Percentage of monthly income spent on a car?

krony · September 2006

I heard once as well that total car expenses (payment, maintenance and insurance) should be no more than 10% of your take home income. From a financial responsibility standpoint I think that's a pretty good target. For most that means buying used, or saving a chunk for the "new paint".

Like Biancar said, you have to control the "car lust". While I'd like some newer wheels I'm at 8% at the moment so I better start saving.

gasman1 · September 2006

Your theory of buying at least one car that costs less than what people (on paper) can afford has worked for me as well. However, most people won't see it or have the patience to hold true to such a plan. If most people did, our society and our economy could be much different.

biancar · September 2006

I wish more high schools would teach "financial literacy" classes. Some do; invariably teenagers are shocked to discover all the things that go into a family budget.

Parents often don't include the kids in financial discussions, so the kids really don't appreciate or understand how Mom and Dad put a roof over the heads, groceries in the fridge, a car in the driveway. It all just sort of "happens." Then they think it will all "happen" just that way when they start working, not realizing it took Mom and Dad plenty of years to get to that point.

Well, we all learn. When the pain of having too much month left at the end of your money gets overwhelming, then people can start to wake up and say hey, something's gotta give here!

qbrozen · September 2006

what's a budget?

seriously, though, my wife definitely doesn't know the meaning of the word.

gasman1 · September 2006

Words of wisdom that normally fall deaf on the ears that really needs to hear (and understand) them.

A Cell Phone salesman made a great point while I was at a trade show several years ago. We were discussing the difference in people paying for their cell phone usage (a luzury at that time) and paying for their propane gas. He told me that cell phones were sexy and a must have for the "see what I have" as opposed to propane gas just being a necessity.

Today, the "see what I have" must be $3K+ televisions and automobile leases that they can't afford. It could also be the $100+ concert tickets or the Hawaii vacation... It's a free country so people can spend their money as they wish. I just wish they knew what they were doing. Their poverty (today or tomorrow) doesn't help them or us.

masterpaul1 · September 2006

All good comments. We have two vechicles, coupe and minivan, for our family of six. We spend about $200 a month for gas and $185.00 for vechicle insurance in both vechicles. (Both vechicles are paid off). When we had to purchase our minivan back in 2003, we did not want a car payment. So, I took the money out of my 401(K) for 5 yrs which cost me about $330 a month, which paid for the purchase price, title, taxes etc. (The money is taken out of my paycheck before I even get it.) Also, the principle and interest is placed back in my 401(K) account. Me and my wife have found ways to make our money work for us, instead of us having to work so hard for it. We do still struggle from time to time. We went from two incomes back in 2003 totaling about 85K, to just one income at around 55K now. We have more now, then what we had 5 yrs ago. We used the equity in our home to pay off around 35K in debt's that we both had before we got married. We only have one credit card worth $500, a reserve line credit on my checking account of $4K and around $3K for our garage. We purchased our vechicles used of no more than two yrs old. :shades:

lemko · September 2006

Those things only make people look foolish in my eyes. My circa 1986 Zenith console television still delivers a clear, crisp picture. I can't think of any existing band that is worth $100 a ticket and I'm not willing to watch the geezers who still make up once-good bands make fools of themselves on stage. I'll go to Hawaii provided somebody else is paying for it and if you're leasing a car, you obviously can't afford it. Fools and victims. Victims and fools.

carlisimo · September 2006

"Those things only make people look foolish in my eyes. My circa 1986 Zenith console television still delivers a clear, crisp picture."

Oh man, if I known that I wouldn't have listened to your guys' advice at all!

hansienna · September 2006

I needed a reliable car when I first graduated from college so I got a new one where monthly payment was 15.9 % of my pay before taxes. Before it was paid off in 3 years, the monthly payment was about 8 % of my pay.
Six years later, we kept paying monthly payments into savings and have paid cash for cars ever since. :shades:

carlisimo · September 2006

I'm noticing the same effect. Combined with a less-than-perfect used car experience, I think I should've aimed higher when I bought my current car.

nvbanker · October 2006

"And if the minority are buying new, where would the majority get their used cars?"

