Percentage of monthly income spent on a car?

joesmith2 · March 2008

I don't know about your Quest, but if it was a Mercury Grand Marquis, my point is you're not paying 2.9%, you're paying 10.5%. It looks like you're paying 2.9%, but you're actually paying the cash discount you passed up to get the 2.9%.

Your point about what if you can't afford to pay cash. I got on Nissans site, and it looks like a new Quest is 25,000-30,000. If you put down $3,000 on a $25,000 Quest, and your rate is 2.9%, your payments are about $410. You need comprehensive insurance on a new car, which is at least $50/mo, so thats $460. If you save $460 a month, in 2 years you've got $11,000. I got on autotrader.com, and there are plenty of Quests, from 1995 to about 1998, with 100,000 miles for $3,000. There are plenty of quests on autotrader that have 200,000 miles, so I'd guess a $3,000 Quest with 100,000 miles will probably be good for another 100,000.

Its hard to save money. I heard a guy say its harder to save money than it is to quit heroin. Some heroin users can quit, buy none of them can save money.

Good luck with your Quest! :shades:

outwardlycheap · March 2008

After reading these posts, I feel compelled to make a few observations. First off, joesmith2 is a guru. There can be no denying his reason. WHOEVER DOUBTS THIS MESSIAH HAS FINANCIAL INTERESTS IN THE INDUSTRIES...Some additional benefits of driving used cars include:
MY 10 COMMANDMENTS
1) LITTLE OR NO CAR WASHES--LET THE RAIN DO IT
2) NOBODY'S GONNA KEY SCRATCH MY CAR IN WALMART PARKING LOT
3) NOBODY'S GONNA STEAL MY CAR AT WALMART PARKING LOT
4) I HAVE THE EXTREME SATISFACTION KNOWING MY NEIGHBORS ARE SADDLED DOWN WITH A DEPRECIATING ASSET? THAT THEY ARE PAYING DEARLY FOR WHILE ON THEIR SECOND EXOTIC VACATION OF THE SUMMER
5) HAVING ALL THAT EXTRA CASH TO BLOW ON MY WIFE AND KIDS
6) KNOWING THAT GETTING IT FIXED IS JUST GONNA BE 1 CAR PAYMENT---NOT 60
7) I DON'T CARE WHAT PEOPLE THINK OF ME, MY FAMILY DIGS ME
8) MY CAR ALWAYS STARTS, HAS A GREAT HEATER AND GETS ME FROM A TO B THE SAME WAY AS A PORSCHE
9) I HAVE ZERO DEBT AND PAY CASH FOR EVERYTHING. I COULD EASILY AFFORD THE HOTTEST CAR, BUT WOULD PROBABLY DIE FROM EXTENDED BUYER'S REMORSE
10) FINALLY, NO ONE (EXCEPT MY WIFE MAYBE), HAS EVER MENTIONED TO ME THAT I HAVE A [non-permissible content removed] CAR...

british_rover · March 2008

There is always a break even point when the incentives are cash or a low rate and it depends on your personal situation which one is better.

Sometimes there is only the low rate though and no cash back incentive.

qbrozen · March 2008

BR beat me to it.

Sometimes there is no cash, joe. And sometimes there is BOTH. In the case of the .75% interest, I got the low interest AND a huge discount on the vehicle. This was back when the manufacturers were running that "employee pricing for everyone" thing.

I have the same thing on my Honda. It is leased at a rate that works out to ... I forget if its 0.9% or 1.9%, but one of those, and I got it for invoice minus the dealer cash minus some of the holdback. I'd be an idiot if I paid cash for that car.

Oh, I'm sure you are all against leasing, I know. I mean, heck, if you leased, you couldn't carry a bogus insurance policy with minimal coverage. I mean, here I am paying $750 a year for a fully covered car with high limits. I'm such a [non-permissible content removed].

dtownfb · March 2008

Thanks for chiming in guys. There was no cash incentive at the time. And yes I paid under invoice for the car. it's nice when you buy a car on Dec. 30th.

joesmith2 · March 2008

I'm not going to stay on this forum just to be repeatedly insulted. The current prime rate is about 6%. If you want to believe that you borrow money at below prime, go ahead. I analyze, and my analysis indicates differently.:confuse:

paisan · March 2008

I'm not going to stay on this forum just to be repeatedly insulted. The current prime rate is about 6%. If you want to believe that you borrow money at below prime, go ahead. I analyze, and my analysis indicates differently.

