depreciation. I got a loan at 1.9% and invested the money in something making more than 2% while I made payments. Then I kept driving the same car without payments for 6 more years. Now I am going to buy another 2 year old car.
right on! I always tell this to people. cars haven't changed much in the past 5 or so years. only minor infotainment system tweaks every year. so a 2013/14 is practically the same as 2016/17 but cost 2/3.
80386 Cars don't change every year, only new models bring a lot of improvements. The chevy Cruze for example didn't change since 2009 until this year. So 2017 is a lot better than 2016 which is basically the same as 2009.
you're right, major refreshes bring some bigger change but even then, mostly electronic gadget change rather than anything fundamental. for example, new audi A8 is coming soon. I think the current a8 will be a great buy once the new one drops in. it will become significantly cheaper and it's already an excellent car.
and 20-30% of the car is used up, especially if it's a domestic
20-30% of a car is used up in 2 years? Hahahahahhaaha. I was being conservative with my numbers. Usually after 1 year a car has lost 25-30%. Also pick a car that has a history of good resale and reliability so it will last.
FUN FACT: I don't have a fun fact.
have you checked the prices of new cars recently? They are all $30k-$50k ; Thats why you have those loans. Back when cars were 15k-30k, 3 year -5 year loans were the norm
Y10Q yup. That's the reason. Getting a good car takes a ludicrous amount of money. I know plenty of people with these long term loans. I myself would never do it, but I make my cars last. Mine is 13 years old right now and runs great because I take care of it. When it's time to buy a new car I'll pay cash. I've been saving for 13 years!
There are plenty of new cars in the $20-25k range. There are plenty of good used cars for $10k. There is no reason to finance if you have basic money management skills.
Matt Stevens Look into Tony Seba and his research on autonomous cars. If you knew what I know about the future of cars, you'd keep your current one until the wheels fall off, or autonomous cars get cheaper to use per month than maintaining and insuring your existing car, whichever comes first. That cash for a new car is better spent on paying down other debts, putting a down payment for a home (when the next recession hits), and/or investing for the long term (30/40 years) in a Roth IRA, index fund, ETF, or mutual fund.
I have to admit, I was one of these idiots until I went through Dave Ramseys FPU. I bought a 2015 Mustang GT, 8% down for 72 months at 0%. I sold it 6 months later and took a $4,000 loss because I was going through FPU. Now I have a 2008 Honda Accord that is owned outright and money that goes into the bank every paycheck instead of to a loan. Absolutely no regrets, and I know I made the right choice to sell the Mustang.
Kirk Smith your first mistake was buying A mustang 😂 lol
That was a terrible decision. The math doesn’t add up on that. Dave Ramsey has good advice - sometimes. “This ain’t it.”
one year ago I bought a 16 year old (2000) bmw 320i, with 20K miles on the clock, (yes, you read right: 20,000 miles) for a whopping 1100 dollars. the car was soooo "new," it even still smelled new after 16 years. Never ever ever buy any depreciating asset new. common sense.
Financed, 60 months, 15% down payment, 0% APR
The leading reason for these loans that isn't really being mentioned here is that the average transaction price for a new vehicle (light non-commercial) in the US has now surpassed $35,000. Take that price and set a "traditional" 36 month loan up, a generous $5,000 down, 4% interest rate, 5% tax. You now have yourself a $940/mo payment on an average car. Clearly the average person can't afford an average new car. Hence 72 month terms.
I would love to keep driving my old beater but I have to drive far distances so the trade off in safety is worth it I think. You have to prioritize.
As a 30 year old accountant, the notion that anyone under 35 doesnt ask about the interest rate on their loans is perposterous
Maybe it has to do with a lack of personal finance education in high school?
- 5 year loan at 2.9% (CPO 2015 Golf R so rates are a little higher since it's used)
- got 2.5K from a trade-in and put 4K down
Thank you for the honest content. I have no doubt we are in an economic bubble, and your stats are sure pointing that way...and you haven't even mentioned a single fact about the housing market or student loan debt.
I bought a new Toyota three years ago. Paid cash for it despite Toyota offering 0% financing. Why? Because I got $6,000 off sticker by paying cash versus only $2,500 off if financing at 0%. Zero percent financing is such a scam...
