So, first off, i find that reference to “girl math” really offensive. If you were a women, or quoting a particular woman, it would be a little less offensive, but it would still tick me off.
And second, the odds are pretty good they were scammed. When i was an apprentice actuary, and i and all my peers were studying for the exam on compound interest, a bunch of my peers bought new cars. And, since they were studying for the compound interest exam, they checked the numbers they were given. And every single one of them found an error. And somehow, every single error was in the car dealership’s favor. The errors varied. Some extra stuff they hadn’t asked for was thrown in. They only got the advertised interest rate on 80% of the loan. But every single one found a discrepancy. And honestly, while they teach the basic skills of that math in pre-calculus (or used to, the curriculum has changed since i was in high school) actually working out the details with a down payment and perhaps an ending amount is beyond the mathematical skill of the typical educated adult.
Yeah, people generally aren’t just trying to maximize their wealth. Most people want to consume, too. Sure, many people buy more car than they need, and some buy more than they can afford. I’d be curious to see numbers on how many people actually accumulate car debt over many cars.
I’m not convinced that you necessarily do that with a seven year loan on a new car. Cars last a lot longer than they used to. My plan for years now has been to buy a new car and keep it for 10 years. And mostly that’s worked. Of course, one car turned out to be a lemon and we traded it in sooner, because it just wasn’t reliable enough. And my state has very strong lemon laws: i researched it an decided it was too risky to sell it to an individual, and to cover my ass i had to trade it in to a car dealer. So I replaced it with a used car instead of a new one. But used cars are always a little risky, you don’t know where that car has been. And this used car has had more routine maintenance need than prior cars purchased new. (Although maybe Subaru just isn’t as reliable as Honda, who knows.) But i don’t think a seven year loan on a new car is necessarily crazy.
I find it offensive too. I thought I had made that clear. But the fact remains that women use it and I have seen them say it on Caleb Hammer’s channel.
I’ve done such a “rational” job at minimizing my vehicle expenses that it’s really going to hurt if I ever have to dump my 29-year-old Volvo wagon. About eight years ago I took a gamble and sunk $5k into it rather than go out and buy something newer, and lucky me, it has paid off and the thing still runs well and reliably. I pay the absolute minimum for insurance and am fortunate to live where I can walk to nearly everything, so gas is not a big expense. It’s almost as utile as a truck, I can load it up with plywood on top and bags of concrete inside, and occasional trips to the mountains are comfortable and roomy.
But I hope to live another decade or two (I’m 70) and would like to maintain the same level of convenience. At some point either my abililty to drive or my car’s ability to be driven will expire and I’ll have to make a change. Any way I slice it, that is going to feel more expensive to me than it would if I was accustomed to budgeting more for transportation. Rationally, I’ve done quite well, but the thought of going from “quite well” to “just ok” is annoying.
Yeah. I’ve said that numerous times. Originally it was pointed out as one of many ways people rationalize bad financial decisions like, “I had to buy that $80,000 truck. HAD to.” I’m not sure why people here think that because I mentioned it exists as an excuse that somehow I think “girl math” is a real thing.
Growing up, things like home mortgages and student loans were always viewed as commendable things, while credit card debt and car notes that were unsustainable were viewed as extremely poor choices. And my parents commented more than was probably a good thing about people we knew and what they perceived as their indebtedness relative to their estimated income.
So I always had this sort of division, although I couldn’t actually articulate it, between what the corporate world calls “Good” and “Bad” debt. Put simply, good debt is debt that is used to increase your income or net worth. Stuff like borrowing money to build more facilities to expand production is good debt. Bad debt is pretty much everything else, but especially borrowing to obtain things that depreciate, and specifically because of the risk of getting upside down on them. In personal terms, good debt is typically home mortgages and student loans, and bad debt is car notes and credit cards.
What business school was really good for was looking at it from a more financially oriented perspective; one of the first comments a professor made (in order to shock us, I’m sure) was that sometimes it’s better to let debt ride, if you can make more money investing the same amount of money. It definitely surprised me; while I had an intuitive idea of good/bad debt, I’d never considered the idea that if I had $20k on hand and owed 20k at 2%, that if I could invest that spare 20k at anything higher than 2%, it was a better business decision than simply paying that debt off, because I’d pocket that difference in interest rates as income. That was sort of a “Eureka!” moment for me, because until that point, I’d always kind of considered them as separate sides of my financial situation.
@sunup’s not wrong… risk is definitely a factor in this. But it’s one factor, not the only factor.
There is rate-of-return risk to carrying debt over paying cash. But the “Debt is bad, period” crowd greatly amplifies their perception of the risk of losing on the investment side, while utterly dismissing the possibility of losing (AKA opportunity cost) on the “pay cash” side.
See Loss aversion - Wikipedia. Human nature skews to overweight negative vs positive outcomes, financial or otherwise. Some people are way out in left field on that particular metric of perception
You really need to drive some distance at speed. The alternator won’t charge the battery sufficiently at idle. Other parts of the car; seals, bearings, … need some motion to remain pliable and keep doing their job. If you must park the car for long periods, get a battery tender (not a charger though there are combo units) to keep the battery in good shape.
My parents bought their home when interest rates were in the single digits, and their mortgage was winding down in the 70s, when inflation was rampant and interest rates were in the high teens. I remember my mother talking about how it didn’t make any sense to pay off the mortgage any faster than they absolutely had to, because she could make more money by literally pouring that money into CDs. But that emotionally she would feel good if she could get rid of the debt.
And also, that they had bought the house with a 20 year mortgage, thinking it would be good to discharge the mortgage before paying for college for the kids, but it has never occurred to her that her mortgage payment would be less than her electric bill.
I’m mid-50s and have never had a car payment, including buying one least expensive Subaru new (I bought and drove plenty of Adam Sandler POS’s before that). I hate debt. And I still own that in 2012 brand-new Subaru and it is still taking me to the mountains as it did last weekend. Very reliable and still fairly l low mileage.
This. We don’t drive this Subaru much since our main car is electric powered. Because of this, I make sure it is on a battery tender when it will sit for more than a week.
All this to say, I don’t understand negative equity, but I also don’t understand any car loan. I was poor for a big part of my early life and I never got a car loan. Don’t do it.