re: Your thoughts on car payments and such

So you'll only buy 3 cars in your lifetime?

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I just bought a car and put the minimum down that I could ($300) and extended the term for as long as possible (72 months) because I got a 3.2% interest rate

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Smart man.
The Dave Ramsey fan club with their financial advice that is only made for people with discipline problems is annoying.

Like many things in personal finance, there are some hard and fast rules that are always true, and some things that evolve over the years. New vs Used is one of them.

I was always in the Used camp - buy something 2-3 years old, low mileage, get a good deal, pay it off in 36 months. I did this with the last vehicle I bought in 2009. I'm now almost gone four years without a car payment, and it is so nice.

But the calculus is changing. Zero or very low interest rates on new cars are not terribly hard to get. At the same time, the used car market isn't as good of a deal as it once was. More people are buying new and driving it till it dies, so there isn't much low mileage, good-deal used inventory out there now.

So for the next car we buy, I will look at new.

I'm not a fan of car payments, but if you can finance it with cheap interest and pay it off soon, there is a lot to be said for having both no car payment AND a reliable car for years and years.

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Of course it will do better in the stock market (long term), but you gotta enjoy life a bit too right?

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My thoughts exactly.
I can also eat spam and toast every day and invest my food budget savings, but I choose not to.
I put car purchasing strategy into the "personal" finance category as opposed to hard and fast rules that are no-brainers (like maximizing company match on 401k...).

It's all about your own personal preference. I'm a car guy, I live in Houston so I'm gonna spend 1.5 hours in my car per day at least. I'm buying a nice car. I find buying CPO luxory cars to be the most bang for my buck. It's a little different from the poster above me but the concept is the same. For significantly cheaper I can buy some awesome cars and switch them out often.

To add to the car payment discussion, people assume you would save everything you don't use on a car payment. If you are doing it right, you are earmarking money for savings first, then your bills and spending money. So your extra car payment funds should be coming out of discressionary funds, not savings. Some folks would rather spend an extra 100-200 a month on eating out, or guns, or cars. It's whatever floats your boat. Except boats, don't buy a boat.

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Face the hard truth, ask yourself "Would I spend $X dollars per month on this feature?" or "Would I spend $Y dollars for the privilege of telling others the brand of my car?"

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Yeah, except that Lexus drives much better than a sonata. It also has at least 200k miles left on it. Lexus might make the best vehicle on the road. Ours cost almost nothing to maintain, and bought it at the same point in its life as your fiances.

I'm not saying your point is horrible, but those vehicles are a bad example.

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cars depreciate 35% the first year, 70% over 4 years,


Oh bullshite.

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Yeah, for the most part this is just not true. Well, untrue to the extent of demand for the vehicle in question. A lot of that "depreciation" comes from the difference between MSRP and how much a new car actually gets sold for. For Instance, a Chrysler 300c has (up to) $8k cash back right now. Where does the depreciation "base" begin? Depend on how many incentives you qualify for. If you qualify for no incentives, and buy it for 30k, when others in the mrket qualify for all incentives, and can buy the exact same car for $22k after rebate, then yeah, you are going to see some sever "depreciation" in the first few years; because you literally had no "incentive" to buy new.

Now, some vehicles never have rebates. These cars are usually in high demand, and will enjoy a nice resale value even after being purchased new. For the very top percentile of vehicles in terms of demand, selling a used one with low miles may actually be marginally profitable (this of course would require a good deal upfront and not holding vehicle for more than 12-15 months, so not like this is something to be expected).

I would suggest for anyone debating this new vs. used, note vs. paying cash - whatever - buy one of those vehicles that depreciates less ie. in demand vehicles that have proven to stay on the road longer than others (Toyotas, Hondas, and their nicer big brothers are great places to start here). Trucks usually have great resale as well. Get a price range, and then go look at NADA for that same vehicle 5 years old with typical miles driven, and calculate a percentage decrease in value from the new vehicle to the presumed used vehicle. The lower that percentage, the more you should be willing to pay upfront, because that car is in demand.

