I came across the following car buying strategies from money experts Clark Howard and Dave Ramsey and would love your thoughts on them and if you all agree.
Clark Howard:
If you cannot afford the payment per month on a 42-month loan, you’re buying more vehicle than you can afford. Taking out a longer loan to get a more affordable payment is a big, fat warning that you’re hurting yourself, harming your finances and limiting your options in life.
Dave Ramsey:
We only recommend paying for a car with cash after you have become debt-fee except for your mortgage and have saved atleast 3 months worth of emergency funds towards your living expenses.
Depreciation is not fun. Never buy a new car—ever—until your net worth is more than $1 million. Remember, the purpose of a vehicle is to get you from point A to point B, not to prove your social status to the world. As tempting as it is to hit the road in a car you can’t afford, it’s more likely to be a burden than a blessing—especially if it’s not in your budget. Chances are, your car isn’t the first thing you think about in the morning or when you go to bed at night. The key to happiness is not a new car, so don’t pay for it like it is!
While I can appreciate your contribution, I would take what those people say with a grain of salt. Dave Ramsay, for example, is an absolutely horrible human being who needs to get himself in order before he can even pretend to start giving others advice.
Everyone has a different financial situation. For some people, a car is also their hobby and their source of entertainment. They will spend more because they do not have those other expenses to consider. In addition, smart wealthy people take advantage of low interest, long term financing. Why pull your money from an account that is making you 9% interest to pay for a loan that is costing you 3% interest? It is better to let your money grow and make the payments you can afford.
The "if you can't afford a xx-month loan you're buying too much car" went out the window along with $15 minimum wage and $45k entry level Tahoes. The workforce in the USA is TERRIBLY underpaid compared to the rest of the world, and car prices are at an all time high. So while someone who makes their money talking down their nose to people who aren't as well-off as they are, in the real world the logic does not hold. So you buy a $6000 car and pay cash. Within 3 years you need a motor and transmission. That could easily add $15k to your expense, so you're out $21k and still have a beater with other parts likely to break, no value, and you've thrown good money after bad.
Just....when it comes to financial advice, it's ok to listen but don't let anyone tell you how to run your finances....especially someone who is not at all in the position to do so.
Absolutely, which is why it’s important to look at each individual case, separately. You can’t have blanket financial advice for every individual. There’s too many variables involved.
There is something to be said for having it paid for.
@mod_man Thank you. I appreciate your thoughts on this.
You're welcome. Just wanted to add my thoughts. 🙂
"Never buy a new car until you're worth a million dollars?" That's too broad. There's an enormous difference between buying a new Fit for $16K (which is what my wife and I did in 2012) and a new Lexus ($45K). Or consider the difference between a base model Corolla and a new Tesla.
Scotty's advice is better: Don't buy a money pit, rich or poor. Many of the status cars (Land Rover, Jaguar, Audi, Benz, BMW, Infiniti, Alfa Romero, Porsche, Tesla, etc.) are some of the most problematic cars, in terms of medium and long-term reliability. One can buy one of these, used, as a status statement, and end up as much penury as having a new car payment. And, as a point of political economy, understand that cars, as instruments of financial indentureship, with the financial behemoths as virtual soul owners, have become a profound means of social control through debt. (The financialization of cars nets much more substantial profits than the production and sale of cars).
So, of course, I do agree with the sentiment about jettisoning the idea that the vehicle is an external display of self-worth. We are NOT what we own or what status signs we display to others. The general thrust of their comments is about mature self-discipline and carving out a space of freedom. With this, I wholeheartedly agree.
What about buy a Celica for $400.00 and drive it for the rest of your life?
$400 is not going to be your total investment on that car if you plan on driving it the rest of your life.
I agree completely on that geriscan. A more reliable car is where it's at these days. Those cars cost in repairs is not worth it even if you can afford it.
But even if you buy an extensive car the purchase price still isn't your total investment.