It's all relative. I am paying 1% for a 60 month loan on my Nissan Armada and paid $2200 below invoice in 2005. You can say I'm paying 6% (or whatever the interest rate was when I bought it) but that would just mean the "price" would have been lower.

6 of one, 1/2 dozen of another.

-mike
Motorsports and Modifications Host

qbrozen · March 2008

dtown said there was no cash incentive and you feel insulted? Man, you got some thin skin there, chief.

If you want to believe that you borrow money at below prime, go ahead.

ummm... OK. So, what, you are saying my fixed 1.9% credit card with no annual fees is not real? (or, by that same token, and to keep on the topics of cars, let's look at BMW's current offer of 2.9% APR on CPO bimmers ... ain't no cash allowance on CPO cars, so no hidden cash to worry about.) Ya can't just throw this stuff out there with no supporting data and expect us to swallow it. Please explain your position clearly.

dtownfb · March 2008

I'm sorry you feel insulted by my post. I just put the facts there. I agree with you on some points but you are painting too broad a stroke with your argument. I'm not in the position to buy a car with cash so a below invoice price along with a 2.9% for a new car was the only way I could afford it. That money was not going to be invested because I did not have it. If I had $25k sitting around, I probably would have still taken advantage of the financing knowing I can open a online savings account and beat 2.9%.

Cash is the best way to go. yes if you are not careful with pricing and negative equity even 0% interest is not what you think it is.

I'm looking forward to my last 10 payments on my van and plan to keep it until 100k miles which could be for another 5 years.

joesmith2 · March 2008

Let me address the credit card at 1.9%, no fees. My credit card has no annual fees, and I get 1% back on all the purchases. The credit card business is tricky. Bill O'Reilly talked one time about a conversation he had with an exec at one of the major credit card companies. He asked him, how do you guys make money? The answer was, on the late fees. It's $40 a pop. Credit cards used to make money on the annual fee. Of course they make money on the discount they get from merchants. But that's not where the big money is. They used make it on the exorbitant interest rates. They'll look for some way to get you. It seems like everyone has their own version of a Visa and Mastercard, and they all make nice offers to get you to sign up. I'm not real sure why, but I know they have an angle. One thing I do quite often when I'm paying for something is pull out my visa, and ask "do you give a discount for cash"? Real often they do, and why shouldn't they, they're getting their money now, they know it won't bounce (like credit cards do sometimes), and it won't be discounted. Play their game if you want, just be aware they're not making that great offer as a public service.

If I was buying a new car that offered 2.9% interest, I'd ask for a discount for cash. All they can do is say no. But why should they say no? Car companies borrow money from banks, and sell interest paying corporate bonds to finance their operations. Another thing I'd do is pull out my laptop, plug their numbers into an excel spreadsheet, and see if the payments are what they should be for the loan amount and interest. If they want you to make your first months payment when you take delivery, that's a scam. You aren't borrowing the first month's payment, but they're charging you interest on it. How many people read all the fine print on the contract? :lemon:

dtownfb · March 2008

I guess you feel you are the only one that knows how to avoid scams.

How many times do I have say, "we get it"! You are preaching to the choir here. We all know paying cash is best. Buying used is better. For some reson, you forget you are dealing with human beings and not just crunching numbers. It's great that you can pay cash for cars. I'm very happy for you. But most of us can't not even for a $10k used car. Realize that you are in a special position and stop looking down on others.

I'll leave you to argue with the experts.

have a good life.

exb0 · March 2008

OK, lets do some basic math.

If you finance $20K for 48 months at current average rate of 6.8%, your total interest will be $2899. If you invest $20K into tax free municipal bonds at 3% annual return, you will make $2550 in interest in 48 months. So basically, the car loan will cost you only $379. However, you will have a 20K cushion that you can rely on if you loose your job. Also, if you adjust your budget to make $477 monthly payments to the bank, you can continue to make those payments to yourself after the car is paid off.