There are always rental fleets.

joesmith2 · February 2008

I'm 60, and I've owned at least 50 cars. I've never made a car payment in my life, and I don't regret it. I have a few bucks saved up, the reason I was able to save a few bucks is because I'm not making car payments. I don't carry collision insurance, fire insurance, theft insurance, because I don't have to. Those are all rip-offs. If you buy a new car, and it gets stolen, they'll give you what the car's worth. If it gets stolen 5 years later, they give you maybe half what you would have gotten 5 years earlier, but do your insurance payments go down? Look at the fine print, they charge you for life insurance so that if you die before the car's paid for they'll still get their money. My advice: DON'T MAKE CAR PAYMENTS. You can get a good car for $5,000, a decent car for $2,000, a car that runs good for $1,000. Save your money until you have enough for a better car. If you're making car payments, you don't own the car, it owns you.

tidester · February 2008

I'm 60, and I've owned at least 50 cars.

That works out to about one "new" car every 9 months or so. Instead of making monthly payments you're just spreading them out over a somewhat longer period.

but do your insurance payments go down?

That's one way of looking at it. On the other hand, if they did lower your premiums as your car got older they would have to have charged you a whole lot more when it was younger. Insurance is about diluting risk and, yes, that comes with a price. Of course, you're free to carry the risk entirely on your own shoulders. That's your choice but to call it a "ripoff" because you chose another course is probably a bit overstated.

You can get a good car for $5,000, a decent car for $2,000, a car that runs good for $1,000.

Of course you can! And you can also get by on about $6 a day for groceries. It all comes down to the priorities that you set for yourself. Just remember that the "savings" you enjoy in buying used derive from the fact that others made a different choice. If everyone stopped buying new cars then the cost of those used cars would become astronomical.

tidester, host
SUVs and Smart Shopper

jlawrence01 · February 2008

But if you buy a new car and don't have collision and slide off the road on black ice and total it, you get NOTHING! I don't find that smart at all.

But if you are buying $3-4k vehicles like the poster was talking about, why not self-insure and spend the delta on higher liabilty limits. (The only exception is that you need to carry coverage should you rent a lot of cars.)

However, many insurance companies are now offering to replace a purchased NEW vehicle with a new one should the car be totaled in the first 12 months of ownership.

qbrozen · February 2008

But if you are buying $3-4k vehicles like the poster was talking about

Well, that's where his/her post got confusing. If you look at the quote I took from the post, he/she FIRST mentions a "new" car. It is not until later that he/she mentions a clunker.

joesmith2 · February 2008

One car every 9 months, that's true, but in my defense I've almost always had 2 cars, and 3 when I was married or living with a woman (there have been many)! Also, in the 1960's and 70's cars didn't last as long as they do now. Back then cars were never financed for more than 3 years. I wasn't as smart when I was younger, and I did buy a few cars who's useful life was quite short. I found that when you manage to save 10 or 20 thousand dollars, you don't really want to buy a new car. You can, but you've worked so hard to save all that money, you decide you'd like to keep most of it. You're right about the savings, some people sell their 5 year old car, and they get much less for it than it's worth. That's where I step in. Thank you people!

qbrozen · February 2008

I don't carry collision insurance, fire insurance, theft insurance, because I don't have to. Those are all rip-offs. If you buy a new car, and it gets stolen, they'll give you what the car's worth.

???
But if you buy a new car and don't have collision and slide off the road on black ice and total it, you get NOTHING! I don't find that smart at all.

I agree, collision is not worth it once the car reaches a certain value. But that certainly doesn't apply to NEW cars.

