How Much of Your Car Should You Finance? Zero percent.

[Pervilis Spurius]

Re: How Much of Your Car Should You Finance? Zero percent.

EJ,

Aaron Krowne recently had a similar topic on his blog.

I made remarks over there that buying a low dollar (~$3000-4000) used car every 5 years or so gets you a car with greater quality and better creature comforts with each purchase. I was fortunate that the car game was a racket I understood before I made my first purchase. I have had great success with this method. You might be surprised but the cars aren't beaters or "shitboxes" either, although you may have a different opinion .

The key of course is to find a single owner vehicle with a maintenance history.
With the internet, the man-hours invested searching is almost nil anymore, but you might have to wait about a month if you're particular.

For many of you this may be moot, if you have a high profile job.

[EJ]

Re: How Much of Your Car Should You Finance? Zero percent.

Words of wisdom and so against every message the media and financial organizations throw at people today, especially the unschooled and unwise.

My first car was a $300 1967 VW Bug, then 13 years old. I had to rebuild the heater boxes and use screen door springs to keep the foot pedals off the floor, but it took me a hard several thousand miles, and living on a remote Vermont mountain top through a long hard winter. Then I sold it for $300.

The 12 years after that were mostly a nightmare of expensive leases (what was I thinking?) low down payments and lifetime terms, and even a repossession. (Repo man’s compassion quotient=0).

I’ve paid cash for every car I’ve bought since 1995. South Florida is full of highly leveraged, overpriced “dream” houses that usually have the “Dade County Duo” out front- a new (leased) Hummer3 and a new (leased) S class Mercedes. I enjoy asking “What are your payments?” while riding past on my bike. An amazing number will proudly throw out numbers over $1,000 and more a month and I just cringe for them.

Ok, my shitbox story is...

I didn't go to college right out of high school. I worked for a year, bought a new Honda Civic and drove it for the first year I was in college, then had to sell it to pay tuition. Lived without a car for a semester but hated being without a car at UMass, Amherst, as I was living-off campus. Using classified ads (no craigslist in those days), found a 1970-something Datsun 510 sedan with no rust on the body (a rarity for Datsuns) and a seized engine in one town, bought it for $250. Found the same model year as a station wagon with a rusted out body and new engine, bought it for $450. Drove the crap station wagon up to Amherst, following my brother who towed the sedan with his car. Rented an A-frame and put the new engine from the station wagon into the sedan, had a tow truck tow the other to the dump, got $40–the cost of renting the A-frame.

Total cost: $700. Car lasted through college until I lent it to a friend after I left college while in CA. Someone drove into him (not his fault).

[spunky]

Re: How Much of Your Car Should You Finance? Zero percent.

Glad too see EJ post a thread we can all agree on


Chicks still dig my 99' Buick

[Captain3D]

Re: How Much of Your Car Should You Finance? Zero percent.

Ha I love this thread.

The 'new car on credit' is such a perfect summary of bad financial plans and such a universally accepted practice.

I am a proud cheapskate especially where cars are concerned. The last car I had to buy was picked by searching craiglist for the biggest glut of used cars. First by make then by price range. Once I had my search dialed in I spent a week or two looking through the results for a well maintained but ugly example of the 'glut car'. Then I bought it cash...

1997, 80k miles, saturn, full services, nice sound system and safety stuff, One owner from new, not too good at parking, scuffs on all corners and a missing mirror. Price $2200.

Its been perfect now for 20k miles, but there is no way I could convince any of my friends to do the same. The social pressure is just too great for most people. I am often the target of jokes at work about my crap car and matching $100 golf clubs (also craigslist). The joke generally comes in the form of disbelief from people who get paid less than me ;-) It just makes me feel better. Occasionally I see the car from someone elses eyes and a squirm a little ;-)

If asked with any type of seriousness why I have such a cheap car when I have a well paid job. I just explain I am saving/investing until I have $1mill so I can be independent of any jobs I don't like (I love my current job) and because I haven't got there yet and until I do, I consider my self poor. This always seems to add to the confusion. As if trying to save $1mill is nuts compared to buying a $40k car on credit.

At that point I have to decide if I tell them I live in a trailer or not ;-) Yes also bought cash.

http://captain3d.com/dayoff/mobilehome/index.html

My goal is to be $1million dollar, Marin, CA, trailer trash. Its going quite well so far.

phil

[Rajiv]

Re: How Much of Your Car Should You Finance? Zero percent.

More at Demos

House of Cards

Debt Research

[Rajiv]

Re: How Much of Your Car Should You Finance? Zero percent.

In Caught In The Housing Bubble, Jennifer Wheary says

Since 2001, homeowners have been tapping into their home equity at a record pace. Households cashed out $715 billion worth of equity between 2001 and 2005. In the three years between 2003 and 2005, owners extracted $150 billion more in equity from their homes than they did in the previous eight.
.
.
.
Our newly elected Congress can take action to help families out of this mess.

