Free Cars for Life [POLL]

Questions on how we spend our money and our time - consumer goods and services, home and vehicle, leisure and recreational activities

When buying a car, which do you prefer?

Brand new, expensive
24
19%
Brand new, inexpensive
48
38%
Slightly used (1-2 years)
18
14%
Used (2-5 years)
24
19%
Beater (5+ years old)
9
7%
None of these, I prefer to LEASE!
2
2%
 
Total votes: 125

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schuyler74
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Free Cars for Life [POLL]

Post by schuyler74 »

There are two Dave Ramsey videos on YouTube that claim to show how you can buy Free Cars for Life. And the other is here. Does this math really work? It sounds too good to be true. What about taxes, unexpected repairs, depreciation, higher insurance, etc.?

* Edited: per Gordon's suggestion, changed 2nd poll option to say "inexpensive" instead of "cheap".
Last edited by schuyler74 on Fri Jun 07, 2013 12:23 pm, edited 1 time in total.
rayout
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Re: Free Cars for Life [POLL]

Post by rayout »

Started off with a 94' civic with 167,XXX miles about 3 years ago. Beat it to death and sold it for $800 (half of what I paid for it) this year. Just "upgraded" to a 2005 prius with 16X,000 miles. So it begins again :)
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schuyler74
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Re: Free Cars for Life [POLL]

Post by schuyler74 »

rayout wrote:So it begins again :)
Right! His plan appears to be:
  1. Buy a cheap used car, drive it for a year, then sell it for about what you bought it for.
  2. Meanwhile, pay yourself what a typical car payment would cost; invest this money at 12%.
  3. Buy another car with the proceeds from the sale and your investments.
  4. Keep paying yourself & investing those typical car payments.
  5. Repeat forever.
There has to be a catch.
Xanadu
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Re: Free Cars for Life [POLL]

Post by Xanadu »

Well for starters, 12% market return is overly optimistic
fulltilt
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Re: Free Cars for Life [POLL]

Post by fulltilt »

schuyler74 wrote:There are two Dave Ramsey videos on YouTube that claim to show how you can buy Free Cars for Life. And the other is here. Does this math really work? It sounds too good to be true. What about taxes, unexpected repairs, depreciation, higher insurance, etc.?
I think you answered your own question.

I thought about trying to implement this when i read or heard about it. The math just doesn't work out. 12% is a ridiculous return rate to expect. Second, the transaction costs of buying and selling cars will eat you alive. Third, if you do have unexpected repairs, then that cuts into your "free" car money. I couldn't get the math to work out in the real world.

Just buy a car you can reasonably afford. Pay cash or take out a loan. Interest rates on cars are really low right now...

I don't have a beef with Dave Ramsey, but sometimes i think his examples are meant to be more inspirational than instructional....
Walk a single path, becoming neither cocky with victory nor broken with defeat, without forgetting caution when all is quiet or becoming frightened when danger threatens. -- Jigoro Kano
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frugaltype
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Re: Free Cars for Life [POLL]

Post by frugaltype »

Brand new, environmentally couth, reasonably priced.
The Wizard
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Re: Free Cars for Life [POLL]

Post by The Wizard »

Dave Ramsey is nuts if he says this, no offense intended.
I buy new cars, new clothes and new furniture.
I could buy all of these used.
But I don't...
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rustymutt
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Re: Free Cars for Life [POLL]

Post by rustymutt »

schuyler74 wrote:There are two Dave Ramsey videos on YouTube that claim to show how you can buy Free Cars for Life. And the other is here. Does this math really work? It sounds too good to be true. What about taxes, unexpected repairs, depreciation, higher insurance, etc.?
It's a lie. When he throws out the term stock market average of 12% he lost me totally. Very creepy clip.
I wonder what kind of vehicle Dave drives?
Even educators need education. And some can be hard headed to the point of needing time out.
YttriumNitrate
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Re: Free Cars for Life [POLL]

Post by YttriumNitrate »

deleted.
Last edited by YttriumNitrate on Sat Mar 12, 2016 11:26 am, edited 1 time in total.
TRC
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Re: Free Cars for Life [POLL]

Post by TRC »

Buying a cheap, high mileage / older used car sounds great on paper. But then factor in probable repairs and questionable reliablity, and for me, it's not worth the hassle.