No fire insurance? You mean on your house?? How do you figure "you don't have to?" You mean you have no gas, no electricity, no lightning storms, and no neighbors that have any of those things? Wow! Where do you live??

mattandi · February 2008

I'm 60, and I've owned at least 50 cars. I've never made a car payment in my life

You had a car payment. Just not a monthly one.

Not that your basic point of living debt free is so bad though.

jlawrence01 · February 2008

Point noted. I went back and reread it a couple of times.

When you say 50 cars in 30 years, you have to be buying a lot of junkers in the mix (even if you have several at a time).

joesmith2 · February 2008

Actually I've owned cars for over 40 years. When I mentioned fire insurance I was talking about cars, not houses. I paid 15,000 for the car I'm driving now, a 1996 Mercury Grand Marquis. When I bought it in 1999 I carried collision/theft on it for 2 or 3 years, but because the amount I would have gotten had the car gotten stolen had gone down, and the insurance premiums had not, I dropped it. People who finance a car for 7 years have to carry that kind of insurance for 7 years, even though what they'll get if the car is totalled or stolen might not even pay off what they owe on it. People all the time try to trade in their car and find out they owe more on it than its worth. Today kids will get their first job, and go out and buy a new car with payments almost as high as a week's check, plus they're paying more for insurance because of all the coverage required. If they get laid off, then what happens? I listen to talk radio where people call in for advice about their bad financial situation. They almost always have 2 car payments, a house payment, they're making 50,000 a year but they can't pay their credit cards.

The best advice I can give is ALWAYS pay your credit card bill in full to avoid the finance charges, even if it means you have to miss some meals, and don't make car payments.

qbrozen · February 2008

When I bought it in 1999 I carried collision/theft on it for 2 or 3 years, but because the amount I would have gotten had the car gotten stolen had gone down, and the insurance premiums had not, I dropped it.

Well, now that makes MUCH more sense than your original blanket statements.

When I mentioned fire insurance I was talking about cars, not houses.

How odd. Your insurance company sounds a bit fishy. I have never been offered fire insurance as an independent option on any car on any policy I've ever had or even read. (???)

kyfdx · February 2008

I think he is referring to comprehensive coverage.. fire, theft, etc..

qbrozen · February 2008

he must be.
Its odd to refer to it as fire insurance, IMHO, since that is probably the least likely of all the scenarios it would cover.

Fyi: I just looked it up and my Hagerty policy has 2 categories only (other than PIP and property damage): Collision and Other Than Collision.

So that "other" category obviously covers a heck of a lot of potential problems.

kyfdx · February 2008

I think the term, fire insurance, is typical of someone who grew up in the '50s or before (which I assume he did, if he has been buying cars for over 40 years). I have family members who still use that term in place of homeowner's insurance.

Not that I'm all that young... I can still remember a Herman comic strip panel, where he is sitting in the insurance office, and says, "I need all the fire insurance I can get, by next Friday".

Oh well.. No car payments is still a good thing..

joesmith2 · February 2008

Actually, when I took driver's ed in high school in about 1963, fire insurance was mentioned as a type of insurance you can get on a car. I didn't mean to confuse anyone! Right now is the time to buy if you want a foreign fuel efficient car. The us dollar is tumbling, oil is $102 a barrel, and with the exchange rate moving, the prices of foreign cars has to start moving up. In the next 3-4 months I see gas being $4, and foreign cars being 10-20 percent more. So, if the only way I could buy a new fuel efficient foreign car was to finance it, I would do so at this time. Even though I've never made a car payment in my life. I think there's a good chance you could buy a new Honda and sell it in 6 months for what you paid for it.

blueiedgod · March 2008

I don't carry collision insurance, fire insurance, theft insurance, because I don't have to. Those are all rip-offs. If you buy a new car, and it gets stolen, they'll give you what the car's worth. If it gets stolen 5 years later, they give you maybe half what you would have gotten 5 years earlier, but do your insurance payments go down?

