Vehicle Financing: How Long is Too Long?

Kirstie_HKirstie_H EdmundsAdministrator Posts: 11,126
edited March 2014 in General
Should you stop at 36 months, or is 72 months OK on some vehicles? Ask questions & get advice here.

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  • mako1amako1a VirginiaMember Posts: 1,855
    Vehicles are depreciating assets and should never be purchased on time payments. Homes are appreciating assets and even homes can get you in a bind if the market falls and you're over-extended. Vehicles lose value faster than any payment plan can overcome. Unless you bought a 1968 Shelby in 1968 you're losing money. Don't add to your loss by tacking on finance charges. If vehicle financing was eliminated the price of cars would drop so fast people would wonder how they ever got so high to begin with. Drive what you can afford.

    2013 Mustang GT, 2001 GMC Yukon Denali

  • nj2pa2ncnj2pa2nc Member Posts: 811
    It would be great if you never had to take out a loan to buy anything and were able to pay cash. We put alot of miles on our cars so we buy ones that last and we can afford but we do finance them. We do put a large downpayment. We currently own a 06 acura with a 60 month loan on $10,000.00. The payments are about $200.00 but I pay $300.00 so the loan will be paid off sooner. Yes I could have bought a cheaper car but I did not want to.
  • cccompsoncccompson Member Posts: 2,382
    Never say never. I was happy to finance my '06 Mustang GT convertible through Ford Credit at 0% for 72 months last summer.
  • british_roverbritish_rover Member Posts: 8,502
    Sorry that is just incorrect.

    Never say never and such to be exact.

    If the finance rates are very low then it makes more sense to finance the car then to buy it out right even if you have the cash.

    If you have 30,000 dollars cash to buy a car and the finance rates are much bellow 5 percent then you are better of financing the car. You can get more then 5 percent rate of return in most money market accounts so even after taxes you are probably going to be better of financing.
  • mako1amako1a VirginiaMember Posts: 1,855
    Rover, not even close. You would have to pay taxes on the interest from the Money Market negating the minute difference of a low interest loan. Car loan interest is not tax deductible. It's just lost money along with depreciation making vehicle financing an unwise financial decision. And unless you are the principle of a business needing a tax deferral, leasing is an even worse situation. Drive what you can afford and everyone will benefit.

    2013 Mustang GT, 2001 GMC Yukon Denali

  • cobraboy1cobraboy1 Member Posts: 69
    It all depends on the vehicle. For a honda accord I wouldn't go past 48 months, on the other hand if you keep a car for 10 years 72 months isn't that bad of a deal. I purchased a 2003 Ford Mustang cobra 10th aniversary, for 30k for 72 months and they are still going for about 28K. It also depends on you budget and your needs. So is 72 months too long? It really depends on what you think.

    However 84 months is definetly way too long, for any kind of car.
  • kronykrony Member Posts: 110
    Like mentioned above I think a lot depend on your downpayment. Today my local credit union has the following rates for New Model Years 2007 / 2002: 36 Months 4.99% / 48 Months 5.24% / 60 Months 5.49% / 72 Months 5.74%

    With only a 0.75% split (and 5.49%) I like the idea of the flexibility of the 72mo, but would plan to pay it early. I think the key is you should not do 72 if your plan is to not put at least 25+% down. Now if you are putting nothing down, you'll be upside down forever...like mentioned before buy what you can afford...flipping burgers won't cash flow a BMW, or a new Honda for that matter.
  • tidestertidester Member Posts: 10,059
    With only a 0.75% split ...

    Even with a 0% split, you're still paying (more than) twice the interest on a 72 month loan compared with a 36 month loan with the same principal. Flexibility has its price.

    tidester, host
  • stubborn1stubborn1 Member Posts: 85
    I don't like to finance past the warranty period. If something goes wrong while you are still making payments, it can really make a dent in your monthly expenses. Extended warranties may make sense for some families who could not absorb a $400-$600 repair post warranty while still making payments.

    I have been lucky enough to be able to pay off a loan in 36 months mainly because I try to live under my means. It's not popular in America, but I can live with that ;)
  • explorerx4explorerx4 Central CTMember Posts: 17,476
    the longer you finance, the more likey semi expensive maintenance events(tune up, tires, brakes) should be figured into your budget.
    2020 Ford Explorer XLT
  • nj2pa2ncnj2pa2nc Member Posts: 811
    we also have 4 credit cards with zero balances. When we do charge we pay the balance in full each month. We seldom use the charge cards. If we can not pay cash we try to do without. The last time we charged was for tires.
  • snakeweaselsnakeweasel a Certified Edmunds Poster.Member Posts: 18,584
    Should you stop at 36 months, or is 72 months OK on some vehicles?