Just last night we had friends over for dinner that drive a 2000 Honda Accord with 200,000+ miles on it. The husband was proud of it, but said he did put $2,000 into it last year in repairs / maintenance. The wife rolled her eyes and says she's "done" with the car and wants something new.

Personally, I like nice new things. But that's me.
bradshaw1965
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Re: Free Cars for Life [POLL]

Post by bradshaw1965 »

Buying used and new on cars seems to be the kind of like the relationship between buying and renting in housing. Sometimes the market is skewed to one or the other. If you were shopping for a Japanese car in 2011, the tsunami and Cash for Clunkers made a used car much less attractive.
Goodman60
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Re: Free Cars for Life [POLL]

Post by Goodman60 »

What about the "ick" factor? Have you ever shopped cars with 100,000+ miles on them? I recently helped a young friend in med school look for a car within her $7000 budget (this was a gift). We couldn't get past the smell of most of the cars. In the end I recommended something TOTALLY unBogleheadish...that she lease a small cheap car. She ended up escrowing the $7000 to pay a $199/mo lease (42 months) on a Fiat 500 (I would have gotten the Toyota or Honda but she wanted the Fiat). In her case it made sense. For the next 3-4 years her job will be to learn how to fix spines and bowels, not spark plugs and batteries. True, she will PROBABLY end up spending a little more than buying a $7000 used car and selling it for $3500, but that's just in theory. In reality there is no telling what the costs of a very used car will be as well as the personal cost of dealing with it when she should be dealing with getting the best medical education possible. At the end of the lease she'll be about done with med school and will be able to afford a permanent car...which could turn out to be buying the off lease Fiat. (She is getting huge scholarships so her medical school loans will be small compared to most of today's med students).

But my main point was that very used cars are generally very stinky. At least if you buy new (or truly get a good deal on "slightly used") and keep it "forever", it's your own stink. :P
MnD
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Re: Free Cars for Life [POLL]

Post by MnD »

New, pay cash, medium priced, well equipped, highly ranked for reliability, garaged and maintained, kept 10 to 18 years.
I am 50, have owned a car since age 19 and am only on my third vehicle which won't be replaced until at least 2018 when it will be 13 years old.
Made my last car payment around 1990.
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gkaplan
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Re: Free Cars for Life [POLL]

Post by gkaplan »

My new Honda Fit was inexpensive, not cheap.

If you're going to have a Brand New, Expensive poll option, why not make the second option, Brand New, Inexpensive? "Cheap" seems derogatory.
Gordon
btenny
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Re: Free Cars for Life [POLL]

Post by btenny »

One of my employees back in the 1990s used to do somewhat like Ramsey suggests. He made a hobby of it. He would read the want ads in the paper every day in detail and make calls as needed as his job was intense but included periods of waiting for the computer. He would buy 3-5 older cars or small trucks a year and clean them up and sell them after driving them 3-12 months. His favorites were 7 year old Nissan or Toyota or Ford pickups. He said he made around $2-4K per year doing this. He never paid anything to drive a car or pay any taxes on the transactions. He never registered the cars in his name or changed the licenses and since this was Arizona it was all good. I am pretty sure of his figures as I watched him and saw the different cars he drove. He really did make money on most of them by just cleaning them and detailing them and maybe doing 1-2 minor repairs himself..

Bill
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schuyler74
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Re: Free Cars for Life [POLL]

Post by schuyler74 »

gkaplan wrote:My new Honda Fit was inexpensive, not cheap.

If you're going to have a Brand New, Expensive poll option, why not make the second option, Brand New, Inexpensive? "Cheap" seems derogatory.
LOL, fine. I edited the poll options just for you. :) Where I come from, cheap couldn't possibly mean anything but inexpensive since all anyone could afford was cheap. But I hear what you're saying. Now that I hang out with all the rich people (50% of the poll respondents only buy NEW cars, which is a surprise to me), I'd better start being more careful with my choice of words!

