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No - actually. They should keep and fix the car they have unless they have a note. Then sell it and buy something cheaper. And why would anyone buy an 'old busted car' when there are so many good used cars out there for a relatively low price?
What's considered relatively low? $10k is the new 100k mile car. Anything $5k and below will have 150,000+ miles on it and the person buying it, likely won't be mechanical inclined. When the transmission goes out, they don't have the $2k to fix it because they used up their savings, that took them 2-3 years to save, to buy the car in the first place.
You are correct. I stated that wrong, but the principle still applies. If you purchased the car for $40,000 cash and I financed it at $40,000 at 0% APR or even .9% APR ($557/36mo) and $700 gap insurance I still save anywhere from $1800-$3000 that I keep and you lost.
A more realistic example would be: We both purchased the car at $40k you use cash and I finance it. I take advantage of a 0% APR deal and spread my payments out to 60 months. 6 months later we both wreck the car. The insurance company pays you 75% of the purchasing price for your vehicle. You get back $30,000 and lost $10,000 in depreciation. Since I financed my car, I've made 5 payments at $666 for a total of $3300. My insurance company pays $30k and the gap insurance company pays $6700. You lost $10k and I lost $3.3K that I won't get back. Am I foolish for taking that route?
Over time the value of gap insurance does diminish but it's a great hedge against a sudden short loss.
Gap insurance isn't something special. It's simply a supplemental insurance that's tied to the spread between loan payoff and insurance payoff. One that pays cash for a car, by definition, won't have Gap insurance. However, while it is uncommon, they can purchase insurance that will serve to mitigate the difference between the purchase price and the insurance payoff.
As to whether or not you are foolish for financing and buying Gap insurance, that depends. Insurance is generally for risks which we can't absorb otherwise. You are the only one that can make a determination about whether or not that is beneficial. But Financing and buying Gap insurance isn't some particularly insightful or financially astute plan.
wow, this guy is supposed to give savvy financial advice but what percentile of net worth do you have to be to have $1 million net worth? This would mean only a fraction of the population would buy new cars and the entire auto industry would bust.
I think he is giving sound advice to individuals. He is not saying what is best for the auto industry. Best thing for the auto industry would be to ban the sale of used cars and make everyone replace their previous car with another new one. We would sell a lot more new cars.
You think Americans need to prop up an industry by making a bad investment that loses 60-70% of its value in 4 years?
I pay cash for quality used cars. Most of the time I can sell them in a year or two for what I paid. I am not so vain that I need to have the newest, latest and greatest vehicle to impress everyone.
Reality is we need some people buying new cars to have used cars available in a few years. Then I can get the good deal on a nice used vehicle.
Gap insurance isn't something special. It's simply a supplemental insurance that's tied to the spread between loan payoff and insurance payoff. One that pays cash for a car, by definition, won't have Gap insurance. However, while it is uncommon, they can purchase insurance that will serve to mitigate the difference between the purchase price and the insurance payoff.
As to whether or not you are foolish for financing and buying Gap insurance, that depends. Insurance is generally for risks which we can't absorb otherwise. You are the only one that can make a determination about whether or not that is beneficial. But Financing and buying Gap insurance isn't some particularly insightful or financially astute plan.
I agree it's just a financial tool but it's not the boogie man either. I would also agree that in general it's for risk that you can't adsorb otherwise or prefer not to absorb.
I don't have gap on my current loan now, so if I have a total loss early on or before I currently pay it off I'll have to pay around $4k to make up for the amount owed against depreciation since I didn't put anything down. I'm okay with that. Alternatively, I may refinance soon and pay for the $425 gap insurance that my credit union offers.
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Quote:
Originally Posted by dc1538
What's considered relatively low? $10k is the new 100k mile car. Anything $5k and below will have 150,000+ miles on it and the person buying it, likely won't be mechanical inclined. When the transmission goes out, they don't have the $2k to fix it because they used up their savings, that took them 2-3 years to save, to buy the car in the first place.
How often do these kinds of mechanical issues happen with well-bought modern used cars? I've had a lot of high mileage cars (currently have a Tacoma with almost 600k miles and a Land Cruiser with over 400k miles) with zero issues. Maintaining the vehicle is the key and if you find one that was well maintained (especially Toyotas) it should not be a problem. Usually at this price point you find some dents and dings, maybe some surface rust, or a worn interior. If you are broke that should be good enough. You aren't entitled to anything more than you can afford and you will never get ahead living like you are.
Although I have a very high net worth today, that wasn't always true. If you are at the start of your journey it is in your best interest to live like it.
How often do these kinds of mechanical issues happen with well-bought modern used cars? I've had a lot of high mileage cars (currently have a Tacoma with almost 600k miles and a Land Cruiser with over 400k miles) with zero issues. Maintaining the vehicle is the key and if you find one that was well maintained (especially Toyotas) it should not be a problem. Usually at this price point you find some dents and dings, maybe some surface rust, or a worn interior. If you are broke that should be good enough. You aren't entitled to anything more than you can afford and you will never get ahead living like you are.
Although I have a very high net worth today, that wasn't always true. If you are at the start of your journey it is in your best interest to live like it.
I agree in principle with buying a cheap used car, as outside of rent or a mortgage, it's usually the next biggest expense someone has. In reality I've seen many none mechanically inclined or ill informed people get burned on high mileage used cars. Mostly women/single moms. Many of them just don't have any car knowledge at all. I don't have much sorrow for a non-mechanically inclined man.
They usually get hosed on repairs and are clueless about preventative maintenance or doing research on common problems for a particular car model. If the car is drive during the test drive the can be told anything the just don't know. They are likely to have bad credit and someone with bad credit is likely not to have any savings. They can't afford the big expense shocks, that sometimes come with a high mileage car.
These people do better having a steady loan payment even thought they really can't afford it. I've mentioned before to someone, that poor neighborhoods should be filled with Toyota Corollas instead of older Impalas(garbage) and they would have more money in their pockets.
that is a ridiculous criteria.
i have always had a very modest income and i have always only bought new cars. I keep them for about 10-12 years and maintain them well. By doing this i know they are well cared for. It is important for me to have a vehicle that i trust is safe, and that is reliable to get me to work so i can be reliable and steady in my employment. I have a very small net worth. I live within my means and have no debt.
my criteria for buying a new car is either pay cash up front for all of it, or if i finance part of it, it has to be entirely paid off in less than 3 years with monthly payments never exceeding $200.
I've had a lot of high mileage cars (currently have a Tacoma with almost 600k miles and a Land Cruiser with over 400k miles) with zero issues. Maintaining the vehicle is the key and if you find one that was well maintained (especially Toyotas) it should not be a problem.
Even with good maintenance, never having issues with that kind of mileage on those vehicles is amazing.
I don't understand why he says "better than I deserve to be" when asked how he's doing.
It means he's lucky to be in his current position.
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