    Personally I think that if you have to go out beyond 60 months you're buying to much car.

    2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D

  • snakeweaselsnakeweasel a Certified Edmunds Poster.Member Posts: 18,584
    I will have to strongly disagree with your statement. Cars are big ticket items, even a decent used car will cost at least 30-35% of what the average American household makes in a year. Because of that it is very difficult for most people to pay cash for a car.

    Plus you are looking at it in a very simplistic way. While cars are a depreciatable asset you have to look at the cost of not having a car. For me not having a car would mean earning far less than I am now. The cost of the car and financing fees are much less than the additional income having a cars allows me. For that reason alone it makes sense to finance a car.

    If vehicle financing was eliminated the price of cars would drop so fast people would wonder how they ever got so high to begin with.

    What a contemptible lie.

    Drive what you can afford.

    I agree, but what you can afford does include proper use of credit. If the loan is easily serviced then you can afford it. There is nothing wrong with having debt, its how its used (or abused).

    2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D

  • snakeweaselsnakeweasel a Certified Edmunds Poster.Member Posts: 18,584
    As long as the return on the investment less the marginal tax rate is more than the interest rate on the car loan you will be ahead. My investments make far more than BR's 5% after taxes.

    2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D

  • mako1amako1a VirginiaMember Posts: 1,855
    It would be great if you never had to take out a loan to buy anything and were able to pay cash.
    It didn't just happen and I wasn't a trust fund kid. Proper financial planning and basic rules of not overextending yourself. Sure you don't drive the newest car to work and it takes years of telling yourself that it will all pay off later. It does! Now when I buy a car I bypass the credit guy. That alone was worth not financing during my max pay years. Also having the title in hand when you trade means you never hear that dreaded "you're upside down". Sure, your wants will always exceed your finances, but if tempered with logically sound financial principles like "never finance a vehicle" it will pay off. You just can't buy this kind of info. Don't ever be upside down again. A title in hand is worth 2 in the bank (humor). Drive what you can afford and you'll be able to afford anything. :shades:

    2013 Mustang GT, 2001 GMC Yukon Denali

  • benderofbowsbenderofbows Member Posts: 542
    By my calculations, I'll be fine with 72 months on the new Honda Accord which I bought yesterday. I financed 82% of what someone would pay OTD on MSRP. As mentioned above, I like the flexibility of 72 months (various reasons; we're remodeling our house, and I am considering a small business, so smaller minimum payments were attractive).

    But even making just minimum payments, based on Edmunds TMV looking at 1-6 year old used Accord trade-in values for "Clean" and "Average" conditions with 12k miles/year, I'll have positive equity in one year looking at "Clean" values and two years looking at "Average" values. That's not even considering private sale, just dealer trade.

    Also, the total amount of my payments including interest is about equal to the MSRP of the car. I invest overseas and make 2 or 3 times the interest rate on the loan.

    I agree, it all depends on the individual situation.
  • british_roverbritish_rover Member Posts: 8,502
    Putting 20% down plus taxes and reg then financing for 5 years or less will keep you from being upside down either.

    Unless you just paid way too much for the car 20% should cover your first year depreciation for most cars.

    If vehicle financing was eliminated the price of cars would drop so fast people would wonder how they ever got so high to begin with.

    I was thinking about this and if vehicle financing was eliminated the price of cars might go up. :surprise:

    Many car compaines make more money from their finacing arms then they do from making the cars. If they couldn't finance people anymore they would have to charge more for the cars.

    :shades:
  • mako1amako1a VirginiaMember Posts: 1,855
    OK you win. Sell me a car. I want a Maybach for $250/mo. Number of months doesn't matter.
    I just won the lottery. First prize was a million dollars.
    Fine Print: A dollar a year for a million years.

    2013 Mustang GT, 2001 GMC Yukon Denali

  • british_roverbritish_rover Member Posts: 8,502
    That doesn't even make any sense...