Older cars carry higher liability premiums than new cars with the new safety doo-dads. Prime example, full coverage with $100,000 policy on the 2005 Honda CR-V is $640/year, but a liability only coverage on the 1988 Prelude is $450/year. The $200/year difference is not enough for me to not have the better vehicle.

I own the Prelude outright, and financed the CR-V for 5 years in 2005 at 2.9%. Had I paid cash for the CR-V, I would have had lost an opportunity to earn risk free 5.05% on that stash. So, by financing I was basically given money to buy the vehicle at a rate lower than what risk free rate was at the time, and until recently.

Even now, the risk free rate is at 3.5%, 0.6% higher than what I am paying in interest to Honda.

When you try to justify personal choices with numbers, you have to take into account the cost of lost opportunity for your money that you sunk into a depriciating asset.

So, you bought the Grand Maquis for $15,000. Had you financed it through Ford Credit you would have probably gotten 0% rate on it. Hence, you lost the opportunity to make more money with this $15,000, and now it is worth nothing because it depriciated. Had you finainced at 0% you would have still had the $15,000 plus the earnings, and you would have had the vehicle fully paid off.

My advice: DON'T MAKE CAR PAYMENTS.

You can not make categorical statements like that until you evaluate the whole situation, rather than focusing on just the small part of the whole grand of scheme.

I am only half your age, so I may have missed something.

blueiedgod · March 2008

Actually, when I took driver's ed in high school in about 1963, fire insurance was mentioned as a type of insurance you can get on a car. I didn't mean to confuse anyone! Right now is the time to buy if you want a foreign fuel efficient car. The us dollar is tumbling, oil is $102 a barrel, and with the exchange rate moving, the prices of foreign cars has to start moving up. In the next 3-4 months I see gas being $4, and foreign cars being 10-20 percent more. So, if the only way I could buy a new fuel efficient foreign car was to finance it, I would do so at this time. Even though I've never made a car payment in my life. I think there's a good chance you could buy a new Honda and sell it in 6 months for what you paid for it.

Joe, I don't want you to think that I am picking on you. But....

Define what is a foreign car. Is a Chevy made in Korea a foreign car? Is a Honda made in Ohio a foreign car?

Most of the "foreign" cars are actually made here in the USA out mostly US components, so the dollar fluctuations will not affect them as much as the "domestic" cars which are either made in Mexico or Korea out of Mexican or Korean components. Even the vehicles assembled here in the USA by the UAW workers are made of Mexican, Korean and Chinese components.

As to buying a Honda and selling it in 6 months, if you are talking about inflation, then yes, you will get the same monetray number, but the purchasing power of that same amount will be less than what it was 6 months ago, so you are just fooling yourself.

However, Hondas do retain most of their value for a long time. I bought a 1999 Civic for $15,000, sold it 2.5 years later for $12,000, then bought a 2002 Civic for $14,500 and sold it 2 years later for $12,500. If you were to take the difference between the price I paid and the money I got back, it was cheaper than leasing, since it works out to about $80/month.

manamal · March 2008

However, Hondas do retain most of their value for a long time. I bought a 1999 Civic for $15,000, sold it 2.5 years later for $12,000, then bought a 2002 Civic for $14,500 and sold it 2 years later for $12,500. If you were to take the difference between the price I paid and the money I got back, it was cheaper than leasing, since it works out to about $80/month.

The only thing I will take issue is the cost of money. I can always get 4% on 15k. 4% of 15k is $600/year, or another $50 per month. So, it cost you $130/month, which is still cheaper than leasing (but not by that much).

joesmith2 · March 2008

"Whats a foreign car?
Being an old guy, I still think of American cars as being big gas guzzlers and foreign cars as being little fuel efficient cars, so referring to foreign cars was inaccurate on my part. And we all know about foreign content in domestic cars. However it doesnt really have anything to do with my argument, which is about a new, little fuel efficient car verses an older large car.

