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Car Financing

Discussion in 'Off Topic' started by ihate, Nov 22, 2011.

  1. ihate

    ihate Lurker
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    I hate this thread. It reminds me how much I need a car...but I'm to broke to afford one :(
     

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  2. Frisco

    Frisco =Luceat Lux Vestra=
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    You're saving a lot of money by not having one. That's the bright side of not having a car.

    I know, I can't look at it that way for long either. Gotta have a car. :eek:
     
  3. Doit2it

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    FedEx... yea, those guys
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    When you do, if you can, buy used and pay cash. It shocks people when I tell them I haven't had a car payment on almost 20 years! My last 2 cars were used and they one before that was new but I kept it 9 years till it went south on me. People just expect that they are supposed to have a car payment. Nope!
     
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  4. A.Nonymous

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    100% agree. I kind of mock people who get excited because they managed to buy a car with low payments. I always tell them I got a better deal because my car payments are $0. It's nice having that money in my bank account instead of someone else's.
     
  5. Vihzel

    Vihzel Destroying Balls Everyday
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    Aside from interest from the bank, aren't you still putting money into someone else's bank account but just all at once instead of in payments?

    I know that my parents prefer to make car payments instead of paying all at once because they build credit while making payments. They definitely have the cash available.
     
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  6. Doit2it

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    FedEx... yea, those guys
    Nashville, TN
    But you are also paying more that what someone else would for paying cash. If I paid $20,000 cash for a car, I pay $20,000, end of transaction. If you get a load for $20,000 over 4 years at say 5% rate you will pay $22,108.32 for that same $20,000 car.

    And you can use that money you are NOT paying someone else every month to invest and make it work for you.

    [/rant] Sorry, debt is never a good option.
     
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  7. A.Nonymous

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    Beat me to it. Payments cost you more. Not mention most people use payments to buy themselves more car than they really need or can afford. If they had saved up (basically made payments to themselves) at $500 a month, for example, they'll end up buying a $10k car. Would take close to two years to save it up at that rate so it's probably not the most realistic example, but we'll go with it. On payments, they'll happily fork over $500 a month for the next 5-6 years and sometimes longer on a $20-30k car. Those extra years of payments cost them in the long run as that is money that they're giving to a dealer instead of investing somewhere.

    This doesn't even mention the fact that cars go down in value like a rock. You lose your shirt on a car because of depreciation and you really lose your shirt in depreciation on a new car. They are horrible places to be sticking large sums of money.
     
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  8. Vihzel

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    My parents are well aware of that. They factor everything into the total price of the car before purchasing one (including insurance). They can easily afford to spend the extra interest payments.
     
  9. TxGoat

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    While cash is generally a good option, if a car company is offering a great finance rate, then it's not a bad idea to take the low APR and apply that cash to some investment that may yield a higher return than the finance rate. If the rate is really great then your money might be better spent on updating your home's insulation. The money you'd save from the gas/electric bill and any government subsidies for making your home more energy efficient could offset any finance rates.

    The only problem I tend to have with financing at a dealership (as opposed to a credit union or outside bank) is they will do EVERYTHING they can to screw you over in the process. I remember back in 2000 when I bought my truck, the dealership claimed that I didn't qualify for GMAC. When I called GMAC to inquire about my credit application, they claimed they never received one from the dealership (not even one of the contingent requests for credit).

    Turns out the dealership claimed I didn't qualify for GMAC because they had a deal with a local bank to push business to them bank in return for the dealership getting a few points off the top of the APR I was being offered. "Well we couldn't get you the 2.9% financing offered by GMAC on this particular vehicle, but we were able to get you 6% at 'bank of BendOverAndTakeIt."

    For me, the fact that you don't have to go through more BS after you've haggled for a price, if you can pay cash then it's a good idea, but it all depends on your situation.
     
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  10. A.Nonymous

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    I disagree with this because you're not factoring in the depreciation. Cars lose something like 60% of their value in the first 5 years. (Source: Edmunds) You're not saving cash by buying in payments. If a car costs X, you're going to either pay the seller X in cash or you're going to pay them X+Interest in cash and take a loss on your money while you're doing so. So you're spending the money either way. You are spending less of it by paying cash. Whatever you spend on updating your house is a non-sequiter. The car costs more if you borrow to pay for it and when you borrow, your money goes down in value faster because you're getting killed in depreciation and you're paying interest to boot.
     
