4 ms·

Also, the owner of the dealership is probably friendly with the local banks.

chii 6y ago
which is why i find buying a car on credit is such a poor practise. Unfortunately required for people who need a car for transport for work. A car depreciates. One should never buy a depreciating asset on a loan. A car should be treated like a consumable - buy it with existing cash. The only thing that one should buy on a loan is an appreciating, or income generating asset.
- qchris 6y ago
  I don't disagree with you, but I do want to explicitly call out how uncommon it is for most people to be able to afford a car in cash. A decent used car, say 3-4 years old with 40-50,000 miles on it with a certified inspection/warranty (which, again, most people are wildly unqualified to actually inspect a used vehicle themselves) can easily cost over $15k, and we're not talking indulgent luxury vehicles, but sedans or crossovers from Toyota, Subaru, etc. Based on the median U.S. income, it could take literally years expecting no additional discretionary income to come up with that kind of cash, or even longer if individuals are trying to keep cash reserves to situations like one we're currently experiencing. In practice. owning a car as an asset it generally considered a positive versus alternatives like leasing, which results in the accumulation of no vehicle equity over time. There's not really a great solution here. Cars are capital assets--they're complicated to build yet already somewhat commoditized in their pricing. They can also last for much longer than most other consumables assuming reasonable use. With regular maintenance, I don't think it's unreasonable to assume well over 10 years of use from most modern vehicles, with most automotive loans having a shorter period. I'm not sure I can think of another commonly-used product that closely matches those conditions...
  - pfranz 6y ago
    I realize a surprising number of people are paid close to minimum wage (I believe the number is close to 30% in the US) a brand new Honda Fit is $16k. Federal minimum wage is close to that annually and some state's minimum wage can double that. If you can save up a recommended emergency fund, that's most of the way there. I do think most people buy way more car than they need, which drives up all sorts of costs. If you can get out of the car loan cycle it's incredibly freeing. If you have a solid driving record and an emergency fund you can drop collision on your insurance (it's required if you have a loan) and save a few hundred each month to put towards your next car.
    - lukevp 6y ago
      You’re paying a couple hundred a MONTH for collision alone? My entire insurance including collision and comprehensive is under $100/mo per car.
      - pfranz 6y ago
        I haven't needed to look in years, but I'm pretty confident it was around that back then. This site [1] says the average is $596 for collision and $192 for comprehensive. So for a brand new car for someone in their 20s I don't think it would be too far out of line for what I would have paid--but wouldn't represent everyone. [1] https://www.insurance.com/auto-insurance/coverage/comprehensive-and-collision-auto-insurance.html https://www.insurance.com/auto-insurance/coverage/comprehens...
    - hansvm 6y ago
      A new Honda Fit is $16k _before_ the dealer starts playing games. Last time I went to buy one, the local Honda dealer tried to rig up a deal where a 2-yr-old model listed at $11k would cost me $19k. They were willing to budge on one of the $2k "mandatory" upgrades that weren't in their posted price, but I walked on the deal. I think slightly older used cars can usually be had pretty reasonably though and can be a nice way to break out of the car loan cycle (if you can budget $1k cash for the likely event where there are hidden problems). The end of that story is that I bought a 10-yr-old Honda Fit for $5k, they didn't try any manipulative sales tactics, and 20k miles later I haven't had any notable issues (ran over a couple nails and needed to plug the tire). That's still a lot of money at minimum wage, but it's a lot more manageable than a new car.
      - pfranz 6y ago
