Huffer
09-19-2008, 03:06 PM
While there are tons of resources out on the web, I figured I would collect a couple of differing opinions on the best way to own a car...and this is different for SLi members because the vast majority of us are into playing around with and modifying our vehicles... so warranty issues will not be discussed except with the following guideline:
If you have a warranty policy and you modify your car, expect any further warranty claim work to be denied.
That rule may or may not hold true in every case, but if you expect the worst, then anything else is a pleasant surprise.
My personal stance
Personally speaking, I never recommend financing a car, whether it be used OR new. Why? Because I like to actually have the ability to say "I saved up and paid for my car" and "it's my name on the title, not CAR COMPANY CREDIT UNION".
The other reasons I like to have full ownership of the car is because there's no ongoing monthly cost except insurance and maintenance (don't tell me you forgot about maintenance). And I don't pretend to be filthy rich, so I'm not real happy on seeing my "property" depreciate in value.
BUY USED, AVOID THE 30% DEPRECIATION IN THE FIRST YEAR.
A new car loses 60% of its value in the first 4 years. Save up money and pay cash for a used car.
The ONLY time I would advise someone to take out a short-term SMALL loan on a car is if they literally have no other way to get around and are in a really bad situation...people have to be able to get to work to get out of the hole. In those cases, they buy only as little car as they need - you don't roll in a Hummer if you can't even make rent.
Why Buy A Used Car?
Buying a new car is not something 98% of the people out there need to be doing. It is a luxury item. Only buy a new car if you're filthy rich.
There are alternatives to buying new. Used lots are overflowing, and millions of cars come from expired leases.
The money saved by buying a used car is because of depreciation (the loss of the financial value of an object due to its use). Used cars have already depreciated (60 to 70% in the first 5 years). Buying used allows the person who bought the car when it was new to eat the cost of the depreciation. Then the person who buys the car used can get a great car for much less than the new wholesale prices.
This makes even more sense for a younger person without a lot of income - I see a lot of ads for relatively new cars for sale because people are trying to pay for college...bonehead move buying a new car and then heading off to one of the most expensive things you can ever do! Not only does the college student have to deal with college pressures, they also have to figure out a way to pay for the car AND when it becomes obvious that delivering pizzas in that Audi isn't going to cut it - when they try to sell their 1 year old car no-one is willing to pay what they want for it...because it's DEPRECIATED.
So they end up trading it in for a lower monthly car payment, another new car (or a used one) and most likely end up having negative equity - they now owe more than the car is worth.
Which brings me to insurance concerns - insurance on a younger, newer driver is much higher on a brand new car. Parts on new cars are more expensive, and younger drivers are a higher risk anyway. Double-whammy.
Now, to be fair there are plenty of people out there that say that financing or leasing a car is a great way to go because you can get the car that you want without having to front up the money... which is fine except that should you really get something unless you've EARNED it first? I guess that's a moral decision, and entirely up to the buyer and seller.
The other argument for finance/leasing is that if you had to cash out your savings to buy a car, then you should finance the purchase because your %APR on the loan for the car is going to be less than your rate of return on your investments.
Basically, that argument it built on the point of opportunity cost - if you spend the cash on the car, you don't have anything else to spend it on (or leave it in savings). But these arguments don't include the fact that you will STILL have running costs, insurance and also any out of pocket expenses at the end of your lease (if you leased) if you don't want to buy the car from the dealer.
Shit. If my investments are so awesome, why CAN'T I just buy a car outright and not even blink an eye?
Well you can - and you should.
I tell you what, I would much rather be accountable to ME rather than sign the next 2-5 years away in some kind of financial SERVITUDE to a faceless motoring corporation. They only love you when you pay on time.
And here's why leasing is such a bad idea (and don't get me started about some stupid tax-write off either - I can make more money investing that monthly payment than you can with an annual tax-write off):
Leasing
Leasing is essentially a long-term rental agreement in which you pay for the right to use a car. At the end of the lease term, you have the right to purchase the car for a price determined at the beginning of the lease agreement. On one hand, leasing is a great deal: you get a car that you couldn't afford to buy, and you have a low down payment, and slightly lower monthly payments.
However, if you end up buying the car, leasing is almost always turns out to be more costly than a loan. And if you don't buy at the end of the lease, you have nothing to show for all those monthly "rental" payments.