You have to remember that the simple loan interest is calculated on ever decreasing principal, while investment interest is calculated on ever increasing principal. Therefore, if the manufacturer is offering a subsidized rate, grab it, and invest your money.

In addition, if the manufacturer is offering 2.9%, independent dealer has nothing to do with it, and he wont give you a discount if you offer to pay cash, he has no incentive to do so. Here is tip. If you are paying cash, let the SP and SM assume that you will be financing with them, you will get a better price. Dealers make money on financing; therefore, they are more likely to accept a lower price on the front end, if they think they will make up on financing.

Joe, I am almost a generation younger than you are, and I can buy any mass produced car with cash, I havent done that since 92. It just doesnt make sense.

joesmith2 · March 2008

Let me say first I'm certainly not looking down on anyone. I've driven some real beaters over the years, and my 96 grand marquis isn't anything to be proud of.

Now for the basic math, my favorite subject! I calculate the total interest paid on the hypothetical loan (20,000, 4 years), to be 2,898.88, round it to 2,899. However, I think you made a typo on the interest you'll earn on those tax free bonds, I come up with 2,510.18, a difference of $388.70. Anyway, like you say, the loan costs about $400, and sure, its always good to have cash around for a rainy day. If you needed $5,000, how long would it take to get cash from those bonds? Would you pay a penalty? You sound like the kind of guy that keeps cash laying around just in case, like I do, so that's probably not an issue for you.

So would you really make payments for 4 years and keep those bonds? Even though it costs you $388? Why doesn't it make sense to save the $388?

When I started posting on this subject I was thinking about my nephew, I told him to pay cash for a car but he wanted a car that cost more than what he had. He told me he can make car payments, he just can't save money. I suspect your decision to make car payments is at least partly psychological, not just financial. Having saved that money, the thought of just handing it over kind of hurts don't you think?

tidester · March 2008

I come up with 2,510.18

It's a minor point but exb used monthly compounding for his tax free bonds calculation. I think ordinary bonds do not compound but those that do compound do so semiannually.

tidester, host
SUVs and Smart Shopper

qbrozen · March 2008

Let me address the credit card at 1.9%, no fees. My credit card has no annual fees, and I get 1% back on all the purchases. The credit card business is tricky. Bill O'Reilly talked one time about a conversation he had with an exec at one of the major credit card companies. He asked him, how do you guys make money? The answer was, on the late fees. It's $40 a pop. Credit cards used to make money on the annual fee. Of course they make money on the discount they get from merchants. But that's not where the big money is. They used make it on the exorbitant interest rates. They'll look for some way to get you. It seems like everyone has their own version of a Visa and Mastercard, and they all make nice offers to get you to sign up. I'm not real sure why, but I know they have an angle. One thing I do quite often when I'm paying for something is pull out my visa, and ask "do you give a discount for cash"? Real often they do, and why shouldn't they, they're getting their money now, they know it won't bounce (like credit cards do sometimes), and it won't be discounted. Play their game if you want, just be aware they're not making that great offer as a public service.

Sooo... let's see... you are making arguments based on assumptions. You are assuming I pay late fees. I don't. You are assuming I use my card for things I could get for cheaper if I played some sort of bargaining game. I don't. Sure, the credit card companies can LOOK for some way to get me, but just because you have been "gotten" every time, does not mean everyone is.

I pointed out that one 1.9% card because we were talking about interest rates. But I don't use that card for regular purchases. I get 5% back on groceries with my Amex (no bargaining at the grocery store) and I get 5% back on my gas with my HESS mastercard (darned gas station attendants aren't in the mood for bargaining, either).

If I was buying a new car that offered 2.9% interest, I'd ask for a discount for cash. All they can do is say no. But why should they say no?

Well, let's see. Maybe because the dealer (you know, the company you are buying the car from) isn't lending you the money. They don't care if you come in with a sock full of pennies, a cashier's check, or a loan draft. If you get a car for invoice minus holdback minus incentives, well they ain't making a dime on the frontend as it is, so why in the world would they proceed to take a LOSS because you flash green in front of them? Answer: they wouldn't.

Simple fact is a person who has done their homework and uses financing is going to get the same sale price as the guy was has done his homework and has a briefcase full of cash. The only difference is, if that person using financing gets a fantastic rate and has the cash to earn interest on, he will make out better than briefcase guy.

