The example the article gives is pretty extreme to me:
[Greg] McBride, the Bankrate analyst, walked MarketWatch through a hypothetical car-buying scenario for an average-priced new car that cost $48,000. Taking into account the trade-in value of your existing vehicle, let’s say you knock some money off the sticker price and finance a $40,000 purchase price at 7.5% for five years. That’s an $801 monthly payment — which means you would need to make $96,100 a year if you wanted that payment to be 10% of your income.
I don’t think I’d ever want to spend half a yearly income on any single purchase. An investment in a house being the only exception.
It’s completely wild to me that the default for buying a car comes up to a monthly payment, why not pay cash? Save those 800 for three months, buy a beater for 2400. While driving this into the ground, continue saving the 800, even if that beater craps out after six months, you can upgrade to a 4800 not-so-crappy beater, rinse and repeat, and at some point you saved up the 48000 to get that new car.
Financing something that depreciates in value quickly and exponentially at anything above the inflation rate is, financially speaking, complete and utter nonsense to me.
There are many factors at play. Surely, a huge one is status. It’s why one of the most desireable keywords to associate with vehicles (as picked by buyers) is “luxurious.”
But then there is everything else. My state requires annual inspections. And you must fully repair that vehicle, including to modern emission specs, before it is legal and able to be registered. That alone will cost more than a beater in many cases since they are, well, a beater. A vehicle so old it is essentially driven until it is in a state of disrepair. As someone else said, saving money becomes difficult with a beater eventually because the cost of repairing it to keep it legal eventually outpaces your savings if you aren’t operating on a short timeline.
Personally, I make good money and still drive my old vehicle because it is good enough. I have peers who do the same: our priorities are elsewhere, like paying for private school tuition for the kids or whatever. But I also know howmit ends eventually: accidents, causes by other people, which totals your vehicle because it’s value is so low or damage so significant. And there isn’t a lot of beaters on the market here anymore. So people are forced to buy new or take a slight discount for used (insomuch as monthly payments go). Used prices are just that crazy.
We did this and with the amount of times we had to get it towed for repairs as well as job risk due to it breaking down was not feasible for us. We finally were approved for a loan and purchased a reliable new car
Those are extreme cases… they’re buying a 48k car (that seems on the high side) but trading in an 8k car (so old/cheap or both)… of course the loan is going to be large.
Normally you’d time the trade… my current car was an upgrade on my last but the monthly payments reduced because I timed it so the value of my existing car was reasonably high.
The example the article gives is pretty extreme to me:
I don’t think I’d ever want to spend half a yearly income on any single purchase. An investment in a house being the only exception.
It’s completely wild to me that the default for buying a car comes up to a monthly payment, why not pay cash? Save those 800 for three months, buy a beater for 2400. While driving this into the ground, continue saving the 800, even if that beater craps out after six months, you can upgrade to a 4800 not-so-crappy beater, rinse and repeat, and at some point you saved up the 48000 to get that new car. Financing something that depreciates in value quickly and exponentially at anything above the inflation rate is, financially speaking, complete and utter nonsense to me.
There are many factors at play. Surely, a huge one is status. It’s why one of the most desireable keywords to associate with vehicles (as picked by buyers) is “luxurious.”
But then there is everything else. My state requires annual inspections. And you must fully repair that vehicle, including to modern emission specs, before it is legal and able to be registered. That alone will cost more than a beater in many cases since they are, well, a beater. A vehicle so old it is essentially driven until it is in a state of disrepair. As someone else said, saving money becomes difficult with a beater eventually because the cost of repairing it to keep it legal eventually outpaces your savings if you aren’t operating on a short timeline.
Personally, I make good money and still drive my old vehicle because it is good enough. I have peers who do the same: our priorities are elsewhere, like paying for private school tuition for the kids or whatever. But I also know howmit ends eventually: accidents, causes by other people, which totals your vehicle because it’s value is so low or damage so significant. And there isn’t a lot of beaters on the market here anymore. So people are forced to buy new or take a slight discount for used (insomuch as monthly payments go). Used prices are just that crazy.
We did this and with the amount of times we had to get it towed for repairs as well as job risk due to it breaking down was not feasible for us. We finally were approved for a loan and purchased a reliable new car
Those are extreme cases… they’re buying a 48k car (that seems on the high side) but trading in an 8k car (so old/cheap or both)… of course the loan is going to be large.
Normally you’d time the trade… my current car was an upgrade on my last but the monthly payments reduced because I timed it so the value of my existing car was reasonably high.