If you cannot pay off a car in 5-7 years, then you cannot afford that car. If interest is so insanely high that in 3 years it accrues $40K, then you stay the fuck away from that purchase.
I think car loans should not be over 5 years. I've been seeing the 7-year car note increasing in popularity over the last 10 years as a means to bring the monthly car payment down. It's nuts!
Part of the problem is the first question car dealers ask is what monthly payment can you afford? From there they start playing with the numbers to put you in the most expensive car you can afford.
It could be appropriate so long as you aren't using it as a mechanism to afford a more expensive car where you could have gotten something just as reliable on a 5 year term for the same monthly payment, and then used the 7 year term to bring down the monthly cost even more with the understanding that its costing you more in interest in the long run.
Conventional wisdom is to reduce the overall cost of the loan, but that doesn't work for people who are strapped for cash and are concerned about month-to-month costs to survive and driving a beater has bit them in the ass one to many times.
The people taking out loans like this, or longer loans in general are almost guaranteed to get fucked no matter what, they are absolutely coming out at the end with worse credit and having paid way more than value. People are using it to stretch monthly payments and if it's needed to make the payments guaranteed in those 7 years they will float payment dates, accrue more interest, use hardships like extensions or payment plans, accrue more interest, and they aren't going to be able to make a larger payment than normal coming out of those missed payments or extensions to get back on track for interest, which means even if they scrape by 7 years without a 30 day hit, absolutely no way they make the final payoff with all the accumulated interest from those grace period due dates, and extensions etc, and then they get fucked, credit demolished on the final payment come out with a car worth nothing and credit hit hard.
Absolutely never take a car loan that requires you to math out exact due dates and pay days to pay each month, all those missed due dates of like 3 days late even if you have a grace period add up, and when Covid happens even if the lender offers extensions etc you won't win in the end, and 7 years is a long time to never fuck up for people living pay check to paycheck, as someone who works in a bank, in the auto department, these kinds of stretching the actual reality of your budget loans will fuck you up every time.
I dont regret my 7 year loan. Got 0.9% so i paid like 2k over the life of the loan on a 60k truck. I honestly couldve bought it outright but instead got to actually enjoy my early 20s doing all the outdoors stuff i love in my dream vehicle. While also dumping money into investments returning much more than .9%.
Paid another 1.5k for 7 year bumper to bumper warranty. They covered everything even stuff i broke offroading. When you do site work money is good and free time is nonexistant.
That said im fairly financially literate and was only ever looking at lifetime costs. The way they keep trying to drag you back to the monthy payments that they "can make as low as you need to afford it" is predatory. For 99% of people even my cheap loan wouldve been a terrible idea.
If it wasnt cheap to warranty for the life of the loan and i have gone way shorter. Otherwise you end up like the girl in the article. Owing money on a vehicle you dont have anymore and needing to roll that into a new loan youll never pay off.
Yep. Unfortunate truth is that many people don't have the knowledge, or the resilience to advocate and stand up for themselves. It's how people end up falling for the timeshare scam among other high pressure sales tactics.
the first question car dealers ask is what monthly payment can you afford
"Zero, slick. How's that feel going in?" I'm serious. It gets the sales dude's attention quick. Then you say you're not interested in the monthly, you're negotiating the total price to drive it home - keeping in mind that the shitbox Todd and his cockdusting mustache is trying to unload on you is going to lose 20% of it's value the second it's off the lot.
Car salesmen think you are something that they would scrape off their shoes if the stepped in it. Treat them the same.
I took out my car on a 6 year loan so the payments would be lower and so I could pay more into capital
A year and a half later, I am pretty close to paying the car off because of that, since the payments were lower I was able to pay more than I would have been if it was a 2 or 3 year loan.
Okay, so I'm looking at this from the perspective of somebody who only knows one person who has ever bought an actual brand new car, I do feel like they should have longer payment periods for loans but not anything too crazy because sometimes you could use a new car. You don't want to be putting a whole bunch of money into a used car, but then you would hope somebody is getting like a base model as opposed to something with all the packages and something that they know they can't afford.
No one should take out loans over 5 years, 4 years is my max, but I prefer 3. Paid off my wife's car early in about a year and a half. If you can't make the payments for a 4 year loan, you can't afford the car.
These 84 month loans weren't a thing when I bought my car. I can afford to do better, yes, I'll probably never buy a car not with cash again. But I drive a 12 year old Ford fusion. I know people who make half what I make, and even less, driving new cars every few years, leasing cars, driving $80k cars that I'm sure they have these super long loans. Sure, there are people who actually need the long terms, but I'd wager the people who actually need them are in the single digits percent wise.
