I am seeing a lot more videos on just how crazy some people’s car payments are. Thing is, there is absolutely no context to them. It’s just “$950 car payment. OMG they’re stupid!” What isn’t discussed:
Term: At the end of the payments, who spends more? A person with $1000 car payments for 36 months or a person with $450 payments for 84 months?
Interest: You get a lower interest rate with a lower term so although you have a higher payment you are actually saving money.
Affordability: Can you afford it? Also with longer term = lower payment many people don’t hold cars that long so they end up building negative equity into a higher loan than necessary on their next car.
Is it the right car?: Do you need that $120,000 pickup truck? That Hellcat Widebody? That Range Rover? Maybe you do.
In my case I bought a $50,000 new car. It is a 2023 Toyota (reliability) Highlander Hybrid (gas savings) and technically it is one package over what I wanted; I wanted the XLE but all they had was Limited available (thank you Covid). 4 year term at 4% interest. It is our travel car on the weekends and anytime we take the dog pack or family pack anywhere. My payment is $1300/mo. Well it’s $1236.40 and I round up to $1300 to pay it off sooner. I give it regular maintanance with synthoil changes every 5000 miles. So maybe I’m an idiot for four years but I’ll be an absolute genius with no payments for decades afterwards. Would you consider my payment crazy or stupid?
If you can afford the payment then you are neither crazy nor stupid, but I don’t think most people can. Your car payment is close to some people’s rent payment. I pay cash for my cars because I don’t want to pay anybody any interest. I also own my house free and clear.
As long as you can ensure you’ll have the money to make the payment for four years I think you’re doing fine. BTW, I had the same car and the resale value after three years was much higher than I anticipated. Thank you, Toyota.
I checked just to see. I could sell my car for $40,000 now so only a 20% drop in value over the first 18 months.
Interesting you mention rent. That’s another part of the clickbait videos. “You could buy a house with that payment!” Maybe they already have a house or have cheap rent or live in their parent’s laundry room. Again - no context beyond “That’s a lot of money.”
I’m 57 and have owned dozens of cars. But I’m an outlier: I’ve never bought new, and I’ve never made a car payment in my life. The most I’ve ever paid for a car is $11K.
I currently own six cars, the newest being a 2007.
My car payment is just a bit over $1800 per month, and yeah, that’s more expensive than my mortgage payment by $30, including the escrow for taxes and insurance.
When the choice was to pay cash or 1.9% interest for four years, it’s an easy financial decision. As of March 2024, my taxable account was up 19.5% year over year, so paying cash would have been stupid.
And for those who reverse calculate my vehicle’s price, yes, it cost more than my first house.
Is it ever a good idea to buy a new vehicle? During COVID, it certainly was. And this isn’t my daily driver; it replaced my 18 year old vehicle, and I expect it to last that long again.
If I came into a windfall, I wouldn’t pay off my 2.25% mortgage, either.
neither, if you can comfortably afford them and are satisfied with the car. But as Dolphinboy pointed out, that is objectively a high monthly payment that many people could not afford.
I mean, if I buy a $300k for a lamborghini, and my monthly payment is $4000 at 2% interest, maybe that makes good financial sense for me, provided you accept the premise that a $300k car makes sense. But that is a premise that most people are not going to accept.
If you have a plan to keep the car for years and years, I’d go with a new car. You don’t know how the previous owner treated their car so I look at a used car as a long term rental. If I get 5 years out of it it might make sense.
And I taught this to my students in my math class. IF you extend the term to lower your payment, here is what happens to you total payment. My goal was to make them educated consumers when making choices. The issue is with people is that they are completely uneducated in finances especially car buying. And there’s no need. Go watch the videos of The Homework Guy or CarEdge and you can control the situation. But the first conversation on a car lot is inevitably
“What do you want your monthly payment to be?”
“Oh around $300.” and then you’re a fish to them
And back to the topic, people that think it is all about low payments are setting themselves up for failure when they watch these clickbait videos.
yes, always negotiate out the door price, and your monthly payments will flow from that, rather than negotiating from a desired monthly payment, where the dealer will gladly extend out the term to match that, at the cost of a much higher overall total payment.
you are a good teacher, I wish more did this type of real world teaching.
