Did you recently take on (or consider) a loan of 84 months or longer on a car purchase?
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How wrong you are! Actually, the key to success in any sales position is finding a need and satisfying it. That really is the hardest part of the job.
Have you seen more people being rejected recently or have you seen interest rates get higher and down payment requirements get larger ?
Was just curious if the credit markets are impacting the car sales business.
Many people assert that 3 or 4 years is the maximum term you should finance, but IMHO there are some cases where it is fine to go longer.
For example, I recently bought a brand new Accord and financed for 72 months at 6.5% for a payment of $302 after some positive trade equity came into play. What if I had limited myself to the same payment for only 36 months? What kind of Accord would that have bought? Well, for the same payment, financing about $9500 "Out-The-Door" I might have found a 6 year old model with about 75k miles. This would then be 9 years old and have 112k miles when paid off...
Instead, my brand new car will be paid off in 6 years at about 75k (not even considering extra payments). I'm under full warranty and won't have to pay for too much preventative maintenance before then, other than oil changes which I do myself. On a new Accord, I shouldn't have to come out of pocket for any major repairs. I'll have positive equity again in only about 2 years. I know I'll pay more in interest, but with the deals on new Accords right now, the total of all payments and interest on my loan is still less than the full sticker price of the car with tax, etc. You can't beat it. The low payment (if I don't make extras) frees up money to invest, work on the house, etc...
I'm not in the biz but every time I've seen interest rates go up, car sales take a hit and usually pretty bad.
I'm sure the guys in the biz will tell us just how bad it really gets.
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
after you're done paying the car off, you keep putting those payments in an account, and use that money to put a down payment (or pay cash) for a new car...
makes sense to me...
-thene
Nonetheless, if my calculator is working correctly I figure that over the 72 months you will pay about $21744 total. That's about $12244 interest above your $9500 financed.
Maybe the payment works for you but that strikes me as one very expensive car.
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The problem with the long term financing is that people buy a car that they can barely afford. So if they can just make that $500/700/900 payment what happens in year 6 when the car needs some major mechanical work ? Where does the extra money come from ?
Maybe some of you sales types could comment, there..
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I calculate the stated payment at $302 times 72 months for a total of $21744.
However using my calculator for a loan of $9500 over 72 months at 6.5% gives a payment of $159.69
Therefore something isn't right about the OPs (Benderofbows) deal.
Have I missed something here, please enlighten me !
The lease had 5 months left at $358/mo. She was already over the miles by about 12k.
Her current buyout was $13,046 and the dealer gave her $12k for it. So it cost her $1046 to get out of it now. Even if she rode till the end of the lease, the extra miles would have cost her over $2k.
'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
oh right, not your responsibility. so - your enabling fiscal irresponsibility. i think opportunistically with these long term loans, but that's just my opinion
No, it is not MY place to make fiscal decisions for customers.
Besides, who decided that 36 months was optimal anyway?
The average car costs @ $25,000. Divide that by 36 months and the payment without interest is $694/mo!
The interest will probably add another $100/mo to the payment.
Just how many people buying average cars can afford an $800 car payment??
The problem with that logic is that people don't realize that depreciation cost is BY FAR highest cost they'd ever bear when buying a vehicle. Even extra $2000/year in repairs and maintenance is still less than $10 grand or so over first three years.
So when buying a 3-year old car for 10 grand rather than new for 20, after 6 years they end up bearing lower financing cost, lower depreciation cost (both cars are worth not very much), but higher maintenance/repair, which barred catastrophic events will never offset the former.
Lets face it - to own and buy new cars are never cheaper than used. It has other virtus (new car smell, lower "hassle"), but in monetary terms - no way it costs less.
2018 430i Gran Coupe
And when you start flipping cars is when the depreciation really gets you.
2018 430i Gran Coupe
to add detail to my above post, let me give you myself as an example...
in fall of 2002 i went to my local nissan dealer to buy a 2003 Sentra Spec V. With $5000 down, over three years, my payment would have been around $350-$360 ish if i recall correctly. i chose to go 5 years (monthly payment of about $270) for two reasons. one, i was just out of school, and while i could handle the $350 a month, if for some reason any other expenses came up, i might get stuck. two, love cars, but i knew that it would be fiscally irresponsible to not pay off the car and keep it a bit longer to save money towards the next new car. (plus, i also get attached to my car - since i do a lot of driving, and i love to drive!)
so while i could handle the shorter term, and higher payment...why would i, when i knew that a longer term would suit me just fine? i am about 7 months from paying off my car, and she's in great shape, and i plan on keeping her another 2-3 years after she's paid off, then buy myself a nice used 2007 infiniti G35
not everyone can be as disciplined - at which point i agree, that extending the term only causes trouble...
but it worked out for me!
-thene
I am pretty debt adverse but man it kills me to give them money before I have to when I can still make it work harder.
Now, ho many people would actually put that money on account and how many would find ways to spend it on this new jacket, dinner, vacation or say TV
2018 430i Gran Coupe
You mention depreciation being $10,000 over three years; I would hope not, on my new $20,000 Honda! Now, the first year depreciation might be $3-4K, but after that it should be relatively flat. I bet over three years I'll lose maybe $7k on the new one, versus maybe $4-5k on the 6 year old $9K one.
