Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
So....'with' a car payment then most people need what...$1000+ to afford said car?
If you are paying $1000/month, you are paying for two cars while driving one (i.e. repaying a loan on your current one and saving to pay cash for the next one). While $1000/month may seem quite steep, it allows you to break free of the endless cycle of automobile debt that many Americans get themselves trapped in.
When you are out of the trap, you only pay $700/month for all your car expenses, (adjusted for inflation) for life, because never again will you have a car payment.
Your question had me curious because $700 does sound high if you are not factoring in the cost of the car. I looked up the AAA study from 2012 and the cost does include finance charges. They assumed a 10% down payment on a new car with a 5-year loan at 6% and assumes annual mileage of 15,000.
A car payment includes three components: 1) Interest (finance charges), 2)Depreciation offset , and 3) equity building.
A lease payment is only the first 2 of those. So in a sense, a portion of each car payment is effectively 'renting' the car and the rest of it is 'slowly purchasing' it from the finance company.
Yes finance charges are included in the AAA study and should be subtracted, however, these are only a small portion of the car payment. Depreciation, also part of a car payment, should be included anyway because it's what you set aside for replacement when you buy all your cars with cash.
Given that parking, cleaning, washer fluid, defrosting, and ad valorem taxes were omitted, it's roughly a wash.
Location: Chapel Hill, NC, formerly NoVA and Phila
9,779 posts, read 15,793,171 times
Reputation: 10888
Quote:
Originally Posted by ncole1
A car payment includes three components: 1) Interest (finance charges), 2)Depreciation offset , and 3) equity building.
A lease payment is only the first 2 of those. So in a sense, a portion of each car payment is effectively 'renting' the car and the rest of it is 'slowly purchasing' it from the finance company.
Yes finance charges are included in the AAA study and should be subtracted, however, these are only a small portion of the car payment. Depreciation, also part of a car payment, should be included anyway because it's what you set aside for replacement when you buy all your cars with cash.
Given that parking, cleaning, washer fluid, defrosting, and ad valorem taxes were omitted, it's roughly a wash.
So it's still $700 a month!
But they're only assuming 10% down for the car, not paying all cash for the car. Also, I doubt she would have much, if any, expenses for parking and defrosting in South Carolina. Gas prices there are among the lowest in the country, too. Not sure about SC taxes, but I know overall that it is a cheap state to live in. And given that this is a single person, who will likely buy an economy car, her costs would likely be on the lower end anyway of the $700 average which includes large cars and those in expensive states.
But they're only assuming 10% down for the car, not paying all cash for the car. Also, I doubt she would have much, if any, expenses for parking and defrosting in South Carolina. Gas prices there are among the lowest in the country, too. Not sure about SC taxes, but I know overall that it is a cheap state to live in. And given that this is a single person, who will likely buy an economy car, her costs would likely be on the lower end anyway of the $700 average which includes large cars and those in expensive states.
The only difference between 10% down and all cash is the finance charges, not the whole car payment.
If you own your car outright you still pay depreciation. If you fail to actually budget for that depreciation, then when that car dies, you're going to be in debt all over again and your cash flow is going to be reduced by ~$300/month compared to when you owned a car outright. But failing to budget for depreciation is in a sense the very same accounting mistake that business students learn not to make early on, because companies, like individuals, must have a plan for replacing their assets at the end of their useful life, or else they'll be hurting big-time.
Location: Chapel Hill, NC, formerly NoVA and Phila
9,779 posts, read 15,793,171 times
Reputation: 10888
Quote:
Originally Posted by ncole1
The only difference between 10% down and all cash is the finance charges, not the whole car payment.
If you own your car outright you still pay depreciation. If you fail to actually budget for that depreciation, then when that car dies, you're going to be in debt all over again and your cash flow is going to be reduced by ~$300/month compared to when you owned a car outright. But failing to budget for depreciation is in a sense the very same accounting mistake that business students learn not to make early on, because companies, like individuals, must have a plan for replacing their assets at the end of their useful life, or else they'll be hurting big-time.
My point is that when AAA says the average cost per month to own a car is about $700, they are including the cost of the car itself (about $250 per month for 10 years) in addition to the incidentals: gas ($250), car insurance ($50), maintenance ($50) oil changes ($15), tires ($10), registration fees ($10), and misc. ($15). But outside the actual purchase price of the car, it's more like $400 per month to own it.
I get that you are saying that at the end of 10 years, a car has very little value and a person would have to buy another one. But the costs to purchase that next car would be considered the cost of the second car not the first car.
My point is that when AAA says the average cost per month to own a car is about $700, they are including the cost of the car itself (about $250 per month for 10 years) in addition to the incidentals: gas ($250), car insurance ($50), maintenance ($50) oil changes ($15), tires ($10), registration fees ($10), and misc. ($15). But outside the actual purchase price of the car, it's more like $400 per month to own it.
I get that you are saying that at the end of 10 years, a car has very little value and a person would have to buy another one. But the costs to purchase that next car would be considered the cost of the second car not the first car.
Yes, but you always pay depreciation, and there is no free lunch. It was claimed that the $700/month would include a payment. I'm simply saying that the 'capital' portion of the $700 doesn't have to be a payment, it can be saving for the next car instead.
I am Mrs Maria Alex,currently living in Western Europe city, Austria.I am a widow at the moment with three kids and i was stuck in a financial situation in may 2010 and i needed to refinance and pay my bills.I tried seeking loans from various loan firms both private and corporate but never with success,and most banks declined my credit.But as God would have it,I was introduced to a man of God a private loan lender by name Mr ROBIN COBB FINANCIAL HELP PLC, who gave me a loan of $85,000USD and today am a business owner and my kids are doing well at the moment,if you must contact any firm with reference to securing a loan with low interest rate of 3% and better repayment plans and schedule,please contact Mr ROBIN COBB.He doesn’t know that am doing this but am so happy now and i decided to let people know more about him and also i want God to bless him more.You can contact him through his email via: financialhelpplc@gmail.com
Wow, the schemers have advanced to sending this crap via public forums. Meanwhile, their punctuation remains something to be desired.
I am most concerned about your lack of emergency fund, OP. You're not putting away much at all to that fund. What if you get hit by a bus tomorrow? Or develop cancer (I had my stage IV diagnosis when I was 10 years younger than you!)? Or lose your job? I'd focus on saving at LEAST a 6 month (ideally 1 year) emergency fund. At your age, that's the figure that most concerns me.
What exactly is it that you do? A 10% 401k match is almost unheard of nowadays.
Additionally, where can you buy a decent house in a decent neighborhood for $65k?
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
