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

[metalman]

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

You guys are thinking too hard.

Keep in mind that cars are depreciating assets.

Sure, you can play lots of games to reduce your absolute loss, but you're still going to lose.

The only way to benefit from buying/leasing a depreciating asset is if that asset gains you income. Cars don't of themselves do that - certainly no more than the car you already have.

Your best course is to spend as little money as you can - including up-front, interest and in maintenance costs.

Don't forget that for a leased vehicle, you are paying a premium for zero ownership; not only do you end up having to pay up for your rental (a la negative amortization mortgage), you end up paying sales taxes and transfer fees twice. Excuse me, use tax the first time and sales tax the second.

Too much effort for too little gain.

zactly. that's the point of this article, no? don't borrow to buy depreciating assets... you're shorting the value of your future labor. how is leasing any different from borrowing? as you say it's worse... you have zero equity at the end of it.

buy the cheapest & safest car you can afford to buy with as much cash and as little debt as possible. i'm hoping to hit up some car auctions soon. the auction lots are filling up with cars previously "owned" by folks who didn't read this article. :eek:

[Guest]

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

moved down

[Guest]

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

There is something fascinating about how this one thread garnered more page views than any other topic on iTulip. 44 thousand page views, and counting! And the topic is CARZ, how much you should pay for one (what was the swankest one you owned, so you get to preen a bit for the general community). The fact is everyone is fascinated by cars here - one of the most captivating topics is an apparently endless "I used to own a Porsche, what did you used to own?" or "I used to own a Range-Rover, what did you used to own?" conversations with everyone else.

Perhaps the extent to which people are fascinated with cars, how many they've owned, which was the coolest, etc, is in direct inverse ratio to the intellectual range of other irresistible interests they have. The more you keep getting drawn back to this thread in fascination about tweaking the very best way to squeeze value out of owning a car, the less you are likely to have a broad range of spontaneously lively general topic interests elsewhere, with the obvious exception of making money which everyone here is presumably avid about.

History, philosophy, the arts and humanities, international affairs, political science, the implications of a post-carbon world, the potential paths of political evolution for the human race in the future - all pales into a bland insignificance when in the proximity of the subject of CARS, and how to best own them. 44 thousand page views! WOW! And we talk down our noses about all the 'sheeple' out there in the 'rest of the world', eh? :rolleyes:

I thought the fascination with cars tended to pall after one got past one's twenties, but apparently it lives on. And on, and on and on, so threads like this have the long life and staying power of an energizer bunny.

[metalman]

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

There is something fascinating about how this one thread garnered more page views than any other topic on iTulip. 44 thousand page views, and counting! And the topic is CARZ, how much you should pay for one (what was the swankest one you owned, so you get to preen a bit for the general community). The fact is everyone is fascinated by cars here - one of the most captivating topics is an apparently endless "I used to own a Porsche, what did you used to own?" or "I used to own a Range-Rover, what did you used to own?" conversations with everyone else.

Perhaps the extent to which people are fascinated with cars, how many they've owned, which was the coolest, etc, is in direct inverse ratio to the intellectual range of other irresistible interests they have. The more you keep getting drawn back to this thread in fascination about tweaking the very best way to squeeze value out of owning a car, the less you are likely to have a broad range of spontaneously lively general topic interests elsewhere, with the obvious exception of making money which everyone here is presumably avid about.

History, philosophy, the arts and humanities, international affairs, political science, the implications of a post-carbon world, the potential paths of political evolution for the human race in the future - all pales into a bland insignificance when in the proximity of the subject of CARS, and how to best own them. 44 thousand page views! WOW! And we talk down our noses about all the 'sheeple' out there in the 'rest of the world', eh? :rolleyes:

I thought the fascination with cars tended to pall after one got past one's twenties, but apparently it lives on. And on, and on and on, so threads like this have the long life and staying power of an energizer bunny.

dude you are going for the...



prize.

[Guest]

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

dude you are going for the...



prize.

Hmmm... all a matter of your sense of priorities in life Metalguy. What your proudly presented water bottle squirts out after a daily tour of duty (as you so genteelly recommend it, at any rate), may be more reminiscent of the endless hypnotized chatter about where home economics intersects with ownership of CARZ, found on this thread.

There is your rhetoric on the one hand, and then there are 44 thousand enraptured page views poring over this topic on the other hand. I blink and your rhetoric is expended, but I have to spend a good couple of hours reading through all this crapola, which I'll frankly decline.