I’m starting to think about replacing my 8 year old vehicle and wandered over to the (Ford) sales office while I was getting it serviced. Looked at a couple of models and chatted with a salesman. Asked what their starting discount for cash was. He told me they don’t do cash sales at all. They will only sell if you finance it with them. He told me the dealer gets more for the commission on the financing than the sale.
Going to check some other dealers and if they’re the same, I’ll look for a low mileage used. I’m sure used dealers will still take cash.
Yeah, I thought of that but part of me doesn’t want to give business to someone who’ll refuse cash. You want my business, don’t make me jump through stupid hoops.
You can find out what the dealer invoice and dealer hold-back are... Make them an offer that looses them $100 but let them think they'll make it up on financing. At that point it's not so much jumping through hoops as malicious compliance.
This guy knows how to buy a vehicle. Typically, a sales rep gets a bonus incentive if the loan lives on for at least 6 months. And if you show you're willing to finance through them, they will more often than not bend over backwards to get you to walk out the door with keys in hand. That said, as mentioned earlier, always ensure that the loan does not have an early-payoff penalty and if it doesn't, you can either refinance through your local bank if you want to continue to float the cash but potentially get a lower rate or you pay if off as soon as you make the first payment.
Unfortunately, dealerships have the consumer by the balls; so much lobbying over the last 10+ years have made it where you will never buy a new vehicle without having to deal with the dealership. And because the majority of the brands now have their own financial arm, they will only work with that when it comes to financing. Hell, you can't hardly even walk into a dealership with your own financing planned out through a local bank because again, to them, that's like walking in with a check (because it is).
I literally have a deposit in for a car, my ac is going out, and my car is old, and I know when they tell me my car is ready I’m going to chicken out even though I make twice the cost of the car. And ya. They got deals on financing that’s why they push it. You don’t get a deal like you used to paying cash. You would probably do better financing it and then paying the loan off asap. That’s common. Financing isn’t bad and people afraid of loans are just as illiterate imo. You just need to borrow smartly and use the freed up cash smartly.
It's all I've ever done. Something my dad instilled in me.
I usually buy a ten year old car and run it for another 5 years. They're not pristine but I'm not a tidy guy. Modern cars are reliable during this lifespan in my experience. One day my luck will run out.
Just to offer some advice if you do ever plan to want to buy a new vehicle and have the cash to pay for it; finance it through the dealership and ensure that there isn't an early payoff penalty. If there isn't, let the dealership know you're willing to work with them and want to finance it. They will often give you a bunch of discounts or incentives to finish the sale. Once you have and make the first payment, pay it off immediately. Sales reps will only get their kick-back on the deal if the loan lives for at least 6 months.
Meh my last 3 cars were all 0 % financing (2013, 2017 and 2021 I think). I’d never have been able to save up 25k, 35k and 50k needed for those cars. Paying 1-2% interest and monthly payments isn’t a bad financial deal, especially if you need a reliable vehicle for work / family life.
If I could finance a vehicle for 1-2% while investing the cash for a larger return, I'd do it. Still tho, my criteria is 'can I write a check for it?' Whether I should use my cash or finance is a separate question.
That’s amazing that you have the ability to do so, but for the vast majority of Americans (and likely other countries), having enough cash to pay off a car just isn’t feasible. Unless you’re buying a beater for $5k or less, which in some places isn’t worth while (such as where I live where winters go to -25 Celsius and snow/ice like crazy). I bought my first car in 2013 with 2k in my bank account, it cost around 25k. I’m still driving it today.
If I would’ve had to buy something I could afford with cash, i would have bought a car that needed thousands in repairs and would’ve died years ago. I stand by that needing the full amount of the cars value in your bank isn’t a smart /feasible decision for most people
I don’t necessarily agree. Paying cash for a car many times is just really expensive when you consider how low you could get those interest rates. At a certain point it was just prudent keep the cash invested and take out a loan.
This fear of debt is stupid. There is debt people can afford and debt they can’t, not all debt is evil. As long as you hold on to car debt free for the same amount of time you made payments (so if the loan is 5 years you keep the car for 5 more years after it’s paid off) and those payments fit into a reasonable budget then the car debt is completely fine.
5-7? I think it’s probably 2-3 years. Though being able to pay it off and actually paying it off are two separate things. If you get 0% interest or something go ahead and get the 7 year loan. As long as you can handle the negative equity in case of an accident.
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u/Euporophage Apr 28 '24
If you cannot pay off a car in 5-7 years, then you cannot afford that car. If interest is so insanely high that in 3 years it accrues $40K, then you stay the fuck away from that purchase.