Longer to pay off your car than to go to college..

Posted:
in General Discussion edited January 2014
7 year car loans



This article mentions that the most popular car loan today is a 5 year car loan. It also mentions that lot of folks are opting for 6 and 7 year car loans!!



What are these folks thinking? At the end of 5-7 years the cars will likely be worth $2-3,000 dollars and they will have spent tens of thousands of dollars to own it.



Why? I can't think of a good reason.



Nick
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Comments

  • Reply 1 of 21
    billybobskybillybobsky Posts: 1,914member
    would you recommend leasing then?
  • Reply 2 of 21
    trumptmantrumptman Posts: 16,464member
    Also look at this last part...



    Quote:

    As many as 40 percent of new cars buyers over the past six months have been "upside-down" on their trade-in, according to data from the Edmunds.com.



    "Then they're not only paying off this car but the last car," McKay said. "The dealer will assist them in finding out how to do that. If they do that enough they could be paying for several cars at once. The payments may seem lower, but something has to give at some point."



    So not only do they owe on this car, but the last one as well.



    Quote:

    would you recommend leasing then?



    Heck no, I recommend buying used and cheap. My last vehicle was purchased for $3300 and was bought with cash.



    Nick
  • Reply 3 of 21
    scottscott Posts: 7,431member
    How does the insurance work when you do that. I have one car and one load. That car gets totaled then my insurance pays off the loan. If the value of the car does not pay off my multi-car loan ... I'm fscked big time.
  • Reply 4 of 21
    brussellbrussell Posts: 9,812member
    It's amazing what people spend on cars. I hardly ever see people driving cars anymore that are more than 3 years old, smaller than what used to be considered a truck, and cost less than $30,000.

  • Reply 5 of 21
    trumptmantrumptman Posts: 16,464member
    Quote:

    Originally posted by Scott

    How does the insurance work when you do that. I have one car and one load. That car gets totaled then my insurance pays off the loan. If the value of the car does not pay off my multi-car loan ... I'm fscked big time.



    The insurance pays you the value of the car. If it is less than what you owe, then you are responsible for the difference. This can happen even when all you are paying for is one car since the flip quite dramatically when you drive them off the lot for that "new car" premium. If you have your first car balance plus some left over from a lease or prior car loan, it can get outright ugly.



    You could have your car totalled, receive the money and still owe $8-10,000.



    Nick
  • Reply 6 of 21
    buonrottobuonrotto Posts: 6,368member
    They're thinking that cars cost too much, even for entry-level autos. Even with 5-year loans, these cars often cost $200 per month or more.
  • Reply 7 of 21
    jesperasjesperas Posts: 524member
    Quote:

    Originally posted by trumptman

    The insurance pays you the value of the car. If it is less than what you owe, then you are responsible for the difference. This can happen even when all you are paying for is one car since the flip quite dramatically when you drive them off the lot for that "new car" premium. If you have your first car balance plus some left over from a lease or prior car loan, it can get outright ugly.



    You could have your car totalled, receive the money and still owe $8-10,000.



    Nick




    Some lenders offer gap insurance as extra coverage to your loan, which would cover the difference in the event your car was totaled--the gap insurance would pay the remaining $8-10k.
  • Reply 8 of 21
    trumptmantrumptman Posts: 16,464member
    Quote:

    Originally posted by jesperas

    Some lenders offer gap insurance as extra coverage to your loan, which would cover the difference in the event your car was totaled--the gap insurance would pay the remaining $8-10k.



    This is true, but it goes above full coverage.



    Insurance to cover your insurance... scary.



    Nick
  • Reply 9 of 21
    shetlineshetline Posts: 4,695member
    Four and five year loans are bad enough. Seven? That's insane.



    Over my life, I've had a four-year car loan (my first new, non-junker car), and two three-year loans, the second of which, for my current car, I paid off in one year.



    I hate having car payments to make. I fortunately don't care much for cars excepts as a means of getting from point A to point B. I put reliability, cost of ownership, and gas mileage above all other concerns. I kept my last car for nine years, and I'm hoping to get ten years (five down already) out of my current car.



    My ho-hum attitude toward cars makes it easy to save for my next car. I simply save the same money (and more) that I would have been spending on car payments, and earn a little interest rather than paying it out. I already have more than enough saved up to buy my next new car (no sooner than five years from now, I hope) with cash.



    Once you get ahead of the game (barring a major financial disaster) you can easily stay head of the game.



    Even for people who are much more into cars than I am, I think you can get yourself to the point of never needing to take out a car loan (especially not a seven-year car loan!) again. All you need to do is on one occasion, buy something that's perhaps not as flashy as you'd like, something that you can pay off in three years. Hold onto that car for at least another three years, saving up for the next car. You might still need a car loan to get up to the level of car you want, but you'll have a major down payment saved up. One more cycle of this, especially if you're career is advancing in the meantime, and you've got a good chance of buying your third car cash, and staying that way for all other cars thereafter.



    Of course, I suppose for some people the idea of going for six years owning something less than the flashiest car that they can just barely manage to afford is out of the question.



