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Not quite. The repairs on an old car are usually lower than the depreciation, plus interest/opportunity cost, plus possible additional insurance cost, on a brand new one. You might have a hefty repair bill, yes, but once you average it over a 1-2 year period the old car is much less costly to own.
This means every year you keep the old car your net worth benefits. Eventually you'll be able to have new car, debt free*. Granted, you may have to cycle through a couple of used cars first to get there, but eventually you will, unless your income is so low you couldn't make car payments had you just bought the new car at the beginning without savings (or you lack the discipline not to dip into the money for other things). But if that is the case, the whole issue is moot because you cannot drive a repossessed car to the grocery store, your kids' school, work, to the gym, or on a road trip!
The lack of discipline situation is exactly what Dave Ramsey handles best. His advice isn't necessarily optimal for people who stick to the same budget, but without the motivation, this is irrelevant.
*By this, I mean to have the cash available, even if you end up financing anyway and investing it.
Nailed it.
If I based my driving on cost to own, nothing beats the used civic I gave up to get a new Sienna. In two years it had zero deperication, and it still had 2/3rds of its useful life left on the clock, with little maintence needed in those next 14 years. This new car will cost me about the same over the time frame I plan to own it, but the thing is, I'm giving up a whole lot of useful life in exchange for safety.
The 2/3s I don't use is certainly cheaper than the 1/3 I do use (the cars value is essentially half of new after 60k miles, but can go for another 120k miles, with just a bit of work). Sure breakdown occur, but cars are a wealth destroyer, and if you're concered with making a bank roll you'll drive them for their useful life.
Me, that's all I used to think about, but after doing some conservative projections, I'll be more than set for life with my current savings rate, so why not buy piece of mind in a new car (safety and reliability) when the costs don't affect me.
And I think most on here would agree with that statement.
Usually some book has guidelines based on demand and high reliability, rebates, longevity etc. Some cars will have little to no effect on used vs new value (obviously new vs very slightly used) and a mediocre car will drop as if it was driven off a cliff.
For example vehicles that have a extended type of warranty but it's only applicable to the first owner but is not honored for any other subsequent owner. That's value loss
A used car has mileage on it. Unknown driving or maintenance habits of previous owner
Or the new owner may not care for the options, interior or exterior colors.
And I think to a lot of people the association of the word "used" may equal devalued.
And nobody will pay the same price for a used car if the used car was the same price as new.
There is ALWAYS a new used car for sale. Dealer demo cars, repo'ed cars, change my mind cars or Leftover model. When my wife and I bought her last car we bought a dealer demo with 5k on the odo. We got 5k off sticker and a a 900 and $1600 rebate. The sticker was 30k. I beat thrm down a bit more and We walked out with 24,300 out the door.
A car driven off the parking lot literally has 0 mile on it more than a car that has not been sold. Again, if a car like this is not available for sale, how can you calculate the instant depreciation? Or is this a myth perpetrated by opponents of buying new cars?
He's a horrible source if you're just starting out. His particular brand of dogma works well for woxy's customers though. Ramsey propagates a ton of misinformation, specifically about credit. You can basically count on anything he says that's specifically about credit as being totally wrong. Why he does it is anyone's guess. Personally, I think it's a scare tactic. What he's doing is trying to scare people away from credit. In that sense, he's basically lying but with good intentions. I'm not a big fan of that approach. It has it's niche. If lying about credit makes the person who is month to month not run down to Best Buy and put a 60" TV on a 24% interest installment plan, I really don't know that I can say it's wrong. I'd prefer a more honest approach but maybe the ends justify the means. That's not my situation, however, so the DR lies don't really impress me. I understand how compounding interest works. I don't need to be scared away from 24% interest rates, nor do I own a 60" TV to begin with. If you're someone who isn't capable of being responsible, intentionally making your life more difficult by cutting up credit cards probably ultimately makes it better. I've never been more miserable than when I was month to month. For most of us, however, it's not an either/or. I have several credit cards. I have not paid interest on them in years. I just get the best of both worlds.
I'll also admit that I'm not religious, so people who confound everything with God do annoy me. That's nothing to do the quality of his advice though. I just find him annoying.
Dave Ramsey's mindset is, I think, part antiquated, part common sense and part Christian legalism. Legalism is the practice of applying personal rules to other peoples decision making. I came out of this background--having been a Good $ense Councilor at Willow Creek years ago--and there is good and bad to it.