  11. TxGoat

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    huh!?!?!? The car depreciates whether you finance or pay cash. It doesn't depreciate any less if you pay cash than if you finance it.

    Lets take a $30,000 car. Now this is as I stated in my original post, if they are offering a low APR. If you get locked into something higher than 5% then it may not be a good idea. At 5% APR for 5 years you're looking at payments of $566.44 per Auto loan calculator - Bankrate.com You're not the only one that can post links ;) :p I've posted the Amortization table below. In 5 years you're paying about $4000 in interest.

    Lets say you take that money and buy a new A/C and heating unit for your house, add some new windows, etc. Last year in Texas the state was giving away $2000 total in rebates for replacing old appliances with new Energy Star appliances, I think I recall A/C units being in their list of approved appliances. Now lets not even bother with that. Lets go ahead and talk about savings in electricity. About 5 years ago I installed a new A/C unit in my house to replace a 30-something year old unit. My electric bill in the summer averaged about $350 a month. After I installed the unit, I was looking at bills under $200 a month. That's about $150 a month for the hottest 3 months of the year. Winter months I noticed a savings of about maybe $100 or so per month. So just with replacing my A/C unit ($3500 investment in my case) that has netted me about $750 a year. At $750 for 5 years, that's already a savings of $3750 and that's only investing $3500 of my $30,000.


    Like I said, paying cash is great under most circumstances, but if a car manufacturer is offering a great APR, even depositing all that cash in a savings account that draws next to nothing in interest, you're going to come out ahead by financing. And in this economy if you become displaced by your employer, lets face it what would you rather have, $30,000 in the bank with a $566.14 a month car payment or $0.00 in the bank with a $0.00 car payment and a car that's paid for, and likely very depreciated, as you brought up earlier?
     
  12. A.Nonymous

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    I guess I'm confused. Let's say I have $30k in cash and I want to buy a car. Why am I better off taking out a loan instead of paying cash? The AC is a non-sequiter. Whether it's a good idea to replace the AC or not is unrelated to the car. Would you rather be unemployed with a car payment or unemployed with no car payment? Personally, I'd rather the latter.
     
  13. TxGoat

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    If they're financing the car at a low APR (Haven't you ever seen the "We're offering 1.9% financing with approved credit!" commercials?) then why not finance at that low rate and invest your money into something that pays a little more than the finance rate? Granted there's not a lot out there that you can invest in that pays great. My lousy bank is only giving me about .01% or so on a CD right now.


    I agree, it's not related to the car, but it's related to the money.


    So you'd rather have no money in the bank, no car payment and no job over having a car payment of about $566 a month, $30,000 in the bank and no job? Why? With no money in the bank you'd have to take whatever was offered to you so you could eat, pay rent, and pay other bills. With $30,000 in the bank, even with a $566 car payment, you could pay a few months ahead on your car payment, cover a few months' payment of other bills, maybe even go to school to get trained/certified in a field that interests you without having to worry about taking the first thing that comes along.
     
  14. A.Nonymous

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    Honestly, if someone came to either one of us with $30k in hand and wanted to buy a $30k car I'd tell them not to spend every dime they had on a car. I'm guessing you'd probably do the same thing. Personally I would tell them to spend $5-10k on a used car and take the rest to save/invest depending on their personal needs. Sadly, if you're looking at short term investments now, you're not going to get much more than 2-3% if you're really, really lucky.

    In this economy, you can be unemployed for a long time and burn through $30k. People have done it. I'd rather have no payments so if all I can scrounge up from a BS part time job is $1k a month I can still eat. Plus, there's no risk of my car getting repo'd. If I'm unemployed, broke and my car gets repo'd then I'm really, really screwed. Having a paid off car eliminates that risk right there.
     