[metalman]

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

Hmmm... all a matter of your sense of priorities in life Metalguy. What your proudly presented water bottle squirts out after a daily tour of duty (as you so genteelly recommend it, at any rate), may be more reminiscent of the endless hypnotized chatter about where home economics intersects with ownership of CARZ, found on this thread.

There is your rhetoric on the one hand, and then there are 44 thousand enraptured page views poring over this topic on the other hand. I blink and your rhetoric is expended, but I have to spend a good couple of hours reading through all this crapola, which I'll frankly decline.

luke, it's a douche bag.

[Guest]

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

luke, it's a douche bag.

xxxxxxxxxxxxxxxxxxxxxxxxxx

[mfyahya]

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

I've heard several times that a house purchase price, as a thumb rule, should be no more than 2-2.5 times annual salary. Is there a similar well known rule for buying cars? If not, what would iTulipers suggest?

[metalman]

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

I've heard several times that a house purchase price, as a thumb rule, should be no more than 2-2.5 times annual salary. Is there a similar well known rule for buying cars? If not, what would iTulipers suggest?

it's not like that. a house appreciates, or at least it used to before the housing bubble busted, so it used to make sense to buy on credit... using using that rule you say. the point of this article is that cars depreciate... lose value net of inflation. always have, always will. so you do NOT use credit to buy them. 'debt is a lien on your future labor' so debt... the result of a credit transaction... is for investment in things that appreciate in value like land and companies. an argument can be used for education, too.

so... back to the point of this article... buy the safest car you can afford to buy with cash. these days that means used. there are huge bargains out there buying cars coming off 30K lease. modern cars are just about broken in at 30k miles... have 100k or more to go before anything serious goes wrong if you get a japanese car.

just did a quick search of cars.com and you can buy a 2005 Honda Accord LX with 36,347 mi. for $14,995. a search within 50 mi of my home turned up 134 honda accords that are less than 5 yrs old for less than $15k. totally safe car.

if you don't have $15k and only have $5k then borrowing at least $10k is a lot better than buying new and borrowing $20k or $30k.

[c1ue]

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

Or you can do what I did: buy a 1999 1/2 Audi A8 in 2003 for $19K.

It is more than the Accord, but a much nicer ride. Admittedly, the MPG isn't so good - but pretty good for an 8 cylinder... I get around 16 city and 20 highway.

[Verrocchio]

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

Or you can do what I did: buy a 1999 1/2 Audi A8 in 2003 for $19K.

It is more than the Accord, but a much nicer ride. Admittedly, the MPG isn't so good - but pretty good for an 8 cylinder... I get around 16 city and 20 highway.

Or like I did: 1998 BMW 5-series, Motor Trend Car of the Year, for $18,000 in 2002, 50,000+ trouble-free miles.

[mfyahya]

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

it's not like that. a house appreciates, or at least it used to before the housing bubble busted, so it used to make sense to buy on credit... using using that rule you say. the point of this article is that cars depreciate... lose value net of inflation. always have, always will. so you do NOT use credit to buy them. 'debt is a lien on your future labor' so debt... the result of a credit transaction... is for investment in things that appreciate in value like land and companies. an argument can be used for education, too.

I understood the point of the article. My question was about determining what is an affordable car regardless of whether it's financed or paid for in cash. Assuming someone has enough savings to buy even a 40K car for cash, does it mean he should do so? I was thinking an appropriate cost of a car would be some function of monthly income and/or average monthly savings.

I should have mentioned that I live in Dubai where there is a negative interest rate environment, with inflation around 10-12% and car loans around 4%. I have saved up cash, but to me it makes sense to finance a car, and use the cash remaining after the down payment to buy gold. The most expensive car I bought so far was $3.5K (8 yr old Mitsubishi Eclipse). Now I can move up to a much better ride, but I'm not sure how far up I should go.

[FRED]

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

I understood the point of the article. My question was about determining what is an affordable car regardless of whether it's financed or paid for in cash. Assuming someone has enough savings to buy even a 40K car for cash, does it mean he should do so? I was thinking an appropriate cost of a car would be some function of monthly income and/or average monthly savings.

I should have mentioned that I live in Dubai where there is a negative interest rate environment, with inflation around 10-12% and car loans around 4%. I have saved up cash, but to me it makes sense to finance a car, and use the cash remaining after the down payment to buy gold. The most expensive car I bought so far was $3.5K (8 yr old Mitsubishi Eclipse). Now I can move up to a much better ride, but I'm not sure how far up I should go.

