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+--- Thread: Is financial illiteracy with cars common? (/showthread.php?tid=10417)
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Is financial illiteracy with cars common? - G.Irish - 08-17-2013
So there was a thread on r/cars on Reddit about buying used vs new. Then there was this comment.
Quote:Basically where I'm at is if I sold my car on the private market I would get a minimum of $19,000 back for my car (trade in is 17,000, kbb is 22,000). After paying off my lien, which I've paid 34 months of 52, I'd be left with 8000. My down payment was 8500 every other cost was built into the loan. Basically I've driven my car for 2 yrs 10 months for $500+gas+insurance. Pretty good deal to me. Also I'm paying my loan faster than the car is depreciating so I'll only get more back as time goes on. It helps I drive a relatively rare car that holds it's value very well.
So he basically doesn't understand that he paid a shitload of money in depreciation. By my napkin math he basically paid about $21000 in interest + depreciation (based on the numbers he posted).
Here were this guy's other comments.
Quote:Sorry, I made a mistake while trying to think it out. It isn't recovered from selling the car. The loan is money I borrowed. It wasn't mine in the first place. So essentially I'm just giving it back. I do have to pay interest on that. So what it comes down to is that I have paid:
$500+gas+insurance+0.9% financing on loan(~$950.00).
Thats with selling the car for far below actual value.
Quote:thats right that my payments don't count. it was never my money. I borrowed it and my payments are to give it back. I only pay interest which I didn't account for. I mentioned that in another reply.
This makes me wonder if there are a lot of people out there who either don't think about, or don't understand depreciation. Have any of you run into people that think like this? Is this not common knowledge?
Maybe it's just as well though, maybe if more people understood the cost of depreciation they wouldn't buy new cars. And if far less people bought new cars, it would mean manufacturers wouldn't be able to justify making niche models like sports cars.
Re: Is financial illiteracy with cars common? - Sully - 08-17-2013
My neighbor doesn't understand it at all. He thought that his truck would be worth more if he didn't drive it and kept the mileage low. Like worth enough more to make a difference. This was a truck, not a rare sports car. He also owed like $32k on a neon once because he kept buy tucks he couldn't afford and trading them back in at the dealer to get something with "more affordable" payments. Not sure what the salesmen were feeding him because he wasn't realizing he was racking up more debt with each trade in. Hence the $32k neon at one point. He also went out years later when his debt was more under control, bought a red impala(off the lot of course) then decided he wanted a black one and almost traded it in for a new black one. Finally realized it would be costing him like 6k to change the color of his car.
He also once talked about "burning" the car so he could collect the insurance not realizing he owed more than it was worth so he would have still had to make payments on a car that he could no longer use.
It amazes me with the shit people do with credit and how little people understand the working of new car purchases not to mention cars in general. People seem so stupid when it comes to anything with a motor.
Re: Is financial illiteracy with cars common? - JPolen01 - 08-18-2013
I think this thread should be renamed "Is Financial Literacy Common?".
Re: Is financial illiteracy with cars common? - G.Irish - 08-18-2013
Oh I definitely think financial literacy in general is not common, no question. I just found it really surprising that someone didn't understand depreciation at all . I wonder if most people don't understand depreciation.
Re: Is financial illiteracy with cars common? - ScottyB - 08-18-2013
shiny new thing = go full retard
i think its very common. i hear a lot of the same stories that Sully mentioned...poor trade-in's, knee-jerk or minimal ownership planning especially among younger buyers in the 35y/o or less range. the combination of easy credit, insane lien terms, and the standard of living ratcheting up to where everyone has a smartphone, flatscreen, brand new car every 3 years, etc....don't think, just buy!
...which is kinda OK with me, because its the only way I'm gonna get a car I want on the used market in 6 or 7 years.
Re: Is financial illiteracy with cars common? - Sully - 08-18-2013
ScottyB Wrote:shiny new thing = go full retard
Wait, are we talking about apple users as well?! ;-)
ScottyB Wrote:...which is kinda OK with me, because its the only way I'm gonna get a car I want on the used market in 6 or 7 years.