And I take it you're a fan of violinists, Gordon? "Google Images" says she's Nicola Benedetti.
The Wizard
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Re: Free Cars for Life [POLL]

Post by The Wizard »

btenny wrote:One of my employees back in the 1990s used to do somewhat like Ramsey suggests. He made a hobby of it. He would read the want ads in the paper every day in detail and make calls as needed as his job was intense but included periods of waiting for the computer. He would buy 3-5 older cars or small trucks a year and clean them up and sell them after driving them 3-12 months. His favorites were 7 year old Nissan or Toyota or Ford pickups. He said he made around $2-4K per year doing this. He never paid anything to drive a car or pay any taxes on the transactions. He never registered the cars in his name or changed the licenses and since this was Arizona it was all good. I am pretty sure of his figures as I watched him and saw the different cars he drove. He really did make money on most of them by just cleaning them and detailing them and maybe doing 1-2 minor repairs himself..

Bill
Ah, the good old days of the Wild Frontier, eh?
Attempted new signature...
mullery
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Re: Free Cars for Life [POLL]

Post by mullery »

Personally I like to purchase a reliable, fuel-efficient, non-premium car (Toyota, Honda, Nissan) that is 1-2 years old, drive it for about 10 years, sell it for whatever it is worth, and repeat.

- Buying a 1-2 year old car avoids the initial depreciation hit
- Keeping it a minimum of 10 years ensures you aren't paying taxes, tag, and title fees too often
- Selling it after 10 years of ownership ensures you stay up-to-date with modern safety innovations and avoids most of the inevitable costly repairs of owning an older car

Whether to pay cash or finance the next car purchase is purely a function of interest rates on a loan. If they are low, as they are right now, financing a car can be a good financial decision. I'd rather keep my capital invested and earn a higher rate of return than the prevailing rate on a loan.
Rodc
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Re: Free Cars for Life [POLL]

Post by Rodc »

I have for most of my life bought used cars. In the beginning as a student they were beaters. Then after college they were a few years old (did this twice, sold at 12 years old). Then one new one with a modest loan and large down payment.

I would have continued with late model used, except that late model popular (Honda, Subaru, etc.) cars no longer make any sense. If you look long enough I think bargains can still be found, but it is a lot of time and effort. Now I buy new. Next one will be cash unless loans are so cheap I'd rather just keep the cash liquid.

Dave's math is off (12%), may not fully account for unexpected repairs, but the idea is more or less sound. If nothing else you should be able to buy each "new" car with every greater down payments.

Simple case, buy an inexpensive new car, 5 year loan, keep for 12 years. Say you buy a basic car, $15,000K, pay $280 per month. After pay off keep putting $280 per month into savings, earn no interest. By year 12 you have $23,520. Maybe you missed a few payments into savings when you needed repairs so you only have $20K or so.

You can buy your second car with cash. Car inflation has been pretty low at least at the basic level, but there have been times where it was higher. Maybe $20K after 12 years is not enough to pay the total in cash due to future inflation, but you would need a rather modest loan for car #2.

By car number 3 you should be set.

The real world problem is that the discipline is hard to maintain, you have kids and one partner stops working or you have high day care, after years of no vacation you can't stand it and have a nice vacation rather than pay into the car fund. Then there is the issue that you get married and "need" a second car, factor in kids, and you end up starting a new set of payments just as the other ends. (5 year loan, keep each car 10 years, etc.)

I have tried with some success and some failure to follow the plan of paying into savings after the car loan was finished. It has taken twice as long as the ideal case to get to the point of writing a check for a new car.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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frugaltype
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Re: Free Cars for Life [POLL]

Post by frugaltype »

Goodman60 wrote:What about the "ick" factor? Have you ever shopped cars with 100,000+ miles on them? I recently helped a young friend in med school look for a car within her $7000 budget (this was a gift). We couldn't get past the smell of most of the cars.
I have a 40+ year old car and a 20+ year old car. Both have more than 100,000 miles on them. I have the insides washed periodically, occasionally reupholstered or re-carpeted, and the cars repainted as needed. Neither smell :-)
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Aptenodytes
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Re: Free Cars for Life [POLL]

Post by Aptenodytes »

Makes sense to me, but why stop there. Why not get your HOUSE for free?
1) Buy a house, live in it for a three years, and then sell it for the same price you paid for it.
2) In the meanwhile, pay yourself a bunch of money and invest it at a high rate of return.
3) Buy a new house using the money you paid yourself and its return

By the same logic you could acquire an oil well or a car company for free.