A vehicle is a depreciating asset, but its still an asset. Assuming that you need a vehicle to make money, you will always have a car payment (whether financed or paid cash); so what you really need to know is how much will a vehicle cost you to drive per year. In my mind, that is truly what makes these assets valuable, relative to one another. If everyone has to have a car, but theirs lose 2k/year on average in depreciation, and yours loses 1k/year, you have a better investment (all else equal like repairs and fuel-lets imagine these cars are in the same class for argument's sake). If you are both looking at new $30k vehicles in this scenario, and trade in to that same vehicle new every 5 years, you have saved 5k in that period more, by purchasing the more in demand vehicle, and that is before the hidden sales tax "bonus" you receive because you traded in at $25k for another $30k car, rather than trading in at $20k; a savings of another $500 (assuming 10% sales tax on additional $5k spread btw trade-in and new vehicle) for the 5 yr period. This is where incentives come in, to level that playing field, which in turn restarts the "depreciation" chain. If you and your wife both follow this practice, you would effectively "save" $11k every 5 years simply by choosing the car you will get the most out of in the end, rather than the least.

So given the fact that you have no choice but to drive a car, and will thus be paying for one either way, by paying for the car with higher resale, you have an opportunity to build your wealth more.

This might sound like rambling, but the point is that if you are looking at financing vs not, you have to be narrowed down to a specific vehicle for that analysis to truly work, because of the varying degrees of lost value over the life of ownership.

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Tried to buy a good used truck a few years back and they were just holding their value way to much. It didn't make sense to buy used with the models I was looking at.

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This is how I wound up with a new Tacoma. So no surprise, I followed my own advice from above, and not only wound up with a much newer truck than I imagined, but wound up with the highest resale out of just about any vehicle on the market. My truck used, in its current state, would list for more than I paid for it if it were sitting on a Toyota lot this morning.

So again, whether or not you finance it, do your homework and make sacrifices on features that other less-respected manufacturers might offer, and settle on a smart vehicle to purchase, then look at financing.

I personally don't like the idea of financing a vehicle, because it is so easy to get "upside-down" in the deal in the event that you need to sell or replace it. But, I wouldn't fault anyone for picking up a reasonable payment at a low interest rate if they have diversified investments and a reliable income.

The thing is, financing deals are set up so that there is no difference in paying cash or financing; its technically the same value, the only thing that can change it is your individual risk preferences and financial situation. That is why the discussion becomes so polarizing, because even really smart people forget that the main decision point has to do with what you, and only you, personally could do with the cash that you didn't have to pay upfront if choosing not to finance.

Barry you make a great point. It is really about personal preference and needs.

For instance, my wife has a totally different situation. She is currently driving her THIRD vehicle in 30 years. All were bought new and driven to over 200k miles. She never gets tired of her car.

I have no problem walking back in to a dealer and paying for a new car in a few years. Financially It is worth it in the long run for her situation. Not mine.

Mrs. Füt has a '08 ES350 that I bought new in 12/07. It has 215k miles on it now and it has had three sets of tires, two brake jobs, a replacement battery as maintenance. Everything else works perfectly on the vehicle today.

29 MPGs overall as well. Premium fuel, but so what?

It was $38k cash, and is worth about $8k now. Annual cost of the principal involved is now $30k/9 years = $3.3k/ year plus the minor cost of the few maintenance items.

I've told her for several years that she can have a new ES350 whenever she wants it. Maybe this year-end I'll surprise her with one.

tl/dr: Buy a quality vehicle for cash or < 2% APR loan and keep the vehicle as long as possible.

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Mrs. Füt has a '08 ES350

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I'll second everything he has said, particularly the part about how low-maintence, but less so about this:

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I've told her for several years that she can have a new ES350 whenever she wants it.

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whenever she wants it.