Too many people today view their car as their status symbol. A nice car means a successful person, while an older car means one has no money. Remember, anyone can get a nice car if they make the stupid decision to get a loan with it. You are not wealthier by having a nice car and a big loan. If anything, you are poorer. It's not wrong to own a nice car if you paid cash for it.
So what kind of car should I have?
The total value of all your vehicles (including boats, all-terrain vehicles, etc.) should not equal more than half of your gross income. If you have that much of your money tied up in transportation, your budget for things like rent and food will be stretched way too thin. At that point, it doesn't matter how nice the car is, because it owns you and your life.
According to the U.S. Bureau of Labor Statistics, more than 80% of car loans are for longer than 4 years. If you buy the car new, then by the time the loan runs out, the car will have lost between 60% and 70% of its value. That's beyond ridiculous ... it's stupid! Why would you get a $25,000 loan at 8% over 4 years, pay $598 a month, be stuck with a car worth $8,750 when the loan is done ... and think it's a smart idea?
How a car loan hurts you
If you have a big car loan, it hurts you in the long term as well as the short. First of all, if you took out the loan described above, you would pay over $28,000 for a $25,000 car. How smart is that? Would you pay $200,000 for a house if you knew you could buy it for $175,000? Would you apply for a $20,000 student loan to go to a $15,000 school? Of course not. So don't pay more for a car than it's worth.
Second, if you invest that $598 in a mutual fund for 30 years, it would be worth almost $2.1 million. Hope you like the car!
In the meantime, don't jeopardize your family's well-being or your future just for a stupid car. The car you owned 30 years ago won't feed you at retirement. It won't send your kids to college and it won't give you the ability to be so rich that you can give money away and bless others. Car loans will eat your lunch, so stay away from them.
*much of this post was taken from www.daveramsey.com (http://www.daveramsey.com) and also
http://www.fool.com/personal-finance/ge ... -ride.aspx (http://www.fool.com/personal-finance/general/2007/08/02/should-you-pay-cash-for-that-new-ride.aspx)
http://www.freemoneyfinance.com/2007/12 ... -a-ca.html (http://www.freemoneyfinance.com/2007/12/how-to-buy-a-ca.html)
http://www.msmoney.com/mm/life_purchase ... tionfl.htm (http://www.msmoney.com/mm/life_purchases/auto/optionfl.htm)
If you have a warranty policy and you modify your car, expect any further warranty claim work to be denied.
That rule may or may not hold true in every case, but if you expect the worst, then anything else is a pleasant surprise.
My personal stance
Personally speaking, I never recommend financing a car, whether it be used OR new. Why? Because I like to actually have the ability to say "I saved up and paid for my car" and "it's my name on the title, not CAR COMPANY CREDIT UNION".
The other reasons I like to have full ownership of the car is because there's no ongoing monthly cost except insurance and maintenance (don't tell me you forgot about maintenance). And I don't pretend to be filthy rich, so I'm not real happy on seeing my "property" depreciate in value.
BUY USED, AVOID THE 30% DEPRECIATION IN THE FIRST YEAR.
A new car loses 60% of its value in the first 4 years. Save up money and pay cash for a used car.
The ONLY time I would advise someone to take out a short-term SMALL loan on a car is if they literally have no other way to get around and are in a really bad situation...people have to be able to get to work to get out of the hole. In those cases, they buy only as little car as they need - you don't roll in a Hummer if you can't even make rent.
Why Buy A Used Car?
Buying a new car is not something 98% of the people out there need to be doing. It is a luxury item. Only buy a new car if you're filthy rich.
There are alternatives to buying new. Used lots are overflowing, and millions of cars come from expired leases.
The money saved by buying a used car is because of depreciation (the loss of the financial value of an object due to its use). Used cars have already depreciated (60 to 70% in the first 5 years). Buying used allows the person who bought the car when it was new to eat the cost of the depreciation. Then the person who buys the car used can get a great car for much less than the new wholesale prices.
This makes even more sense for a younger person without a lot of income - I see a lot of ads for relatively new cars for sale because people are trying to pay for college...bonehead move buying a new car and then heading off to one of the most expensive things you can ever do! Not only does the college student have to deal with college pressures, they also have to figure out a way to pay for the car AND when it becomes obvious that delivering pizzas in that Audi isn't going to cut it - when they try to sell their 1 year old car no-one is willing to pay what they want for it...because it's DEPRECIATED.