First of all, the foundational principle which I am in agreement with, is that if giving or donating money is important to you, then minimizing personal debt and keeping up a humble spending plan are going to make a big difference in your ability to give away a greater percent of income. No one should judge Christians for wanting to give some of their money to others or back to God, nor should a Christian set expectations for anyone but himself. This is something that is between God and an individual..and if you don't believe in God, well, there you go... Christians should also give from an internal desire to give and not because they've been told to. That is more legalism. After all, God really doesn't "need" my money.
I don't see any foundation for the mindset that "all debt is evil." This comes from misinterpretations of the bible. Its okay to make money work for you. I have a dividend card. I use it. I pay it off in full monthly. Since I got the card in 1996, it has paid me $2300 and I have not invested a dime in interest or fees. That only works of course, if you are disciplined enough to pay it off in full every month and you stick to a budget and keeps your expenses less than your income--as much as we are able, we can't control if we get sick, for instance.
Paying off your mortgage early? If your mortgage interest rate is below the potential returns for investments, its better to pay into your investments. If the balance shifts, pay your mortgage down and then save to your retirement fund.
There is an idea called "presuming on the future," which I have heard Dick Towner speak about and which I completely agree with. Most Americans do get into trouble because they borrow on a presumed best case outcome. Its better to borrow on a worst-case basis so you understand all the negative repercussions should your repayment plan fail. I presumed on the future last year when I not only leveraged myself deeply to buy a house but also overpaid a bit for that house. But I made sure I knew all the consequences of this and understood the long term picture going in. Those were having to default on a 401K loan and take it as a distribution and having to carry a variable rate HELOC balance longer than intended. I planned for how to respond to both of those potential outcomes.
I agree with other posters who have advised to listen to a variety of sources, not only one, and listen to all of them with a skeptical ear. Christians are often taught to hate skepticism, but skepticism is a tool and is not a bad thing in and of itself.
Dave Ramsey's mindset is, I think, part antiquated, part common sense and part Christian legalism. Legalism is the practice of applying personal rules to other peoples decision making. I came out of this background--having been a Good $ense Councilor at Willow Creek years ago--and there is good and bad to it.
There is an idea called "presuming on the future," which I have heard Dick Towner speak about and which I completely agree with. Most Americans do get into trouble because they borrow on a presumed best case outcome. Its better to borrow on a worst-case basis so you understand all the negative repercussions should your repayment plan fail. I presumed on the future last year when I not only leveraged myself deeply to buy a house but also overpaid a bit for that house. But I made sure I knew all the consequences of this and understood the long term picture going in. Those were having to default on a 401K loan and take it as a distribution and having to carry a variable rate HELOC balance longer than intended. I planned for how to respond to both of those potential outcomes.
I agree with other posters who have advised to listen to a variety of sources, not only one, and listen to all of them with a skeptical ear. Christians are often taught to hate skepticism, but skepticism is a tool and is not a bad thing in and of itself.
Amen, bro BTW being overly optimistic is hard-wired into our brains. In the many projects in my work-life I would say near-100% of people and managers are overly optimistic and estimate on best-case scenarios. You can double the time & effort estimates usually.
The math doesn't add up on "using" debt to finance one's living. A car is not an investment (unless it's some classic or rare vehicle), so how would it ever make sense to "finance" a car, for example?
It's quite simple.
I just bought a brand new Toyota Sienna. I was offered .9% for 60 months because of my credit. I put $0 down. After taxes, warranty, and everything else it came to around $32,500 or a $560 a month payment.
You may think it's a bad idea but let's really look at it.
A slightly used model was around 23-26K. I talked the dealer down to 28K from a 32.5K MSRP. Does the slightly used model sound cheaper? Consider the fact that you cannot get a .9% rate for slightly used, so my payments are the same for my brand new car as they would have been for used. Used car loans hover around 3% or so.
So my payments are the same and I get a brand new car. If I drive the car for 10 - 12 years, which I plan to, then you might come out behind because the used model is reaching the end of usable life first.
But, you might say I don't have the money. False, I could write a check tomorrow for the car. Why would I want to though? My money earns 8-10% year to year. I have a pretty high household income so the payment doesn't affect me at all.
This doesn't even account for inflation. After year one, my money is worth a slight bit less and I'm paying a bit less each payment because of the extremely low rate.