    I just said finance less then 5 years with at least 20% down pluss all taxes and registration.
  • mako1amako1a VirginiaMember Posts: 1,855
    I've said what I had to say. Hopefully 5 or 6 % got the message and will benefit from it. The rest will continue living the American Dream on borrowed money. The economy is much more fragile than most people know. That aside, my concern now is gasoline availability. Not price, but just being able to get it. Nice car + no gas = no car. If Chevy makes the Volt available soon I'll get one. Until then lets hope for the best.

    2013 Mustang GT, 2001 GMC Yukon Denali

  • snakeweaselsnakeweasel a Certified Edmunds Poster.Member Posts: 18,584
    I was thinking about this and if vehicle financing was eliminated the price of cars might go up.

    I was thinking about that too and I think they might go up too. But not for the reason you think. I think that if everyone bought with cash they would keep cars much longer and spend more in keeping their car lasting longer. New car production would slow and since lower production levels mean higher per car costs prices would tend to climb to cover those costs.

    2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D

  • snakeweaselsnakeweasel a Certified Edmunds Poster.Member Posts: 18,584
    That can be done with the right downpayment.

    2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D

  • british_roverbritish_rover Member Posts: 8,502
    I can see that happening as well.

    For many years Japan had restricted access to consumer credit and it did not drive the price of vehicles down.
  • kronykrony Member Posts: 110
    tidester...agree that flexibility has it's price and if you pay for the full 72 months you pay over double the interest (over double the time of course).

    Here's the real interest payments you would make on a $14K loan at the rates I gave in my original post...
    36mo(4.99%) $1,155.28
    48mo(5.24%) $1,603.84
    60mo(5.49%) $2,102.80
    72mo(5.74%) $2,642.08
    I think your interest rate difference between the loan durations and intent to pay off early is the key. If the 72 is 2% higher or I have no intent to pay off early it certainly doesn't make sense to go there...
  • tidestertidester Member Posts: 10,059
    I got slightly different numbers than you did.This is what I got:

       36 mo. at 4.99% -> $1,103.07

       48 mo. at 5.24% -> $1,548.85

       60 mo. at 5.49% -> $2,041.10

       72 mo. at 5.74% -> $2,582.04

    One other consideration is that many lenders charge additional fees for early payoff of the loan.

    tidester, host
  • nj2pa2ncnj2pa2nc Member Posts: 811
    I was not a trust fund kid either. I worked hard for my money (overtime, two-three jobs at one time, etc) I saved all the extra income. It has payed-off. I only work at one job with no overtime.
  • ltmarltmar Member Posts: 45
    I also tend to keep my vehicles until I have saved enough to pay cash for the replacement. This has encouraged me to properly maintain my vehicles and really take my time to do my research on the new ones. It really frustrates the salesmen as they can't push something they have on the lot since I don't mind waiting a few months on what I want since I don't buy very often. I also don't have to worry about a difference in my opinion of trade-in value vs. the dealers since I don't buy until I feel that I have used up the value of whatever I paid for the vehicle, whatever I get is a plus. I normally get more than I expect anyway. Not having car payments has also allowed my family to weather job layoffs and poor economic conditions without major budget adjustments.
  • lemkolemko Philadelphia, PAMember Posts: 15,261
    I never trade in a vehicle on which I still owe money. My car is long since paid for by the time I buy another one and is still in excellent shape. The last time I bought a car, I traded in a 1994 Cadillac DeVille for a 2002 Cadillac Seville STS. My car was in such nice shape, they paid top dollar for it and it was sold within the week from their used car lot despite the 96K miles on the clock. A nice trade and a significant down payment made the terms easy. I took out a 60 month loan, but paid it off in less than 36. Why did I take out a 60 month loan? Well, I can't see into the future. I don't know if I'd be out of work or sick, so the minimum monthly payment would've still been managable under catastrophic conditions. I definately would not go beyond the 60 month mark.
  • lokkilokki Member Posts: 1,200
    I get a little weary of those who suffer so much now to be rich some day. I'm sick of "the millionaire next door", who eats beans and dresses his children in cast-off clothing, because at 50, he's going to retire to Hawaii. Yeah, right. He never will.

    He'll retire lonely, and afraid to spend his money after years of disciplining himself to never spend a penny. Great personality trait in an Uncle who has no other heirs....not such a good husband or father to have. "Daddy, can I have a lollipop?" "Not now, but when I'm 60, I'll buy you a Candy Store with cash, sweetie". What way to live is that?