$3,500 was cash back (not available if taking the 0% financing, and the other $1K was Military discount (also not available if using 0% financing).
Wayne L. he said 6k off
Pretty sure Kumo starts every cut sitting and slowly lays down every time.
People driving 50k cars, making 40k a year, and no money in saving.
0% for 48 months on my last purchase with 30% down. I only buy with rates lower than 2% just have to wait for the deals.
Work hard, save harder and pay cash for it.
If you have enough cash it's definitely worth it
I have to disagree on this one.... I have a finance degree + an MBA in finance and I work in the financial services industry in NYC. I have perfect credit and more than enough $$ to get a 36 month loan. That stated, the interest cost difference between a 36 month loan and 72 month loan for an average car - like a Honda Accord is less than $1000 if you have good credit. When you factor in inflation and opportunity cost it is actually smarter to extend the term if you can get favorable rates. Also - the fact that it depreciates is the exact reason you want to extend payments. You want to invest as little over time into a depreciating asset - particularly one that doesn't have any tax write off benefits.
Worth noting, this only applies if you're using credit responsibly. Clearly - if are doing this because you can't afford a car then you have different issues.
Strunz0 Cars if I take out a loan of $15,000 for a car that takes 6 years to pay off. Let's say with interest, total I pay $17,000. Now with the car depreciates as years go on, I'm locked in with paying $17,000 while the car values goes down to $12,000 by the time I pay off the loans. Wouldn't long term loans be disadvantageous?
Lin Xu no. In this example at a 2.75% rate, a 72 month loan would have total interest of just over $1500 while a 36 month loan would have about $800. If you factor in inflation of 2% your real rate would be less than 1% - you're essentially paying 0% in real terms. With respect to depreciation, it becomes an accounting thing... if you plan to keep the car then depreciation doesn't really matter since the car will have a remaining useful life that exceeds its market value to you as an owner....e.g. A Honda Accord worth $12k probably has another 10 or more years of trouble free service left
OK I get bit more now. What did you mean by opportunity cost? How does that factor in?
Lin Xu I mean the opportunity cost of sinking monthly cash flow into a shorter term loan. In your example, the 72 month car payment would be more than $200 more per month. The opportunity cost of the short loan term is to not invest the extra $200+ in a more equitable investment like a dividend paying stock at 5%.
Last finance of a car was in 2008. Toyota yaris with a purchase price of 14,750, put 8,000 down. Super low rate as the recession had just hit. 24 mo loan @ 300. Still driving it at 200k waiting for the next bubble burst.
LOL why would buy a new econobox? You could've bought a used civic for less than the 8 grand you put down and it would've cost less in the long run even with repairs and higher miles.
I'd advise you keep your current Yaris as long as it remains reliable, because of the upcoming autonomous car revolution. Stanford professor Tony Seba is a good place to start researching. On-demand autonomous cars will be too cheap for those with financial struggles (read: most Americans) to resist, so this sudden demand in autonomous cars will cause depreciation on non-autonomous cars to hit like a hammer. This will drive many loans wildly underwater, and the resulting defaults will cause the over-$1 trillion auto debt bubble to burst. There may be another bubble that bursts before that, but if so, it will simply be the first of the two hammer blows on the economy.
I put down $8,000 on a 2016 subaru outback slightly used (12,000 miles) that was $14,000 (Saved nearly 50% of the new cars value buying it slightly used the same model year lol just proof cars depreciate in value tremendously) after negotiating. I'm on a 26 month payment plan. I couldn't imagine paying off a car for 80 months! That's just ridiculous. If you can't afford to bring your payment down to under 400 a month for 4 years via down payment, there's no point in owning the car.
I completely agree with you, unless I can make money on my money by putting it somewhere else. Hence my latest purchase was a 0% interest, 72month loan on a 4 month old service loaner CPO that was negotiated to be 20% below MSRP. Several reasons I took the 6 year loan.
First, 0% allows me to invest my money into other areas that make me at least 3-5%. Compound that over the 6 year period, and I'm happy.
Second, the negotiated purchase price along with the payments on the loan put me ahead of the depreciation schedule compared to leasing. This leaves me with not being concerned with having GAP insurance.
Third, the CPO comes with an extended warranty that just so happens to cover the vehicle over the life of the loan.
As far as cash down payment goes, just 3%.
