Getting STRESSED-new car!

[ma_sha1]

Get a 401k loan, the interest paid will go back into your 401k.

 

[WildBoar]

I am not in the camp of "never will I have a car payment", especially in today's low rate environment. Car loan's low rates and simple (non-compounding) interest makes car loans the cheapest money you can borrow. Student loans and mortgage rates compound, credit card rates are absurd, and personal loans have few purposes other than to finance yourself out of credit card debt or payday loans. Most financially savvy guys will pay the 0-5% simple interest car loan while their investments (even a diversified portfolio) earns at least 7% return that compounds annually. Take one step further, those that are even more financially savvy (and wealthy) get ARM or IO mortgages.

You forgot to mention that money is often invested in the stock market. So the real financially savvy don't invest a lot in the market when it is has a lot of downward pressure. Not sure how many portfolios are in the black for 2020 here in the US.

 

[Luftmensch]

How common is car financing in America? Wouldn't you avoid it like the plague? Isnt that where dealers are making their money now?

So the real financially savvy don't invest a lot in the market when it is has a lot of downward pressure.

Really? Isn't buy low, sell high better.... or just buy units in an index fund and forget about it for two decades?

 

[WildBoar]

Car financing in the US is all over the place, and largely reflects the economy. When the economy is slow, car load rates are low. When the economy is doing well, finance rates go up.

Buy low is always good. But what is low right now? Is DOW 26k low? yes, compared to the 29k right at the start of Covid. Yet a bit higher than 21k once people realized Covid was here in a big way. If you have 2 decades, nothing wrong at all with index funds. I was fortunate to have some funds available around Dow 23k, and bought a handful of stocks that are up. But the bulk of my retirement account is largely in funds, and they are down a bit from pre-Covid and likely will not bounce all the way back for a couple years. So by leaving money in stocks/ funds I am down more than if I had used it to buy cars

 

[Luftmensch]

Car financing in the US is all over the place, and largely reflects the economy. When the economy is slow, car load rates are low. When the economy is doing well, finance rates go up.

Seems common in Awwwwstraaaya but in a minority. I read that 20% of new cars sold have finance on them. I don't know how accurate that is. By way of anecdotal experience, none of my friends or colleagues have finance on their car... but then again, most people I know have vanilla vehicles (including myself). Japanese and S.Korean cars are very popular here. So are European cars but they tend to be in the luxury bracket. American cars don't feature much. We had our local subsidiaries of GM and Ford instead, but that all collapsed only a few years ago. I suspect we'll see more American imports now as a result.

Buy low is always good. But what is low right now? Is DOW 26k low? yes, compared to the 29k right at the start of Covid. Yet a bit higher than 21k once people realized Covid was here in a big way. If you have 2 decades, nothing wrong at all with index funds. I was fortunate to have some funds available around Dow 23k, and bought a handful of stocks that are up. But the bulk of my retirement account is largely in funds, and they are down a bit from pre-Covid and likely will not bounce all the way back for a couple years. So by leaving money in stocks/ funds I am down more than if I had used it to buy cars

Yeah... True. Excellent point. I have time to wait. but it has been terrible for people retiring or in retirement. The fact that our interest rates are practically zero makes it difficult to park your money in a safe productive spot.

 

[Keith Sinclair]

Get a 401k loan, the interest paid will go back into your 401k.

I would say to younger people get an IRA pay taxes on it before you have too much money in it turn into a Roth IRA. Talk to someone who knows rules with Roth IRA.

Years ago had plenty cash paid taxes on on one of my IRA turned it into a Roth. Best thing ever did financially.

When retired had time to trade stocks. Was going aggressive with my Roth because all capital gains are tax free. It is 8x up in money from when paid taxes years ago.

Think of all the Fed. & State taxes you pay. Even when buy anything more taxes. Add it up over the years. If you own property more taxes. Even when you die your estate taxes.

It makes me feel good to see serious capital gains with no tax ever. If I die my Roth will go to family they can take out money tax free. I can take out money tax free. Can't do that with my 401 have serious coin in that too been in a fully stock mutual fund for decades. If take money out have to pay taxes.

In the Democrat debates they said raise capital gains taxes. To think American revolution had the Boston tea party unfair taxation by the Brits.

 

[Keith Sinclair]

Might add out of the market now at least until this covid19 licked by science. World-wide fundimentals are terrible.

 

[agp]

You forgot to mention that money is often invested in the stock market. So the real financially savvy don't invest a lot in the market when it is has a lot of downward pressure. Not sure how many portfolios are in the black for 2020 here in the US.