I don't quite get how anything is free in these scenarios -- I am paying out a lot of money.
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Re: Free Cars for Life [POLL]

Post by schuyler74 »

How can there be "No votes" for LEASING? Zero?? This place is packed with rich people and nobody leases? I find that unbelievable. Almost all the rich people I know (and even more than just the rich ones) lease their cars and tell everyone what a great decision it was.

Personally, I don't see the math working, but the most inexpensive option isn't always the best. (There are actually several current threads on that general topic of when it's worth it to shell out the cash for quality things.) That is, if you ARE rich and you have the money for it, why not always drive a new car? Keep a short 2-year lease and you're living the life!!
hicabob
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Re: Free Cars for Life [POLL]

Post by hicabob »

schuyler74 wrote:How can there be "No votes" for LEASING? Zero?? This place is packed with rich people and nobody leases? I find that unbelievable. Almost all the rich people I know (and even more than just the rich ones) lease their cars and tell everyone what a great decision it was.

Personally, I don't see the math working, but the most inexpensive option isn't always the best. (There are actually several current threads on that general topic of when it's worth it to shell out the cash for quality things.) That is, if you ARE rich and you have the money for it, why not always drive a new car? Keep a short 2-year lease and you're living the life!!

You can lease televisions too - but I doubt many bogleheads do.
Grt2bOutdoors
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Re: Free Cars for Life [POLL]

Post by Grt2bOutdoors »

MnD wrote:New, pay cash, medium priced, well equipped, highly ranked for reliability, garaged and maintained, kept 10 to 18 years.
I am 50, have owned a car since age 19 and am only on my third vehicle which won't be replaced until at least 2018 when it will be 13 years old.
Made my last car payment around 1990.
New, paid cash, well-equipped, highly ranked for reliability, garaged on streets of NYC but well-maintained, have had it 17 years, has low miles. Second car I've owned, the first was a beater I bought off my sister whose treatment of it was less kind.
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Grt2bOutdoors
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Re: Free Cars for Life [POLL]

Post by Grt2bOutdoors »

schuyler74 wrote:How can there be "No votes" for LEASING? Zero?? This place is packed with rich people and nobody leases? I find that unbelievable. Almost all the rich people I know (and even more than just the rich ones) lease their cars and tell everyone what a great decision it was.

Personally, I don't see the math working, but the most inexpensive option isn't always the best. (There are actually several current threads on that general topic of when it's worth it to shell out the cash for quality things.) That is, if you ARE rich and you have the money for it, why not always drive a new car? Keep a short 2-year lease and you're living the life!!
Let's say the car costs $50,000 new to buy. Now, the lease for the same car is $500. Rich people don't throw away 36% of the vehicle's value over the course of 3 years with zero to show for it. I can buy a car new, today, for $25,000 and keep it for ten years. In the meantime, I can invest and retain an interest in a growing portfolio of investments that will pay future dividends. That leased car of yours, pays ZERO dividends, has ZERO capital appreciation, but MUCHO depreciation of wealth.
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mullery
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Re: Free Cars for Life [POLL]

Post by mullery »

Leasing is typically for people who want to drive a more expensive car than they can afford to purchase, those who don't have enough saved for a down payment and taxes, or those who want to be in a new car every 2-4 years. I have leased cars in the past for many of the reasons listed above, but probably won't do it again (at least not while I am still in my accumulation years).
Goodman60
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Re: Free Cars for Life [POLL]

Post by Goodman60 »

btenny wrote:One of my employees back in the 1990s used to do somewhat like Ramsey suggests. He made a hobby of it. He would read the want ads in the paper every day in detail and make calls as needed as his job was intense but included periods of waiting for the computer. He would buy 3-5 older cars or small trucks a year and clean them up and sell them after driving them 3-12 months. His favorites were 7 year old Nissan or Toyota or Ford pickups. He said he made around $2-4K per year doing this. He never paid anything to drive a car or pay any taxes on the transactions. He never registered the cars in his name or changed the licenses and since this was Arizona it was all good. I am pretty sure of his figures as I watched him and saw the different cars he drove. He really did make money on most of them by just cleaning them and detailing them and maybe doing 1-2 minor repairs himself..