I would have taken a 5year or even 4year 0% loan if they offered. They didn't so I didn't.
Gary DePriest this is exactly right. With favorable rates, extending the term is exactly what you want to do. With inflation at around 3%, any rate at or below 3% is essentially a 0% or better loan.
Strunz0 Cars I think currently us inflation rate is below 2%
Lin Xu you are correct sir. Just using 3% as a historical average for illustrative purposes. Point still stands.
Gary DePriest this is the same reasoning I had with my latest vehicle purchase. I had a 72 month loan with a 2.94% interest rate. I could have paid cash for the vehicle, but it would have meant taking my money out of stocks. My money in stocks has tripled in the last 3 years. Also because I bought an exotic supercar, the value hasn't depreciated that much and is worth quite a bit more than the original loan value still. I feel like I made a smart choice, not a bad one.
Which car go up in value
Yep people are dumb including me. But I've waken. I'm now on a quest to be not owing anyone within 5 years.
no this is amazing for us looking in the second hand market in cash 😂😂😂😂
I am 62. Over the years, I have bought ten vehicles. I paid cash for every one of them. Most I bought new and drove for a LONG time. Two were used, when I saw a deal on something I needed at a price that I could not resist.
When I think of borrowing to buy a car or truck, I ask myself "Do I really want to pay twice for this thing?"
I don't see the problem with a super long loan if the interest rate is 1% or less.
Honestly, that's just a long term lease NOT a purchase...because by the time one has 'paid' off the 'purchase' the car is so old and nowhere near what was paid what was the point?
Why not lease and move to a newer ride earlier vs being 'stuck' paying the last few years, where the car's value is to upside down vs the principle left where financially you can't move...making a large payment on an outdate by that time model.
By the time the 7 years is up, who wants that now 'old' out of warranty vehicle?
Why not just lease/rent in the 1st place then move on the a different newer ride every 3/4 years because the likelihood is after a 7yr loan with 24 months you're back on the car note treadmill again or paying enough towards repair that you may as while be.
Cars are a losing proposition, it just comes down to minimizing the lossess and balancing what's acceptable in terms of feeling good about what one is driving and IMO being 'made in the shade' "comfortable" about the amount one 🔥 monthly for the privilege.
A decent portion of ppl might be better of using Uber primarily and renting unlimited mileage cars as required and/or maintaining an older paid off model when Uber won't cut it vs paying TOP DOLLAR for a vehicle that sits in the parking lot 9 hours a days at work and is parked 8-10 hours in the garage while folks sleep....
Again ROI for many is horrible, when compared to the opportunity cost, being burned due to 🚗 loans vs stuffing 401ks, college funding, investments or small biz ownership
MANY PEOPLE BUY THE CARS WITH A 7 YEAR LOAN, BUT LIKE ME I PAY THEM IN 1 OR LEES THAN 2 YEARS. JUST FOR THE PAYMENTS TO BE LOW FOR AN EMERGENCY I DONT HAVE MONEY... DUHH come on can we use some brain here. does that mean I'm exactly broke?
Do you have less in assets than liabilities? Yes you are broke
you should have put some examples of car loans calculations to illustrate your points, showing total interest, total amount that will be paid at the end of the loan ...etc.
I'm 39 married and 2 kids, always paid cash for my cars and I am a car nut to date i have owned 167 cars, until I got married never had a car payment bought a certified used Buick a week before we got married for $13k and a 3 year loan with $1000 down in 2003. Shortly after paying on it for a few months we traded it in as my wife totaled our 1993 Camry we bought a 2002 Corolla and a 2001 Camry kept the same 3 year term on both and put $4k down after paying those off early. I bought a 2003 Lexus ES300 cash for $6k and bought her a 2001 Lexus Rx300 for $8k cash drove both for 2 years and the es300 for $7k and sold the rx300 for 8k took the $15k bought us a 2005 Lexus Rx330 fully loaded and bought my friends Honda Accord for $2k
then in sold accord in 2011 Bought a 2009 Honda Odyssey touring for $17k with $7k down and a 3 year loan. Sold Odyssey and Rx330 in 2015 bought 2 cars a low mileage 2009 Lexus Gx470 put $12k down and got a 2 year loan @ 3.9% and bought me a certified pre owned 2013 Hyundai Azera limited this was the first time I ever got a 5 year loan even with 1.9% I never want to do that again. My rule is around 150,000 to 160,000 miles I sell them or if they become a nickle and dime me with repairs. But I will never sign a 5 year loan again.