So it will be roughly $3k more expensive (depreciation speaking) to own the new one over three years. Now, if I had bought the used one for $9k, I'd save that $3k in depreciation and I'd save in interest, but repairs and such could come close to making that up.
And besides the "new car smell" I have enhanced safety features like side air bags, etc.
Your depreciation value may be a little optimistic (you'd have to find a buyer), but I agree - ten grand may be a bit high as net. Remember to add taxes to your depreciation. There are also finance charges on the loan. Combined those will probably easy push to 10 grand over three years.
But you are still "forgetting" about that after three years you'll owe for your Honda quite a bit. So you have to extend your cost comparison period to full term of your loan, not term of loan you did not take. It may not be as favorable, as you want to believe.
New vs. used is not really as dramatic decision when starting from "nothing", i.e. at point when no car is owned (or car with very little value). The problem starts when after three years from now you decide to go for another set of new safety features in 2010 Accord. Then you'll have no or little equity, put another 72 month loan and combined depreciation of both new Hondas will kill you.
Then add also increased financing cost (whatever APR is applied, even low, it is applied on daily balance, which is high in first years of loan). No amount of repairs or maintenance short of massive engine and trasmission failures can offset that combination. And it's a Honda - so what are chances of that?
2018 430i Gran Coupe
But depending upon your tax bracket, that 1% difference may net out to zero or less. YMMV.
He could be telling you the truth.
I don't think my depreciation figures are all that optimistic. I used Edmunds TMV Trade-In (not Retail) and only "Average" condition, looking at older model year comparable Accords and figuring 12k miles/year. I used a 3 year comparison because that was the depreciation timeline you brought up when you mentioned the 10 grand.
Example (roughly):
Brand new, I owe $17825 (2007 Accord LX 4cyl). (That is $400 over invoice, less a $700 dealer incentive, less $1k positive trade equity, and then including all tax, tags and fees.)
1-yr old Accord LX with 12k miles, estimated TMV trade "average" is $13,700 and I'll owe $14,800 ($1100 negative equity).
2-yr old Accord LX with 24k miles, estimated TMV trade "average" is $12,200 and I'll owe $11,900 ($300 positive equity).
3-yr old Accord LX with 36k miles, estimated TMV trade "average" is $10,700 and I'll owe $8900 ($1800 positive equity).
And it just gets better from there. All estimates of course, but you get the idea. Yea, that first year is steep, but then it's pretty flat all the way to near zero (even a pretty old Accord is still worth a good few thousand).
I must say, cars with lower depreciation are definitely better to trade and much more attractive to buy new. I never understood point of paying $15K for a 2-year old Camry, if new could be had for not so much more. Some cars are admittedly better deal new than used. But even those when flipped every couple of years start adding up in long term. It's not your new Accord now - it's that 2010 Accord with knee airbags and 2013 with pirotechnic seat ejection system that may kill your budget.
2018 430i Gran Coupe
But depending upon your tax bracket, that 1% difference may net out to zero or less. YMMV.
Yeah I was using that as worst case scenario kind-of. I had actually been putting the money in a couple of ETFs, which were rockin' until this week :sick:
Just today, I received an offer from Mazda for a $25 prepaid VISA card if I'll just go to any dealer and test drive any one of their new cars.
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A mutual fund that has a fixed amount of shares, and trades on the stock market..
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i'm not intentionally bashing dealers or salespeople, nor am i trying to insight a riot. just exchange of ideas, opinion, etc.
it's just not fiscally wise to finance long term, and further, its foolish for people to believe a deal or win-win is being had because a customer's monthly payment criteria is being met.
these poor people are just being driven harder into debt that they won't escape from. i'd like the lenders to be held responsible.
i suppose if you're a salesperson, you've got to smile wide when you hand the person financing for 5 or 6yrs those keys. :sick:
Why? I don't get it. We get paid the same whether it's a 2,3,4, or 5 year term.
And how can the lenders be responsible for other people debt? Nobody held a gun to customer's head and told them "HERE! TAKE THIS MONEY!"
Even payment wise, a customer has to realize that if their monthly budget is $300/month, and the saleman met their criteria of that budget but over the term of 72 or even 84 months, I mean if you don't have the basic brain capacity to calculate how long of a term that is, you have to go back to Grade One and sit in the front row and pay close attention.
Only you can say yes or no, not the saleman, not the manager, not the F&I guy.
2016 Audi A7 3.0T S Line, 2021 Subaru WRX
it actually is the banks and the CC firms that extend you money, and i trust they have good models to know who's gonna pay it back and who's likely to default.
THEY WANT TO MAKE MONEY TOO. who do you think they are making the most money on? the people that can put 1/2 down, get a 3yr note, and pay that off in 9 or 10mo?
you have to smile because you've just driven them (much)harder into the fiscal abyss.