        I really hate the dealer game, but if you're stubborn and persistent you can often get what you want. It sounds like the best approach is to email multiple dealerships and make it clear you're only coming in after you commit to a price--you just can't overplay your hand. I bought a new Fit a few years ago when they shifted production between countries and kind of skipped a model year. So there was a shortage, especially the 6-speed low end. When I located one I didn't have much leverage to negotiate down, but I could stand firm on extra junk they tried to add to drive up the cost. The used car market used to be fantastic before the 2009 Cash For Clunkers system seemed to have skewed it. It doesn't look like it has "recovered" but that could be due to other factors like better reliability overall. I mostly used a new car as a worst reasonable case scenario where the price doesn't fluctuate.
  - mrkirk 6y ago
    I totally agree with this rationale. What boggles my mind in the US is the fact that people making near minimum wage is pushed to buy cars because cities do not provide public transportation that enable them to have mobility. Here, I am talking about major urban areas around the US, where you are not able to have daily commute to work if you don’t have a car. This is very perverse from the economic mobility. These people compromise a big portion of their income on Car financing + insurance + gas, that otherwise could be reverted as education, higher quality food, or better quality housing. I believe if we had a proper funded public transportation system, 200 dollars on unlimited public transportation ride ticket would be enough for most of the people.
- gambiting 6y ago
  I have no idea how rich you'd have to be to do that. Like upper 1% I guess. I'm a software engineer and the only car I could afford to buy with cash would be like a 10 years old compact. Or maybe a new Dacia if I saved for a year.
  - pfranz 6y ago
    It's basically a 10-year plan, but you start by saving for an ~10 year old car for a few thousand and try to pay cash. Any potential car payment can now go into a fund towards your next car, which could just be a newer used car. If you have a small savings and are a decent driver you can drop collision insurance (which would be required if you had a loan) and save an extra hundred or two each month. At some point you should have an emergency fund with 3-6 mo of living expenses. A brand new Honda Fit starts at $16k. That's about a yearly salary of someone making ($7/hr) minimum wage working full time. So that should be in the realm of possibility for someone making more than minimum wage (or in a state with a higher minimum wage).
    - gambiting 6y ago
      >>and save an extra hundred or two each month. How expensive is your insurance?? I have a fully comp insurance with 20 million euro liability that's about ~$500 a year. If I dropped that down to a 3rd party liability only it would save me almost nothing.
      - pfranz 6y ago
        I haven't needed to look in years, but I'm pretty confident it was around that back then. This site [1] says the average is $596 for collision and $192 for comprehensive. So for a brand new car for someone in their 20s I don't think it would be too far out of line for what I would have paid--but wouldn't represent everyone. Comparing to your number I'm surprised how similar the numbers are to Europe. [1] https://www.insurance.com/auto-insurance/coverage/comprehensive-and-collision-auto-insurance.html https://www.insurance.com/auto-insurance/coverage/comprehens...
  - zhte415 6y ago
- bennyelv 6y ago
  This is often touted as a good rule of thumb but it’s really a fallacy. Your money does not know or care what it is spent on. If you take out a loan to purchase a car, and then use the money you didn’t spend on the car to purchase investments it is no different to spending the cash on the car and the loan on the investments. If you have enough money to buy a car AND investments (and you need a car) you’re better off spending that money on a car and saving on the credit cost of the loan. What this rule actually says is “it’s better to have money and invest it in things that appreciate rather than not have money or spend your money on things that depreciate”. Well duh!
  - lukevp 6y ago
    Hmm, that really depends on the market you’re in and the rate of the car loan. I bought a car on credit at 1.8% and freed up money to invest in the market, which appreciated by a lot more than 1.8% per year. Also buying a car in cash is not considering the time value of money. If I spend $30k in one transaction, yes I don’t pay the extra 1.8% of interest but I also don’t have $30k with which to invest or partially hold as emergency funds.
    - bennyelv 6y ago
      Exactly - the answer is always that it depends on the exact situation. “Only borrow to buy appreciating assets, only buy depreciating ones with cash” is a fallacy.
  - aserafini 6y ago
    Yes. In other words: money is fungible.

