Car buying tips

[Winston]

 

[Sooner Boomer]

NOW! you post this! Just came home with my new (used) car. But I think I did OK. Paid cash. Checked out the car, and the dealership. Checked out make/model/year for known problems and recalls.

My friend and I were discussing it on the way home. Assume this car is of typical build/quality. They're estimated to last 200K miles. Considering the cost new, the first 100K miles cost about $20,000. The next 100K miles will cost about $5000 (in car value).

 

[mpitfield]

His finance advice is complete rubbish. He is conflating floor plan costs and end user finance, they have nothing to do with each other. I was an Business Manager AKA F&I guy in the car business for 5 years. Fact is most new cars are financed through the traditional banks or manufacturer financing, ether way the dealerships floor planning finance has no bearing on this and is separate. Besides if someone really had the cash to pay for a new car, with the low interest rates it's not hard to get a better return on your money if you invest it in something that actually appreciates and that is not a new car. Use the borrowed money and put your money to work for you.

 

[vcp]

Best used cars I've bought were 'Granny' cars - owned by friend's elderly mothers. Single owner and garaged, seldom driven. Car I have now had a trickle charger installed under the hood to keep the battery up between uses. It was recently used in a short film where they needed an '80's period car.

 

[bjphoenix]

My strategy is to buy a 2-3 year old used car with 20-30k miles. The worst depreciation has already happened and you have an almost new car. Then drive it to 100k miles or more, as you prefer. You also should choose something reasonably reliable so you don't have to spend a lot on maintenance when you get closer to 100k miles. For families with 2 drivers, buy the vehicle and pick payment terms to pay it off in half as many years as you project owning it. Then when it is paid for you buy a similar vehicle for the other family member. Now granted you won't be driving nice new cars but you only have one car payment at a time. For instance the husband buys a 2 year old car, makes payments on it for 3 years, then drives it another 3 years. At worst it's an 8 year old car. (I'm driving a 12 year old car.) 3 years after the husband bought his car he buys the wife a car and makes payments on it for 3 years. Once it is paid for then the husband's car will be 8 years old and he can buy a new car. I think this works out for people that drive an average of up to 20k miles per year. For people that don't drive very much they could stretch this out to 4 year payments and keeping a car until it is 10 years old.

 

[mkadams001]

the debtor is slave to the lender...

I sometimes wonder why some are unwilling to save the amount of a car payment for the number of years that they are willing to finance.

Financing $30,000 @ 5% for 60 months = $566 mo for a total of $33,968. That is spending nearly $4,000 to borrow money for a depreciating asset. (unlike a house which hopefully appreciates in value)
Saving $500 month @ 1% interest for 60 mo = $31,275. In this scenario, you have earned $ 1,275 in interest.

 

[dhbarr]

the debtor is slave to the lender...

I sometimes wonder why some are unwilling to save the amount of a car payment for the number of years that they are willing to finance.

Financing $30,000 @ 5% for 60 months = $566 mo for a total of $33,968. That is spending nearly $4,000 to borrow money for a depreciating asset. (unlike a house which hopefully appreciates in value)
Saving $500 month @ 1% interest for 60 mo = $31,275. In this scenario, you have earned $ 1,275 in interest.

How did the inflation figure in there?

 

[mkadams001]

How did the inflation figure in there?

The point is to set a budget and save for what you want.

I don't think you will beat inflation by borrowing money.

 

[boatgeek]

The point is to set a budget and save for what you want.

I don't think you will beat inflation by borrowing money.

If say the stock market is on the way up, you can beat inflation by borrowing lots of money and investing it. That would have worked great for the first 6 months of 2019 but not so much in the last month.

 

[dhbarr]

My point, if I had one, is that inflation and opportunity costs should be figured in if we're going to include interest.

I could pay cash for some things, which I choose to finance, because that money does more work to stay ahead of inflation than a savings account would.

 

[Marc_G]

Many people's reality is that they feel they need a new car, haven't saved up, and don't want to save for 5 years while still plugging money into their old car for repairs etc. So they take the financial hit of financing the new car, in part to avoid what they feel as wasting money on a car not worth repairing, and in (likely greater) part to have the instant gratification of smelling that new car now.

Or they suddenly need a replacement car due to accident, theft, sudden major failure of engine/transmission, or so on.

