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It could be worse OP. You could be one of the average Americans that goes and buys new SUV's that cost $60,000. Pay around $900 to $1000 a month payments on a 6 or 7 year loan, keep it for 3 or 4 years and go trade it in for $20,000 and transfer the $5000 in negative equity to a new SUV and start all over again making payments. Those numbers are just rough numbers, not exact, just to give you an idea of the stupidity of some people. I know a lot of people that "try to keep up with the joneses" and lose around $40,000 every 4 years on a vehicle, so basically their vehicle cost is around $10,000 per year just in payments. That doesn't include maintenance, insurance, etc. Cars are one of the biggest wealth killers in America. The literally keep people living paycheck to paycheck because in their minds they think people care what kind of vehicle they drive. I buy used with low miles and pay cash. I keep them for a little while and track their value and sell them and then buy another every so often. I have a truck that is my daily driver that I have had for 16 years. I try to keep my vehicle loss per year around $2500 or less and have been doing it for years.
As for the 30 year mortgage, that is just the price you pay to borrow that sum of money for that length of time. Buying a house is by far one of the smartest investments you can make. Compare paying a mortgage payment for 30 years on a home and eventually owning it to the morons that rent an apartment or a house and pay more than you do for a mortgage payment. Who has more wealth 30 years down the road?
It could be worse OP. You could be one of the average Americans that goes and buys new SUV's that cost $60,000. Pay around $900 to $1000 a month payments on a 6 or 7 year loan, keep it for 3 or 4 years and go trade it in for $20,000 and transfer the $5000 in negative equity to a new SUV and start all over again making payments. Those numbers are just rough numbers, not exact, just to give you an idea of the stupidity of some people. I know a lot of people that "try to keep up with the joneses" and lose around $40,000 every 4 years on a vehicle, so basically their vehicle cost is around $10,000 per year just in payments. That doesn't include maintenance, insurance, etc. Cars are one of the biggest wealth killers in America. The literally keep people living paycheck to paycheck because in their minds they think people care what kind of vehicle they drive. I buy used with low miles and pay cash. I keep them for a little while and track their value and sell them and then buy another every so often. I have a truck that is my daily driver that I have had for 16 years. I try to keep my vehicle loss per year around $2500 or less and have been doing it for years.
As for the 30 year mortgage, that is just the price you pay to borrow that sum of money for that length of time. Buying a house is by far one of the smartest investments you can make. Compare paying a mortgage payment for 30 years on a home and eventually owning it to the morons that rent an apartment or a house and pay more than you do for a mortgage payment. Who has more wealth 30 years down the road?
This generalization is oversold to people as well. Buying a house often isn’t a great investment, it’s often a huge expense, liability that appreciates around the rate of inflation with the exception of some hot markets. The tax benefits have deminshed some and if you have to sell in the first 1-5 years it’s probably going to turn out to be a poor experience. That also doesn’t take into account the fact that most people buy more and nicer than they rent which actually throws off any comparisons anyhow
That payment for the house is also escrow which is taxes and insurance.
But yes,how else do you think banks stay in business?
You should download a financial calculator app. Good Luck....on...well life.
That payment for the house is also escrow which is taxes and insurance.
But yes,how else do you think banks stay in business?
You should download a financial calculator app. Good Luck....on...well life.
That’s not accurate for all. I don’t escrow and haven’t with my last two mortgages
What in the hell is your interest rate where you are paying that much interest for 60 months?
Using "the rule of 72," which is the estimate to calculate how long you will either make or spend twice the principal. You take 72 divided by 5 years and get 14.4. Therefore ~14% as the interest rate if the OP spent nearly twice the sales price over 5 years of interest payments. It sounds like a bad deal, but you never know the person's situation and credit worthiness.
Mind you, if the OP defaulted on the loan, the bank has a collaterized (though a depreciating asset) loan; they could repossess the car but such a repossession would be worth pennies on the dollar. There's a wide gap between what repo/auction cars go for compared to retail prices. There's also a good chance a repo car would be in lesser condition.
Using "the rule of 72," which is the estimate to calculate how long you will either make or spend twice the principal. You take 72 divided by 5 years and get 14.4. Therefore ~14% as the interest rate if the OP spent nearly twice the sales price over 5 years of interest payments. It sounds like a bad deal, but you never know the person's situation and credit worthiness.
Mind you, if the OP defaulted on the loan, the bank has a collaterized (though a depreciating asset) loan; they could repossess the car but such a repossession would be worth pennies on the dollar. There's a wide gap between what repo/auction cars go for compared to retail prices. There's also a good chance a repo car would be in lesser condition.
I’m not sure why you think the rule of 72 applies here but it doesn’t. The interest rate on a 6700 dollar 5 year loan would need to be 28% +/- for the op to have to pay a total around 12.6k. Your rule of 72 estimation of 14.4% only brings to total to 9400 +/-.the rule of 72 isn’t taking into account paying down the principal balance of the loan on a monthly basis
All are the problem. And yes, I live in 2 of the highest cost places to live - San Ramon, CA and Seattle. A lot of people buy too much house and then can't afford anything else. They also spend decades of their life on the interest to pay for the house that they didn't need. More power to them. But that seems like insanity to me.
You know what's scarier? The next recession in their lifetime.
Do most average Americans don't have any savings, with only less than $2,500 in checking?
Used cars are not bought by average Americans. There are two kinds of Americans. Those who have 5+ digits in their savings/investment, and those who buy used cars and make payments. There is not much of a gray area between them. Actually, there are three kinds. My neighborhood was populated by people who rent-to-own their furniture and 60-inch home entertainment center from Aarons, and pay 600% interest.
Here's all you need to know about the credit industry. Creditors will take all they can get with deceptive terms because they can. And will continue to do so until people stop paying them.
Yeah, well, what if you 100% financed the house and put $120k in Polaroid stock 30 years ago?
Drop it in the S&P, whatever, you’ll still be ahead.
Otherwise you’re suggesting people don’t put money into their retirement accounts and instead put that money in savings for decades while living on somebody’s couch just so they can pay cash for a house just to find that they can’t keep up with appreciation and inflation.
The stock market is unknowable. Hindsight is 20/20 and that's so true when it comes to the stock market.
Burroughs Computers looked like a great stock, until it died an ugly death. As did Blockbuster Video. Or Sears. And a million others.
A car is a depreciating asset.
A house is not.
There's not a lot of difference between investing in stocks and throwing down money on the roulette wheel.
There’s warning signs to look at in stocks. That’s what your paying your fund manager for.
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