Very good info that more car review guys should touch on. Keep it up
I purchased my home and drive a 1994 Cadillac Fleetwood (super clean). Paid $3,500 when I was 17 and I'm only in my mid 20s.
I'm buying a 2 year old Audi A7 in 6 months with 50% down.
Most idiots pay expensive rent for apartments and leasing cars. *Always broke and don't even own anything!* 🤣🤣🤣
i dont think you understand lower income too well. either way im happy with my 72 months at 0% with 0$ down
HA! Let's just say this side of me *doesn't* just come from reading books. I was flat broke, deeply in debt and had zero support system to help me out of a mess of my own creation. . .
If you are at such a point in life... you should probably not get a new car.
Peter Fabian If you're at such a point in your life that you can get a new car but barely, you definitely shouldn't get a used one unless you're mechanically inclined and have a lot of time on your hands.
I spent the better part of my life driving old crap. Spending your every non-working hour fixing the dumb thing makes a shitty life.
Better off buying something warrantied than wasting away underneath an old POS.
dchawk81 I can scarcely believe that any car in America has a timer installed that flips the switch from good enough to everything falls apart immediately.
If you get a $5000 used car and set aside $5000 for repairs, you're still $10000 ahead from a new $20000 car, and I'm not even counting the cost of buying the money
Peter Fabian The older the car gets, the more repairs it needs. And they can get pretty serious.
Outstanding observation; forget about climate or hating the President - pay attention to economic issues THAT MATTER
2004 Volvo S80, 20% down, 4 year loan at 4.5% paid it off 6 months early, still have the car now at 201,000 miles
On the contrary, I think the smarter thing to do is to finance for as long of a period as possible as long as you have the cash in hand for what the vehicle's financed amount is and you invest that same money for a higher rate of return than the financed interest rate. This reduces your monthly payment incredibly and puts your own money in an appreciating asset(s).
This also assumes that a monthly payment fits within someone's budget. If someone got a cash bonus at work, they might be able to buy a car wish cash, but a bi-weekly payment of whatever $$$ might be pushing the budget a bit.
More importantly it assumes that the financing is in a very good terms - but seriously, do you expect car loans to be as good as you can get bigger returns by putting your money into a fund or something?
Haris M exactly. I Have a degree in finance and an MBA in finance + I work in finance and this is 100% true.
Awesome!! Currently pursuing my MBA in finance as well
Absolutely correct. Another point to make is when you're younger and looking to buy into a home. Debt to income ratio for a young professional can be radically affected by simply stretching the paper-spec'd monthlies. Most younger folks also carry student loans (too late to do anything about it by this point) so this is even more important.
The problem I've noticed is that many people tell themselves "being old sucks, so I don't care if I have to work when I'm 65, I will hate life anyway, so I will live it up today".
Last car I financed (an Audi S4) I paid nearly 80% of it thru trade in and cash and financed the remainder at 0.9% at 36 months. Ended up paying it off a year early. I ended up doing an even trade in for a hybrid commuter after 3 1/2 yrs of ownership and didn't pay a cent to drive the car off the lot
Kayone73 What year is your Audi? is it stick?
I personally have only bought cars in cash, granted I'm only 18. I've thought about financing a car many a time but I dont want to be paying out the ass every month for insurance and a car payment. I realize from just this video that you are wholeheartedly against getting a loan (understandably) but my question to you is. Is there a way to find a cheaper way to purchase a reliable vehicle with or without a loan that isn't going to cost me an arm and leg?
MotoManTV: to answer your question (s), I have financed a car, my current car is financed over 3 years and I put down a little over 10% (I purchased it a year ago, and I am 30y/o now). Also, I did ask the what my interest rate would be. I traded in a car I had a 6 year loan on (I did get a decent deal on it), but the two main reasons I switched cars was that we wanted something bigger for our growning family, and I wanted to pay it off more quickly.
Now a question of my own. If you were to start over completely, to where you had no more than $5000 to spend on a car, and had to build your finances back up, what would you start with and why? I think that would make a great video. Thanks for your great channel!!!