Bill
I wonder how his insurance (if any) would have covered (or not) his liability if he did something really bad to someone in one of his unregistered cars that they see is part of a "buy and sell business" pattern? Penny wise and pound foolish?
Goodman60
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Re: Free Cars for Life [POLL]

Post by Goodman60 »

mullery wrote:Leasing is typically for people who want to drive a more expensive car than they can afford to purchase, those who don't have enough saved for a down payment and taxes, or those who want to be in a new car every 2-4 years. I have leased cars in the past for many of the reasons listed above, but probably won't do it again (at least not while I am still in my accumulation years).
It can also be good as a "long term rental". Like my med student friend. Temporarily needs a reliable car and will have a life-situation change in 2-4 years that will cause re-evaluation of the situation.
Goodman60
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Re: Free Cars for Life [POLL]

Post by Goodman60 »

hicabob wrote:
schuyler74 wrote:How can there be "No votes" for LEASING? Zero?? This place is packed with rich people and nobody leases? I find that unbelievable. Almost all the rich people I know (and even more than just the rich ones) lease their cars and tell everyone what a great decision it was.

Personally, I don't see the math working, but the most inexpensive option isn't always the best. (There are actually several current threads on that general topic of when it's worth it to shell out the cash for quality things.) That is, if you ARE rich and you have the money for it, why not always drive a new car? Keep a short 2-year lease and you're living the life!!

You can lease televisions too - but I doubt many bogleheads do.
But may lease houses and apartments. Sometimes it DOES make sense to rent. But probably not if it's more than just a few years.
Goodman60
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Re: Free Cars for Life [POLL]

Post by Goodman60 »

Not directly answering this question of this post but an interesting factoid that I use as rule of thumb: cars have an approximate "financial half life" of 3 years. Meaning that if you buy any car at a fair market price...new or used...it will be worth about half in 3 years. And in 3 more years it will be worth half of that. Etc. I get it that there are wide variations (Japanese tend to hold value better; cars at the lower end of quality reports worse) etc. But it's a good rule of thumb. A $30,000 new car will be worth about $15,000 in 3 years and $7,500 in 6 years and $3000-$4000 in 9 years (from new). A 4 year old car worth $10,000 will be worth about $5000 in 3 more years (7 from new). It's a handy mental device for estimating depreciation costs. Sort of falls apart around 10 years as potential repair costs become the driving factor (so to speak!).
Grt2bOutdoors
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Re: Free Cars for Life [POLL]

Post by Grt2bOutdoors »

Goodman60 wrote:Not directly answering this question of this post but an interesting factoid that I use as rule of thumb: cars have an approximate "financial half life" of 3 years. Meaning that if you buy any car at a fair market price...new or used...it will be worth about half in 3 years. And in 3 more years it will be worth half of that. Etc. I get it that there are wide variations (Japanese tend to hold value better; cars at the lower end of quality reports worse) etc. But it's a good rule of thumb. A $30,000 new car will be worth about $15,000 in 3 years and $7,500 in 6 years and $3000-$4000 in 9 years (from new). A 4 year old car worth $10,000 will be worth about $5000 in 3 more years (7 from new). It's a handy mental device for estimating depreciation costs. Sort of falls apart around 10 years as potential repair costs become the driving factor (so to speak!).
I have a car that at time of appraisal was 15 years old and was valued at $6K. The car cost me new $16K - Honda, Japanese. Your math doesn't apply to cars that hold their value through maintainance and perceived quality.
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mullery
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Re: Free Cars for Life [POLL]

Post by mullery »

Goodman60, I like your idea of an automotive "half-life". As you mentioned, the half-life period is different depending on the car. One huge factor in determining the half-life you didn't mention is the amount of options on the car. For example, a base model will have a longer half-life than a fully-loaded model. There's a lot of markup on optional equipment that the used market discounts heavily. I try to purchase cars with very few options for that reason.