This. QFT. +1000000
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Re: Is financial illiteracy with cars common? - BLINGMW - 08-18-2013
It's why I could never be in sales or advertising. I don't know how the "average" mind works. But hey, if we included econ in our government high schools, then people wouldn't saddle themselves with massive debt and "fuel" our economy! :| They also might get pissed off about our government doing the same thing. And if they understood how the federal reserve works, they'd be marching in the streets!
ScottyB Wrote:...which is kinda OK with me, because its the only way I'm gonna get a car I want on the used market in 6 or 7 years.:lol: ah yes this too
Re: Is financial illiteracy with cars common? - Jake - 08-18-2013
Go read /r/personalfinance a read. Some people are so far in the hole they can see China from here.
I was massively cautious about buying the ST with credit. Reading the PF subreddit helped me a lot, and I understand exactly what I entered into with SunTrust. But I think a lot of people have no idea how down payments, interest rates and so forth impact you, and they just sign the papers "because the finance man said I could qualify so he got the payment down to $89 a month because it's all I could afford but 126 months is not that long right?!"
Re: Is financial illiteracy with cars common? - Evan - 08-19-2013
I think it has more to do with short term budgets vs long term financial planning.
people look at their monthly income (paychecks) to determine how much they can 'afford'. Combine that with slimy dealers/banks who obfuscate the terms of the loan and push it out to 7 or more years to get payments down, and you have a recipe for disaster.
Re: Is financial illiteracy with cars common? - NTIman - 08-19-2013
Evan Wrote:I think it has more to do with short term budgets vs long term financial planning.
people look at their monthly income (paychecks) to determine how much they can 'afford'. Combine that with slimy dealers/banks who obfuscate the terms of the loan and push it out to 7 or more years to get payments down, and you have a recipe for disaster.
This.
And i'm not going to lie, I've been there and done that. Only in the last year or so have I started to care about long-term financial planning, and I feel like i'm already way behind the game.
Re: Is financial illiteracy with cars common? - D_Eclipse9916 - 08-19-2013
I only buy with cash for cars, they are gratification buys for those above the poverty line. (aka buying a car worth more than $3k that is the only transportation). Not because I think loans are inherently bad, but because I want the "hit" to be felt with the "gratification". Keeps me in check from blowing $50k on a nice new diesel truck, and instead spending only $20k on a truck thatll do the job just as well.
Re: Is financial illiteracy with cars common? - Sully - 08-19-2013
D_Eclipse9916 Wrote:I only buy with cash for cars, they are gratification buys for those above the poverty line. (aka buying a car worth more than $3k that is the only transportation). Not because I think loans are inherently bad, but because I want the "hit" to be felt with the "gratification". Keeps me in check from blowing $50k on a nice new diesel truck, and instead spending only $20k on a truck thatll do the job just as well.
This is how my dad has always taught me to do it and how its done in our house now a days. There was a time we had a loan on a new jeep but every other car and any toys are bought with cash. With the used cars that are out now and will continue to be used as I get older, I will probably never take a loan on a car and especially on a new one. I will just continue to swap up and hopefully selling cars for more than i paid each time.
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Re: Is financial illiteracy with cars common? - G.Irish - 08-19-2013
Sully Wrote:I will just continue to swap up and hopefully selling cars for more than i paid each time.How would you consistently sell cars for more than you paid for them? Are you talknig about buying cars with issues and fixing them for a profit?
Re: Is financial illiteracy with cars common? - Sully - 08-19-2013
G.Irish Wrote:Sully Wrote:I will just continue to swap up and hopefully selling cars for more than i paid each time.How would you consistently sell cars for more than you paid for them? Are you talknig about buying cars with issues and fixing them for a profit?
It won't be as possible In the future as I buy more expensive cars but in the past, I paid $1500 for the 240sx and sold it for $2800. Bought the M3 for $7200, and sold it for $8,900(had more in it than that so I did lose money). Bought the s2000 for $14750, would definitely ask more than that if I tried to sell it. Would I get it, :dunno:
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Re: Is financial illiteracy with cars common? - Evan - 08-19-2013
A coworker of mine buys 4-5 cars every year.
