To this day I don't understand why salespeople would ever feel bad about selling someone a car and making a ton of money on it. When that guy leaves and you have a $1500 comission coming from it, he won't remember you a week from now. When he leaves and you have a $100 comission because you gave him a great deal he still wont remember you and now you cant feed your kids. If someone wont buy a car unless its a net deal then I'll do the net deal, net deal better than no deal. But if I can get $3000 over sticker plus financing, plus GAPP plus extended warranty plus hold $1000 back on the trade I'll do it every single time and if the person is dumb enough to give me that much money I'll be more than happy to feed my family well off it.
If at any point of the purchase of anything you have even the slightest question of whether or not you can afford something...you can't. If you have to finance longer than 48 mo to make the payment "affordable" then you cant afford the car. If you have to lease to afford the payment, you can't afford the car. If you cant afford a 25% down payment...guess what...you cant afford the car.
I cant count how many people I have put into cars that rolled over $7-8k+ out of a car 2 yrs old with low mileage and put $0 down just because they wanted a new car. And of course they stretch to a 72 - 84 mo term to "afford" the payment.
Let's recap. If you want to know if you can afford a car use these simple tools. Add up the monthly loan payment, insurance costs, registration (cost/12 to figure mo reg cost) and add on $125/mo for avg maintenance cost. If this figure scares you or even makes you apprehensive you need to put more money down or find a cheaper car. Also on the monthly loan payment, before you buy the car and are negotiating with the dealer figure out what 25% down comes up to, if you cant swing that then chances are you probably arent in the best spot to buy this car. Also find out what a 48 mo term will cost you per month. If this figure scares you or you dont think you could afford that, then you probably cant afford the car. Also if the payment is more than half of what you make in a week you should re consider your options also.
But if I can get $3000 over sticker plus financing, plus GAPP plus extended warranty plus hold $1000 back on the trade I'll do it every single time and if the person is dumb enough to give me that much money I'll be more than happy to feed my family well off it.
Do you work in CA? I think I went to a dealership you work at. (And am definitely not getting my next car from them, nor recommending them to folks.)
Anyway, I'm a person who took the long-term financing on my car option, mostly because my credit is poor enough that even with my 40% down payment, I was still looking at an ugly interest rate. But over 72 months I figured that even if I were on unemployment, even if I had to take a minimum wage job, I'd still be able to afford the payments. I'm paranoid that way, but I think in terms of "can I afford it short term" because that's where I'm living now. As for my current payments - I can afford them easily.
I'm sure you see the worst of people doing this sort of job, and I'm sure there are plenty of horror stories out there, but please don't paint everyone with the same brush.
I'm not sure how much I buy into this... Yes, some people will give you grief if you have a nice car, house, suit, or watch, but others will think you're a shrewd businessperson. I think each cancels the other out.
To this day I don't understand why salespeople would ever feel bad about selling someone a car and making a ton of money on it. When that guy leaves and you have a $1500 comission coming from it, he won't remember you a week from now. When he leaves and you have a $100 comission because you gave him a great deal he still wont remember you and now you cant feed your kids
I agree with most of what you said. I don't see why a salesperson should feel guilty if he makes a good profit off someone. That is unless he just flat out lied about something to get them to do it. I do believe that if you treat people fairly and with respect you will gain customers but then again one big sale may make up for many little ones. My dad always used to say "if you treat a person right he may or may not remember you but if you don't he will remember you forever". Well those were not his exact words but I am pretty sure I would be banned if I used his.
The rest of your post makes a lot of sense. I can't tell you how many people I know who just have to buy the latest and greatest. For me I would a lot rather be able to retire early and sleep at night.
Anyway, I'm a person who took the long-term financing on my car option, mostly because my credit is poor enough that even with my 40% down payment, I was still looking at an ugly interest rate. But over 72 months I figured that even if I were on unemployment, even if I had to take a minimum wage job, I'd still be able to afford the payments. I'm paranoid that way, but I think in terms of "can I afford it short term" because that's where I'm living now. As for my current payments - I can afford them easily.
I'm sure you see the worst of people doing this sort of job, and I'm sure there are plenty of horror stories out there, but please don't paint everyone with the same brush.
Written like a person from CA lol the only state where people can make $40k yet have a brand new BMW and a boat. My goal isn't to say things to make people feel good it's to impart natural real truth and say it how it is. Selling cars is similar to military service in the sense that if you havent done it you cant understand it and if you have done it you really cant explain it. The biggest probelm with what you said is unfortunately the sentiment of many americans ""can I afford it short term" because that's where I'm living now." People dont think down the road. It was like all the people who were going crazy to get ouf of trucks when the gas shot up over $3/gal and how truck sales plummeted nation wide. yet once gas went below $2/gal the sales of light trucks went right back up to where it was before. People dont think long term and end up screwing themselves short and long term.