This is obviously the key. Buying a car should be a rational decision, but is very often made emotionally. People saddle themselves with a stressful monthly bill because they want and maybe not because they need. And the longer 6, 7, 8 year loan payments that became the standard over the last 15 years just increase the potential pain from a poor emotional decision, while masking the impact of small wants here and there. You want the bigger engine? Who cares, it’s only any extra $50 a month, throw it in. Extra sunroofs? Sounds neat, throw it in. But it all adds up.
I bought one new car and then decided I’d never do it again, but I’m also mechanically inclined and very knowledgeable about cars, so I’m less concerned about buying a lemon. That said, I’ve never spent more than $20k on a car, and that one made me nauseous. $50k is terrifying, and I do all right for myself. Would I get $50k of enjoyment from a new Highlander? I mean, the most expensive vacation I took with my family cost me about $10k, so that’s a steep ask for a mid-size SUV to bring me that much happiness.
To each their own, of course. But the entire auto industry is a machine to extract as much money from buyers as it can, and it makes sense to be wary.
I haven’t seen the lack of context you’re talking about. All the videos I see touting high car payments are by finfluencers (like that Caleb guy) pointing out the buyer is paying too large a percentage of their income or already carrying a substantial amount of debt. The context is the whole point. Nobody does those videos with a billionaire: “Wow, your Ferrari payment is $5000 a month!?”
For me it’s $50K for 20+ years of practicality. Once it’s paid off I might consider getting a fun car for enjoyment. A 240Z and that one I’ll pay cash.
He’s the exception because his videos are 100% context.
you are absolutely on point with your post, but for me at least, I’m not necessarily seeking “enjoyment” from a new car, but more reliability, suitability for my needs, and the freedom from aggravation. That is, I’m balancing the amount I am paying for a new car vs the fact that it is unlikely to leave me stranded on the side of the road, or won’t start one morning when I need to get to work, or doesn’t need a $3k head gasket replacement. And of course I’m not buying a two seat roadster if I have 3 kids I need to take to school every morning. So, I’m willing to pay new car payments to ensure reliability, availability, and suitability.
It’s actually more than my rent payment, by about $500. (Not parents’ “laundry room”, just a modest 1 bedroom.) If you can afford it, great, but there’s no way in hell I could. Which is why I’ll probably never be able to purchase a brand new car again and I’m looking at 10 year olds to replace my 22 and 25 year old vehicles.
But then, I know what I can and can’t afford and will be looking to buy in my actual budget range. Some people don’t have that sort of sense.
Back when I last bought vehicles my spouse and I could, in fact, afford brand new and it was important to him to do so, so that’s what we did. We took care of them, which is why they’re still running after more than two decades. Now, with just me… I’m looking for something newer, but not brand new. Also, not expecting to have the same longevity because most people don’t seem to give them as much TLC as I do.
5 years seems like an extremely short estimate for the life expectancy of a typical used car these days, unless it’s an old beater. From a strictly financial standpoint, it never makes sense to buy a new car, but for many buyers (and that included me in the past) financial considerations are not the only ones.
I’ve bought 2 new cars in the last 21 years (prior to that I drove whatever my dad gave me to drive). I’ve hopefully got at least 5 more years on my current one, maybe more. Both Ford Escapes with the mid-level packages. About $300-400/mo, for 5 years.
Other than oil changes and new tires and batteries, I’ve not had the cars in the shop except once my ABS sensor failed and my mechanic cousin was gracious enough to fix it for me.
We bought a new car (paid cash) earlier this year. Dealer was amazed that our old car (which we bought new) was over 10 years old, said most people trade in within three years. We only bought a new car because the old one developed a mechanical issue that would have cost almost as much as the car was worth to fix.
I financed the old car purely because we got 0% financing - could have paid cash but if they wanted to give me free money i’ll take it.
Probably going to buy a new car in the next month or two (we only have the one atm, which is becoming a PITA now that kid has a lot of extracurriculars). Will pay cash for that one as well.
Could buy used but as said above, I prefer not to deal with other people’s problems and we keep cars for a decade or more.
Are your six cars in good condition? I assume that since they’re on the old side, you’re frequently replacing parts and potentially using your spare time to do maintenance. Also, why would you own six cheap old cars versus one or two newer cars? If you say that you’ve owned “dozens” of cars and you’re 57, this tells me that these cars are frequently replaced.
I enjoy working on cars; I have a barn, car lift, lots of tools, etc. I typically spend $500 to $3000 for a car. So it’s a win-win for me… I get to enjoy a hobby while saving money at the same time.