I partially agree with your thoughts on leasing being a good idea for people who are going through a lifestyle change, especially students. Many of these people fall into the category of someone who can't afford the down payment or taxes up-front. If you can afford them, then purchasing a 1-2 year old car and selling it after a few years will probably still beat leasing from a purely financial standpoint. Especially when you consider most leasing firms require very high insurance limits which raises your premium and most of them also hit you with a disposition fee at the end of the lease. I've noticed those disposition fees are creeping up in price, too. Not uncommon to see them at $400-500 now.
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Re: Free Cars for Life [POLL]

Post by cheese_breath »

I'll use cheap rather than inexpensive to describe myself. First I narrow my choices down to vehicles that will meet, but not exceed my needs. Then I choose a new, inexpensive vehicle. I buy new, pay cash, and drive them forever. (I still adhere to the old warning about buying a used car being buying someone else's problems.) I usually end up with a Chevy since I hate to haggle over price and receive the GM discount as a GM retiree. My current vehicles are a 2000 Silverado (13 years old) and a 2009 Impala (4 years old). The Impala replaced a 1993 Olds Cutless Cierra that was 16 years old at the time. It was still in real good shape, but at 16 years I was getting a little apprehensive about taking it on long trips. My wife doesn't like travelling in the truck (says it's too uncomfortable) so I finally gave in and replaced the Olds with the Impala. I sold the Olds to a friend for the same price the dealer offered me, and it's still running fine.
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G12
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Re: Free Cars for Life [POLL]

Post by G12 »

No matter the category, if the air conditioner quits working and it is a goner. We tend to look at a couple of models that we would like, wait until some deals are available to negotiate, then buy new and keep 8-12 years. Current vehicle is a 2002 Pathfinder LE, bought in 2002 with 4k miles on it as a demo, and currently has 80k+ miles on it. Very reliable, very low maintenance costs, but mpg's do suck although driving ~ 6k/yr in recent years it doesn't really matter and we need a dog hauler. Took 4-yrs until the book value actually declined to the price paid, so very good deal. AC is still working like a champ.
harrychan
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Re: Free Cars for Life [POLL]

Post by harrychan »

I have a friend that does something similar and it can possibly work. Of course it is never 'free' but you get pretty darn close to it. He has a car broker license which allows him to go to exclusive auto auctions. He only bids on luxury cars that are 2-3 years old which are still under warranty. He pays cash for it and they are typically a good $5000-8000 under what they go for in the used market. He will drive it until the warranty expires then sells it at times at a profit. Rinse and repeat for his next car. He has his ways of ensuring the cars are accident free which I don't want to divulge here but it works :)
This is not legal or certified financial advice but you know that already.
Goodman60
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Re: Free Cars for Life [POLL]

Post by Goodman60 »

mullery wrote:Goodman60, I like your idea of an automotive "half-life". As you mentioned, the half-life period is different depending on the car. One huge factor in determining the half-life you didn't mention is the amount of options on the car. For example, a base model will have a longer half-life than a fully-loaded model. There's a lot of markup on optional equipment that the used market discounts heavily. I try to purchase cars with very few options for that reason.

I partially agree with your thoughts on leasing being a good idea for people who are going through a lifestyle change, especially students. Many of these people fall into the category of someone who can't afford the down payment or taxes up-front. If you can afford them, then purchasing a 1-2 year old car and selling it after a few years will probably still beat leasing from a purely financial standpoint. Especially when you consider most leasing firms require very high insurance limits which raises your premium and most of them also hit you with a disposition fee at the end of the lease. I've noticed those disposition fees are creeping up in price, too. Not uncommon to see them at $400-500 now.
In states like PA, sales tax tilts the equation from buying and selling (without buying another). You pay tax in the full purchase price but don't get it back on the resale price recouped.
Goodman60
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Re: Free Cars for Life [POLL]

