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Vehicle Financing: How Long is Too Long?

50 messages,  Last post on May 27, 2007 at 7:58 AM

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What is this discussion about? Car Financing

Messages Page 5 of 5

#41 of 50 Re: Is there a free lunch? [msindallas] by grandtotal

May 26, 2007 (4:40 am)

Replying to: msindallas (May 26, 2007 1:19 am)
Why are you bothering with Bank A at all? Why isn't the money you have saved in a money market account now?

#42 of 50 Re: Is there a free lunch? [msindallas] by joel0622

May 26, 2007 (5:39 am)

Replying to: msindallas (May 26, 2007 1:19 am)
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

#43 of 50 Re: Is there a free lunch? [msindallas] by snakeweasel

May 26, 2007 (7:20 am)

Replying to: msindallas (May 26, 2007 1:19 am)
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.

#44 of 50 REALITY CHECK by 1stpik

May 26, 2007 (8:59 am)

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.

#45 of 50 Re: REALITY CHECK [1stpik] by snakeweasel

May 26, 2007 (9:15 am)

Replying to: 1stpik (May 26, 2007 8:59 am)
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.

#46 of 50 Re: Is there a free lunch? [msindallas] by bobst

May 26, 2007 (10:25 am)

Replying to: msindallas (May 26, 2007 1:19 am)
After paying taxes on the money you get from your 5.25% account, it amounts to about 3.5%

#47 of 50 Re: Is there a free lunch? [bobst] by msindallas

May 26, 2007 (1:08 pm)

Replying to: bobst (May 26, 2007 10:25 am)
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.

#48 of 50 What about us ? by farout

May 26, 2007 (4:47 pm)

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

#49 of 50 Re: Is there a free lunch? [msindallas] by bobst

May 26, 2007 (5:43 pm)

Replying to: msindallas (May 26, 2007 1:08 pm)
"What do you think?"
 
Buy a decent car and pay cash for it.
 
Save a reasonable amount of your income.
 
Enjoy life.

#50 of 50 Re: Is there a free lunch? [bobst] by exb0

May 27, 2007 (7:58 am)

Replying to: bobst (May 26, 2007 5:43 pm)
msindallas, don’t listen to Bobst, he grew up during the Great Depression and he is afraid of banks. Just teasing you Bobst .
 
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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