    36 mo. at 4.99% -> $1,103.07

    48 mo. at 5.24% -> $1,548.85

    60 mo. at 5.49% -> $2,041.10

    72 mo. at 5.74% -> $2,582.04

    If I've done the math right, the difference in having a 36 month loan and a 72 month loan is $1478.97 for the three additional years. That's $246.50 extra for each year of the loan. Big deal.

    Even the additional $2582.04 paid for the car over paying cash. for it isn't significant on a $14K loan. Sure in percentage terms it's noticeable, but in real world terms, the amounts are inconsequential.

    Now, I don't approve of 72 month loans personally, and I'm hesitant on 60 month loans for most cars, because you can LOSE money if you ever want to get rid of the car and you're upside down. But the argument about cost of interest (with rates the way they are)doesn't move me. Credit rates are low, savings returns are low, and I don't use my retirement savings to buy cars anyhow.

    My statement is this: You only live so long and you only have so much money. At some point in your life, you're going to eat beans. You can eat only beans now and hope that you live long enough to eat steak someday. If you only eat steak now, you will eat beans when you're old - if you live to be old. However, I think the best answer is to eat mostly beans now, but it's OK to have steak now and again - in case you don't get old.

    For what it's worth.
  • lemkolemko Philadelphia, PAMember Posts: 15,261
    Usually the only one who benefits from a guy like that is his widow.
  • nj2pa2ncnj2pa2nc Member Posts: 811
    we do the same- take out a 60 month loan and try to pay it off sooner. So far we have been lucky (knock on wood) and paid them off in 36 months but you never know.
  • tidestertidester Member Posts: 10,059
    but in real world terms, the amounts are inconsequential.

    A thousand here, a thousand there. Eventually it adds up to serious money. :)

    tidester, host
  • lokkilokki Member Posts: 1,200
    Well, of course you're right in principle, but....
    I believe the original quote by Everett Dirksen, grey-curled dean of the U.S. Senate was "A million here, a million there and pretty soon you're talking real money."

    Of course that was in the 60's before all this inflation ;)

    Seriously, I know that you're correct - it all adds up. I just get tired of those who take this to extremes. I mean, If I hear about Sam Walton's old pick up truck one more time I think I'll scream. :cry:

    Sam Walton was rich. Of course he could afford to drive an old truck. He wasn't dependent on it for transportation. Additionally, if it broke down, he could afford to fix it. If he burned a hole in the seat with a cigarette he could afford to replace the whole seat - hence, he could afford to drive that thing forever.

    However, a poor guy needs a car with a warranty - he has to be sure he can get to work every morning, and he can't dump $5K out of savings to fix a cracked block.

    It's a better deal for the poor guy to pay a little more for the loan to maintain the liquidity of his funds that he might need for other purposes. :D

    Again, I don't believe that any loan where you're upside down is a good deal - ever, and most 72 month and many 60 month loans fall into that category. However, the liquidity you get from not having $14K tied up in a car loan is worth the 18 cents per working hour it costs you over a 72 month loan. You can buy baby that new pair of shoes...
  • tidestertidester Member Posts: 10,059
    I believe the original quote by Everett Dirksen ...

    Yes, it was - sort of! I am a little surprised anyone picked up on that. :)

    Dirksen never actually said that but it's been popular to attribute it to him. From the Dirksen Center:

    A gentleman who called The Center with a reference question relayed that he sat by Dirksen on a flight once and asked him about the famous quote. Dirksen replied, "Oh, I never said that. A newspaper fella misquoted me once, and I thought it sounded so go that I never bothered to deny it."

    You also said:

    However, the liquidity you get from not having $14K tied up in a car loan is worth the 18 cents per working hour it costs you over a 72 month loan.

    That's a good and often overlooked point. It's called the "cost of lost opportunity."

    tidester, host
  • durability05durability05 Member Posts: 142
    Here is my take on auto loans. You can have a 36 month loan, but if you put close to a 100,000 miles during that period of time, then maybe the person who puts in 70,000 miles in 72 months isn't really that bad off. Assuming he does all the proper maintenance, he most probably has another couple of years of trouble free driving. Conclusion any loan that outlives a cars reliability is too long.
  • durability05durability05 Member Posts: 142
    LOL , we usually tell our stingy rich co-workers "you can't take it to the grave, but whatever your doing, keep on doing it! Going back to loans, I have recently been doing 72 month loans, but only after doing 48 and 60 the past two decades, plus I am now into $30,000 vehicles, back in the 80's I use to buy $10,000 vehicles and have gone from 20,000 down to 10,000 annual miles.
  • wlbrown9wlbrown9 Member Posts: 867
    "However, a poor guy needs a car with a warranty - he has to be sure he can get to work every morning, and he can't dump $5K out of savings to fix a cracked block.