Yes I do see the worst and stupidest of people in this job and often sometimes genuinely feel bad for some people but I alw3ays say to myself noone held a gun to their head to sign a contract. And yes the horror stories are endless. Get a group of car salesman together especially if they have been doing it a long time and they can go on for hours and hours and always be excited about the conversation. I often paint everyone with the same brush because no matter who you are you cannot defy economics, it is in fallible. You take in X amount of money and therefore cannot spend more than X. You have fixed and variable expenses. A loan payment is a fixed expense, vehicle maintenance is variable. Insurance is fixed, repairs are variable. The problem with variable is that you dont know what they will be from one day to the next...that is why they are called variable. Why would anyone on the planet take a loan out for 6 years when they have no clue what their financial situation will be 6 years from now?
Also I do not live nor have any desire to live anywhere near CA. I live in NH and if you spend enough time here will be able to figure out what dealership I operate at. Also notice that I said my goal is to make $1500 off every customer I get but if the onyl way to sell him/her a car is to make $100 on it then I'll make $100 rather than $0. But if I have a strong feeling that $100 customer will cost me $1000's because of a bad survey I will either show them the door (or rather have my mgr show them the door) or hand them off to another salesperson. I'd also rather make $1000 off on sale and the customer never see me again because he thinks I screwed him than sell him 10 cars for $100 each
Being in debt for the house doesn't bother me as much for some reason, partially because the house payment isn't that much more than the rent used to be
It could also be that a house appreciates in value too. Most other debt is for things either long gone (i.e. credit card debt) or on depreciating assets (such as cars and boats) so it is hard to be a head on them.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
I'm old enough to have read (& absorbed) the Vance Packard books from the '50's that made it quite clear that mindless consumption tends to keep the economy humming, and (more importantly) that the goal of advertising was/is to keep it as mindless as possible.
The resources I don't expend on cars (or cell phones, or "upgraded" houses, or. . .) aren't so much spent elsewhere as they are invested.
Rumour has it that putting money in the bank (or equivalent) is a good thing. One hopes because it allows them to loan it & gin up the economy in productive ways -- not just to encourage those who are upside-down on cars to go farther out on the limb.
I'm not so sure that it's working out overall. It is for me, however.
I bought my 1964 Rolls Royce Silver Cloud III (white with beige leather) eight years ago. I put about $1,000 a year in maintenance but the looks and thumbs up that I get make it worth every penny.
After owning it for eight years, I could get almost every dime back that I have paid. I'm not really concerned about it as if I had bought a new V6 Honda Accord (about what the Rolls cost), I would be out a good bit of money.
A new set of Coker wide white-wall radials were $2,000. I've only driven the car about 5,000 miles in 8 years. My car club guys are tired of me driving up in the same old car at at our meetings... I've been looking but can't decide what car I would like to add to the collection. (PS. Many of the car club members have 5 or more old cars on average... there are a few who have a 100 or more).
I lean towards luxury cars... so a pristine '79 Lincoln Town Car would be fun... or a '76 Cadillac Fleetwood. I almost bought a 1976 Cadillac Eldorado convertible that had only 100 original miles... They wanted $50K and I didn't want to go that high. It was white with white leather and burgundy dash and carpets.. beautiful car.
An early 60's Imperial would be nice also.
I'm always looking!
Mark156
2010 Land Rover LR4, 2013 Honda CR-V, 2009 Bentley GTC, 1990 MB 500SL, 2001 MB S500, 2007 Lincoln TC, 1964 RR Silver Cloud III, 1995 MB E320 Cab., 2015 Prevost Liberty Coach
Ok. So I have this ad magazine in front of me now. The publication is called "Specialty Shopper." There is this place called Auto Toy Store (if anyone interested in window shopping, the address is www.autotoystorenj.com).
Here's a couple of examples: '01 Ferrari F360 - purchase for $1734/mo.* '97 Ferrari F355 - purchase for $955/mo.* '05 BMW 645i - purchase for $850/mo.*
*All payments based on $10,000 down. '01 F360 and '97 F355 based on 8.75% APR for 144 months. '05 645i based on 9.9% for 96 mos.
How the heck 144 mos comes with a lower rate than 96 mos is beyond me. And, IMHO, if you have to finance a bimmer for 8 years at 10%, you probably shouldn't be buying it.
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
The depreciation on the Ferrari is probably a lot lower... giving the lender less risk, if they would have to do a re-po..
IOW, I think the rates are more model specific, than term specific..
8.75% is pretty good on a 12-yr car loan.. I think my HELOC is up to 8%..
EDIT: I agree that an 8 year loan on a 2 year old BMW is crazy... but, I see leases on new 6-series that are $1500/mo... At that price, $10K upfront and $850/mo. seems financially prudent... :surprise:
I do my very best to look like the people who buy from me the most. Farmers. I wear cowboy boots (S***kickers as known 'round here) often muddy or covered with some kind of wonderful stuff that comes from animals because my clients don't have time to come see me here, so I take their next possible purchase to them. My owner looks like a dimestore cowboy from 1955. People really identify with him. 'Course he is 72 and been in the business since age 2. He has a brand image. If you sell trucks to farmers you look like farmers. But why would you want to wear the Rolex and the stuffed white shirt with the gold tie?
Makes sense. Financing $25K/60 months @ around 6% interest would be around $500. Financing $50K-$55K/60 months at the same rate would easily top $1,000/month. That figure exceeds my mortgage + property taxes + homeowners insurance. Sheesh!!! I could never manage a $1,000+ car payment along with a mortgage on a mere $30K salary. I guess this guy ate a lot of ramen noodles and his S-Class was often seen parked outside of Dollarland and Sav-A-Lot.