On a side note, I think that one of the only vehicles that would make any sense what so ever to finance over more than 5 years would be a desiel (heavy duty) truck. They seem to hold their value far longer than cars of the same initial price.
GREAT QUESTION!!!!! I think I may run with this . . . Stay tuned . . .
MotoManTV Bought a New 2014 KIA Optima $24,000 for 6 years with KIA Finance for $410/month (includes Gap Insurance). Put $1500 down. Have 3 years left on the loan. 6-7 years is the only way to afford with the car prices today. Most lease because car prices are so high.
Having kids? Mistakes were made.
That would make for a great episode
It sounds like you'll be really spending around 29k and after 6-7 years the car will be worth almost nothing if you own and try to sell it. Imagine if you bought the 2014 model in 2016 or 2017 for maybe ~15k instead. You could save $10-20k and have the same exact product. Do this a couple of times and suddenly you can afford to buy a car cash.
It's easy to think that this is the only way to afford a car, but in reality you end up spending tens or hundreds of thousands of dollars over your lifetime which you could have saved or invested, all because you chose not to wait. I think this is what this video was pointing out.
I love my $3k 2008 Ford Crown Victoria with 118,000 miles.. drives good.. drives even better that it's paid for in cash.
Excellent advice! I'm in my 60's and have been leasing my vehicles over the past 9 years. This works out well for me given the low miles I drive these days and I NEVER put a cash down payment on a new vehicle. Oh, and thank Kumo for his expertise on this subject, too. ;)
is this guy for real? we indoctrinate our littlest most smallest minds from a very very young age in the idea of now and me first. advertising agencies employ teams of psychological experts and researchers to manipulate the human mind to act this way in the name of corporate profit. what we are seeing here, in this example are their fruits of their labour. millenials have now grown up to be consumerist robots we have set out to make them. advertising and mass media culture has tought us the me and now holds more value then someday or no. those growing up today have a slim chance at humility and virtue. its only going to get worse. and to those that have played the game the correct way, you will not be insulated from the masses as their greed and self centeredness will bring the ehole system down once again although probably bigger than '08
I seriously considered buying a Ford Fusion Hybrid last year. Ford was offering 0% financing for 72 months. In an instance where 0% (or 0.9% or maybe 1.9%) is being offered by the finance company, it would be crazy not to take advantage of it. Pay the vehicle off early by saving the dollars you save with the lower car payment.
If those 72-84-month loans have ballooned due to super low interest rates, then I really don't see a problem.
Tom Eisenmenger exactly - at 0% it is a no brainer so long as you can afford the payment. I wish I could borrow more than the value of the car when rates are 0%!!
My Dad's only two pieces of advice: pay cash; and let the boss man figure out you've got quitting money.
2:38 - Calling it a "Depreciating Asset" is an oxymoron. Just say "Liability". 😀
If it depreciates then it's not an Asset.
76ers you are incorrect. Most assets, according to GAAP, depreciate. This is why, in the accounting business, we use depreciation schedules to valuate assets.
Equipment which is an asset depreciates in accounting.
I used to think that people must be so stupid and how could they do this etc. Now I think how can I get into the car finance game.
This proves that this generation are poor.
Don King Your generation lacks proper grammar.
Edgar Martinez Grammar doesn't matter on the internet
Proud to say I bought both my cars with cash! 1993 mazda mx-6 for $1000, and a 2009 nissan versa for $3500
Everybody always says I can't wait to not have a car payment yet they'll finance a house for 30 years. And you'll always have payments as in healthcare, property taxes, insurance, phone bill etc.
While the housing crisis of 2008-2011 is an exception to this, most people sell their homes for very close to what they purchased them for; or more. The same cannot be said for most cars ("classics" being the exception here).
DarthRegis true but if you sold your house for what you paid for then you actually lost money considering taxes, interest, insurance, realtor fees and commission and closing costs.
A house is a completely different investment than a car. Houses in the right neighborhoods almost never depreciate and they are an asset that lasts unlike cars, which don't have a life as long lasting as a home.
BIGWEBB88 lol hahahaha in America pay til death, even in death the post man still has that bill in envelopes with your name on it, they will deliver that shit to your grave site.
my house is worth more now then when i bought it..and ive only been in it 5 yrs and it shot up 15,000..because of the growing area..cars dont do that..
you can get really cheap used cars. yes you will have to work a little bit harder but they are worth it. brand new cars are really not worth it, waste of money.