There's taxes, insurance, depreciation, maintenance, etc. Then again, there are those who lease. If there's a business tax benefit for leasing, I can see that. Otherwise, it's the worst financial decision. More than ten thousand in lease payments, and no capital good to show for it.
I firmly believe in staying out of debt, so no car loans, cash only.
The only time you should really finance a car is when you are trying to rebuild your credit.
I'm at the point where I don't care about credit. Haven't applied for any in decades, not even for a credit card, and certainly no loans of any kind. 100% debt-free, no mortgage, no car loans, no personal loans, no credit card balance. Have been that way for ages. Credit rating? Don't know it, don't care about it. If I can't pay cash for something then I pass on it.
Great advice!
Thanks!
My own view is to save before you buy a car so you can (1) avoid a loan altogether or (2) decrease the loan amount you have to take. For example, for the past few years I have been saving fixed amounts every month and that money goes into a savings account at a bank different from my primary bank. (Out of sight - out of mind)
I admit the interest rate (.1%) is horrible, but I won't lose any money. I'd rather not gamble with stocks for an investment I might need to cash out in the near future.
Everyone's situation is different, but I was laid off a few years ago (and eventually re-hired), and that really made me dislike loans. Having a mortgage, car loans, college tuition, etc. puts a lot of pressure on you when you are hunting for a new job!
Well said
A wise friend of mine always says 'Make your payments before you buy it". I have to agree and it sounds like you are doing just that.
Just another thought I wanted to add to this thread:
My wife works at a Credit Union as a loan officer and deals with all kinds of people every day. A lot of people come in looking for a loan and they have no credit at all. Why? Because they have paid cash for everything. If you never finance, you never will have any credit. Paying cash for a $5k car is great. You got cash to pay for that $200k house? Because you can't get a mortgage without an extensive credit history.
What she sees a lot of, especially in younger people, is they have no credit cards because of the advice given by people like those mentioned. "Oh I don't do credit cards." Ok, well you're not getting this car loan you need because you have no credit. Or, if looking for a home loan, "My car is paid for. Can't I get a loan against that?". They own a 1997 Civic with 300k miles because they "didn't want payments". So no, they can't get a loan because there is no value there.
Credit is extremely important unless you have millions of dollars to pay cash for everything for the rest of your life. And the best ways to establish credit are small car loans and credit cards. Most people don't understand money, and that's through no fault of their own. We don't get educated on money whatsoever in our educational curriculum in this country and it shows in our average household debt. Loans are not the devil and they are not bad. People like Dave Ramsay take everything to the absolute extreme. You just have to make informed decisions and decide for yourself what is best for you given your situation.
I agree that the education system is lacking in teaching about money and life skills. Credit is a funny thing and a lot of things about it seem counterintuitive
One thing that I would like to point out is that things are also more expensive because of credit. Had credit never been invented houses would not be going for $200,000.
Where I live, you need to meet some income requirements to get a loan or a credit. I don't like that way because 15% of interest or more is too much for me.
Thanks again for sharing your views and I really appreciate this!
The best car buying advice is to make sure you pick the right vehicle in the first place so you are not stuck with an aging money pit. That is not mentioned in Clark and Dave’s quotes above (maybe they mentioned elsewhere, I don’t know). That’s where Scotty and this forum come in.
I agree. Cars are terrible investments.
Fiat has left the chat.
A terrible investment, but a great hobby; addictive too.
Thanks!
That sounds like great advice, although I think it was 48 months, not 42 months.
I bet Dave and Clark have often have not followed their own advice.
The total cost of a 25K loan at 3% over 48 months is $26,561.00
The total cost of a 25K loan at 3% for 60 months is $26,953.00
I doubt a $400 difference over 4 or 5 years will be noticed or significant to very many people.
I don't know about Clark, but Dave did really mess up things early in his life, I think he went bankrupt. As I understand it the things he teaches came out of how he recovered and became sound financially. I don't disagree about the loan difference, but I will say if you can avoid having that loan completely buy buying something a lot cheaper for cash, its well worth it. Life with no (or very few) loan payments is absolutely wonderful.