Do you think there are actually guys who finance for 12 years or do the ads just have that to show a low monthly payment? I doubt even the most reckless, most fiscally stupid, most self-destructive buyer would actually finance a car for 12 years! I would guess that low monthly payment is the bait and most buyers leave the lot with more reasonable terms.
Does anyone know of a handy calculation on how to determine the best loan when comparing a tax deductible loan with a non tax deductible loan??
Tying this to an automotive theme, let's pretend you are comparing a 6.5% regular, non-deductible auto loan with a 7.8% tax deductible loan. (perhaps a HELOC or a "tax saver" auto loan as some banks refer to them here) If you were in the 25% tax bracket, how would you determine which loan has the advantage? Is there a online financial calculator out there that anyone knows of? I can't find one that is sophisticated enough to plug in the necessary information.
If you had a $3000 tax deduction in the 25% bracket, would this be a correct assumption: $3000 X .25 = $750. Therefore, one's federal tax liability would be reduced by $750 in real dollars from what the tax bill would have been absent the deduction.....or am I missing something?
That's why there's Buick. It's a nice car, but you won't look pretentious. Back in the day, Buick was perceived as "the doctor's car." It showed that the doctor was doing well enough to drive a decent car but not getting too rich off his patients as if he was driving a Cadillac.
agree with most of what you said. I don't see why a salesperson should feel guilty if he makes a good profit off someone. That is unless he just flat out lied about something to get them to do it.
Exaclty. Say I come to you with 750 score and you say "The best wee can offer you 9% APR". If I say OK to that, well - tough luck for me. Should have known better. But if you say "Mister, you have 625 score, that's why we can offer you 9% APR" - that's criminal. Same with say $3K ADP. If you say "I believe market allows me to charge it" or something like that and I simply pull my wallet - again, tough luck for me. However, if you promise me price X and then on my contract you put X+$3K, just because you think I'm dumb enough to take it - that makes you unethical again. Lets show another example: you say "we can give you $5K for your trade" (say in every other place it is worth $8K). I say OK, well you guessed what. But if you take my keys, and then "lose" them, or magically change the number again - well, you know what again.
See were I'm going. Asking for "outrageus" profits is OK with me, as I don't have to agree to it. Extracting them by deceipt, document forgery, or other unethical or illegal tactics - that's where I have a problem.
Thanks, I use bankrate.com often but unless I missed it, they do not have a calculator that computes the value of a tax deduction. I will look again, though.
Does anyone know of a handy calculation on how to determine the best loan when comparing a tax deductible loan with a non tax deductible loan??
A quick and dirty way is to multiple the deductible rate by 1 minus your tax rate. In your case:
7.8 x (1-.25) = 5.85. That's your effective cost of borrowing.
But to get a true number, look at your actual tax return. Take your actual taxes paid and divide by total income before taxes. It's probably closer to 15% which changes the formula:
We need to look in terms of marginal gain, rather than "total tax picture". Without the loan X amount of tax is to be paid. With the loan it is Y. Since it goes directly against the "last earned money", marginal tax rate applies, rather than overall. Thus, assuming that deductions are already itemized and are more than the standard decution, and the loan does not precipitate any other changes (nothing I can think of) X-Y will more less 25% of interest paid.
My favorite one they have is the calculator for deciding to take the rebate or the financing. You put in the rebate and the finance rate with and without as well as what you are planning to put down and it tells you what makes more sense.
Couldn't be more approporiate and correct in your assessment.
I'm not saying we can't be in debt. I don't think there's anyone here that can say they are totally debt free (although, I'm getting closer and closer). For a fact, I could have been debt free by now if my "passions" (cars and boats) could have been tamed. That said, I've been to the point where more money goes towards my assets than my expenses. The ratio of Assets/Debts gets higher and higher (towards the Asset side) every month. If I could just get my "kid" graduated from college and out on his own, that ratio will accelerate even more. That's a discussion for another place and another time, though.
It would be just my luck, that once I'm debt free, I'd decide to get married again. The whole cycle would start all over again.......
The car debt, if it grows too weighty, will come back and bite you.
I just see cars being the primary reason people stumble in the credit dept. A close 2nd would be homes.
hyundai....as you say, if the thick payment book scares you, with its "BIG" monthly "nut", you may want to readjust your thinking. Some don't think about it until that very thick payment book shows up, though. By then, it's too late.
My favorite one they have is the calculator for deciding to take the rebate or the financing
One mistake that many folks make when comparing the rebate vs. the financing has to do with the time they keep the car. Most people don't keep a car for the length of the loan and end up trading before the car is paid off...In many cases the guy who took the finance rate has a much higher payoff and didn't keep the car long enough to benefit from the higher amount financed with the lower rate vs lower amount financed.
Tying this to an automotive theme, let's pretend you are comparing a 6.5% regular, non-deductible auto loan with a 7.8% tax deductible loan. (perhaps a HELOC or a "tax saver" auto loan as some banks refer to them here) If you were in the 25% tax bracket, how would you determine which loan has the advantage?
