Interest payments on a depreciating asset. If you can figure out how much money you'd loose over the life of the vehicle and then make a rational decision that you can afford it great. If you taking out a car loan on a new vehicle that would then be a large percentage of your disposable income, not so great.
For anyone thinking of taking out a loan
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wheelsup
Well-Known Member
Debatable.
Interest is beyond negligible for most people with a 2%-3% rate, and most car loans these days are sub 1%.
Basically what you are saying is you'd buy a new car for $15,000 but not $15,800*. The difference is so little over the course of owning the car over many years that you won't even see it. Over the course of 10 years that $800 extra in interest payments is about $7 a month. You will spend far more in oil changes than you will in interest.
In fact, if you read between the lines here, you're actually throwing money away writing a $15,000 check for that car vs. putting it in a fund that over the course of time will greatly eclipse that paltry 1-3%% APR you're paying on that loan.
While true a car is a depreciating asset, it's value is far beyond the actual number on paper and it has intrinsic value and is truly an investment. It provides transportation to get you to and from work where you make money (for most of us). Is a $10,000 non-running luxury car worth more than a $5,000 reliable beater? To me and most folks it is.
Buying a $40,000 car on payments vs. a more reasonable one just because you can afford it is a different story, but for those who do not work on their own cars and downtime is precious, time at shops are lost days at work or a $40 taxi ride to and from make that extra $7 a month seem penny wise and pound foolish. I have bought several broken down cars from folks who did not have the time or resources (money) to fix them and whose choice was take a roll of the dice on another used one or get back on their feet with a brand new car for less than they were spending keeping their current one going. Couple that with the fact that used cars these days are not anywhere near "cheap" in relative comparison to a new one, and the case can easily be made for a new one.
* $15,000 new purchase price, 4 year loan, 2.5% APR keeping the car for 10 years.
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Personally I'd never buy a new car as it would loose a significant fraction of its value in the first two years of ownership. But that's me.
In 2004 I bought a 99 Jeep Cherokee 4WD for 5,500 cash. Still have the vehicle, has been from FL to AK and back and runs like a top (knock on wood). I could probably sell it for three right now, but it runs well and I fully expect to get another 60-80 thousand miles out of it.
I'm not inclined to do the math on what new cars, depreciation, and car payments would've cost me but I'm pretty sure I'm way ahead.
In 2004 I bought a 99 Jeep Cherokee 4WD for 5,500 cash. Still have the vehicle, has been from FL to AK and back and runs like a top (knock on wood). I could probably sell it for three right now, but it runs well and I fully expect to get another 60-80 thousand miles out of it.
I'm not inclined to do the math on what new cars, depreciation, and car payments would've cost me but I'm pretty sure I'm way ahead.
Just think, your 17 MPG for 12000 miles a year at $3.50 a gallon costs $22,000 over 9 years.
A 37MPG car for the same costs $10,200.
Food for thought!
wheelsup
Well-Known Member
It's pretty clear you haven't bought a new car in many, many years. New car vs "slightly used" prices are almost neck and neck.
The last car I bought personally was in 1998. Back then I paid 1/3 of the original new price of the car for just being 3 years old. Nowadays, a 3 year old car might get you $3k off the top of a new one. There are exceptions with some, certainly the higher priced luxury cars, but not everyday cars. Hardly worth it.
dasleben
That's just, like, your opinion, man
scooter2525
Very well Member
I had a similar discussion with my sister about buying a new vs slightly used car. She was planing to finance it and most used car interest rates were high enough that in the long run a new car interest rate and the off the lot deprecation worked out to almost the same. She bought new.
USMCmech
Well-Known Member
This is a recent phenomenon that is an exception to most of the history of the market.
Car manufacturers cut back production over the past few years. This means that there are fewer cars on the used lots. Consumers are being more frugal and buying more used cars.
Decreased supply, increased demand = higher used car prices
At the same time, new cars are being priced as low as possible and financing is insanely low, making new cars cost less than they should.
Last year, we bought an 07 Suburban with 70K miles for 50% of what a new one cost. Paid cash for it too.
Nihon_Ni
Well-Known Member
I think it's interesting in this debate that we're missing one point of view. We've heard from each of these camps:
- I used debt, and I'd do it again.
- I used debt, and I wouldn't do it again.
- I didn't use debt, and I'd do it again.
Is anyone in the "I didn't use debt and I wouldn't do it again" camp?
- I used debt, and I'd do it again.
- I used debt, and I wouldn't do it again.
- I didn't use debt, and I'd do it again.
Is anyone in the "I didn't use debt and I wouldn't do it again" camp?
chrisreedrules
Master Blaster
I don't think anyone would regret not going into debt for this career.
I've been very fortunate. I bought into a small jewelry business when I was 19 for about $6500. My partners were all irresponsible and I slowly bought them out for less than their shares were worth. I sold the business at 23 after having grown it to 2 store fronts and 4 employees for a tidy profit. I moved to New Orleans for a year to manage a large / high volume store front for a friend and admittedly blew through a lot of money. Left that, returned to Florida wondering, "what do I do next"? My dad suggested trying to be a pilot and that I had always been fascinated by aviation and flying. So between what I had left and with ample help from my parents, I completed flight training and *almost 2 years of college for around 80K. Debt free. And I did a lot of that time in a Multi engine.