    It's a better deal for the poor guy to pay a little more for the loan to maintain the liquidity of his funds that he might need for other purposes.

    Again, I don't believe that any loan where you're upside down is a good deal - ever, and most 72 month and many 60 month loans fall into that category. However, the liquidity you get from not having $14K tied up in a car loan is worth the 18 cents per working hour it costs you over a 72 month loan. You can buy baby that new pair of shoes... "

    Here is an idea for someone who can't pay cash and does not want to put out a bunch of cash to keep from going UP-SIDE-DOWN. Finance for 60 months with little down, purchase a reasonable 60-72 mo/100,000 mile manufacture's warranty and consider GAP. This might protect you from unexpected repairs with the warranty and if someone totals your ride, the GAP will keep you out of the hole. This would stretch your money over a longer period.

    One thing this will not help is if you just got to have a new vehicle...since you are upside down, this would cost you the difference just to get out...but if you have the willpower to stick with your purchase for 5-6 years before replacing, the extended warranty and GAP would cover you for unexpected happenings.
  • Karen_SKaren_S Member Posts: 5,092
    A reporter seeks to interview people who have financed vehicles for 60 months or longer.
    Please respond to jfallonedmunds.com no later than April 25, 2007 with your daytime contact information and a brief description of your purchase and your trade-in, if you had one.
  • msindallasmsindallas Member Posts: 190
    Rover, not even close. You would have to pay taxes on the interest from the Money Market negating the minute difference of a low interest loan. Car loan interest is not tax deductible. It's just lost money along with depreciation making vehicle financing an unwise financial decision. And unless you are the principle of a business needing a tax deferral, leasing is an even worse situation. Drive what you can afford and everyone will benefit.

    Hi folks,
    I am not an expert in financing, and believe in driving what one can afford. However, I have come up with a scheme to finance my next car. Could you please tell me if there is something wrong with this? If not, should I be looking around for GAP insurance? TIA for the responses.

    Situation: I have saved $500/month for 6 years to accumulate $36,000 in a checking account with bank A getting a (very) small interest. I want to keep this money as liquid as possible, in case of emergencies. This means I am not buying stocks or mutual funds with it. I also want to buy a $30,000 car (OTD).

    The Plan:
    (1) Apply to bank A for a loan of $30,000. Their web site say they'd give it to me for 36mo at an interest rate of 5%.
    (2) Browse the web to find a money market account. Bank B is offering an interest rate of 5.25%.
    (3) Take the loan from Bank A, open the m/m account at bank B with the money.
    (4) Ask the dealer for 100% financing at 4.5% or less.

    Case A: Dealer agrees:
    Transfer $30,000 from checking a/c to repay the bank A loan in full. Instruct Bank B to pay the monthly payment to the auto financier. I keep all of my $36,000 minus the payments made as available cash, and still make a little money on it.

    Case B: Dealer refuses:
    Write a check for $30,000 from checking a/c to the dealer (pay in full). Instruct Bank B to pay monthly payment to Bank A Loan a/c to pay it off in 36 mo. I still keep $36,000 - payments as cash, and make only 0.25% in interest.

    Sounds very nice to me. It looks like since I have the money, I am in a bargaining position. I might also dictate the terms of the loan at the auto dealer. But then, I know there is no free lunch - what is the fallacy in my reasoning? Is there some bad tax implications? Thanks again, - MS.
  • grandtotalgrandtotal Member Posts: 1,207
    Why are you bothering with Bank A at all? Why isn't the money you have saved in a money market account now?
  • joel0622joel0622 Member Posts: 3,299
    Why don't you just find a car that you like offering 0% and leave your money alone? Put it in a higher interest bearing account and then use the $500 a month you have been saving to make the car payment. Even if it is not 0% and it is .9/1.9 etc you are still coming out ahead if your money is drawing more interest then what you are paying on the loan.

    Quit trying to re-invent the lending wheel and just buy a car :D
  • snakeweaselsnakeweasel a Certified Edmunds Poster.Member Posts: 18,584
    I have saved $500/month for 6 years to accumulate $36,000 in a checking account with bank A getting a (very) small interest.