Some might say buy a 10 year old van in cash. Frankly, that's dumb. People who advocate such nonsense care more about money than family. I'm not putting my young children and wife in an older car to save an insignificant amount of money.
What if the unimaginable happens and someone gets sick and I need to pay bills? Well, if you paid cash for the car you'd be screwed. You'd unload your car for a significant loss. What could I do? I could take the ding on my credit and give it back if I had to. I could keep paying and I'd still have a lot of liquid cash.
Dave Ramsey makes some good points about being materialistic and living below your means. But, his anti-debt crusade is just plain dumb.
This doesn't even account for inflation. After year one, my money is worth a slight bit less and I'm paying a bit less each payment because of the extremely low rate.
This would apply with either vehicle, so isn't much of a reason to prefer one or the other.
A car driven off the parking lot literally has 0 mile on it more than a car that has not been sold. Again, if a car like this is not available for sale, how can you calculate the instant depreciation? Or is this a myth perpetrated by opponents of buying new cars?
Maybe you don't understand how used/new cars are viewed
Once a car is registered by law can't be sold be sold as new. Even if it has 0 miles on it. What matters is that its been registered to a person
Which means banks have to finance it differently
Manufacturers warranty that applied to ORIGINAL purchaser and sold to 2nd owner may not transfer
Any rebates that apply to the new car do not apply to used car
Mileage depending on how much will also devalue.
These things alone devalue the vehicle
Your depreciation is based on more than just a few miles driven. Ok take your example. Two cars same brand options color. Basically twins in every respect. And one new zero miles one used with one mile. Let's give that one mile a deduction of $100 which is 200x the value of .50 cents a mile cost. Would you buy a used car for $100 less than a new car when a new car offers a longer warranty, cash back/rebate discounts, no mileage and better loan terms?
Last edited by Electrician4you; 03-09-2015 at 09:22 PM..
Maybe you don't get it
Once a car is registered by law can't be sold be sold as new. Even if it only has 0 miles on it.
Which means banks have to finance it differently
Manufacturers warranty that applied to ORIGINAL purchaser and sold to 2nd owner may not transfer
Any rebates that apply to the new car do not apply to used car
Mileage depending on how much will also devalue.
These things alone devalue the vehicle
Your depreciation is based on more than just a few miles driven. Ok take your example. Two cars one new zero miles one used one mile. Let's give that one mile a deduction of $100. Would you buy a used car for $100 less than a new car when a new car offers a longer warranty, cash back discounts, no mileage and better loan terms?
Banks have to finance differently? How? How much is this cost?
Manufacturer warranty doesn't transfer? In what situation? I've never seen this happen.
How does the rebate matter? The price you paid for the car already included the rebate. We do not compare to the MSRP.
Banks have to finance differently? How? How much is this cost?
Manufacturer warranty doesn't transfer? In what situation? I've never seen this happen.
How does the rebate matter? The price you paid for the car already included the rebate. We do not compare to the MSRP.
Really? Ok
A bank will not give the same rate on a used car as if they would on a new car financing. They just won't. Try getting a offered new car loan rate on a used car. Even if you get it you still lose out. a used car is more rusk to the bank. Because it's devalued and if you walk they hold a even more depreciated asset.
Dodge, Hyundai some others have had a extended warranty up 7/100 or lifetime in some cases on top of the 3/36 -5/60 bumper to bumper factory warranty that ONLY the original purchaser was eligible. It did not transfer to second owner. The initial 3/36-5/60 bumper to bumper was transferable. So you lost on the extended warranty coverage
A rebate is just that. A rebate. A coupon if you will. Which means if I buy a car for 22,000 and it has a 3,000 manufacturers rebate I now am only buying the car for 19,000. Ok if you get a car say MSRP at 22,000. now I talk them down 2,000 I'm at 20k before the $3000 rebate. Now I just got a NEW car for 17,000 saving 5k rather than just 3k. Even though it's msrp at 22k. That rebate is only applicable to new cars not used cars. That's why you talk price BEFORE you even bring in rebates
In order to sell that same used car you simply CANNOT price it at the MSRP of a new car. Why! Because it will never sell. Nobody is gonna buy it if they can get the new car rebate. And the higher warranty and the better loan rate. That's why a used car has to be sold for less than a new car.
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BTW being overly optimistic is hard-wired into our brains. In the many projects in my work-life I would say near-100% of people and managers are overly optimistic and estimate on best-case scenarios. You can double the time & effort estimates usually.