If you buy a car and sell it for what you paid for it, because of inflation, the buying power of the money you receive isnt the same as the buying power of what you spent

Thats true, but had you just kept the money laying around you would have lost that buying power anyway.

You can not make categorical statements like that  (about not making car payments)
Isnt THAT a categorical statement itself? Sure, you can make car payments, and invest the money you could have used to pay cash for the car. You can make a profit. Of course you can also lose your money, then you dont have the money AND you have a car payment.
There are people that get a job, buy a car on time, make payments, get raises, and easily pay off their car. But, if you get a job, get raises, dont lose your job, its pretty hard to screw up. What happens if you get laid off? Youre looking for a new job, you miss a payment or 2, then you look outside one day and your car is gone. Then even if you get a new job, you cant get to it.

I am only half your age, so I may have missed something.

That is an extremely intelligent observation. The hardest thing in the world to do is to save money. Just try saving $15,000 to buy a new car. If you do, youll likely not spend it on a new car. After working that hard to save $15,000, youll think about spending $5,000 on a car and keeping $10,000. Ive made a lot of bad decisions in my life. Ive been divorced 3 times. But one decision Ive made that was good was to not make car payments.

Ill say it again. If you pay cash for a car, you own it. If you make payments, it owns you.

jlawrence01 · March 2008

I hesitantly enter this conversation.

All the cars that I have purchased since 1986 have been paid in cash. When I go to the dealership, I know that I am going to write a check for the amount of the purchase price.

Last year's purchase was $15k including taxes and fees out the door. It was hard to write the check because I know how hard it was to save that much money to pay for the vehicle. And the vehicle was a GREAT deal! (After 25 years of used cars, I had to keep tellig myself that this was my last car for the next 15 years. And I will know in that period if Toyota products are truly better than their domestic counterparts.

It is a lot easier to spend $350/month for 39 months because those are small payments to make ... even if you are making them forever.

joesmith2 · March 2008

An article today on Kiplinger's Personal Finance, linked by Yahoo, basically the 10 tips are:

Buy a Used Car
Buy a Sipper, Not a Guzzler
Re-Shop Your Car Insurance
Drop Collision & Comprehensive Coverage
Raise Your Deductible
Join Policies (car & homeowners)
Shop Around for Gas
Use a Gas Rebate Credit Card
Hop on the Bus, Gus
Car Pool

4 of the "tips" are "pay less for insurance", 2 are "don't drive", 2 are "buy cheap gas", the other 2 are "buy a cheap car that doesn't use much gas". What a useless article.

My tips to cut car costs would include:
1) Pay cash for your car. You'll save the finance charges, and you'll be allowed to drop your collision & comprehensive coverage (Kiplinger's says to drop them, but doesn't address the fact that you can't if you're financing).
2) Lie to your insurance company about how many miles you drive per year, i.e. lower it. "How many miles do you drive to work?" Answer: "I work from home".
3) Don't get any tickets and don't have any accidents. If you do get a ticket, fight it in court. I've beaten half the tickets I've gotten just by showing up. Sure, you have to miss work, but you get to say you haven't had any tickets in the last 3 years.
4) Tell your insurance company your car is for "Farm Use". I used to work for GMAC Insurance, and rates are lowest for "Farm Use" vehicles. Just because you don't live on a farm doesn't mean you can't say Farm Use. I know farmers who live in apartments, they store their equipment on a farm somewhere and hire themselves and their equipment out.
5) Ask your insurance company how you can get a discount. Ask over and over. I got a discount from Geico by taking a "driver improvement" class. The class was one day, most of the people there were ordered by the court to go. I saved enough in one year to pay for the class. Also, insurance companies give discounts if you belong to certain college alumni associations. Many of these alumni associations don't require you to have ever taken a class to join.