'snake', now that you're needed where are you?
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
"I agree that an 8 year loan on a 2 year old BMW is crazy..."
kyfdx--
You'd think that financial folly was so obvious no one could miss it, right. I constantly see a few local dealers (one sells new cars, too) with two-three year old cars with 7 and 8 year loan terms. The payment must seem too good to be true to some buyers, but I'll wager few hang onto the car for the full term.
You think your HELOC is bad, ours recently was recently raised to 10.75%. When we got it the rates was 7.5%, I think. We haven't used it or carried a balance in at least three years and won't at the current rate.
I like the BMW CPO ads around here that tout really low monthly payments with little or no money down, and then you read the fine print at it has a Balloon Payment
So its all the disadvantages of a lease, plus the buyer assumes all the risk of depreciation and equity. Thats what I want, a balloon payment of like 12k-15k on a 10 year old out of warranty BMW.
Opinions, please. A friend of mine is looking at Chevy Cobalts... Is it better to go with a 2006 model or a 2007? Is there any discounts on the left over 2006's?
Why would anyone on the planet take a loan out for 6 years when they have no clue what their financial situation will be 6 years from now?
If I can't afford a payment of $200/month six years from now, I have a lot more troubles than just paying for my car. And that's why people negotiate longer contracts - to get the monthly payments down as low as possible.
I definitely can agree with the idea that negotiating a long-term contract with a *high* payment, or one that you have to stretch a bit to cover, is stupid, but long-term contracts are not, by default, evil.
My car comes with a powertrain warranty that will cover me pretty much through the length of the loan (based on milage, not years); I plan on keeping the car for at least that long. (An Elantra GT hatch, to be specific.)
Now is the time to try to get a leftover '06. The best deals are usually now. The only problem with getting a leftover it may be difficult to get exactly what your friend is looking for. CPO Cobalt is probably the best way to go if they are way under the invoice less rebates of a new one. I'm a MOPAR guy so I really don't know enough about the Colbalts finer points. As it goes I'm sure that it is a fine car.
When my wife and I were engaged she decided that she needed a new car (she really did). Her '99 Ford Escort ZX2 5-speed was having problems. A clunky steering noise, third gear was just popping out on its own, interior was bad, busted mirror etc. We went and looked at Hyundai Accents. The reason behind that particular car was that we wanted someting that got good miliage, and was very basic. My wifes requirements for a car: 2 doors, manual transmission, crank windows! She doesn't care about if it even had cruise! Needless to say we bought a 2003 Accent Base with 2 Doors and Air was the only option. We traded her car in. We rolled over about $2500 onto the Accent. We went out to 66 month financing so we could make the payments. Was this a bad move. Yes and no. We thought about trading last month. You can check manheim out and see what an 03 Accent 2-door is worth with 86K on it. We are now driving it until it wont run any longer because it will never have equity. We bought the car new in June of 03. Even if we bought the car for cash at invoice we would still be horribly upside down. So it makes very little sense to finance long term if you want to trade earlier than the end of the term. Next time we will lease a nice car and she can drive the Accent into the ground.
this can be simple or it can be difficult depending on your tax situation. For instance your $3000 tax deduction may only be partially in the 25% bracket and the rest would be in the 15% tax bracket. As an example suppose by not doing this your taxable income is $32,000 this means only $1,350 of that extra $3,000 is taxed at 25%, the rest is at 15% so your savings is $165 less.
Now if you are a high income earner you may not even be able to deduct all of that interest (if at all).
Plus remember that your loan will be several years in duration. Each year the tax rates change, your income changes and other items may affect this equation. So while it may save you money this year it is no guarantee that it will have the same effect in future years.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
A friend of mine is looking at Chevy Cobalts... Is it better to go with a 2006 model or a 2007?
That all depends. If you are looking for a particular option package and/or color you are most likely better looking at a 2007 as 2006's will have limited choices. Also remember that if you buy a 2006 you will have a year old car (by model years) the second you drive it off the lot, that might be an issue if you want to sell it in a short time.
If you are very flexible in color and options and plan on keeping the car for a long time look for the 2006's, they can be had now for a good price, but you may have to look.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
Also, with some of the zero percent deals, what difference does it make how long I finance it for? As long as I don't finance it for longer than I'd reasonably expect to keep the vehicle.
Mike...the only issues I have with 0% factory financing is that it is, in effect, just a rebate. The ones I've seen (mostly from domestics) usually either offer 0% financing...or $x,xxx rebates. It will probably affect the resale value (negatively) down the road.
True, you're only paying principle, but by taking the finance rate in lieu of the rebate, you're essentially paying monthly on an inflated price of the vehicle.
Just remember, those companies that offer the 0% financing are doing it for a reason. They can't move the iron without some sort of incentives. That means they are less desireable, or the manufacturer has too many of them sitting on the ground.
Well to add to what graphicguy said you also want to have some equity in the car. The longer the loan the longer it takes to pay down the car which will depreciate at the same rate. Hence you will be upside down on the loan (owing more than its worth) for a lot longer on a longer term loan. This really is no issue if you keep your car for a long time, but should you need or want to sell it or it gets totalled or stolen it could be a problem.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
"Why would anyone on the planet take a loan out for 6 years when they have no clue what their financial situation will be 6 years from now?"
