Dave Ramsey on new car purchases.

[Pop_Rivit]

His advice is just that-advice. Anyone can elect to follow it or ignore it.

What he says about auto financing is smart, and anyone can do it. Following his plan takes some self-discipline, and it doesn't allow for keeping up with the neighbors. It's what my wife and I did when we were young and it has paid off handsomely over the years. It has given us the means to purchase a number of new cars over the years out of our vehicle fund, all the while earning interest rather than paying interest, and making payments to ourselves rather than someone else. At this point in our lives we choose not to purchase new, but rather purchase used, which makes even more sense for us. Just because we can afford new doesn't mean we need to purchase new.


Originally Posted By: supton
Anyone look at what is paid out in fiance on a typical mortgage?


You can't compare leasing or financing a depreciating asset to a mortgage on a home. And many people (at least those who are smart) manage to pay off their mortgage early-10 year mortgages are becoming quite popular.

Originally Posted By: dparm
Or that taking out a loan below the inflation rate is effectively MAKING money? Getting 1.99% or better isn't hard these days.


Better finances through loans. I think I once read the advertisement for that in the back of a magazine years ago. I knew it was nonsense back then, and it's still nonsense today. I'll choose not to be a slave to payments.

Originally Posted By: hattaresguy
A bar tender I know and was hitting on the other day started talking cars with me, she is paying...get this...13.1% on her new Mazda 3. She is the kind of person Dave here needs to help.


It certainly speaks volumes about the person who hits on someone like that, doesn't it? On a side note-bartender is one word, not two.

 

[99Saturn]

Originally Posted By: supton
Anyone look at what is paid out in fiance on a typical mortgage?

Yes - ours is ~60% in addition to the principal if carried for the full 30 years (no consideration to tax write-off). I have no issue with paying it monthoy and putting the cash in my pocket and investing it over paying off the principal.

 

[Benzadmiral]

Originally Posted By: hattaresguy
. . . A bar tender I know and was hitting on the other day started talking cars with me, she is paying...get this...13.1% on her new Mazda 3. She is the kind of person Dave here needs to help.

Pics . . .?

And I doubt her lack of financial acumen is catching. It's perfectly okay to hit on her, as long as she doesn't get you to pay for her car!

 

[SwampSurvivor]

It may work in California, but here in NY, 6 or 7 years and you're going to start having rust issues. Not worth it unless you can find something with no rust.

If I lived in the south? I couldn't even imagine owning a 2000 Cherokee. I'd own a 1990 Cherokee

 

[Clevy]

Originally Posted By: javacontour
Originally Posted By: hattaresguy
A bar tender I know and was hitting on the other day started talking cars with me, she is paying...get this...13.1% on her new Mazda 3. She is the kind of person Dave here needs to help.


She suddenly became financially undesirable with that fact.


Well you know she's stupid anyway.

If she'd sign on that note there isn't much she won't do.
I assume she dropped her laundry.......

Originally Posted By: Stewart Fan
Originally Posted By: hattaresguy
she is paying...get this...13.1% on her new Mazda 3. She is the kind of person Dave here needs to help.


That's nothing. I was hanging out with my brother and nephews the other day. One of my nephew's buddies was there also.

My nephew's buddy was bragging up his "new" '09 Honda Civic SI.

I about choked when he told me the interest rate was 30%...yes 30%

The kid is 20 years old,makes $13 an hour and has a car loan with a 30% interest rate.


Wow. Is that even legal.
My loan shark charges 15%. And I thought that was insane.
I bought my charger with 0.9% interest and I put a couple grand down. Basically free money.
Now when you consider the value of my dollar will be less due to inflation the finance company actually looses,not me.
So though I agree with mr Ramsey in principal there are deals out there for those of us who can get them that kybosh his theory.

 

[Mykl]

I'm not a huge fan of Ramsey because I've kind of outgrown his "one-size" advice. I also think he's too shouty and annoying to listen to. But I'd definitely recommend him to someone whose finances were a wreck; the type of person who needed to view financial reform like an uncompromising religion.

 

[SwampSurvivor]

Originally Posted By: Clevy
Originally Posted By: javacontour
Originally Posted By: hattaresguy
A bar tender I know and was hitting on the other day started talking cars with me, she is paying...get this...13.1% on her new Mazda 3. She is the kind of person Dave here needs to help.


She suddenly became financially undesirable with that fact.


Well you know she's stupid anyway.

If she'd sign on that note there isn't much she won't do.
I assume she dropped her laundry.......