But I don't drive anyone into financial abyss. I mean you have to be familiar with your own life (financial situation, job, career, expenses), and you have to decide if purchasing a high ticket itme is right for you, it's not my job to do that.
2016 Audi A7 3.0T S Line, 2021 Subaru WRX
I don't know why you think a salesman would take joy in seeing a buyer over extend themselves because they (buyer) doesn't know what they can afford. Once the buyer says they want to spend a given amount for a car (payments or outright price) and the salesman finds a way to hit that number everybody should be happy.
If the customer can't count the number of months they will be paying for their car, shame on them. Send them over to me, I'm still trying to sell a bridge. :confuse:
jmonroe
'15 Genesis V8 with Ultimate Package and '18 Legacy Limited 6 cyl
Well I do have a degree in the subject. Now the thing is that going into debt to buy something does not allow us to buy more, it just shifts the buying pattern. in other words we do not buy more, we just buy sooner. In order to do that we sacrifice buying stuff tomorrow for buying stuff today. Not only that but since in most cases we pay interest we not only lose what we paid but the interest as well.
Look at it this way, there is over $60 Billion (yes billion with a "B") in total credit card debt in the US. With an average 18.9% interest rate that means Americans are paying $945 million in interest per month. Thats $945 million each month not spent on other consumer products.
Now thats just credit card debt. There are some estiments that the total consumer debt is $1.7 trillion (yes trillion with a "T") and that Americans pay approximately $50 Billion in interest a year.
Now imagine what would be happening if we as a whole had an extra $50 billion to spend on consumer goods or invest and not in interest payments.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
So really the money is not taken out of circulation, but rather just changes hands.
2016 Audi A7 3.0T S Line, 2021 Subaru WRX
Now where is the money invested? Economic growth? How can economy grow unless someone else is willing to purchase the $25000 worth of merchandise you aren't buying any more?
Of course unless you bury that $25,000 in your back yard you most likely put it in the make or some other type of investment. The good news is is that it just doesn't sit there. The bank, or whomever you invested the money with will invest that money. Usually that investment is in the form of lending it out. So the $25,000 you just put in the bank has been lent out by the bank to Joe who is using it to expand his business and buy stuff that will create 6 new jobs.
Now extend this example to include the entire population.
Ok lets extend it to the entire population. More money invested means more money to lend. The secret to all of this is that money is actually created by investments. It is estimated that for every $1 thats put into a bank $4-5 is created and for every $1 removed $4-5 is destroyed.
Remember - this is exactly what happened after 9-11. People were afraid of the future and decided not to spend money.
Actually the economy was going down the tubes well before 9-11.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
And what if that need is not satisfied by what you are selling?
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
I just love it that the sales professionals here keep talking on how they work for the customer and have their best interests at heart but when push comes to shove its not their responsibility. Can't have it both ways.
The average car costs $25,000.
Ok eliminate the $50K+ cars that few people buy and what is the average price of a car?
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
As a general rule the best person to decide what is right for you is....(drum roll here!) you!!! User7777, I have no idea what interests you or what you enjoy. I can see that you post frequently on the web. Would it be right for me to decide that anything over 3 posts a day has a negative impact? Should I then push Edmunds to limit posts to three per day? NO WAY!!!
Buying a car, TV, house, lunch, lottery tickets or whatever is the decision of the buyer period. If they are happy then let 'em buy it. If they can't afford it let them figure out what to do.
Of couse we do some minimal oversight for those truly at risk of being taken advantage of, but we are waaaaaay to far on the otherside. People need to stop blaming everybody else for poor financial decisions and take a quick look in the mirror! :shades:
And trust me, I learned the hard way. Bought my first car (84 Ford Turbo EXP, don't laugh too hard!!!) from a fly by night used car lot next door to a hotel that rented rooms by the hour. Car was four years old with "only" 20,000 miles. Payments were doable, it was the random $100 to $350 every other month that almost did me in. Did I mention that it could go through a set of 4 tires evey 9,000 miles? :lemon: :lemon:
Best interest in terms of a car purchase.
Customer comes in and says they have $15000 to spend. I show them all the cars in that range and explain to them what they have what they don't have and so on. I recommend a few and the customer choses from there.
Anything beyond that is none of my business as to where they're getting the money from, or whether they can afford to spend $15000 on a car.
Best interest in terms of car selction? Yes.
Best interest in terms of their life choices? that is up to the customer.
2016 Audi A7 3.0T S Line, 2021 Subaru WRX
2016 Audi A7 3.0T S Line, 2021 Subaru WRX
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
Again you can't have it both ways you either work for the customer or you don't have that responsibility. Which is it?
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
The problem i see are the customers who grind and grind.. thinking these cars grow off trees.. If anyone mentions holdback to me they are pretty much getting an escort out the front door..These people think that they are doing the dealer a great service by buying a car at invoice, and that the dealer owes them.. and for what?? The salesman spent several hours with the customer and made a $100 mini. In addition you can bank on the fact that they will burn you with the survey..
That was my main question to rayainsw he spent much time working a deal then came in and drove 2 separate cars and then waited till the dealer dropped the price even more.. I asked him if he gave them a great survey?? (still no response)