I almost always finance cars for 48-66 months - as long as there isn't a huge difference in the interest rate between short term and long term loans, and as long as there is no penalty for pre-payment, or early pay-off. My credit union for example, offers the same interest rate (which is typically a pretty good rate) for 12-72 months on new vehicle purchases.
Keep in mind that I usually buy cars in the $20,000 range (we love cars, but they aren't our priority). I normally put 25% down, and finance the balance for 60 months. This way, I only commit myself to a very low payment. I will typically pay double (or more) the payment amount most months, but months when we are going on vacation, or at the holidays, I will just pay the minumum.
Just before I got married, I bought a $17,000 vehicle, financed it for 66 months, and paid it off in 30 months. 2 and a half years ago, I bought a $14,000 vehicle and paid it off in 16 months. This past spring, I bought a $21,000 Honda, put 25% down, and financed the balance for 60 months. I am already a few payments ahead, and should have it paid off within the next 24 months.
My wife and I are both lucky in that we have very secure job situations. However, you never know when something might happen and one of us will lose our job. If this happens, we can go back to only paying that minimum loan amount, and can easily live off only 1 of our incomes until we are able to get back into a 2 income situation. The whole caveat to this is that we never have more than 1 car payment, don't over extend ourselves on our mortgage, nor live beyond our means with other purchases.
So it makes very little sense to finance long term if you want to trade earlier than the end of the term. Next time we will lease a nice car and she can drive the Accent into the ground.
Just be careful with the lease terms. Lease is great at time of signing and payments, but may turn into a nightmare at the end. Lower payment does not necessarily mean lower overall cost. Often rule of thumb is if you can't buy it, you can't lease it, either.
Plus remember that your loan will be several years in duration. Each year the tax rates change, your income changes and other items may affect this equation. So while it may save you money this year it is no guarantee that it will have the same effect in future years.
Translated, (all other factors being equal), I guess this means that most people should not use a "tax savings" as justification as to how they should finance a car.
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
racefan has a good plan, actually. If it's a normal simple-interest loan, then you want it to be like a house payment - 5 years or so and then pay it off as quickly as possible.
Of course, get something used. A 2-3 year old Civic, for instance, is $12K or so and with 4K down, that's easily doable in a year if you get a nice bonus or something.
But if you hit hard times, $200 a month isn't going to break your budget. Ditching cable TV and movies alone is $100 a month for most families. $200 is a nice limit, IMO, as well, since it makes sure that the car is always paid and current(and makes your credit look great).
5 years *$200=12K. I figure interest and your downpayment just about cancel each other out(unless you speed-pay it down). My father did this for decades and let me tell you - $12K buys a very nice used car these days. Nobody's going to complain about trading from that 10 year old Century beater to a 4 year old Celica GT or a nice Camry, afterall
But best of all is 0%. You're never upside-down on the loan if you stick to 48 months or less. And some even do 60 month 0%, which is silly. This gives you the advantage of being able to sell it if say, you get a job overseas - and get a chunk back in cash. The problem isn't a loan but how felxible/easy it is to get out from under it if you absolutely must.
ie - 16K car, 4K a year in payments at 0%/48 months. The first year you just about break even. The second, though, the car is worth 60-70% of its new value(12K), but you've paid 8K - you're 4K ahead. After 4 years, it's worth 8K, but it's 8K in your pocket at any time you want. Your car cost you $2K a year to drive, in effect. Not as good as used, but close.
But you really don't count in the grand scheme of things discussed here. You are driving what you can easily afford, not using long term financing to drive the ultimate ride. You are smart enough to keep a cushion just in case. So, baring a real bad run of events, we will never hear about you going bankrupt, being upside down or repossed. Face it, you are boring (I mean this as a compliment. Your strategy is a lot like mine.) Keep up the good work and live happily ever after.
Thanks- And I agree with you that many people do use longer terms to buy things that they really can't afford in the grand scheme of things. I was just pointing out that there are instances where if long term loans are being offered to you at no significant expense, it can be advantageous to take advantage of those offers.
Comments
If at any point of the purchase of anything you have even the slightest question of whether or not you can afford something...you can't. If you have to finance longer than 48 mo to make the payment "affordable" then you cant afford the car. If you have to lease to afford the payment, you can't afford the car. If you cant afford a 25% down payment...guess what...you cant afford the car.
I cant count how many people I have put into cars that rolled over $7-8k+ out of a car 2 yrs old with low mileage and put $0 down just because they wanted a new car. And of course they stretch to a 72 - 84 mo term to "afford" the payment.
Let's recap. If you want to know if you can afford a car use these simple tools. Add up the monthly loan payment, insurance costs, registration (cost/12 to figure mo reg cost) and add on $125/mo for avg maintenance cost. If this figure scares you or even makes you apprehensive you need to put more money down or find a cheaper car. Also on the monthly loan payment, before you buy the car and are negotiating with the dealer figure out what 25% down comes up to, if you cant swing that then chances are you probably arent in the best spot to buy this car. Also find out what a 48 mo term will cost you per month. If this figure scares you or you dont think you could afford that, then you probably cant afford the car. Also if the payment is more than half of what you make in a week you should re consider your options also.