Originally Posted By: Stewart Fan
Originally Posted By: hattaresguy
she is paying...get this...13.1% on her new Mazda 3. She is the kind of person Dave here needs to help.


That's nothing. I was hanging out with my brother and nephews the other day. One of my nephew's buddies was there also.

My nephew's buddy was bragging up his "new" '09 Honda Civic SI.

I about choked when he told me the interest rate was 30%...yes 30%

The kid is 20 years old,makes $13 an hour and has a car loan with a 30% interest rate.


Wow. Is that even legal.
My loan shark charges 15%. And I thought that was insane.
I bought my charger with 0.9% interest and I put a couple grand down. Basically free money.
Now when you consider the value of my dollar will be less due to inflation the finance company actually looses,not me.
So though I agree with mr Ramsey in principal there are deals out there for those of us who can get them that kybosh his theory.


I was reading on reddit (personal finance) someone is paying 23 or 26% interest on a car loan

 

[exranger06]

I hate new cars and car loans. We bought my wife's Subaru to get out of her terrible lease deal with her previous car she hated. I can't wait until it's paid off and I'll hopefully never have a car payment again. I like driving my older cars. They're cheaper to insure and taxes are cheaper too.
I bought my Ranger when it was one year old and I paid in cash, but seven years later, I kind of regret buying such a new vehicle. It was right for me at the time, but knowing what I know now (how to fix cars) I would've bought a much older truck. I thought about selling it and getting something older and pocketing the difference, but I decided I'm best off keeping my current truck and just wait for it to get old. I plan on keeping my current cars as long as I possibly can, and if I HAVE to buy something to replace them, I'm not paying more than $5k for it and I'm paying cash. I don't need to impress anyone with a car; although many ARE impressed with how nice my cars are, despite their old age. I can get admiration without spending tons of money and going into debt.

 

[supton]

Originally Posted By: Pop_Rivit
Originally Posted By: supton
Anyone look at what is paid out in fiance on a typical mortgage?


You can't compare leasing or financing a depreciating asset to a mortgage on a home. And many people (at least those who are smart) manage to pay off their mortgage early-10 year mortgages are becoming quite popular.


What can I say, I'm jaded after losing 25% of my house value over the 10 years I've "owned" it, and being stuck with a too-small house because I bought what I could afford. After doing some work on it I've realized that it's badly framed and a lousy house, and have to accept that it'll never be worth what I paid for it--sounds a lot like a car that has been used up to me.

 

[GMFan]

Originally Posted By: HardbodyLoyalist
I recall from my college days the advice my personal financial planning instructor gave about car purchases:

1. Finance one car in your lifetime: the first one you buy after completing college and getting a job.

2. Finance it for 5 years, drive it for 10 years. The second 5 years you own it, keep making payments as you did before the car was paid off, but make them to your savings account.

3. After owning the car 10 years, you'll have enough saved to pay cash for your second car. Keep the system going, and you'll purchase a new car every 5 years thereafter. If you want a nicer car, increase the monthly payments to your savings account. But always remember that a car has but one primary purpose: to get you from point A to point B. You don't die rich by getting to point B in style.

4. After financing your first car, NEVER again borrow money to purchase a depreciating asset.

Smart man.





I agree with the above when you have a higher APR but today if you you have a very good credit rating you can get 0% APR which is essentially paying the bank back with inflated dollars over time. In this case I'd revise #2 to putting the extra $ into a 401k and step #3 to having an excellent credit score so you can get 0% again the next car purchase.

Step #2 would be most effective at an early age as well since your 401k dollars will be working for 30+ years.

Buy base model vehicles...you get the same drivetrain, chassis, suspension, safety features, etc. without am extra $10k spent on junk more likely to break and cost you even more $ down the road not to mention increased insurance rates and maintenance. 19" tires?...no thank you. Big tires are a big expense.

The thing I've learned is that people like Dave Ramsey are for those with zero financial sense.

 

[bepperb]

Originally Posted By: supton


What can I say, I'm jaded after losing 25% of my house value over the 10 years I've "owned" it, and being stuck with a too-small house because I bought what I could afford. After doing some work on it I've realized that it's badly framed and a lousy house, and have to accept that it'll never be worth what I paid for it--sounds a lot like a car that has been used up to me.


I feel your pain having taken a pretty big hit on our last house... but... show me the car worth 75% of it's original price after it's all used up (maybe 10 years and 150k miles) and I'll buy it today.