I've always had an entrepreneurial spirit and it paid off for me. Well, that's hard to say yet as I'm only 2 years into being a professional pilot se we'll see how this career pans out! I'm a 110% type-AAA personality and I absolutely love working so it's hard for me to not keep busy trying to make/save money somehow. I fly about 60-80 hours p/month at my survey job, another 10-20 instructing in my off time, and I'm a paid consultant for a model airplane company. Now to finish my degree and get my real estate license. Love to hustle.
I've been very fortunate. I bought into a small jewelry business when I was 19 for about $6500. My partners were all irresponsible and I slowly bought them out for less than their shares were worth. I sold the business at 23 after having grown it to 2 store fronts and 4 employees for a tidy profit. I moved to New Orleans for a year to manage a large / high volume store front for a friend and admittedly blew through a lot of money. Left that, returned to Florida wondering, "what do I do next"? My dad suggested trying to be a pilot and that I had always been fascinated by aviation and flying. So between what I had left and with ample help from my parents, I completed flight training and *almost 2 years of college for around 80K. Debt free. And I did a lot of that time in a Multi engine.
I've always had an entrepreneurial spirit and it paid off for me. Well, that's hard to say yet as I'm only 2 years into being a professional pilot se we'll see how this career pans out! I'm a 110% type-AAA personality and I absolutely love working so it's hard for me to not keep busy trying to make/save money somehow. I fly about 60-80 hours p/month at my survey job, another 10-20 instructing in my off time, and I'm a paid consultant for a model airplane company. Now to finish my degree and get my real estate license. Love to hustle.
JustinS
Well-Known Member
Like @chrisreedrules said, I don't think anyone would ever regret not going into debt to get to their career. Although I have seen many of my friends get to their career goals debt free, It has taken them much longer, but they seem to be a lot better/happier for it.
In the same way, I don't regret what I had to do to get to where I am. College debt is a pain, but I am able to sustain a decent QOL and pay off my loans each month. Hopefully as I get more pay in my field, I will be able to pay off the loans more aggressively and get it done in less than 10 years. So by the time I'm 32, at the very latest, I'll be debt free. In the mean time, I am still enjoying life.
I guess you could say, the career doesn't come cheap. So you can get to your goal quick with debt, or get there slow without debt. There are many exceptions to that one of course... YMMV
Pilot Fighter
Well-Known Member
I'm curious about the model airplane consulting. Is it in the realm of marketing, design, management, production?
chrisreedrules
Master Blaster
I do market research, help plan release schedules, and help with quality control on releases by reviewing pre-production artwork, and pre-production models. It isn't as busy as it was even a year ago but it gives me something constructive to do while it sitting in my hotel.
Pilot Fighter
Well-Known Member
Very cool.
SlumTodd_Millionaire
Most Hated Member
The Case-Schiller Index is absolutely useless for determining the real value of real estate investments. Real estate is a cash flow generating investment. Ignoring the cash flow of real estate is like ignoring dividends in the S&P 500, which have accounted for about half of equity investment returns over the past century. I don't make money on my real estate investments because of capital appreciation (although there is some of that). I make money on my real estate investments because other people (tenants) are paying for my net worth to increase every month. Every month they hand me a check, and every month my net worth increases. Even when the value of the underlying asset (the house) hasn't budged one penny. It's very similar to investing in utility companies that pay substantial dividends. If you buy stock in an electric utility company, you typically aren't expecting much of any capital appreciation over the life of the investment. Instead, you're looking at the 8% dividend that it pays. If you were to make a Case-Schiller-like index for these utility companies, you'd come to the same silly conclusion that you made above. But over a 10 year period, that stock investment in that stagnant stock would have returned over 115%. Housing typically returns far, far more, provided that you know what you're doing in selecting the properties (or hire someone who does). I work with investors who won't accept anything less than 20% yearly cash flow on their real estate investments. And they get it, even in the worst real estate market in decades.
The above is a perfect example of why silly folksy advice like you get from Dave Ramsey is absolutely useless. Making money is complex. It isn't about a short list of folksy sayings and ideas. In order to be successful at managing money, you have to actually learn about making money. Things like the "debt snowball" only hold you back and cost you more money. They're simple because they're wrong.
chrisreedrules
Master Blaster
Dave Ramsey is full of good advice. But I found it more useful at 18 than I do much of it now. I think something like what he teaches should be a mandatory class in every high school around the country. It's a great primer for money management but it doesn't really get into the "nuts and bolts" of managing and making money. It IS far more complex than he makes it out to be.
Inverted
mmmmmm wine
Negative. I have a .6% rate on my new car. I will pay 300 dollars in interest by the time I pay the car off. A small price to pay to not have to come out of pocket for a car.
SlumTodd_Millionaire
Most Hated Member
I can think of nothing worse for America's youth than being forced to listen to the financial voodoo that Dave Ramsey spews. High school kids need to be taught how their credit rating works, not how to avoid having one like a backwoods hick.