No, I don't feel guilty about lying to the insurance company. I never have any claims, so it's free money for them. The reason I don't have any claims is because I work real hard at not having accidents. Right now I'm working in Philladelphia, driving a car that is a "Farm Use" vehicle in Michigan. Because of this, I drive very carefully. Not having collision insurance makes you drive more carefully.

joesmith2 · March 2008

I forgot to add, keep your tires inflated, a couple of extra pounds is a good idea, and keep your car maintained, i.e. air cleaner, tune up, alignment.

mattandi · March 2008

Again, your live debt free advice is good. Lying in an effort to do so, not so much.

tidester · March 2008

Lie to your insurance company about how many miles you drive per year

I never have any claims, so it's free money for them.

In that case, one wonders why you bother to have insurance. Oh, that's right, it's compulsory. Just be aware that one day when you do file a claim it will likely be denied when the insurance company discoveres your true mileage.

tidester, host
SUVs and Smart Shopper

jeffyscott · March 2008

Just be aware that one day when you do file a claim it will likely be denied when the insurance company discoveres your true mileage...along with discovering the rest of his fraud.

jlawrence01 · March 2008

>>2) Lie to your insurance company about how many miles you drive per year, i.e. lower it. "How many miles do you drive to work?" Answer: "I work from home".

4) Tell your insurance company your car is for "Farm Use". I used to work for GMAC Insurance, and rates are lowest for "Farm Use" vehicles. Just because you don't live on a farm doesn't mean you can't say Farm Use. I know farmers who live in apartments, they store their equipment on a farm somewhere and hire themselves and their equipment out. <<

Reminds me of a young lady that I used to work with a decade ago. She lived in the city but registered her vehicle at her parents' house in the healthy suburbs which saved her about 50% in insurance costs.

Well, she parked her car in the wrong area and the car was flooded out one rainy night. Total loss - $12k.

She would have gotten away with it if she would have kept her mouth shut. However, she told everybody at work about the situation and how "pulled one over on the insurance company."

Somehow, the insurance company found out, assigned surveillance, and eventually declined the claim.

joesmith2 · March 2008

I expected to catch some flack about my tips. I doubt if I'll get "caught" lying about my mileage, my odometer quite working. I don't carry any insurance on my car, just the liablity that the state requires. If I cause an accident and have a claim filed against me, my insurance could get cancelled. That's just one of the many reasons I drive so carefully. I don't feel badly "cheating" the insurance company. They'll sell you a policy that won't pay off as much as the premium! In other words, you buy insurance, your car gets stolen, and they give you what they think your car is worth, even if it's less than the premium you paid. If someone is robbing you, and they ask you if you have any money they haven't found yet, and you lie to them and say no, are you wrong for lying? :confuse:

british_rover · March 2008

Sorry I just can't agree with the never finance a car. It depends on your financial situation and what interest rates are doing right now.

Our brand is running 3.9 APR on certain CPO vehicles right now up to the 2004 MY. That is an insane rate on a four year old car so you get the bonus of buying a car that has already depreciated by half or more then half, it is under warranty for two or three years and the interest rate is well below what you can earn in a decent money market account or CD.

lemko · March 2008

...if all you want is an underinsured beater subcompact. I can picture our frugal pal looking a lot like the guy in the "Free Credit Report" TV commercial driving the beat-up blue Geo Metro that stalls at the stoplight as two girls in a convertible laugh at him. The only difference is he'd have a stellar credit rating.

qbrozen · March 2008

I doubt if I'll get "caught" lying about my mileage, my odometer quite working.

Wow! Fraud x2. A federal offense, too! Nice work!

lemko · March 2008

Let's go a bit further - who needs the expense of registering a car or the inconvenience of a license? Of course, there are plenty of people in Philly who forgo the expense of insurance, registration, or a license.

jeffyscott · March 2008

Our brand is running 3.9 APR...and the interest rate is well below what you can earn in a decent money market account or CD

You must have missed the recent plunge in interest rates, you are pretty unlikely to earn 3.9% in those safe investments right now. My MM is down to about 3.6%. Then you would have to pay tax on whatever you do earn, so even though you could earn fairly close to 3.9%, the after-tax yield would be well below the 3.9%, that you would be paying (with after-tax dollars) on the loan.