If they want you to make your first months payment when you take delivery, that's a scam. You aren't borrowing the first month's payment, but they're charging you interest on it.

That's typically a lease point. I don't think I've ever seen "first month's" payment in regards to a sales contract. In reference to a lease, however, it only changes the end date of the contract. If you pay first month's, you only have 35 payments left on a 3-year lease, for instance. I have done it both ways and I think I prefer the 1 month up front. In the other instance, I have to make a payment on the day I turn the car back in. So I make a payment on a car I don't have anymore. That doesn't appeal to me.

How many people read all the fine print on the contract?

I do, and that's all that matters to me.

qbrozen · March 2008

We all know paying cash is best.

Nope. I don't agree. Not in all cases, anyway.

Kirstie_H · March 2008

and this is not hard, even. If you can make more money on your cash than you are going to pay in interest, finance. If you can't, you shouldn't if you don't have to.

I am really bad at math, but this is rather easy.

Having said that, I can't pay cash in most cases, so I look to put the most cash down vs. the best interest rate I can get.

joesmith2 · March 2008

Don't forget Kristie, you need to consider the tax you may have to pay on the interest you make on investments.

Back to the main topic of this thread, I don't think its really valid to think about what you spend to own a car in terms of what you make. If you can walk to work, you shouldn't spend as much as if you commute 50 miles each way. If you can get a job that pays more, but you'll have to commute farther, then that could justify spending a higher percentage of your income on your car.

I'm in the market for a replacement vehicle, which is why I got on this site. Over the next 3 years or so I believe gas will be over $4.00, perhaps $5.00. I also believe foreign cars will go up sharply in price because of the exchange rate, the dollar is dropping like a rock against other currencies.

I'm considering a Honda Fit, which I'd have to buy new because a used one would be over 90% the cost of a new one, based on what I've seen on the internet. On the other hand, a 2003 Mercury Grand Marquis LS can be had for $8,000, this car was over $25,000 new. I made a spreadsheet of all the factors, of course I have to guess how many miles I'll drive per year, what gas will cost, and what my average mileage will be. I figure 35mpg for the Honda, 23 for the Mercury. If I keep my next car 10 years, average 15,000 miles / year, and gas averages $4.50 / gallon, I come up with a total annual cost of $4,800 for the Honda, $5,400 for the Mercury. If gas averages $5.00 per gallon, my annual cost goes up to $5,000 per year for the Honda, $5,700 for the Mercury. Based on that, I'm leaning toward the Mercury, because (for me) its a much nicer car, its big, luxurious, and has a great ride.

Input from other forum members would be welcome, I'm here to learn!

qbrozen · March 2008

On the other hand, a 2003 Mercury Grand Marquis LS can be had for $8,000, this car was over $25,000 new.

Well, while that may have been MSRP, they never had a street price that high. My father-in-law has bought nothing but Grand Marquis for the past 20 years or so. Each time he has bought new and paid somewhere down in the mid teens for them. The one he just got a few months ago he got a GS with gold trim, chrome wheels (or are they gold, too, i forget), and cloth top (the family calls it the "Florida package") for about $15k. That's about $12k off, I believe.

joesmith2 · March 2008

The LS is $5,000 more than the GS, and they have the $5000 cash back thing, so the LS has been 25,000 for a few years now. Don't know how you can get one for 15k new, but still, $8000 is pretty cheap for an LS thats 4-5 years old.

qbrozen · March 2008

Don't know how you can get one for 15k new

Low demand and screamer ads. I dunno.
I have seen as high as $10k trunk money in the past, IIRC.

fezo · March 2008

"The one he just got a few months ago he got a GS with gold trim, chrome wheels (or are they gold, too, i forget), and cloth top (the family calls it the "Florida package") for about $15k."

Of COURSE it's a Florida package. Where else would you sell them like that? Who was the comedian that said his parents moved to Florida - they didn't want to but tehy turned 60 and that's the law...

That'll be me before too long.

qbrozen · March 2008

Where else would you sell them like that?

Oh, but he still lives in Jersey.

fezo · March 2008

Figures. Down here we're like Florida except that it gets cold here!