"Nah....nah....nah....nah.....(fingers in ears) I can't hear you!"
Don't say stuff like that, most people just don't want to hear it.
Do you work in CA? I think I went to a dealership you work at. (And am definitely not getting my next car from them, nor recommending them to folks.)
Anyway, I'm a person who took the long-term financing on my car option, mostly because my credit is poor enough that even with my 40% down payment, I was still looking at an ugly interest rate. But over 72 months I figured that even if I were on unemployment, even if I had to take a minimum wage job, I'd still be able to afford the payments. I'm paranoid that way, but I think in terms of "can I afford it short term" because that's where I'm living now. As for my current payments - I can afford them easily.
I'm sure you see the worst of people doing this sort of job, and I'm sure there are plenty of horror stories out there, but please don't paint everyone with the same brush.
I agree with most of what you said. I don't see why a salesperson should feel guilty if he makes a good profit off someone. That is unless he just flat out lied about something to get them to do it. I do believe that if you treat people fairly and with respect you will gain customers but then again one big sale may make up for many little ones. My dad always used to say "if you treat a person right he may or may not remember you but if you don't he will remember you forever". Well those were not his exact words but I am pretty sure I would be banned if I used his.
The rest of your post makes a lot of sense. I can't tell you how many people I know who just have to buy the latest and greatest. For me I would a lot rather be able to retire early and sleep at night.
I'm sure you see the worst of people doing this sort of job, and I'm sure there are plenty of horror stories out there, but please don't paint everyone with the same brush.
Written like a person from CA lol the only state where people can make $40k yet have a brand new BMW and a boat. My goal isn't to say things to make people feel good it's to impart natural real truth and say it how it is. Selling cars is similar to military service in the sense that if you havent done it you cant understand it and if you have done it you really cant explain it. The biggest probelm with what you said is unfortunately the sentiment of many americans ""can I afford it short term" because that's where I'm living now." People dont think down the road. It was like all the people who were going crazy to get ouf of trucks when the gas shot up over $3/gal and how truck sales plummeted nation wide. yet once gas went below $2/gal the sales of light trucks went right back up to where it was before. People dont think long term and end up screwing themselves short and long term.
Yes I do see the worst and stupidest of people in this job and often sometimes genuinely feel bad for some people but I alw3ays say to myself noone held a gun to their head to sign a contract. And yes the horror stories are endless. Get a group of car salesman together especially if they have been doing it a long time and they can go on for hours and hours and always be excited about the conversation. I often paint everyone with the same brush because no matter who you are you cannot defy economics, it is in fallible. You take in X amount of money and therefore cannot spend more than X. You have fixed and variable expenses. A loan payment is a fixed expense, vehicle maintenance is variable. Insurance is fixed, repairs are variable. The problem with variable is that you dont know what they will be from one day to the next...that is why they are called variable. Why would anyone on the planet take a loan out for 6 years when they have no clue what their financial situation will be 6 years from now?
Also I do not live nor have any desire to live anywhere near CA. I live in NH and if you spend enough time here will be able to figure out what dealership I operate at. Also notice that I said my goal is to make $1500 off every customer I get but if the onyl way to sell him/her a car is to make $100 on it then I'll make $100 rather than $0. But if I have a strong feeling that $100 customer will cost me $1000's because of a bad survey I will either show them the door (or rather have my mgr show them the door) or hand them off to another salesperson. I'd also rather make $1000 off on sale and the customer never see me again because he thinks I screwed him than sell him 10 cars for $100 each
It could also be that a house appreciates in value too. Most other debt is for things either long gone (i.e. credit card debt) or on depreciating assets (such as cars and boats) so it is hard to be a head on them.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
he could have even gotten the Benz and saved a ton of money getting one a year or two old with under 20K miles on it.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
Yes you are, those $'s your not spending on your car have to be spent somewhere.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
I'm old enough to have read (& absorbed) the Vance Packard books from the '50's that made it quite clear that mindless consumption tends to keep the economy humming, and (more importantly) that the goal of advertising was/is to keep it as mindless as possible.
The resources I don't expend on cars (or cell phones, or "upgraded" houses, or. . .) aren't so much spent elsewhere as they are invested.
Rumour has it that putting money in the bank (or equivalent) is a good thing. One hopes because it allows them to loan it & gin up the economy in productive ways -- not just to encourage those who are upside-down on cars to go farther out on the limb.
I'm not so sure that it's working out overall. It is for me, however.
After owning it for eight years, I could get almost every dime back that I have paid. I'm not really concerned about it as if I had bought a new V6 Honda Accord (about what the Rolls cost), I would be out a good bit of money.
A new set of Coker wide white-wall radials were $2,000. I've only driven the car about 5,000 miles in 8 years. My car club guys are tired of me driving up in the same old car at at our meetings... I've been looking but can't decide what car I would like to add to the collection.
I lean towards luxury cars... so a pristine '79 Lincoln Town Car would be fun... or a '76 Cadillac Fleetwood.