He has been through a Veloster turbo, Focus ST, and STi just this year, and is talking about selling the STi.
Thats not counting the new F150 DD and new Escape for his wife.
last year was a shelby gt500, C6 grand sport, mustang gt, and 370z......
Re: Is financial illiteracy with cars common? - ScottyB - 08-19-2013
wtf? is he just blindingly weathly, idiotic, or totally bored with cars?
Re: Is financial illiteracy with cars common? - *insertusernamehere* - 08-19-2013
Sully Wrote:G.Irish Wrote:Sully Wrote:I will just continue to swap up and hopefully selling cars for more than i paid each time.How would you consistently sell cars for more than you paid for them? Are you talknig about buying cars with issues and fixing them for a profit?
It won't be as possible In the future as I buy more expensive cars but in the past, I paid $1500 for the 240sx and sold it for $2800. Bought the M3 for $7200, and sold it for $8,900(had more in it than that so I did lose money). Bought the s2000 for $14750, would definitely ask more than that if I tried to sell it. Would I get it, :dunno:
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I bought my accord for $1500 and sold it for $3000... all i did with it was wash it and put more miles on it.
Re: Is financial illiteracy with cars common? - WRXtranceformed - 08-19-2013
By the way kiddies who are about to go out into the world, don't let all of the cranky old timers confuse you. Having a car loan is not necessarily a bad thing. Overextending yourself and rolling lots of negative equity into every car purchase is. One of the main reasons i have the credit i do and was able to buy a house when i was 24 was because i had financed several cars before then. Some people prefer to drive nice, newer cars and/or get bored of cars pretty often like me. Although less than i used to, i have spent a lot of time in my car which is basically a mobile office. To me a nice newer car is a depreciating asset and a disposable commodity. It absolutely does not make sense to pay off a 35k-50k+ car if you have an absurdly low interest rate and know you're going to dump it in a few years. I can get 3x growth at the very worst having that much money in an investment account vs having it tied up in a car that is going to drop in value every second of every day.
Obviously there are exceptions to that rule such as classic cars / investment grade cars and if you can pay cash for a beater then it doesn't make sense to finance it. With as much time as i spend in my car I personally look at them as a cost of doing business. It also doesn't hurt that they give me a $400/month car allowance :p I do have plenty of friends that buy cars so often that they are financing way more than the car is actually worth which sucks for them. You shouldn't necessarily be scared off from financing a car just because you can't or don't want to pay cash for one. Loans like that help prepare your credit for the big transactions like home ownership and a refi.
Re: Is financial illiteracy with cars common? - G.Irish - 08-19-2013
Yeah I don't think anyone is saying don't finance or that loans are evil. Just know what you're getting into and know the true cost of what you're buying.
Thinking into the future, I think there are some strategic ways of thinking about a car hobby that could result in you saving a ton of money, or at least spending more money on fun than you're spending on depreciation, maintenance, and interest.
Since pretty much all of us are into sports cars, there are a couple of ways to minimize the depreciation hit. The no-brainer is to buy cheaper cars. If you buy something for $10 grand you're unlikely to lose $8 grand in depreciation unless you crash or break it. I feel this strategy is the default for a lot of us.
Pro level might be to only go after special trim models that are likely to hold their value far better, or even appreciate. So for instance, if you have bought a 1M, you could sell it for more than you paid for it, even today. There's gotta be some other cars out there that are about 3-7 years old and beat the depreciation curve by a fair bit. Maybe something like a used Boss 302 or a Lotus Elise/Exige.
Then there are the cars that are already becoming classics. An NSX is a car that really doesn't depreciate much, and you might be able to sell it for more than you paid. E30 M3 is like that too. I'm thinking maybe a clean FD could fall into that category if its engine has been rebuilt somewhat recently.
Buying a car with a sought after engine swap could be another route. I've seen some badass deals for V8 FD's here and there that I think could've been turned around for a profit at some point.
Re: Is financial illiteracy with cars common? - Sully - 08-19-2013
S2000, I would bet it has beat the curve due to the stopped production and Fast and the Furious :grin:
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