I just bought a 2017 Cadillac ATS and have a three year loan at 1.59%
Timothy Dorsey nice. what bank?
Timothy Dorsey that's a low interest rate, the catch is , it's available at recommended retail price. Get the loan from a bank and use it to pay cash and save 15% by negotiating the cost is a better and even cheaper option.
I personally would not takeout a loan for a car that depreciate at a rapid rate. Having said that better still, find the car you want in a show room . . . . Wait 12 month and get it used for 1/3 price. It is still a new car.
Mister Steel great advice and I surely will take it...
Ah so there's the catch, good interest, but the money is in the markup. I see.
USE Credit Union
Schools teach ignorance not personal finance so that companies can keep the employees working. that is just one facet of the big machine to keep people obediently working towards retirement.
EVs last longer than regular cars ...I hope they start doing TEN year loans
John C they also depreciate much more drastically
They do ?...someone needs to tell Tesla that
John C in general the depreciation is much more drastic, tesla might be the exception, but if you look at chevy Volt, leaf, BMW i3 and others it is true.
Yeah right now the lower end cars suffer from obsolescence since they're not 100% replacements for all people but those are on the horizon (model3). So leasing is probably the way to go. One of the truly great deals in cars right now is the i3 lease. Almost cheaper than gas, and includes free charging.
John C fuck ya. you can buy teslas model s for about 50% of msrp 2-3 years old. so your magical tesla still sucks
Seriously, I thought I was a got damn loser because I couldn't pay for my current car in cash. Thought I was a loser because I usually paid my car of in 2.5 years on a 5 year car loan. Even though my credit score is a 815, thought I was still a loser because I graduated 3 years ago, at the age of 32 with my Ph.D, and paid of $55,000.00 off on a $70,000.00 student loan. Thought I was a loser for moving in back with my parents to pay of all my debts off as soon as possible, including child support, my daughters tuition, medical insurance, and so forth. Always see people at the gym driving really nice cars like Mercedes C and E classes, Audi's and so forth. Maybe most of these people aren't as wealthy as I think they are.
ErwinSchrodinger64 They aren't and you should feel proud of yourself because you actually have discipline unlike a majority of people here who feel that it is ok to finance a car for 7 years they don't understand the risk
People if you need to take out a loan for a car. YOU can NOT afford it.
Not talking 6-7 years but ANY auto loan...
Nah, that's too simplistic of an analysis. Taking out a loan on a car makes perfect sense if interest rates are low. You can put that money to better use elsewhere in the meantime. I took out a 6 year loan at a 0.9% interest. Rather than plunking down that 75,000 all at once (on an asset whose value is going nowhere but down), I paid zero down and invested it in an index fund that is almost definitely going to grow at a rate higher than 0.9%.
The other thing to think about is the value of the car as a percentage of your total cash/liquid investments. If you literally do not have the cash in the bank or in highly liquid investments to pay for it in full (at least once), you do seriously need to ask why you're getting it in the first place
Damn. I wish I could get a 1% interest rate on a car. My mortgage is not that low.
Manufacturers offer it from time to time through their credit arms.
Mark Day you sound stupid. You dont just throw all your cash into something like that.
Totally false. My wife's car was 72 months at 0.0% making it the logical choice. As far as can't afford it? I paid cash for my 14 Mustang GT new off the lot.
Now as far as the theme of this video goes, there are people that need reliable transportation to get to work. Old used cars simply do not provide that security, and I can get deals any day of the week on a new car that are below used prices. If someone can get a car like a Hyundai with a 10 year 100K warranty that will last the duration of the loan, who gives a rats ass what it is worth at the end of the note? I generally get from 25-33% off of sticker when I negotiate for a car. Can you do this with every new car? Of course not, but using volume dealers and knowing when and how to buy are everything.
bigger question is, what was the avg. amt. fin. of those 6-7 year terms. cars are seriously overpriced and most Americans are seriously underpaid. Not to mention overtaxed but I digress. our commute is too long to risk driving a beater for a few years. you need to look at the reality of life, not everyone is trying to keep up with the Joneses...some are just trying to keep up.