EJ writes in:

Welcome from Dubai. The article is aimed at the average American who has been conditioned to borrow to the highest monthly payment they can afford even if that means not having enough left after paying the bills each month to save a dime. The contrary iTulip guidance is "the best, safest car you can afford to buy with cash." I mention that bought my last car, an Infiniti FX with cash to make the point that if you over time buy cars you can afford with cash, and you save and continue to improve your income, over time you will find yourself in a position to buy a high end car with cash. Sounds like you are in that position. Congratulations.

We do make a couple of exceptions to the rule. One is the availability of zero interest rate financing. If you are able to paying interest that is equivalent to cash so it makes sense to do so and not tie up cash in a car if you don't have to.

You are raising another issue and it's an interesting one. The negative interest rate environment is a curious, non-market phenomenon that will eventually correct via an increase in interest rates and a decline in inflation, albeit not necessarily in that order.

Borrowing to buy a depreciating asset when money is relatively cheap seems to conform to the rule that borrowing at zero interest rates is equivalent to cash. If while inflation remains above 10% and you are able to lock in a 4% interest rate, that is, if it does not vary over the term of the loan you are in effect borrowing at better than a zero real rate of interest.

I made the point in this article that in the 1970s when the dollar depreciated the resale value of the Japanese car I bought in 1975 actually increased; in 1979 I sold it for more than I paid for it, in nominal terms. Within the ricing structure within the US economy the car itself acted as a inflation hedge. Today as the dollar depreciates, since Japanese cars we buy in the US are either made here in the US or the exporting manufacturer in Japan is eating the FX costs versus passing them on, at least for now, no such price appreciation is occurring. The situation in Dubai, where the currency is pegged to the dollar, may be similar.

[Forrest]

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

Indeed, a VP Sales can't get away with driving a beater. For anyone with a job where a show car is justified because it's expected (e.g., a meaningful portion of income depends on appearances), a used luxury car is still the right way to go. For example, a three year old BMW M3 just off lease with 30k miles on it (that is, just broken in) can be had for $35,000 vs $49,000 new. Consistently avoiding the 30% haircut you get for buying new, even with cash, for the first 2 to 3 years of ownership... over time, this really adds up.

If you make enough money, you can drive whatever you want. One of the other things you can buy with financial independence is the right to eccentricity, and owning a car that's less expensive than the car everyone knows you can afford is one of them. Warren Buffett drives a Lincoln Town Car with a license plate that reads: "THRIFTY". The car's cost is a rounding error on the return he earns on his wealth daily.

I'm thinking of adopting the eccentric's car look... a Toyota Corolla or Honda Civic, because I'm concerned about pollution and fossil fuel consumption. Fifty percent of the pollution generated by a car is created in producing a car, so if I'm worried about pollution, I don't buy a new Pruis (rhymes with "Pious"), but buy a used Toyota Corolla or Honda Civic, and drive it slowly. That and an old truck, and replace the FX with the two–the Corolla for getting around, the truck for hauling stuff.

What do you think?

You're wrong about the VP Sales...I drove a 1976 Datson 280Z 4x4, picked up for 2K, refurbished it with a custom paint job, and rebuilt the transmission and engine...and since I had two other's at home in process of glamorization, I was a collector!

If they thought the less of me, at least no one had the nerve to say so, and it didn't seem to hurt my credibility. Just for fun, I'd drive the oldest one in on a Saturday, and discuss the latest body work I was doing, while driving my mountain roads was a daily pleasure to boot. Their oh-so dull new cars didn't seem to be any fun to them, particularly when they complained about the payments.

[jimdice]

Took your advice - very pleased.

Thanks for the great advice Eric J., Fred and members. I read this article well over a year ago, printed it out and kept it on my shelf. It took me a little while, but I got the exact car I wanted.

I just acquired a 2005 Infiniti G35x, with the fully loaded Nav package, just coming off a lease.

I told myself I'd just wait until the local economy got worse and prices got crazy enough and just buy the car outright. Of course being a used car, it's not perfect - couple of nicks, no dents though. It also looks like the original owner's son managed to jam a CD in the CD player but everything else looks just fine. I should mention that I paid less than one third of the original dealer price, and probably 20% less than the lease buyout price. It looks like the former owner wanted to keep it because it has a brand new set of tires, mileage wise also, well maintained. Car has just under 45,000 miles.

Would anyone recommend getting the extended warranty from the dealer?

Regards,

jim