chii 6y ago

which is why i find buying a car on credit is such a poor practise. Unfortunately required for people who need a car for transport for work. A car depreciates. One should never buy a depreciating asset on a loan. A car should be treated like a consumable - buy it with existing cash. The only thing that one should buy on a loan is an appreciating, or income generating asset.

qchris 6y ago
I don't disagree with you, but I do want to explicitly call out how uncommon it is for most people to be able to afford a car in cash. A decent used car, say 3-4 years old with 40-50,000 miles on it with a certified inspection/warranty (which, again, most people are wildly unqualified to actually inspect a used vehicle themselves) can easily cost over $15k, and we're not talking indulgent luxury vehicles, but sedans or crossovers from Toyota, Subaru, etc. Based on the median U.S. income, it could take literally years expecting no additional discretionary income to come up with that kind of cash, or even longer if individuals are trying to keep cash reserves to situations like one we're currently experiencing. In practice. owning a car as an asset it generally considered a positive versus alternatives like leasing, which results in the accumulation of no vehicle equity over time. There's not really a great solution here. Cars are capital assets--they're complicated to build yet already somewhat commoditized in their pricing. They can also last for much longer than most other consumables assuming reasonable use. With regular maintenance, I don't think it's unreasonable to assume well over 10 years of use from most modern vehicles, with most automotive loans having a shorter period. I'm not sure I can think of another commonly-used product that closely matches those conditions...
- pfranz 6y ago
  I realize a surprising number of people are paid close to minimum wage (I believe the number is close to 30% in the US) a brand new Honda Fit is $16k. Federal minimum wage is close to that annually and some state's minimum wage can double that. If you can save up a recommended emergency fund, that's most of the way there. I do think most people buy way more car than they need, which drives up all sorts of costs. If you can get out of the car loan cycle it's incredibly freeing. If you have a solid driving record and an emergency fund you can drop collision on your insurance (it's required if you have a loan) and save a few hundred each month to put towards your next car.
  - lukevp 6y ago
    You’re paying a couple hundred a MONTH for collision alone? My entire insurance including collision and comprehensive is under $100/mo per car.
    - pfranz 6y ago
      I haven't needed to look in years, but I'm pretty confident it was around that back then. This site [1] says the average is $596 for collision and $192 for comprehensive. So for a brand new car for someone in their 20s I don't think it would be too far out of line for what I would have paid--but wouldn't represent everyone. [1] https://www.insurance.com/auto-insurance/coverage/comprehensive-and-collision-auto-insurance.html https://www.insurance.com/auto-insurance/coverage/comprehens...
  - hansvm 6y ago
    A new Honda Fit is $16k _before_ the dealer starts playing games. Last time I went to buy one, the local Honda dealer tried to rig up a deal where a 2-yr-old model listed at $11k would cost me $19k. They were willing to budge on one of the $2k "mandatory" upgrades that weren't in their posted price, but I walked on the deal. I think slightly older used cars can usually be had pretty reasonably though and can be a nice way to break out of the car loan cycle (if you can budget $1k cash for the likely event where there are hidden problems). The end of that story is that I bought a 10-yr-old Honda Fit for $5k, they didn't try any manipulative sales tactics, and 20k miles later I haven't had any notable issues (ran over a couple nails and needed to plug the tire). That's still a lot of money at minimum wage, but it's a lot more manageable than a new car.
    - pfranz 6y ago
      I really hate the dealer game, but if you're stubborn and persistent you can often get what you want. It sounds like the best approach is to email multiple dealerships and make it clear you're only coming in after you commit to a price--you just can't overplay your hand. I bought a new Fit a few years ago when they shifted production between countries and kind of skipped a model year. So there was a shortage, especially the 6-speed low end. When I located one I didn't have much leverage to negotiate down, but I could stand firm on extra junk they tried to add to drive up the cost. The used car market used to be fantastic before the 2009 Cash For Clunkers system seemed to have skewed it. It doesn't look like it has "recovered" but that could be due to other factors like better reliability overall. I mostly used a new car as a worst reasonable case scenario where the price doesn't fluctuate.
- mrkirk 6y ago
  I totally agree with this rationale. What boggles my mind in the US is the fact that people making near minimum wage is pushed to buy cars because cities do not provide public transportation that enable them to have mobility. Here, I am talking about major urban areas around the US, where you are not able to have daily commute to work if you don’t have a car. This is very perverse from the economic mobility. These people compromise a big portion of their income on Car financing + insurance + gas, that otherwise could be reverted as education, higher quality food, or better quality housing. I believe if we had a proper funded public transportation system, 200 dollars on unlimited public transportation ride ticket would be enough for most of the people.
gambiting 6y ago
I have no idea how rich you'd have to be to do that. Like upper 1% I guess. I'm a software engineer and the only car I could afford to buy with cash would be like a 10 years old compact. Or maybe a new Dacia if I saved for a year.
- pfranz 6y ago
  It's basically a 10-year plan, but you start by saving for an ~10 year old car for a few thousand and try to pay cash. Any potential car payment can now go into a fund towards your next car, which could just be a newer used car. If you have a small savings and are a decent driver you can drop collision insurance (which would be required if you had a loan) and save an extra hundred or two each month. At some point you should have an emergency fund with 3-6 mo of living expenses. A brand new Honda Fit starts at $16k. That's about a yearly salary of someone making ($7/hr) minimum wage working full time. So that should be in the realm of possibility for someone making more than minimum wage (or in a state with a higher minimum wage).
  - gambiting 6y ago
    >>and save an extra hundred or two each month. How expensive is your insurance?? I have a fully comp insurance with 20 million euro liability that's about ~$500 a year. If I dropped that down to a 3rd party liability only it would save me almost nothing.
    - pfranz 6y ago
      I haven't needed to look in years, but I'm pretty confident it was around that back then. This site [1] says the average is $596 for collision and $192 for comprehensive. So for a brand new car for someone in their 20s I don't think it would be too far out of line for what I would have paid--but wouldn't represent everyone. Comparing to your number I'm surprised how similar the numbers are to Europe. [1] https://www.insurance.com/auto-insurance/coverage/comprehensive-and-collision-auto-insurance.html https://www.insurance.com/auto-insurance/coverage/comprehens...
- zhte415 6y ago
bennyelv 6y ago
This is often touted as a good rule of thumb but it’s really a fallacy. Your money does not know or care what it is spent on. If you take out a loan to purchase a car, and then use the money you didn’t spend on the car to purchase investments it is no different to spending the cash on the car and the loan on the investments. If you have enough money to buy a car AND investments (and you need a car) you’re better off spending that money on a car and saving on the credit cost of the loan. What this rule actually says is “it’s better to have money and invest it in things that appreciate rather than not have money or spend your money on things that depreciate”. Well duh!
- lukevp 6y ago
  Hmm, that really depends on the market you’re in and the rate of the car loan. I bought a car on credit at 1.8% and freed up money to invest in the market, which appreciated by a lot more than 1.8% per year. Also buying a car in cash is not considering the time value of money. If I spend $30k in one transaction, yes I don’t pay the extra 1.8% of interest but I also don’t have $30k with which to invest or partially hold as emergency funds.
  - bennyelv 6y ago
    Exactly - the answer is always that it depends on the exact situation. “Only borrow to buy appreciating assets, only buy depreciating ones with cash” is a fallacy.
- aserafini 6y ago
  Yes. In other words: money is fungible.