I did mention the average 7% returning in a diversified portfolio. However, there is money to be made regardless of where the market goes. Long equity when it is going up, short equity when it is going down, iron condor or spreads when it’s staying flat. That’s not even touching debt and commodities. The average retail retail investors do not have skin in the game when it is choppy. The real financially savvy do. The common investor hoards cash in a market downturn in case their job is affected. Overlay a car sales graph with an S&P 500 graph - no one buys cars when the market is bad. Same goes for buying home and general spending. The common retail investor, better yet, the common person, does not spend when there is an economic crisis.

 

[agp]

How common is car financing in America? Wouldn't you avoid it like the plague? Isnt that where dealers are making their money now?

Really? Isn't buy low, sell high better.... or just buy units in an index fund and forget about it for two decades?

Auto finance is common in the US. So is spending on credit, US consumers spend more on credit than most developed countries. There have been talks of an auto loan bubble. Not sure where those talks are now though. Dealers don't make much from financing.

There are two types of dealers - branded and independent. Branded dealers are what are commonly seen e.g. Ford dealer. These are dealerships owned by John Doe that contract with the auto maker to put the blue oval on a big pole in the lot. The dealerships themselves are not banks, so when they underwrite loans, they are pushing loan applications to various financial institutions. If you go to a Ford dealer, your loan might be pushed to Ford Motor Credit Company (the auto finance subsidiary of Ford Motor), Capital One, Wells Fargo, etc etc. In this case Ford Credit likely has preferential treatment if rates across banks are comparable. The dealer may mark up the rate by a few bps, but nothing major. If you get a $50k loan, the dealer might make a few $ in the interest mark up, but the majority is made from selling the vehicle and other F&I stuff (gap insurance, etc). This, of course, focuses on car buying and excludes income from repairs/servicing, or contracts with Ford, etc. Independent dealers are the chop shops you see on the corner of sketchy street and pothole blvd. They sell all types of used cars and advertise "financing for everyone". They make more from interest than the former type of dealer.

 

[Keith Sinclair]

For existing 2020 cars on lot or in storage Toyota was giving 0 percent loans.

Subaru 1.9 percent on 2020 on lot. Plus 1K off price.

They are not selling cars it is a good time to buy if you have the coin. Because of this thread visited Honda, Toyota, & Subaru dealers in Hawaii.

Test drove CRV, RAV4, & Crosstrek. They had sold all the Crosstrek manuals had a bunch of automatics on the lot.

Liked the engine of RAV4 2.5L put the trans in sport mode as soon as pulled off the lot.

After test drives got back in my fun to drive stick shift Honda. Bought it new eleven years ago. Turned it into a hot rod. Not really worth much no mechanical issues at all. Did have recall all new airbags installed. Must have cost Honda a fortune to do that.

 

[larrybard]

I am not in the camp of "never will I have a car payment", especially in today's low rate environment. Car loan's low rates and simple (non-compounding) interest makes car loans the cheapest money you can borrow. Student loans and mortgage rates compound, credit card rates are absurd, and personal loans have few purposes other than to finance yourself out of credit card debt or payday loans. Most financially savvy guys will pay the 0-5% simple interest car loan while their investments (even a diversified portfolio) earns at least 7% return that compounds annually. Take one step further, those that are even more financially savvy (and wealthy) get ARM or IO mortgages.

I am not advocating for spending money you don't have, but I am advocating for smart allocation of money. If, when the Cybertruck I ordered finally goes into production, car interest rates are 20% while mortgages rates are 0.5%, I will happily cash out refi my condo and put that money towards buy the car with cash. All depends on where money will earn/save me the most.

Also stay away from Porsche snobs!

I agree completely with just about everything you said (except your very last sentence). Get the car you want/need and be prepared to write a check, but be open minded about financing. That's what I did when about a year ago I bought a new Subaru Forester (last year manual transmission was available), after discovering that relatively recent used ones weren't much cheaper than a new one. I came to the dealer to pick it up, with a check in hand for the full purchase price. And then the dealer asked if I would like 0% financing. After going through the paperwork to make sure that they weren't being deceptive, and the almost too good to be true offer was legitimate, I did opt for financing (for a one time fee of $15). Set up automatic payments from my checking account so that I couldn't inadvertently miss a payment and trigger all sorts of penalties. Been 100% happy with my decision.

Larry
(also owner of a 993)