I do have a quibble with the video. The "depreciation upon driving off the lot" isn't always as significant as stated.

We own Toyotas, and both minivans (Siennas) and SUVs (Highlanders) depreciate slowly. When my wife's 7 year old Sienna was totalled in 2015 we got $18k for it, and considered replacing it with a 2 year old Highlander. But two year old models cost ~95% of brand new. We decided to spend the extra $2-3k and get brand new. Sure we were out of pocket a bunch, but it was a good decision.

When the 12 year old Dodge Grand Caravan gave up the ghost a year later, we looked at Siennas again, and found new ones only slightly pricier than newish used ones. Again, we went new and never regretted it.

This only applies for certain makes and models, with cars depreciating faster than SUVs and certain minivans.

 

[jd2cylman]

the debtor is slave to the lender...

I sometimes wonder why some are unwilling to save the amount of a car payment for the number of years that they are willing to finance.

Financing $30,000 @ 5% for 60 months = $566 mo for a total of $33,968. That is spending nearly $4,000 to borrow money for a depreciating asset. (unlike a house which hopefully appreciates in value)
Saving $500 month @ 1% interest for 60 mo = $31,275. In this scenario, you have earned $ 1,275 in interest.

What's not figured in here is that after 5 years, the $30,000.00 car you were saving up for now costs $45,000.00...

 

[rharshberger]

What's not figured in here is that after 5 years, the $30,000.00 car you were saving up for now costs $45,000.00...

Or you can buy that new car model you originally wanted thats now 5 years old for $20,000....

 

[solid_fuel]

first 6 months of 2019

You guaranteeing that?

 

[boatgeek]

You guaranteeing that?

Let’s correct that to 2018. Stupid small buttons on the phone.

 

[Nytrunner]

If say the stock market is on the way up, you can beat inflation by borrowing lots of money and investing it. That would have worked great for the first 6 months of 2019 but not so much in the last month.

You can say that again. Definitely shouldn't have taken a peak at my 401k yesterday.....

 

[mkadams001]

What's not figured in here is that after 5 years, the $30,000.00 car you were saving up for now costs $45,000.00...

I know that you are being funny.

The average price of a $30K car dropped about $600 from 2003 to 2018.

 

[mkadams001]

If say the stock market is on the way up, you can beat inflation by borrowing lots of money and investing it. That would have worked great for the first 6 months of 2019 but not so much in the last month.

I hope you have a time machine. Good luck with that.

 

[mkadams001]

My point, if I had one, is that inflation and opportunity costs should be figured in if we're going to include interest.

I could pay cash for some things, which I choose to finance, because that money does more work to stay ahead of inflation than a savings account would.

I think that would only work if you had a loan of no more that %2 and you put that total cash amount in a fairly secure investment or retirement fund.

I am glad that this conversation is taking place. For the few people reading I hope that some of them will seriously evaluate how they borrow and budget their hard earned cash. I have financed a couple of cars cars in the past. I really don't like being the "slave to the lender". I really hope people think about that. Use your money to build wealth; you will need it when you get old. I wish I had.

 

[boatgeek]

Argh, waited too long to edit 2019 to 2018... Another thing worth thinking about in the difference between buying cash and buying via finance is insurance costs. Depending on your insurance strategy, you may need to carry more insurance on the car than you would otherwise and therefore add some more costs. If you would always have full comprehensive, that may not matter.

 

[Rocketjunkie]

Depending on your insurance strategy, you may need to carry more insurance on the car than you would otherwise and therefore add some more costs. If you would always have full comprehensive, that may not matter.

I always carry comprehensive. 80% of my claims have been this coverage. Too many deer around here

 

[Sooner Boomer]

Argh, waited too long to edit 2019 to 2018... Another thing worth thinking about in the difference between buying cash and buying via finance is insurance costs. Depending on your insurance strategy, you may need to carry more insurance on the car than you would otherwise and therefore add some more costs. If you would always have full comprehensive, that may not matter.

Absolutely. At this point in time, I am very sensitive to risk, especially financial risk (cursed stock market!). Having full coverage, plus rental car, plus extras, came in very handily after my last accident. There's no way I could have replaced the car, or even gotten around to look for a new car without this coverage. But I pay for it each month.