That said, if somone does not have the cash, that rate would be a good deal...assuming you are not charging an inflated price for the car, to offset the discounted interest rate..

british_rover · March 2008

There are still some places where you can get close to 3.9 percent and maybe even above it. Just checking E*Trades rates from my account and they are under 3.9 percent now but that only just happened. I am sure if you spent some time hunting you could find some slightly higher rates and if you are less risk adverse you could always find much more profitable investments that would earn enough to beat the 3.9% and pay any taxes.

I also doubt rates will stay this low for long. You are better off to lock in the low interest rate for 3, 4 or 5 years then hang onto your cash to put into better investments later then tying up thousands of dollars in a depreciating asset.

The 3.9% comes from the manufacturer as part of the CPO program so it is independent of the price of the vehicle as long as it meets the CPO guidelines.

jeffyscott · March 2008

if you are less risk adverse you could always find much more profitable investments that would earn enough to beat the 3.9% and pay any taxes

You could find things that you hope will beat the 3.9%...but when you move beyond things that are essentially risk free that is comparing two different things. Not taking the 3.9% loan is a risk free 3.9% after taxes. With a combined state and federal marginal tax rate of 30%, one would have to earn about 5.6% before taxes.

mattandi · March 2008

Your advice was to commit fraud to save a few bucks. You deserved some flack. Now you reveal even more fraud to cover your original lie.

You don't like insurance companies. Fine.

I don't like lairs.

jeffyscott · March 2008

In other words, you buy insurance, your car gets stolen, and they give you what they think your car is worth, even if it's less than the premium you paid.

Not sure what this is supposed to mean :confuse: . That is exactly what an insurance company promises...that they will give you the actual cash value of your car if it is stolen. The price of this protection is the premium paid for "comprehensive". If you don't like the price, you don't have to buy that coverage and you take on the risk of loss yourself.

The reality is you are not stealing from the insurance company, you are stealing from all the honest policy holders. We have to pay higher premiums to cover the cost of fraud by others.

joesmith2 · March 2008

I wonder how long this post is going to last? If I do want to post, it takes me a whole 5 miuntes to create a new id, along with new email address. And don't bother flagging my IP address, it changes everytime I log on.

I've been nice. But if you make car payments, you're a fool. And part of the reason the country is in a credit crisis. :lemon:

qbrozen · March 2008

Yeah, you're right. I'm a fool for paying 0.75% interest on my wife's car for the past 2.5 years while my money market has been giving me 4.5%. Thank you so much for showing me the light.

joesmith2 · March 2008

First, I apologize for calling anyone a fool, that was harsh.

Loans come from banks. Banks pay interest on deposits, and make loans. Don't they have to charge more for loans than they pay depositers in order to make a profit? I don't know about anyone's situation, but I got on the Mercury web site and looked at their special offers. One offer was $5500 cash back, or .9% interest for 60 months with 10% down. I made a spreadsheet, and did some figuring. The payment on a 60 month loan for the financed amount (26095 for a Grand Marquis LS) works out to be $437.81. If instead you take the $5500 cash back, and apply it to the down payment, and finance the rest for 60 months at 10.57 %, your payments are the same, $437.81.

In the case of the Mercury Grand Marquis, your not getting .9% interest, you're getting 10.57% interest. If your investments are making less than 10.57% interest, you're better off paying cash. And don't forget you have to pay income tax on the interest you earn.

dtownfb · March 2008

I don't think anyone disagrees with you about paying cash for cars...if you can afford to. But there are times when taking the dealer financing is not a bad idea. Like 0% financing. My 2004 Quest is being financed at 2.9% for 60 months.

Percentage of monthly income spent on a car?

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