    I almost as bad about upgrading computers as some people are about cars, but even a dual G5 is cheap compared to a monster SUV, so I can still indulge my computer cravings on a cash-only basis.
  • Reply 10 of 21
    thttht Posts: 3,927member
    Quote:

    Originally posted by trumptman

    What are these folks thinking? At the end of 5-7 years the cars will likely be worth $2-3,000 dollars and they will have spent tens of thousands of dollars to own it.



    Why? I can't think of a good reason.




    People like nice new cars, and 5+ year car loans allow them to have them. Suffice it to say, that was a rather gruff answer, but I don't want to think right now.
  • Reply 11 of 21
    trumptmantrumptman Posts: 16,464member
    Quote:

    Originally posted by THT

    People like nice new cars, and 5+ year car loans allow them to have them. Suffice it to say, that was a rather gruff answer, but I don't want to think right now.



    So when these same people are poor and have no retirement that should also be okay as well right? No governmental redistribution of wealth when they can't afford their prescription meds or medical care?



    Nick
  • Reply 12 of 21
    thttht Posts: 3,927member
    Quote:

    Originally posted by trumptman

    So when these same people are poor and have no retirement that should also be okay as well right? No governmental redistribution of wealth when they can't afford their prescription meds or medical care?



    Are you turning progressive or something?



    Anyways, my previous wordplay was meant to be funny, not meant to have insight in the human condition. You know, I had that big hint about not wanting to think, and you were asking what these people were thinking? Well, people aren't thinking! Get it? Alas... I'm not that funny.
  • Reply 13 of 21
    trumptmantrumptman Posts: 16,464member
    Quote:

    Originally posted by THT

    Are you turning progressive or something?



    Anyways, my previous wordplay was meant to be funny, not meant to have insight in the human condition. You know, I had that big hint about not wanting to think, and you were asking what these people were thinking? Well, people aren't thinking! Get it? Alas... I'm not that funny.




    No problem... also not progressive, more libertarian.



    Nick
  • Reply 14 of 21
    cosmonutcosmonut Posts: 4,872member
    The key to car buying is that you have to have a plan.



    I just bought a $16,000USD Hyundai Sonata in January on a 5-year loan. I'll be upside down on it for no more than 2 years, and then after that I have a little less to worry about. By the way, if I total it out before then, I have gap coverage.



    At the end of paying off the car, I'll own it no strings attached. One possibility that I am considering is turning right around with the Sonata as a trade in (worth $4000-6000 or so) and combine that with money saved up over the 5 years to make a significant dent in the price of whatever the next car is.



    If I don't use it immediately as a trade-in, I can still save for a little while longer to balance out the value of the car going down until I do decide to get another vehicle.
  • Reply 15 of 21
    scottscott Posts: 7,431member
    I don't know if my plan was the best. I put "a lot" down on my honda. At the time I thought ... things would be different ... and didn't want a big monthly. In hind site I could have done a shorter loan and saved money. But now I'm saving for a ring for the 10 year anniversary.
  • Reply 16 of 21
    trumptmantrumptman Posts: 16,464member
    Is there anyone here like myself that just refuses to buy any sort of cars, or even other big ticket items on credit?!?



    My RV, $2000. My boat, $2300. My Jeep, $3300.



    All three of them together are less than some folks pay for a used passenger car.



    Nick
  • Reply 17 of 21
    thttht Posts: 3,927member
    Quote:

    Originally posted by trumptman

    Is there anyone here like myself that just refuses to buy any sort of cars, or even other big ticket items on credit?!?



    What do you mean by credit? Buy in cash only? Don't use long term loans?



    A friend of mind wants to be like that. He says his next car will be a used muscle car in the $3000 range that may appreciate in value. But he's yet to do it. Finally got himself out of debt excluding the theoretically always appreciating house and the mortgage that came along with it.



    I also have a friend who bought a brand new Accord in cash. It's really easy for him though since he doesn't have any real living expenses.
  • Reply 18 of 21
    brussellbrussell Posts: 9,812member
    I've had one loan in my life - my home loan, which I just refinanced to 4.65% 15 year, the lowest rate my mortgage company had for those terms, now that they've skyrocketed again .



    And my very nice parents paid for my college. My cousin is a doctor and has over $100,000 in student loans. I got a PhD and never had to take a penny in student loans.
  • Reply 19 of 21
    trumptmantrumptman Posts: 16,464member
    By no credit, that to me would mean, cash.



    And BRussell, you da man. My only debt is mortgages, (yes plural, I have five of them) but I haven't been able to get down to 15 year rates or payments on them yet.



    As for other loans, I took the hard path to enlightenment. I bought my first Jeep on a loan. My wife bought her Accord on on a loan. She/We ran up $9,000 worth of credit card debt when we were first married. I also had student loans to the tune of $10,000 when I graduated.



    If I only knew then what I know now....



    But isn't that always the case...



    Nick
  • Reply 20 of 21
    shetlineshetline Posts: 4,695member
    My only debt is my (one, singular) mortgage. I use credit cards, but pay them off every month in full.



    Trumptman probably couldn't stand to keep the amount of money I have saved up to buy my next car without going out and buying some other investment property instead.
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