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Years ago I was talking to a car dealership owner and we were talking about buying and selling cars. Where he differed with your dad's statement is he said "never BUY a depreciating asset".
He said "if you want a boat, rent one for the times you want to use one". Same with cars with one exception which is if you keep it for 10-15 + years then it could make sense depending on how one takes care of said vehicle and if it becomes a money pit. Young people rarely keep a car for the entire loan much less 10 years or more.
We paid $23k on a 5 year note for our 1997 Tahoe back in 1999 and it had 23000 miles on it. We still have it (on it's way out to another owner btw) with 202000 miles and very few repair $$ put into it.
It needs about $1k in repairs right now to keep rolling on but it doesn't fit what we need anymore.
We intend on keeping our "new" (year old) truck purchased for about the same $$$ for the same amount of time of course depending on how well it ages.
If it becomes a money pit or we cannot get into it anymore (due to our age,not it's age ) out the door it will go.
I've been young and dumb, pissed away more $$$$ on cars than I care to admit by trading off frequently but finally came to my senses. This is partially due to listening to people like Dave Ramsey and it being the right time in my life to be able to not only listen but to HEAR what he and others were saying. I wish I was thinking like a 50+ year old back when I was in my 30's/40's as it would have saved me soooo much money.
A car is a tool. It's the same as a hammer. A hammer can be $1.50 bought at Harbor Freight, and it will do the same thing my $30 leather wrapped Estwing hammer will do. Mine is, of course, infinitely nicer to use, but in the end the nail still goes into the wood the same.
A car brings you from A to B. You get food with it, it brings you to your job so you can earn money, etc. Some cars are nicer than others, some are safer, some bigger and haul much more than a small commuter car, all these things cost more money.
That's true for any product you buy. But a car a that costs $25,000 in a month when no 0% is offered doesn't magically coat $27,500 the next month when 0% is offered.
No, it costs $24,000 in a month when normal financing rates are in effect. I'm sure you know that dealers get a kickback for selling financing.
The MSRP includes the financing. It's added way upstream before you can ever isolate it or know what it is. There is no free lunch. Nobody gives you 0% anything. The cost is in there, you can count on it. It has to be, and it is, because in reality money (which is time) is not given away in the sale of consumer goods.
There is no subsidized financing, it is built in to the price of the vehicle.
NO FREE LUNCH KIDDIES.
At least someone gets it. Thanks, Marc, for restoring my faith in humanity.
As an incentive to entice people to purchase their product? Shocking concept, I know. The same people that qualify for 0% are the people that qualify for the better rates elsewhere, so why not get them into the manufacturer's finance company and product at the same time? The manufacturer makes enough money selling the car to dealers that loaning money to a certain percentage of qualified people doesn't hurt the bottom line, and the financing company makes it up on all the people who don't qualify.
Still believing in free money. It doesn't happen. Never. A teaser interest rate ALWAYS has the financing cost built into the price of the vehicle. There is no way they will loan you money at "zero %" just to get you into the vehicle, if the price of the vehicle didn't have the financing cost built into it.
It's pretty easy to demonstrate this to yourself. Just answer the following question:
Who else other than the car company (or any other company that provides you with in-house financing) would lend you money at 0%? The answer is clearly "Nobody."
You aren't getting 0%. You're getting duped if you believe that you are.
If you believe that, then you believe in a free money world.
Why would the manufacturer lend money for a vehicle purchase at a rate less than the current market rate?
Truthfully the manufacturer built in their profit before the dealer got the car. They spent 19,000 to build the car. A dealer buys the cars from the manufacturer say for 20,000 dollars and in turn they sell the car to you for 21,000. MSRP OF 22,000 and they gave you a deal at "invoice". Using whatever banking venue that will take you as a client. Dealer gets a cut of that deal if you use their financial outlet. You're not buying a car from the manufacturer.nyoure buying it from a dealer. Basically a store. No dealer will ever sell a car for a loss.
Now the reason a manufacturer WILL do a zero percent loan is because it does not hurt them. They already sold the car for 20,000. They made their profit. Dealer has their own built in profit for when they sold it to you for 21,000so they made their money too. The manufacturer now took your 21,000 dollar loan for no interest. So what? They are making even more money and you're a revenue stream now. And they got one more car on the road and made space for the dealer to buy another car from them. And to get zero percent financing you have to have stellar credit
If there was no money to be made nobody would offer it. Even zero percent isn't zero percent for everyone
That's true for any product you buy. But a car a that costs $25,000 in a month when no 0% is offered doesn't magically coat $27,500 the next month when 0% is offered.
Agreed. But that doesn't mean that there isn't financing cost built into the cost of the vehicle.
If you believe that, then you believe in a free money world.
Why would the manufacturer lend money for a vehicle purchase at a rate less than the current market rate?
Because they want to unload a certain model. It's very easy to find out what the average purchase price for any car. you should be able to figure out if you're getting screwed or not.
Many industries give zero % on any number of products, carpet, furniture, home depot does it all the time. The idea is to get a sale they otherwise would not get. They don,t charge you a different rate per sq ft of carpet. Of course car dealers will try to sell there cars for msrp. It's the consumers job to get a good price, zero % or not. There's profit built into every product we buy.
IDo you consider car payments a waste or bad debt?
Yes.
Do the math on interest paid vs. depreciation lost. Say you financed a new $20k car.. Depending on your interest rate, your $20k car could easily cost you $30k or more by the time you get it paid for.
And with depreciation, chances are it might be worth just ~$4-5k when you make that last payment. That is the exact same thing as money flushed right down the toilet.
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Sor people that take his/her advice, if your car broke down and you need a car ASAP, what other options do you have other than car payments if you dont have $3000, $5000, $10K set aside for a car?
Finance a used one for the $5k and pay it off as quickly as you can. I drive a 2001 Pathfinder that I did that with.. bought it in 2009 for around that much and paid it off in one year. Haven't had a car payment in FIVE years and the car still runs like a top with 150k miles. I plan on driving it forever too.
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) out the door it will go.