I've seen way too many of those cloth tops. What's up with that? Do they think people that buy convertibles do it because they like the look of the top?

guss · March 2008

Landau, say that with me.... Landau. Now that sounds a lot more exotic than hardtop or cloth top. I never understood them either. Than again I am only 45 , that gene is still waiting to come out in me.

fezo · March 2008

It hasn't come out for me yet so you should be good for another 10 years anyway.

blueiedgod · April 2008

Let me address the credit card at 1.9%, no fees. My credit card has no annual fees, and I get 1% back on all the purchases. The credit card business is tricky. Bill O'Reilly talked one time about a conversation he had with an exec at one of the major credit card companies. He asked him, how do you guys make money? The answer was, on the late fees. It's $40 a pop. Credit cards used to make money on the annual fee. Of course they make money on the discount they get from merchants. But that's not where the big money is. They used make it on the exorbitant interest rates. They'll look for some way to get you. It seems like everyone has their own version of a Visa and Mastercard, and they all make nice offers to get you to sign up. I'm not real sure why, but I know they have an angle. One thing I do quite often when I'm paying for something is pull out my visa, and ask "do you give a discount for cash"? Real often they do, and why shouldn't they, they're getting their money now, they know it won't bounce (like credit cards do sometimes), and it won't be discounted. Play their game if you want, just be aware they're not making that great offer as a public service.

If you have the cash to pay for the purchase today, wouldn't it make more sense to use someone else's money for the next 30 days to pay for it and then pay them off, and it won't cost you a penny. On top of that, many credit card companies offer cashback offer and other incentives to use the cards.

Yes, I agree, if one has absolutley no discipline and can not pay for the purchase today in cash, probably should not be whipping out credit card and hoping to pay it off some day. But, on the end of the spectrum, if you have the money, why not make it go longer.

I don't care what interest rates credit cards charge, because there is no way in hell I am going to buy something on the credit card today that I don't have the cash for in the bank. But, I do shop for the "cash back" offers when looking for credit cards.

Here is an abbreviated list of things I got for free for just using credit cards:
iPOD Video 80 Gb, Maytag dishwasher, 3 Air purifiers for the house, $400 in Home Depot gift cards to pay towards replacement windows (total was $1200), iPOD Touch 32 Gb, iPOD adapter for the Honda OEM radio.... the list just goes on and on and on. Also, some cards offer up to 5% cash back on gas. Most gas stations don't offer cash discount these days, so by paying with credit cards for gas, you get your discount...

jeffyscott · April 2008

Here is my list of the best things I have gotten just for using credit cards over the years:

1. Several thousand dollars in cash rebates.

lrich66 · March 2009

Hi, I'm new to this forum, but I can see that there are a lot of financially astute people on this thread. We are about to close on a 2008 Toyota Highlander Hybrid with 13K miles on it. I got approved for a loan for 35K (cost of vehicle) @ 60 mths with 5.89% interest. With sales tax, licensing fees, etc. the loan comes out to around 38K and the monthly payment would be about 750. Should we put cash down to lower our payment? Or hang onto our cash?

qbrozen · March 2009

$35k? Huh. That's about $5k more than a full loaded Highlander Limited AWD is worth. Hope it lasts you a few hundred thousand miles to make up the difference in gas savings.

I know, its not the question you asked.

Anyhoo... at 5.9%, I would definitely put money down if you can afford to. Either that or you'll need gap insurance.

joesmith2 · March 2009

If you read my posts from the last year, you'll see I've never made a car payment in my life, and I've always advised people NOT to finance their car. However, I wrote that when we lived in a capitalist country. Now that we live in a socialist semi-communist country, things are different. Look at the tax incentives for buying a new car, especially a hybrid. New programs are sure to come as our government prints more money to try to fix the problems the government created. You might want to wait and see what these programs are, it could mean you need to buy a new car to take advantage. You may as well finance all you can, chances are you won't have to pay it back. When hyper-inflation hits, you'll be paying back with dollars that are worth much less than today. On the other hand, keeping cash could be a bad idea, since it will be worth so much less than it is now. I'm so glad I bought gold and silver when I did.

Percentage of monthly income spent on a car?

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