So they end up trading it in for a lower monthly car payment, another new car (or a used one) and most likely end up having negative equity - they now owe more than the car is worth.
Which brings me to insurance concerns - insurance on a younger, newer driver is much higher on a brand new car. Parts on new cars are more expensive, and younger drivers are a higher risk anyway. Double-whammy.
Now, to be fair there are plenty of people out there that say that financing or leasing a car is a great way to go because you can get the car that you want without having to front up the money... which is fine except that should you really get something unless you've EARNED it first? I guess that's a moral decision, and entirely up to the buyer and seller.
The other argument for finance/leasing is that if you had to cash out your savings to buy a car, then you should finance the purchase because your %APR on the loan for the car is going to be less than your rate of return on your investments.
Basically, that argument it built on the point of opportunity cost - if you spend the cash on the car, you don't have anything else to spend it on (or leave it in savings). But these arguments don't include the fact that you will STILL have running costs, insurance and also any out of pocket expenses at the end of your lease (if you leased) if you don't want to buy the car from the dealer.
Shit. If my investments are so awesome, why CAN'T I just buy a car outright and not even blink an eye?
Well you can - and you should.
I tell you what, I would much rather be accountable to ME rather than sign the next 2-5 years away in some kind of financial SERVITUDE to a faceless motoring corporation. They only love you when you pay on time.
And here's why leasing is such a bad idea (and don't get me started about some stupid tax-write off either - I can make more money investing that monthly payment than you can with an annual tax-write off):
Leasing
Leasing is essentially a long-term rental agreement in which you pay for the right to use a car. At the end of the lease term, you have the right to purchase the car for a price determined at the beginning of the lease agreement. On one hand, leasing is a great deal: you get a car that you couldn't afford to buy, and you have a low down payment, and slightly lower monthly payments.
However, if you end up buying the car, leasing is almost always turns out to be more costly than a loan. And if you don't buy at the end of the lease, you have nothing to show for all those monthly "rental" payments.
Too many people today view their car as their status symbol. A nice car means a successful person, while an older car means one has no money. Remember, anyone can get a nice car if they make the stupid decision to get a loan with it. You are not wealthier by having a nice car and a big loan. If anything, you are poorer. It's not wrong to own a nice car if you paid cash for it.
So what kind of car should I have?
The total value of all your vehicles (including boats, all-terrain vehicles, etc.) should not equal more than half of your gross income. If you have that much of your money tied up in transportation, your budget for things like rent and food will be stretched way too thin. At that point, it doesn't matter how nice the car is, because it owns you and your life.
According to the U.S. Bureau of Labor Statistics, more than 80% of car loans are for longer than 4 years. If you buy the car new, then by the time the loan runs out, the car will have lost between 60% and 70% of its value. That's beyond ridiculous ... it's stupid! Why would you get a $25,000 loan at 8% over 4 years, pay $598 a month, be stuck with a car worth $8,750 when the loan is done ... and think it's a smart idea?
How a car loan hurts you
If you have a big car loan, it hurts you in the long term as well as the short. First of all, if you took out the loan described above, you would pay over $28,000 for a $25,000 car. How smart is that? Would you pay $200,000 for a house if you knew you could buy it for $175,000? Would you apply for a $20,000 student loan to go to a $15,000 school? Of course not. So don't pay more for a car than it's worth.
Second, if you invest that $598 in a mutual fund for 30 years, it would be worth almost $2.1 million. Hope you like the car!
In the meantime, don't jeopardize your family's well-being or your future just for a stupid car. The car you owned 30 years ago won't feed you at retirement. It won't send your kids to college and it won't give you the ability to be so rich that you can give money away and bless others. Car loans will eat your lunch, so stay away from them.
*much of this post was taken from www.daveramsey.com (http://www.daveramsey.com) and also
http://www.fool.com/personal-finance/ge ... -ride.aspx (http://www.fool.com/personal-finance/general/2007/08/02/should-you-pay-cash-for-that-new-ride.aspx)
http://www.freemoneyfinance.com/2007/12 ... -a-ca.html (http://www.freemoneyfinance.com/2007/12/how-to-buy-a-ca.html)
http://www.msmoney.com/mm/life_purchase ... tionfl.htm (http://www.msmoney.com/mm/life_purchases/auto/optionfl.htm)