I almost bought a 1976 Cadillac Eldorado convertible that had only 100 original miles... They wanted $50K and I didn't want to go that high. It was white with white leather and burgundy dash and carpets.. beautiful car.
An early 60's Imperial would be nice also.
I'm always looking!
Mark156
however, i was just using BJ as an example. There is more than one way to skin a car.
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
Here's a couple of examples:
'01 Ferrari F360 - purchase for $1734/mo.*
'97 Ferrari F355 - purchase for $955/mo.*
'05 BMW 645i - purchase for $850/mo.*
*All payments based on $10,000 down. '01 F360 and '97 F355 based on 8.75% APR for 144 months. '05 645i based on 9.9% for 96 mos.
How the heck 144 mos comes with a lower rate than 96 mos is beyond me. And, IMHO, if you have to finance a bimmer for 8 years at 10%, you probably shouldn't be buying it.
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
IOW, I think the rates are more model specific, than term specific..
8.75% is pretty good on a 12-yr car loan.. I think my HELOC is up to 8%..
EDIT: I agree that an 8 year loan on a 2 year old BMW is crazy... but, I see leases on new 6-series that are $1500/mo... At that price, $10K upfront and $850/mo. seems financially prudent... :surprise:
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By the way, home rates are down right now, you might want to consider getting a fixed HEL or refinancing the whole shebang.
Speaking of which, a HEL would be a much better move to buy one of these cars than a 10% 8-year loan.
'11 GMC Sierra 1500; '98 Alfa 156 2.0TS; '08 Maser QP; '67 Coronet R/T; '13 Fiat 500c; '20 S90 T6; '22 MB Sprinter 2500 4x4 diesel; '97 Suzuki R Wagon; '96 Opel Astra; '11 Mini Cooper S
Tying this to an automotive theme, let's pretend you are comparing a 6.5% regular, non-deductible auto loan with a 7.8% tax deductible loan. (perhaps a HELOC or a "tax saver" auto loan as some banks refer to them here) If you were in the 25% tax bracket, how would you determine which loan has the advantage? Is there a online financial calculator out there that anyone knows of? I can't find one that is sophisticated enough to plug in the necessary information.
If you had a $3000 tax deduction in the 25% bracket, would this be a correct assumption:
$3000 X .25 = $750. Therefore, one's federal tax liability would be reduced by $750 in real dollars from what the tax bill would have been absent the deduction.....or am I missing something?
Exaclty. Say I come to you with 750 score and you say "The best wee can offer you 9% APR". If I say OK to that, well - tough luck for me. Should have known better. But if you say "Mister, you have 625 score, that's why we can offer you 9% APR" - that's criminal. Same with say $3K ADP. If you say "I believe market allows me to charge it" or something like that and I simply pull my wallet - again, tough luck for me. However, if you promise me price X and then on my contract you put X+$3K, just because you think I'm dumb enough to take it - that makes you unethical again. Lets show another example: you say "we can give you $5K for your trade" (say in every other place it is worth $8K). I say OK, well you guessed what. But if you take my keys, and then "lose" them, or magically change the number again - well, you know what again.
See were I'm going. Asking for "outrageus" profits is OK with me, as I don't have to agree to it. Extracting them by deceipt, document forgery, or other unethical or illegal tactics - that's where I have a problem.
2018 430i Gran Coupe
A quick and dirty way is to multiple the deductible rate by 1 minus your tax rate. In your case:
7.8 x (1-.25) = 5.85. That's your effective cost of borrowing.
But to get a true number, look at your actual tax return. Take your actual taxes paid and divide by total income before taxes. It's probably closer to 15% which changes the formula:
7.8 x (1-.15) = 6.63%. That's a truer number.
2018 430i Gran Coupe
Couldn't be more approporiate and correct in your assessment.
I'm not saying we can't be in debt. I don't think there's anyone here that can say they are totally debt free (although, I'm getting closer and closer). For a fact, I could have been debt free by now if my "passions" (cars and boats) could have been tamed. That said, I've been to the point where more money goes towards my assets than my expenses. The ratio of Assets/Debts gets higher and higher (towards the Asset side) every month. If I could just get my "kid" graduated from college and out on his own, that ratio will accelerate even more. That's a discussion for another place and another time, though.
It would be just my luck, that once I'm debt free, I'd decide to get married again. The whole cycle would start all over again.......
The car debt, if it grows too weighty, will come back and bite you.
I just see cars being the primary reason people stumble in the credit dept. A close 2nd would be homes.
hyundai....as you say, if the thick payment book scares you, with its "BIG" monthly "nut", you may want to readjust your thinking. Some don't think about it until that very thick payment book shows up, though. By then, it's too late.
One mistake that many folks make when comparing the rebate vs. the financing has to do with the time they keep the car. Most people don't keep a car for the length of the loan and end up trading before the car is paid off...In many cases the guy who took the finance rate has a much higher payoff and didn't keep the car long enough to benefit from the higher amount financed with the lower rate vs lower amount financed.
'snake', now that you're needed where are you?
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
kyfdx--
You'd think that financial folly was so obvious no one could miss it, right. I constantly see a few local dealers (one sells new cars, too) with two-three year old cars with 7 and 8 year loan terms. The payment must seem too good to be true to some buyers, but I'll wager few hang onto the car for the full term.