Post by Goodman60 »

harrychan wrote:I have a friend that does something similar and it can possibly work. Of course it is never 'free' but you get pretty darn close to it. He has a car broker license which allows him to go to exclusive auto auctions. He only bids on luxury cars that are 2-3 years old which are still under warranty. He pays cash for it and they are typically a good $5000-8000 under what they go for in the used market. He will drive it until the warranty expires then sells it at times at a profit. Rinse and repeat for his next car. He has his ways of ensuring the cars are accident free which I don't want to divulge here but it works :)
What secret method (of being sure a car hasn't been wrecked) could possibly exist? And how would sharing it ruin your friend's competitive advantage?
Goodman60
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Re: Free Cars for Life [POLL]

Post by Goodman60 »

Grt2bOutdoors wrote:
Goodman60 wrote:Not directly answering this question of this post but an interesting factoid that I use as rule of thumb: cars have an approximate "financial half life" of 3 years. Meaning that if you buy any car at a fair market price...new or used...it will be worth about half in 3 years. And in 3 more years it will be worth half of that. Etc. I get it that there are wide variations (Japanese tend to hold value better; cars at the lower end of quality reports worse) etc. But it's a good rule of thumb. A $30,000 new car will be worth about $15,000 in 3 years and $7,500 in 6 years and $3000-$4000 in 9 years (from new). A 4 year old car worth $10,000 will be worth about $5000 in 3 more years (7 from new). It's a handy mental device for estimating depreciation costs. Sort of falls apart around 10 years as potential repair costs become the driving factor (so to speak!).
I have a car that at time of appraisal was 15 years old and was valued at $6K. The car cost me new $16K - Honda, Japanese. Your math doesn't apply to cars that hold their value through maintainance and perceived quality.
Agreed there are exceptions and older cars are more a function of maintenance, repairs and luck.
btenny
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Re: Free Cars for Life [POLL]

Post by btenny »

I answered your poll based on what I have done for most of my life, slightly used cars. I have bought 8 used cars over the years that were 1 to 4 years old at purchase. I still have two of those. I also bought two new mid priced passenger vans when I had little kids. I usually drive cars till they drop. Now I am leasing a new car for the first time ever due to the net cost savings over time versus paying cash and taking big IRA withdrawals.

Bill
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Re: Free Cars for Life [POLL]

Post by Default User BR »

Goodman60 wrote:In states like PA, sales tax tilts the equation from buying and selling (without buying another). You pay tax in the full purchase price but don't get it back on the resale price recouped.
It's the same in Missouri. Here, the state and local tax on car purchase is almost 8%. The calculator said $550 on that $7000 car. That's going to play havoc with the expected return on the deal. You'd need a dealer willing to make virtually no money on the deal (ha!) so that the net with trade-in was low.

How many states don't have sales tax on cars?


Brian
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Re: Free Cars for Life [POLL]

Post by enderland »

schuyler74 wrote:How can there be "No votes" for LEASING? Zero?? This place is packed with rich people and nobody leases? I find that unbelievable. Almost all the rich people I know (and even more than just the rich ones) lease their cars and tell everyone what a great decision it was.

Personally, I don't see the math working, but the most inexpensive option isn't always the best. (There are actually several current threads on that general topic of when it's worth it to shell out the cash for quality things.) That is, if you ARE rich and you have the money for it, why not always drive a new car? Keep a short 2-year lease and you're living the life!!
I think you are missing the fact that most rich people on this forum didn't wake up one day and find themselves with 6 or 7 figure portfolios and go, "oh, look at all this money which showed up in my bank account!"


@Default User BR, not "no tax" but I know MN has a fixed $10 sales tax on used cars at least 10 years old and less than $3,000 :)
likegarden
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Re: Free Cars for Life [POLL]

Post by likegarden »

I realized one day that my annual repair cost of an 11 year old car was exactly what leasing the same model brand new would cost me, so I traded up for FREE.
harrychan
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Re: Free Cars for Life [POLL]

Post by harrychan »

+1 for leasing. I bought my first new car when I got my first job. Nothing fancy, just a Nissan Altima. I drove it over 130k miles and after 9 years finally let it go. Including maintenance, the depreciation was roughly $375 / month!! Now I am leasing a Subaru Legacy for only $220 / month with maintenance covered and no up front tax to be paid. In essence I am saving over $150 / month by leasing vs. buying new. If I was single, you can easily reduce that down to $175 by leasing a Corolla, Civic, or Impreza but I need something more comfortable.
This is not legal or certified financial advice but you know that already.
YttriumNitrate
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Re: Free Cars for Life [POLL]

Post by YttriumNitrate »

deleted.
Last edited by YttriumNitrate on Sat Mar 12, 2016 11:26 am, edited 1 time in total.
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retiredjg
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Re: Free Cars for Life [POLL]

Post by retiredjg »

I doubt the method actually results in free cars, but the basic method behind it is absolute genius. I used it starting about 30 years ago. I don't recall where I got the idea, but I'm sure it was from something Dave Ramsey said or an article about something he said.

