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I submit that if the vehicle had big problems it wouldn't run for years.
I think you read my post backward. It was based on the assumption that the CEL being on for years might have indicated a relatively minor problem that could have been easily fixed had it been addressed in a timely fashion, and that the big problem that might not be worth fixing was the result of ignoring the minor problem for years.
In a consumer budget, cash flow is much more important that intangible expenses like depreciation.
Only if liquidity is tight, not otherwise. If this is so, then financial priorities should be re-examined.
Quote:
Originally Posted by duster1979
If you're a cash buyer with a set timeframe for replacing the car, then yes, the difference in value between the date of purchase and the date of sale needs to be considered.
But if you're a credit buyer who expects to perpetually have a $400 monthly payment, neither purchase price nor depreciation matters much because you're going to spend $400 each and every month just for the privilege of owning a car.
This sounds like leasing to me. In this case the payment covers interest and depreciation.
Of course you can get the same result by buying but it is mathematically impossible in the long run for the monthly payment to stay constant if it is not at least approximately equal to the interest plus the depreciation (assuming insignificant equity).
If the payment is more than the interest plus the depreciation, then eventually the owner will have a paid off vehicle. If it is less, then the owner is falling behind and will eventually have either a higher payment, an older vehicle which they must keep rather than trading in, or will have the vehicle repossessed.
Thus the sustainable long term cost is equal to the interest plus the depreciation, and the amount of a loan payment is ultimately irrelevant.
Quote:
Originally Posted by duster1979
And if you buy with the expectation of driving the vehicle until the wheels fall off, depreciation doesn't matter because the expectation will be that you keep the car until it has no value anyway.
Yes it does, because it tells you whether you'd be better off if you bought the vehicle used.
Only if liquidity is tight, not otherwise. If this is so, then financial priorities should be re-examined.
At my house, if I subtract my actual cash outlay for living expenses, including vehicle ownership expenses, the difference is what I have to spend for investing and fun. If I take money from savings to buy a car, I don't have that money to spend until I save it back up. What the car might be worth next week or next month or next year doesn't apply. If I finance the car, the amount of the monthly payment is money I won't have available for other stuff on a monthly basis. The change in value of the vehicle I am making payments on doesn't make any difference to my business. Liquidity has nothing to do with it; whether I'm struggling to pay my bills or just looking at the opportunity cost makes no difference.
Quote:
his sounds like leasing to me. In this case the payment covers interest and depreciation.
Of course you can get the same result by buying but it is mathematically impossible in the long run for the monthly payment to stay constant if it is not at least approximately equal to the interest plus the depreciation (assuming insignificant equity).
If the payment is more than the interest plus the depreciation, then eventually the owner will have a paid off vehicle. If it is less, then the owner is falling behind and will eventually have either a higher payment, an older vehicle which they must keep rather than trading in, or will have the vehicle repossessed.
Thus the sustainable long term cost is equal to the interest plus the depreciation, and the amount of a loan payment is ultimately irrelevant.
It is essentially like leasing; however, some people prefer to roll their trade and have a constant payment rather than leasing for various reasons. It saves the up-front costs involved in moving to a new lease, and gives the owner a little more control over when and where he or she chooses to trade his car. Not everyone signs up for a car loan with the intention of paying it off. I personally think this is a bad idea, but for those who choose to do it the cost of the monthly payment is much more significant than the actual value of the car at a given moment.
Quote:
Yes it does, because it tells you whether you'd be better off if you bought the vehicle used.
I guess, if you're really all that concerned about 20/20 hindsight and finding out whether you made the right choice 10 years ago. When comparing final actual depreciation costs between a new or late-model used car, I'm willing to bet it comes out pretty close most of the time once the extra money paid for new is offset by the additional amount of time you're able to drive the vehicle purchased new.
we have kept cars at least 8 years( and most about 12) after buying new. The only car that I would consider was a POS was the 75 242DL Volvo. Left us stranded more times than I can remember. Also, after 2 years , it was costing us way too much. After 4 years, wanted to drive it off the cliff. we ended up keeping it until '83 as we wanted to qualify for a house. I always felt that when the car was not dependable and was costing us something every month, then it was time to upgrade. It is interesting that now, I am driving my mother's 05 deVille with 52K and wife's car is a 09 Lexus 350 that we bought last year with only 16.5K. That was the first used car we ever bought. It has changed my feelings about used cars. We don't drive that much and I really like paying the same for a lightly used Lexus as opposed to a new Civic. As much as I think MB and BMW are cool, I am not interested in the expense to keeping them up , especially as long as we hold on to cars.
I would look at the numbers when I was younger...it made more sense to spend
the $1000 than buy another car.
But, you must have a good mechanic, that is key...this breaking down
a week later is very sad.
Ha, a friend took her Toyota 3 times to the same mechanic for a starter issue.
Finally, took it to a Toyota specialist I recommended....and the other guy was not
putting the heat shield on...so each starter was burning out!!
He wasn't educated enuff to know about it.
Gotta have a GREAT garage that knows your make!
Then look at the numbers...is it worth it...
I feel like I'm in a economic class in college , my god let people spend their money any way they want it's not coming out out of your pocket. Like I said before this is one of the stupidest threads I have ever read. Who cares what people do what they do is this a phyc class? Are you trying to get into their head to see why they spend their money on their cars.
I think you read my post backward. It was based on the assumption that the CEL being on for years might have indicated a relatively minor problem that could have been easily fixed had it been addressed in a timely fashion, and that the big problem that might not be worth fixing was the result of ignoring the minor problem for years.
I would look at the numbers when I was younger...it made more sense to spend
the $1000 than buy another car.
But, you must have a good mechanic, that is key...this breaking down
a week later is very sad.
Ha, a friend took her Toyota 3 times to the same mechanic for a starter issue.
Finally, took it to a Toyota specialist I recommended....and the other guy was not
putting the heat shield on...so each starter was burning out!!
He wasn't educated enuff to know about it.
Gotta have a GREAT garage that knows your make!
Then look at the numbers...is it worth it...
.... if the mechanic didn't do it right, even after a few tries, and an expert told the car owner so, then I sure hope they went back to demand their money back or partially. Looking back, it's what i wish i had done a few years ago.
Last edited by 2bpurrfect; 12-26-2014 at 05:14 PM..
A lot of lower income folks can't finance a new car, due to bad credit or too low of income; perhaps they have only a lump sum of cash and won't be able to make payments for years. Also some find they only can get in-house credit with certain companies, such as at large car repair company franchises, but they can't qualify for much of a car loan. So it's smaller amounts paid via credit or cash on repairs, rather than huge amounts paid for a new car. Also college students formerly could not use school loan proceeds to buy a car at all, they were stuck with just repairing the one they had. So there's a few reasons, it has to do with availability of financing and income. For low income people, it often happens that cheaper in the short run ends up being more expensive in the long run, but it's all that's available to them, and not just with cars. (One example of how the poor keep on getting poorer, or stay that way).
.... if the mechanic didn't do it right, even after a few tries, and an expert told the car owner so, then I sure hope they went back to demand their money back or partially. Looking back, it's what i wish i had done a few years ago.
I know! I begged her to 'man up' and tell the mechanic...get your $$ back or at least
get some free oil changes and tune ups if he couldn't!
Wuss.
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