  15. TxGoat

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    You're throwing out different scenarios, which is fine. But did you not understand what I meant when I said "Under MOST situations, paying cash is preferred"? There's not a right/wrong answer. Different situations will yield different results.

    How about this for a scenarios...Several years ago, your friend offered to let you in on a company's first time public stock offering and offered to let you invest. You said no because you were buying a new car and wanted to pay cash. You paid cash for your car and you didn't have to worry about car payments. 20 years later your friend is calling you because he's retiring at the age of 50. You know that little stock offering he mentioned, it was a small startup company named Microsoft....How's that for a scenario? And yes I know not EVERY initial stock offering is going to be insanely successful like that, but that's life in general. You're not going to account for EVERY situation. So to blindly say that paying cash ALL THE TIME is going to be your best bet is foolhardy.
     
  16. A.Nonymous

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    By that logic though your friend could offer to let you buy in on a lottery ticket. I would pass on that IPO if it was me. I really would. I've passed on good deals before because I didn't have the cash and I would again in the future. I don't borrow money period for any reason.
     
  17. TxGoat

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    So you pay full retail price for your cell phones?
     
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  18. A.Nonymous

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    I either pay the price that comes with the contract or I buy off ebay, CL, etc....
     
  19. kejlyCZ

    kejlyCZ Android Enthusiast
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    it's funny in my country, for a new car, it's better to pay cash, but if you buy used one, mostly you get better price (including interest rates and insurance) if you take loan, cash price is about 25% higher than loan, at the end you still save bucks (czech crowns) if you take a loan
     
  20. TxGoat

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    Contract price = not paying full cash which is practically financing it. You're getting a discounted price for maintaining payments for 2 years. You might as well be financing the phone.
     
  21. A.Nonymous

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    No, you're not financing the phone at all. I could sign up for a contract phone today, break the contract tomorrow and still keep the phone. The phone is mine. They're not going to repo it. I'll pay an ETF for breaking the contract of course, but the phone is still mine.
     
  22. ihate

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    Uhhh...what happened here? It seems I completely changed the topic somehow and a whole new thread was made? uh, sorry?

    Well I might as well contribute to this thread I somehow created lol...

    Well that's one of the reasons that keeps me positive, the fact I don't need to pay for insurance or gas, or (in Canada) e-tests, repairs...all that nice and fun stuff. Although, like you said, I'm getting older and at some point, especially living in a more suburban area I'll need a car.

    That's exactly my plan actually, I can't afford monthly payments since I'm a student anyway but like I alluded to, the real killer is all the stuff that comes with a car purchase. I might be able to save some cash for a used car, but keeping up with all the payments for insurance and things like that is something I can't afford.

    As for financing, the topic of this thread, one thing is for sure, whether its 0% APR or not, I'm in nooo position to make any monthly payments more then my $40/month cellphone bill. Though the discussion here is very interesting but I can't really contribute much other to say that when it comes down to buying a more expensive car, I thiinkk we can all agree leasing sucks and the least rewarding.
     
  23. Mada

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    It was merged into a new thread.

     
  24. DaSchmarotzer

    DaSchmarotzer Blame it on me
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    It can be a better option to get the loan. Most people often think that loans are evil and such, but, even though it's usually the case :p, sometimes it's not.

    Here's an example, let's say the loan is for one year and the rates are monthly nominal rates:

    Car loan: $10000
    Bank interests rate on savings account: 8%
    Loan interests rate: 6%

    Option A: Pay 10k right now. In a year, you'll have paid exactly 10k and you would still have $0 in your pockets.

    Option B: Repay the loan during the first year. You'll make 12 payments of 869.88. What you have to understand, is that right after buying the car, you can get one month's worth of interests on the 10k in your savings account. After one payment, you'll gain interests on the $9130.12 that remains in your bank account. And so on. So, in the end, you'll end up with the car (worth 10k) and the interests on your savings minus the interests paid on the loan, which should be less.

    By "savings account" I certainly don't mean a regular account used for every day transactions though.
     
  25. A.Nonymous

    A.Nonymous Android Expert
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    You're not going to find a bank account that pays 8% interest a month. I'd challenge you to point one out to me. I'd sign up for that in a heartbeat.
     

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