Where can they start?

Eliminate the need to dip heavily into home equity to make ends meet by controlling health care costs and guaranteeing a living wage to anyone willing to work for it.

Create legislation to protect borrowers from the excessive credit card rates and fees and capricious terms which are legal but which end up strong arming honest families trying to make ends meet into financial peril.

Support hard working families in severe economic distress by re-examining and, where appropriate, reversing the sweeping changes to bankruptcy laws passed by Congress in 2005 which removed many protections available to average Americans.

Protect Americans from real estate appraisal fraud by ensuring that brokers are prevented from coercing or intimidating appraisers in order to receive a desired property appraisal value.

Any Thoughts?

[EJ]

Re: How Much of Your Car Should You Finance? Zero percent.

Eric,
Agreed 100%. But I'd like to throw something in.
I graduated from college but didn't buy my 2nd car, a new Acura Integra, until 4 years later (my first car was an "inheritance" that cost me nothing and like everything else in life that's free it was an old one that didn't look nor run good). One of the reasons I waited was because I didn't believe in financing its purchase but it took me that long to save enough to pay cash for it.
I remember at a party with old friends, I was having a discussion with one of them (we're all of similar age) who bought a 300Z right after college (with credit of course), then went on to other sports cars every now and then.
I was armed with arguments similar to yours, numbers & figures, depreciation, etc.
He on the other hand, went on and on about how the cars helped him in the girls department.
In the end, I think most of the guys agreed that he'd won the argument.

No, he merely discovered the age-old way to attract women who care about how much money a man is willing to spend carelessly to impress them. Check back with him in 20 years. I bet he's happy neither with his partner in life nor with their financial situation.

[lewman]

Re: How Much of Your Car Should You Finance? Zero percent.

Eric,
Agreed 100%. But I'd like to throw something in.
I graduated from college but didn't buy my 2nd car, a new Acura Integra, until 4 years later (my first car was an "inheritance" that cost me nothing and like everything else in life that's free it was an old one that didn't look nor run good). One of the reasons I waited was because I didn't believe in financing its purchase but it took me that long to save enough to pay cash for it.
I remember at a party with old friends, I was having a discussion with one of them (we're all of similar age) who bought a 300Z right after college (with credit of course), then went on to other sports cars every now and then.
I was armed with arguments similar to yours, numbers & figures, depreciation, etc.
He on the other hand, went on and on about how the cars helped him in the girls department.
In the end, I think most of the guys agreed that he'd won the argument.

[EJ]

Re: How Much of Your Car Should You Finance? Zero percent.

EJ

rock solid advice. Spend only what you have and not more. Better take the commute when you cannot afford a car.

When I see my neighbours here on the lake of Zürich (the Miami Beach of Switzerland) with their 7series BMW or X5es plus the Mini or convertibles for their spouses with lots of financing ontop of their overleveraged condos and houses I know exactly where their salary is being left. Unfortunately for me I paid my car (even though it is a new one) in cash. I was a rare exception at the Saab dealer, who of course advised me immediately to take on a loan to get the better model...

Except for the instance of leasing an Audi S4 when I took a US director high tech sales job years ago, I always pay cash for cars. But I give in to the temptation to buy a new car versus a used one every ten years or so... purchased a new Infiniti FX 35 with cash in 2003. (Not an especially politically correct car, for sure.) Why a new car every ten years? As near as I can tell because that's how long it takes me to forget how stupid I feel after I've done it, leaving 20% there on the lot as I drive off.

My thought process largely reflects the way I was brought up, and I suspect yours does as well. I recall driving through town with my Dad when I was maybe 12 years old, and pointing out a new Caddilac in the driveway of a run down three family house. I asked, "Why do we live in a nice house but drive around in a five year old car when they live in a crummy house and drive a new car?" "Because," he said, "they are compensating. If they spent the money on education instead of on a car, they'd soon enough be living in a better house, and later driving a better car, but they don't know any better."

[Jeff]

Re: How Much of Your Car Should You Finance? Zero percent.

Words of wisdom and so against every message the media and financial organizations throw at people today, especially the unschooled and unwise.

My first car was a $300 1967 VW Bug, then 13 years old. I had to rebuild the heater boxes and use screen door springs to keep the foot pedals off the floor, but it took me a hard several thousand miles, and living on a remote Vermont mountain top through a long hard winter. Then I sold it for $300.

The 12 years after that were mostly a nightmare of expensive leases (what was I thinking?) low down payments and lifetime terms, and even a repossession. (Repo man’s compassion quotient=0).

I’ve paid cash for every car I’ve bought since 1995. South Florida is full of highly leveraged, overpriced “dream” houses that usually have the “Dade County Duo” out front- a new (leased) Hummer3 and a new (leased) S class Mercedes. I enjoy asking “What are your payments?” while riding past on my bike. An amazing number will proudly throw out numbers over $1,000 and more a month and I just cringe for them.