You think your HELOC is bad, ours recently was recently raised to 10.75%. When we got it the rates was 7.5%, I think. We haven't used it or carried a balance in at least three years and won't at the current rate.
Gogiboy
So its all the disadvantages of a lease, plus the buyer assumes all the risk of depreciation and equity. Thats what I want, a balloon payment of like 12k-15k on a 10 year old out of warranty BMW.
If I can't afford a payment of $200/month six years from now, I have a lot more troubles than just paying for my car. And that's why people negotiate longer contracts - to get the monthly payments down as low as possible.
I definitely can agree with the idea that negotiating a long-term contract with a *high* payment, or one that you have to stretch a bit to cover, is stupid, but long-term contracts are not, by default, evil.
My car comes with a powertrain warranty that will cover me pretty much through the length of the loan (based on milage, not years); I plan on keeping the car for at least that long. (An Elantra GT hatch, to be specific.)
Yes. Some people who buy high end luxury exotics will finance for long periods.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
Now if you are a high income earner you may not even be able to deduct all of that interest (if at all).
Plus remember that your loan will be several years in duration. Each year the tax rates change, your income changes and other items may affect this equation. So while it may save you money this year it is no guarantee that it will have the same effect in future years.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
That all depends. If you are looking for a particular option package and/or color you are most likely better looking at a 2007 as 2006's will have limited choices. Also remember that if you buy a 2006 you will have a year old car (by model years) the second you drive it off the lot, that might be an issue if you want to sell it in a short time.
If you are very flexible in color and options and plan on keeping the car for a long time look for the 2006's, they can be had now for a good price, but you may have to look.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
True, you're only paying principle, but by taking the finance rate in lieu of the rebate, you're essentially paying monthly on an inflated price of the vehicle.
Just remember, those companies that offer the 0% financing are doing it for a reason. They can't move the iron without some sort of incentives. That means they are less desireable, or the manufacturer has too many of them sitting on the ground.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
I almost always finance cars for 48-66 months - as long as there isn't a huge difference in the interest rate between short term and long term loans, and as long as there is no penalty for pre-payment, or early pay-off. My credit union for example, offers the same interest rate (which is typically a pretty good rate) for 12-72 months on new vehicle purchases.
Keep in mind that I usually buy cars in the $20,000 range (we love cars, but they aren't our priority). I normally put 25% down, and finance the balance for 60 months. This way, I only commit myself to a very low payment. I will typically pay double (or more) the payment amount most months, but months when we are going on vacation, or at the holidays, I will just pay the minumum.
Just before I got married, I bought a $17,000 vehicle, financed it for 66 months, and paid it off in 30 months. 2 and a half years ago, I bought a $14,000 vehicle and paid it off in 16 months. This past spring, I bought a $21,000 Honda, put 25% down, and financed the balance for 60 months. I am already a few payments ahead, and should have it paid off within the next 24 months.
My wife and I are both lucky in that we have very secure job situations. However, you never know when something might happen and one of us will lose our job. If this happens, we can go back to only paying that minimum loan amount, and can easily live off only 1 of our incomes until we are able to get back into a 2 income situation. The whole caveat to this is that we never have more than 1 car payment, don't over extend ourselves on our mortgage, nor live beyond our means with other purchases.
Just be careful with the lease terms. Lease is great at time of signing and payments, but may turn into a nightmare at the end. Lower payment does not necessarily mean lower overall cost. Often rule of thumb is if you can't buy it, you can't lease it, either.
2018 430i Gran Coupe
Translated, (all other factors being equal), I guess this means that most people should not use a "tax savings" as justification as to how they should finance a car.
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
Of course, get something used. A 2-3 year old Civic, for instance, is $12K or so and with 4K down, that's easily doable in a year if you get a nice bonus or something.
But if you hit hard times, $200 a month isn't going to break your budget. Ditching cable TV and movies alone is $100 a month for most families. $200 is a nice limit, IMO, as well, since it makes sure that the car is always paid and current(and makes your credit look great).
5 years *$200=12K. I figure interest and your downpayment just about cancel each other out(unless you speed-pay it down). My father did this for decades and let me tell you - $12K buys a very nice used car these days. Nobody's going to complain about trading from that 10 year old Century beater to a 4 year old Celica GT or a nice Camry, afterall
But best of all is 0%. You're never upside-down on the loan if you stick to 48 months or less. And some even do 60 month 0%, which is silly. This gives you the advantage of being able to sell it if say, you get a job overseas - and get a chunk back in cash. The problem isn't a loan but how felxible/easy it is to get out from under it if you absolutely must.
ie - 16K car, 4K a year in payments at 0%/48 months. The first year you just about break even. The second, though, the car is worth 60-70% of its new value(12K), but you've paid 8K - you're 4K ahead. After 4 years, it's worth 8K, but it's 8K in your pocket at any time you want. Your car cost you $2K a year to drive, in effect. Not as good as used, but close.
good day,
Bill
And I agree with you that many people do use longer terms to buy things that they really can't afford in the grand scheme of things. I was just pointing out that there are instances where if long term loans are being offered to you at no significant expense, it can be advantageous to take advantage of those offers.