Had a nice little Honda when I learned about this idea and when it was paid for, I just kept putting that car payment in the bank and drove the Honda for several more years. After an encounter with a deer, the Honda had to go and I bought a used Toyota with cash from my "car payments". Several years later, another used Toyota with cash (still putting that "car payment" into the bank and earning interest/returns rather than paying interest). And then another Toyota after that one. Still driving that one. :D

If I were still earning money, I'd still be putting some income away for my next car. It's just smart. When I needed a new car, I just bought it. Meanwhile, my friends were trying to figure out of they could manage a car payment. Since I never stopped making a "car payment", that was never an issue for me.
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telemark
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Re: Free Cars for Life [POLL]

Post by telemark »

Goodman60 wrote: What secret method (of being sure a car hasn't been wrecked) could possibly exist? And how would sharing it ruin your friend's competitive advantage?
For an un-secret method, there's http://www.carfax.com. A good thing to check any time you buy a used car.
harrychan
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Re: Free Cars for Life [POLL]

Post by harrychan »

YttriumNitrate wrote:
harrychan wrote:I bought my first new car when I got my first job. Nothing fancy, just a Nissan Altima. I drove it over 130k miles and after 9 years finally let it go. Including maintenance, the depreciation was roughly $375 / month!!
MSRP on an Altima is around $21,000. Assuming a 6% loan spread over 5 years, that would tack on ~$3,500 in interest. Add on another grand or so for taxes. $375 x 12 x 9 = $40,500.

So, you spent $15,000 (PLUS whatever you sold the Altima for) on maintenance in the first nine years of ownership? That seems a bit high especially considering the car was under warranty for the first ~60,000 miles.
My out the door cost was a bit higher. I had some bells and whistles on it which put the OTD cost to around $24-25k. Tack that on with a 7.75% (no credit back then mind you..). And yes, I had some major breakdowns such as engine failure, CAT converter failure which is not that surprising with a 9 year old car and some body damage. I sold it for $5000.
Last edited by harrychan on Fri Jun 07, 2013 7:50 pm, edited 1 time in total.
This is not legal or certified financial advice but you know that already.
harrychan
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Re: Free Cars for Life [POLL]

Post by harrychan »

telemark wrote:
Goodman60 wrote: What secret method (of being sure a car hasn't been wrecked) could possibly exist? And how would sharing it ruin your friend's competitive advantage?
For an un-secret method, there's http://www.carfax.com. A good thing to check any time you buy a used car.
Only reported accidents go on carfax. If its not reported, it won't be on carfax. He uses a paint thickness device which can detect if the car has been repainted which would indicate an accident.
This is not legal or certified financial advice but you know that already.
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Epsilon Delta
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Re: Free Cars for Life [POLL]

Post by Epsilon Delta »

frugaltype wrote:
Goodman60 wrote:What about the "ick" factor? Have you ever shopped cars with 100,000+ miles on them? I recently helped a young friend in med school look for a car within her $7000 budget (this was a gift). We couldn't get past the smell of most of the cars.
I have a 40+ year old car and a 20+ year old car. Both have more than 100,000 miles on them. I have the insides washed periodically, occasionally reupholstered or re-carpeted, and the cars repainted as needed. Neither smell :-)
Ah, but Is either for sale? ;-)
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Toons
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Re: Free Cars for Life [POLL]

Post by Toons »

I drove cars in the past for 12 years ,one car I had for 18 years,most of the work on them I performed myself If I could.Saved and invested for the last 35 years.
2012 We bought a new Honda Fit.
2013 " " " " " Crv.
No regrets ,having a blast driving both of them :sharebeer
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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