As to Dave Ramsey, unfortunately it's one size fits all advice for the lowest common denominator. He can't get into things like 0% loans because it would complicate his message. Leverage can be a beautiful thing and allow one to have more wealth with the same amount of money. But the people he preaches to probably don't have good credit. Even if they did they complications of it don't work for them, and I can understand that.

Still, bought our minivan with a 0.9% loan... who wouldn't even if you could pay cash?

 

[Mykl]

Originally Posted By: supton
What can I say, I'm jaded after losing 25% of my house value over the 10 years I've "owned" it, and being stuck with a too-small house because I bought what I could afford. After doing some work on it I've realized that it's badly framed and a lousy house, and have to accept that it'll never be worth what I paid for it--sounds a lot like a car that has been used up to me.


The amount of money you saved by not renting may have saved you that 25% over those ten years.

That still sucks though.

 

[Michael_P]

Good point bepperb. I financed one car in my entire life and it was a 0% loan. I took the money and invested. We doubled our money by the end of the term. As a result, the next two cars we bought were in cash and it was easy.

 

[supton]

True. I console myself these days by trying to convince myself that at least I'm paying on the land now, which should not be depreciating. [Going off the house/land appraisal amounts.] I'm not paying that much more than I would have in rent, and have a decent yard to boot. But it's still more than rent, and honestly, I would not be trying to rock three vehicles and a camper had I stayed renting--I would not have space for them (but i likely would have the money).

 

[Win]

I've taken his classes. His advice is in no way unsound, but very limiting. A cynic might say it keeps the little guy in his place.

People should stop thinking that a car or house is a big purchase, and set their sights higher. The country needs it right now.

 

[pandus13]

Originally Posted By: Win
I've taken his classes. His advice is in no way unsound, but very limiting. A cynic might say it keeps the little guy in his place.

People should stop thinking that a car or house is a big purchase, and set their sights higher. The country needs it right now.


Yes, but inquisitive minds will long for more. then find places like BITOG, earlyretirement, extremeretirement, MMM, etc
and guys like you , grumpy Pop_rivit, hataresguy, clevy, jhrz2 and many others that either own business or open your eyes by putting a different spin on many things.

P.S. I put you quote in BOLD because i think is the quote of the day. Never stop learning..

 

[OneEyeJack]

Following Ramsey's advice could be the ruin of rich people. They depend on you taking out that loan and making those payments. Same with keeping the turnover at the local new car dealer.

If you start keeping your cars and going to locally owned repair shops for service and putting those loan payments to other uses you're going to mess up everything. You need to continue to pay attention to the marketing and realize that your life is a hollow shell of nothingness if you're driving last year's automobile. On top of that if your car does not have 14 airbags, ABS, EBD, EBA, ESP, eCall, ISOFOIX, SIPS, SRS, TCS then you are driving a death trap. Just make sure that you do your part and purchase that new car and save the social embarrassment of not keeping up. Debt is just a number and like our government you can just ignore it.

 

[CKN]

I look at it like this-It's easy for a multimillionaire to tell everybody to follow his example and pay cash.

Let me repeat-he is a MULTIMILLIONAIRE!


I drive frequently between Northern Utah and Southern California. There are miles and miles of desert with NO SERVICES whatsoever. I am not doing this EVER in a car with 150,000 miles on the odometer. It's not going to happen!

 

[supton]

Whatever. I'm just sure everyone is envious of my base model Toyotas.

 

[bladecutter]

It wouldn't be just the ruin of rich poeple, it would be the ruin of a huge portion of the working class in the US and Canada.

Lets say that all the people who bought cars and houses on loans last year and this year were told by the banks "No, not a single one of you can have loans, period, because you can't afford it."

So, millions of cars sold in the US market are no longer made.
Thousands of houses are not sold.

The people who build cars are now out of jobs.
The people who sell cars are now out of jobs.
The people who sell car loans are now out of jobs.

The people who sell houses are now out of jobs.
The people who own houses, and were hoping to buy a nicer one are stuck with theirs since they can't sell it at all, or are forced to sell it for a fraction of it's current value, in the event that they are moving to a different part of the country to get a better job.
The people who sell house loans are out of jobs, since they aren't giving any loans to anyone.

Since all of these people are out of jobs, they can't buy dinner, go to the movies, pay for their houses, or buy whatever product it is that all of us are in our line of works for.

That means that we too start seeing financial difficulties, and possibly lose our jobs.

Our whole country requires people to buy things.
If millions of people simply stop buying things, the whole economy gets rocked, quite quickly.

BC.