Chris Sanchez great point
That's how this guy can afford premium dog food for the doggy!
I know my interest rate, I did go 6 yrs for a lower payment, it's a honda, my wife drives it like 6 miles a day, honda and toyota do hold more value than American cars, u can research it, so it will still have some value when it is paid off
It only works if driving a classic and 2,000 miles a year.
2009 toyota tacoma 32659 mileage. 66 month pay it off
Last two cars I've financed was for 7 years both were paid off before the 3 year mark. Don't know what the rate was for my Wife's 2012 BMW 535i (purchased new; bad idea because of depreciation) was paid off in 2013. Just paid off my 2011 M3 (June 14, 2017) Germany time. I purchased the M3 January 2015 for mid $45K range, 0 down and an interest rate of 3.49%.
great rate.
yes, 60 months at 1.49% , 20% down
cars are NOT assests!
Unless your flipping cars or own a dealership.
The sad thing is that many people taking out 84 month loans are not investing the savings. They are buying more stuff they can't afford. 2-3 years into the loan they are so far upside down that they can't afford to sell it without rolling the negative equity into another car loan, digging a deeper hole.
texasyank48 so you kerp the car until its worth more than you owe on it. 4 to 5 years will give you some money back on it. Or do like I did. Bought a new car in nov.2003 and still driving it.
ort
Not being able to sell a car even if you wanted to is not a good place to be. Love the idea of keeping a car for a long time.
There are plenty of credit unions here in New York City which will finance a car for 86 months.
Banks will even do 12 year car loans.
There are some cars which people don't mind having long-term car loans on but those cars are typically cars which have very low maintenance and well-known reliability.
There is nothing wrong with purchasing a car on a long-term car loan simply because the monthly payments will be cheaper even though the long-term interest accrued will be higher.
Example : if I wanted to buy a Lamborghini Aventador and there was some bank that was stupid enough to give me a loan for 600 years: that Aventador would become affordable to me even if I never could live to possibly pay it off.
More realistically: I could purchase an inexpensive Toyota for my kids and it would be easily affordable.
But just because you have a long-term Car loan doesn't necessarily mean that it has to take that long to pay off. There really are no more prepayment penalties on car loans or mortgages. If you have lots of money you can make over payments in order to knock down the principal and reduce the term of your loan on your own. There is no prepayment penalty.
But if you are going through hard times and you absolutely need a car in order to get back-and-forth to work then you may have to take a long time car loan in order to get a more affordable monthly payment.
You can overpay on the principal when things get back to normal and you can afford to but you are under no obligation to pay more than you have a greed to on the long term Car loan you can overpay on the principal when things get back to normal and you can afford to but you are under no obligation to pay more than you have agreed to on the long term Car loan.
I wouldn't mind having a long term loan on a vehicle that barely changes style for 8-10 years.
35k car bought in 2017. 12k in trade in equity, 4,000 downpayment. Been making overpayments all year, I owe 6k until paid in full @ .9% interest on 5 or 6 yr loan. It should be paid off by June 1st, 2019.
So say you get a 48 month loan on a $30000 car at 2.9%. That's $662.70 per month and a total of $1809.79 interest.
If you had the same terms for 72 months it would be $454.47 per month with total interest of $2721.74.
So you end up paying $911.95 more over 2 more years. I mean sure that's not ideal but its not exactly an earth shattering amount of money to get a lower payment.
I don't think its so bad if you buy something with good resale value and actually hold onto it for a long time. The bigger problem is trading cars in constantly and rolling one loan into another, that's my addiction lol.
72 mos at 5% here...
Sounds like a disaster, but wait there is more!
Put down 50% (Sold previous car). Got 20% off with incentives. Paying off $5000 of the principal at the end of the month after only 8mos. Will do the same next year and have the loan paid off in a year or so.
The 72mos loan for me was used to keep the cost low enough per month to build up savings and "in case of emergency" (Job loss, pay cut, economic collapse, family emergency, whatever) still afford the car.
Getting what you want at an affordable monthly payment makes you happier that getting what you need. 72 months works if you know numbers. Sadly, 36 months does not work for most people. Also, GAP insurance cost you more. Good point about purchasing a normal car versus that Ferrari.