[Christoph von Gamm]

Re: How Much of Your Car Should You Finance? Zero percent.

EJ

rock solid advice. Spend only what you have and not more. Better take the commute when you cannot afford a car.

When I see my neighbours here on the lake of Zürich (the Miami Beach of Switzerland) with their 7series BMW or X5es plus the Mini or convertibles for their spouses with lots of financing ontop of their overleveraged condos and houses I know exactly where their salary is being left. Unfortunately for me I paid my car (even though it is a new one) in cash. I was a rare exception at the Saab dealer, who of course advised me immediately to take on a loan to get the better model...

[EJ]

Re: How Much of Your Car Should You Finance? Zero percent.

I agree completely with the sentiment.

I agreed with it when I read it in 1992, in "Your Money or Your Life" (Dominguez) and in "surviving without a salary" by Long. There were also some good dumpster-diving books in Loompanics at the time. No car-living resources, though ; )

I agreed with it when I read in in the 80s from various authors (Andrew Tobias stands out in my mind, maybe because he's the only one out of my memory that I could find online).

What I find really funny today about the dominguez book was the line (paraphrased through a bad memory) "we're entering a new era where frugal is cool". It's made even funnier for me personally because the early 90s recession hit me hard - I had just graduated engineering, 1/2 my class did not have work (90% of the previous year's class had offers upon graduating, and 3/4 of the next year's class had no offers) and what work I could get was not "optimal"[*]. This book was written just for me (not that I had a choice about being frugal).

The ensuing 14 years kind of puts the lie to that prediction about frugality becoming cool, dunnit?

The advice to avoid credit gains urgency when given in the context of vacations ("spend ONE week in Hawaii on credit, pay for it for TWO years"). [*] a little engineering humor for you.

In capitalist societies, it will never be cool to be frugal for long. The last true "poor is cool" anti-capitalist movements in the U.S. were the 60s/70s hippie movement and the early 1980s punk rockers. Then lot of hippies and punker rockers got rich along with the aspiring capitalists during the decades that followed. Both movements started in the UK. I suspect in the next prolonged downturn, there will be a social movement to wrap "cool" around "poor" and the movement will arise from the UK.

Frugality works in any case, but even better when times are good. Saving doesn't preclude making money, but when things are good you can save more money more quickly with less deprivation. The level of deferment of gratification depends on a person's goal. Mine has always been personal liberty, and to me that means not having to work for anyone I don't want to work for, or doing any work I don't like. Not working at all is not an option for me; I like to work. But I really have a hard time understanding anyone who, given a choice, decides to take on a lot of debt to maintain a standard of living that requires them to work for people they don't want to work for and/or doing work they don't like. That's the opposite of liberty. And if and when things get tough, a heavy saver's life goes from many options to fewer, while the indebted person's goes from few to none. Dread of finding myself in the latter position has also been a motivator to defer gratification and save more.

[Spartacus]

Re: How Much of Your Car Should You Finance? Zero percent.

or buy a '74 Buick Century for $100. (that was the only car I ever owned, bought in 93 in Houston).

Other than that, I've lived in cities with good public transit. Public transit (and the implied lack of car) is not a great chic magnet, but it sure helps build up the savings.

people pay for "zero interest" loans. whatever price is paid with the loan, the car can be bought for a still lower price for cash.

[Spartacus]

Re: How Much of Your Car Should You Finance? Zero percent.

I agree completely with the sentiment.

I agreed with it when I read it in 1992, in "Your Money or Your Life" (Dominguez) and in "surviving without a salary" by Long. There were also some good dumpster-diving books in Loompanics at the time. No car-living resources, though ; )

I agreed with it when I read in in the 80s from various authors (Andrew Tobias stands out in my mind, maybe because he's the only one out of my memory that I could find online).

What I find really funny today about the dominguez book was the line (paraphrased through a bad memory) "we're entering a new era where frugal is cool". It's made even funnier for me personally because the early 90s recession hit me hard - I had just graduated engineering, 1/2 my class did not have work (90% of the previous year's class had offers upon graduating, and 3/4 of the next year's class had no offers) and what work I could get was not "optimal"[*]. This book was written just for me (not that I had a choice about being frugal).

The ensuing 14 years kind of puts the lie to that prediction about frugality becoming cool, dunnit?

The advice to avoid credit gains urgency when given in the context of vacations ("spend ONE week in Hawaii on credit, pay for it for TWO years").
[*] a little engineering humor for you.

Today we're offered by Yahoo! Finance what passes currently for mainstream financial press advice on matters of personal credit.

[Finster]

Re: How Much of Your Car Should You Finance? Zero percent.

How Much of Your Car Should You Finance? Zero percent.

Here here!