    This is your first mistake. You should be moving this into a higher interest account, say a money market or a (at least) mid term CD. Your money is still accessible but working harder for you.

    I would not go with your plan as you will lose money in any case. the tax implications are that the interest on any funds you have invested are taxable while the interest on your auto loan is not tax deductible. That being the case you will need a nice spread between what you earn and what you spend for you plane to produce any money.

    Now this is what worries me, a 30K loan at 5% interest for 36 months is a $892.41 payment which off the top of my head would be to much. I say this simply because you said that you saved $500 a month which I will presume is all you could save over the last 6 years. So I would not advise taking out any loan that would result in a payment of over $500.

    I would seriously look at something less expensive (plenty of good cars for a lot less out there) and get a loan that under that $500/month that you have been saving. Then just put the $36,000 into a higher interest account.

    A second plan if you have the discipline to do it is just pay cash for the car and pay yourself back the principal plus interest.

    2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D

  • 1stpik1stpik Member Posts: 495
    Economists and others can debate theories on cash vs. finance forever. Here's the reality:

    Finance the car if the interest rate is 5% or less, because you're getting free money; inflation is 5% or more.

    Don't believe the government's figures of 3-4%. They're lies. The fed-conomists openly admit that their inflation figures don't include "food" and "energy." That means groceries, electricity, and (surprise!) GASOLINE. Yeah, the stuff everyone buys every day gets left out of the official government reports on inflation.

    How convenient.

    Anyway, finance your car if you can do it at less than 5%. And follow this basic rule:

    If you can't afford the 36 month payment, then you can't afford the car.

    This means that you CAN finance for a longer term, but you should do so only because it benefits you; e.g., you got 1.9% so you want to stretch it out.

    If you HAVE to go 72 months just to make the payment, then you can't afford the car. Buy a cheaper one.

    Don't worry -- that Cadillac or Lexus you want will just look like every other one on the road. So what's the point of buying it? You can't use it, anyway, because you can't afford to fill the gas tank, and you have to stay home, watch TV, and eat Ramen noodles because you can barely make the payments?

    This country is full of people trying to bluff their way into the American lifestyle. They're not fooling anyone but themselves.
  • snakeweaselsnakeweasel a Certified Edmunds Poster.Member Posts: 18,584
    Don't believe the government's figures of 3-4%. They're lies. The fed-conomists openly admit that their inflation figures don't include "food" and "energy."

    The government gives two basic inflation figures, one with food and energy and the other without. The 3-4% is with food and energy.

    If you can't afford the 36 month payment, then you can't afford the car.

    Very poor rule. 48-60 months is doable and results in no big issues. You should not finance it longer that you will have it (or at the very least finance it so that you will have some equity when you sell it) however going longer than 60 months doesn't do a lot in reducing the payments. Since most cars will last 10 years or more these days financing for half that time is no big deal.

    2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D

  • bobstbobst Member Posts: 1,776
    After paying taxes on the money you get from your 5.25% account, it amounts to about 3.5%
  • msindallasmsindallas Member Posts: 190
    Why are you bothering with Bank A at all? Why isn't the money you have saved in a money market account now?

    Answer in 1 phrase: Poor money management. I am bad at this, and have been burnt badly at the stock market during the 2000-01 bubble burst. So my confidence in managing my money is a bit shaken. I just created a bunch of accounts - one to pay the mortgage, one for the bills, one for charity, one for auto, one for vacations, rest for pocket money, etc. I split my income straight to all these accounts at source, after tax deduction. I made myself a promise - not to buy my next car until the money in my auto account + pocket money + expected trade-in is more than the price of the car. Kinda self-imposed fiscal discipline. Now that I have crossed that point, I am in the market. Actually, every month I don't buy the car, I accrue $500 for this next car.

    Quit trying to re-invent the lending wheel and just buy a car

    How do I know about the lending wheel? If I have had the knowledge, I wouldn't be bothering y'all. I am just trying to learn these things myself. I do not trust the dealer cause they are interested in maximizing their money, and I don't expect them to look after my interests. We all know not to trust the (false, incomplete and misleading) advertisements on TV, and there's not much on this topic, anyways. I found the folks chatting on Edmunds to be helpful and knowledgeable, so I share my concerns and ask for advice, that's all.