I got a 6 year loan on my 2023 CPO TLX $352/mo. with lots of equity. I pay it like an 18 month though 5.99% APR. Oct 2023 - Would have financed $23,500 but put $2k down to bring it down to $21,500. March 2024 I owe $15,321. Warranty until 2/2030 or 100k miles. Will have a million net worth by the time I’m 50 10 years from now. Will probably take a break from my car habit to buy a house in the next 2 years.
I drive a 2000 toyota camry with 229k miles and still runs like a champ. But recently had to get my 70 year old mom a new suv due to her altima hurting her back due to how low it is and she can't afford another car. Got her a new 2017 Nissan Rogue SL. 2.1 Apr at 72 months through my credit union. I put down $10k. Payments are $325 and total financed $22k. Car will be paid off within 2 years anyways.
I've been talking about this for YEARS. People HATE it when you say that this is a terrible idea, even if you find the nicest most considerable way to say it. They might say "Yeahhh, BUT".
Basically they KNOW they are getting screwed over, and they don't care. I don't care either to be honest. It's none of my business.....as long as I don't have to hear them complain about their financial problems.
Yesss financed 72 months 16.9% Toyota Highlander with 2 year contract for maintenance. Traded 2007 paid Pacifica with no money 💰. And I'm a NYer as well. Did it for convenience ( the PACIFICA was starting to nickel and dime me in repairs)
I traded in my 2000 Lexus rx300 and financed a 2009 Hyundai genesis v8 for 72 months car got repo now I OWN A 2001 ACURA MDX AND 2000 INFINITI I30 but I wish I would have known better when I was under 35.
Your rant has me fuming. It should be against the law to provide loans that are guaranteed to self destruct. I previously had a car, 5 year term, $500 down payment. It was the lowest end model off a 2 year lease. By the time I paid it off, it was worth nothing (I had paid at least 1.5x what it was originally worth) and a few months before I paid it off I had to replace the engine due to a defect which was no longer covered by warranty. I will never finance a car again. Now, my fiancé and I pay cash for our cars. I just bought a mint 2004 BMW for $4k, all in, and will be doing all of my own service work. I've noticed Canada is starting with these longer car loans too. Bye bye economy.
okay, Devil's advocate... I'm driving a 2004 Chevy Cavalier. looks bad, runs fine. I paid for outright back in 2006.
Given that the car has already lasted 13+ years, when the time comes what's wrong with getting another Chevy to drive into the ground and financing over 7 years?
(I'm looking at Chevy Volt, with the current insensitives a new volt cost as much as an old volt).
Payments are 240 biweekly at 2.49%.
I hope a lot of people take away from this that they might want to try the used car route instead. Sure, there's always a risk involved but if you buy a used 2014 Civic, Corolla, or Mazda 3 you're probably going to save at least 5 grand and it'll run just fine. Don't let these car companies and banks trick you into paying over 20 grand for a car..only pay cash from now on!
I have never had a car Payment! All my cars have always been purchased in cash. I have 2 Jeeps worth over 20k each (Classic Jeeps) and a Classic Jag that are all paid for. From My first car all the way to my current cars, all have been purchased in cash and I couldn't be happier that I have done so. Save the funds, then buy what you want!
Even the dog couldn't stay awake for the whole video.
Overall, good advice but I have to disagree with a lot of what he said. The difference in cost of a 5 year loan vs a 6 year loan for $25,000 at 3% is about $400 total. If $400 is the back-breaker for your net worth, you have more serious problems.
The intricate care Kumo took to lie down was mesmerizing.
LOL!
You know people laugh at cheapskates, but they're the ones making it and living the lives. People in my neighborhood own $6,000,000 homes and still hang their laundry up to air dry and drive Honda Accords. You accumulate wealth by making money work for you.
I walked into the dealership with cash in my bank but ended up financing the car with 0% APR over 60 months and my 30k is sitting in an index fund making 8% a year ;-)
I bought my 2013 F150 brand new 0 down for 33k Canadian with a 7 year term. drove it just under 3 years and made 4k on the trade in. traded for a 2016 F150 for 45k for 6 years. just sold it the other day and made over 1000$. could of traded it for another 2017 f150 for another 4k win. glad I'm staying a head of the game.
Paid down 20% , 48months, interest rate 13.9% but I will end up before the 48 months, i can put money in, that goes directly to the debt every month without any penalty.