    This country is full of people trying to bluff their way into the American lifestyle. They're not fooling anyone but themselves.

    Whats wrong with the American lifestyle? I like it. I dont bluff about getting into anything. I like the Texas lifestyle even more - living in a 3,000sqft house with big yards and wide open roads and skies, unlimited parking space, no state income tax, I could go on and on. Now, I am not fooling anyone including myself, I am just living my own life, and within my means.

    After paying taxes on the money you get from your 5.25% account, it amounts to about 3.5%

    So that is the fallacy in my argument. Thanks for pointing it out.

    As of now, I have enough money to pay cash for a car. In this society and fiscal system, if everybody paid sticker like at any other store, I'd be paying sticker, too. I am just wondering what is the best way to spend the money on the automobile, and how to go about my transportation needs in the future. Here's the thought, considering that I will not make any money from interest:

    I buy a car now with cash down, and keep saving the same money ($500/mo) in a similar account (money market this time). In a few years (say 5), I will have $30K again. With a $10K resale from the car I am going to buy now, I'll have $40K for the next car - and this cycle can continue. What do you think? Regards, - MS.
  • faroutfarout Member Posts: 1,609
    My wife and I are neither the lower middle class or the upper poor class. We make it, and it seems the Lord supplies our needs and wants, better than we should sometimes.
    I am a medically retired from the USN, and old enough for Social Security. We drive 25,000 miles a year just for my Dr. apts. add to this church and other small trips to the store, we generally go 28,000 miles a year. When gas was $2.00 a gallon we could handle 60 months and trade it in whenwe got 70,000 to 75,000 miles and pay $3,000. down and come out all right. We need a 4x4 because we live in an area which requires it especially in the winter.
    This year we went with a Jeep Compass. We went with a 72 month loan. With gas pretty much about $3. to 3.40 a gallon that was the only way to go on a fixed income. We have a 1996 Dodge Neon with 194,500 miles on it. We care for our vehicles, and we take pride in what we own.
    I think there are a lot of people[le like us and lots more of soon to be retired baby boomers., who will become like us. Many working people live not more than 2 months without a pay check from loosing what they have. Times are much different from that of of the retired of the fifties or sixties or even into the 70's and 80's.
    If there are those who can pay cash for a car then count it a blessing! I am of the opinion that a large amount of us have to get a loan to buy a new vehicle.
    Better still, have many of you noticed how many "buy here pay here" lots have come into being now. Have any of you ever had to buy a vehicle at one of these high priced placed at super high interest rates. I know of a good number of people who have. Sometimes it's that or no transportation. This USA has an ever widening group of people who are getting less well off every day. Many jobs onced that paid good wages are no longer their.
    When was the last time you saw a watch repair shop, shoe repair shop, dairy that you bought milk from, Gasoline station that serves you, a television repair shop? The list is endless. Grade school Teachers are among the lower paid as well.
    Times are changing, and we can hope that the vehicles we have today, which are better than ever before, will last most of the way to getting the vehicle nearly paid off.
    I think any loan over 72 months is risky. I have seen vehicle loans recently for 96 months! Most loans at one dealership I know of are 84 months. They sure don't make these loans for the well to do.

    farout
  • bobstbobst Member Posts: 1,776
    "What do you think?"

    Buy a decent car and pay cash for it.

    Save a reasonable amount of your income.

    Enjoy life.
  • exb0exb0 Member Posts: 539
    msindallas, don’t listen to Bobst, he grew up during the Great Depression and he is afraid of banks. Just teasing you Bobst :P .

    But seriously, $30K invested at even at 3.5% after taxes will yield about $4,500 in 48 months. A $30K loan at 5% for 48 months will cost you $3,162. Just go to www.bankrate.com calculators and crunch some numbers for yourself.

    Also, don’t buy a car just because it has 0% interest on it. Buy what you will enjoy driving for a long time. There is always a reason why the manufacturer has to subsidize a car in order to sell it. That would the same reason that will kill the resale value of that car. If you buy a car that has 0% on it, and you hate it, and trade it in three years while loosing your shirt on the resale, was it really a bargain?

    Also, don’t be afraid of the stock market. Just because you fall off a horse… I also lost a lot of money during the dot bomb crash. Instead of running away, I switched into small cap and international funds. There were a couple of years where I made 30 to 40% on my portfolio. If you are not confident with your financial skills, hire a financial adviser, it is worth it in the long run.
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