Anyone else not save for cars?

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Kenkat
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Re: Anyone else not save for cars?

Post by Kenkat » Mon Sep 10, 2018 5:50 pm

I usually finance my cars with our Home Equity Line. Prime minus 1/2% and I pay it off over 4-5 years. I prefer that to building up a bunch of cash over time to make a cash purchase several years down the road.

mountain-lion
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Re: Anyone else not save for cars?

Post by mountain-lion » Mon Sep 10, 2018 6:24 pm

Kenkat wrote:
Mon Sep 10, 2018 5:47 pm
azanon wrote:
Mon Sep 10, 2018 4:02 pm
The last time I bought one (~ 6 years ago), I actually just wrote a regular personal check for 31K at their desk. I noticed they just took it and eventually handed me the keys. I eventually was tempted to ask, "Aren't you going to call the bank and make sure it's good?". The salesman just said he knows where i live if there's a problem. I think maybe I looked (or acted) like I was good for the 31K?
Not only do they know where you live, they also know some guys with a tow truck that will happily pick it up if you miss too many payments or when that check bounces!
When a dealer accepts a personal check, they usually require you to fill out a loan application at the same time, and include verbiage in the contract that if your check bounces the loan application will automatically be activated and they will finance you at whatever rate they can find--not to mention the additional fees.

A reputable dealer will only activate the app if you do bounce the check. Less reputable dealers will activate the app regardless, so you have to be careful with this. I have left the car on the lot, telling them I'll pick it up when they are sufficiently sure the check won't bounce that they don't need me to fill out the contingency loan application.

They don't like this, but if they want my business, that is what they do.

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whodidntante
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Re: Anyone else not save for cars?

Post by whodidntante » Mon Sep 10, 2018 8:36 pm

triceratop wrote:
Mon Sep 10, 2018 3:20 pm
Catfish Plumber wrote:
Mon Sep 10, 2018 2:08 pm
Is there a trick to getting “near zero” auto loan interest rates?

I checked current rates on bankrate.com and am seeing 4-5%.
My local credit union has rates on 3-5 year loans below the corresponding treasury yield. If I were in the market for a new car that would be “sub zero” from my perspective.

As mentioned, though, it may be even better if you buy from the manufacturer.
My current car is financed at a credit union at 1.89%, for 60 months. I'm happy to take on debt at that rate and term. I still see rates advertised for about 2%, but they are 36 month loans. In my case the manufacturer financing was for the same rate, and I had to give up one of the three rebates to get it (could not get both). So I took the credit union loan instead.

2pedals
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Re: Anyone else not save for cars?

Post by 2pedals » Mon Sep 10, 2018 9:07 pm

Sometimes you can get manufacturers cash back rather than a 0% loan and on top of that dealer incentives. I like to wait for the cash back deals and pay cash. I have no problem saving money and don't need to save specifically for cars. I drive them for a long time, typically 15-20 years.
Last edited by 2pedals on Mon Sep 10, 2018 9:15 pm, edited 3 times in total.

Dottie57
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Re: Anyone else not save for cars?

Post by Dottie57 » Mon Sep 10, 2018 9:09 pm

Jack FFR1846 wrote:
Mon Sep 10, 2018 10:28 am
Money is fungible.

I have never saved specifically for a car. If I want to buy a car, I buy a car. The payment could come from my current liquid savings, from US Savings bonds sales, or from selling taxable account shares.

As mentioned, car loans are cheap, so if you don't have the savings, take out a loan.

<shrug> No big deal.
This is me too. I was able to buy a new car from savings this year. I didn’t have savings destinedfor a car - just general use.

MnD
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Re: Anyone else not save for cars?

Post by MnD » Mon Sep 10, 2018 11:43 pm

Earl Lemongrab wrote:
Mon Sep 10, 2018 12:38 pm
I don't buy vehicles very often. I have only bought three in my life. I had an old truck that I inherited from the family business that died in 1981. At that time I bought my first one, a 1980 Blazer. When it died about ten years later, I got a 1987 Bronco. That developed a fatal problem in 1999, when I purchased the current 1995 Bronco.

Eventually I'll need a new one. I have plenty of resources to do that. No separate fund.
Same here - 1977 Datsun pickup, 1989 Mazda pickup, currently 2005 Toyota pickup. No need for special auto savings funds or auto loans.
Money is fungible and I'm glad I've always invested to some extent outside of retirement accounts.
Comes in handy when it's new truck time.

RickBoglehead
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Re: Anyone else not save for cars?

Post by RickBoglehead » Tue Sep 11, 2018 5:59 am

mountain-lion wrote:
Mon Sep 10, 2018 6:24 pm
Kenkat wrote:
Mon Sep 10, 2018 5:47 pm
azanon wrote:
Mon Sep 10, 2018 4:02 pm
The last time I bought one (~ 6 years ago), I actually just wrote a regular personal check for 31K at their desk. I noticed they just took it and eventually handed me the keys. I eventually was tempted to ask, "Aren't you going to call the bank and make sure it's good?". The salesman just said he knows where i live if there's a problem. I think maybe I looked (or acted) like I was good for the 31K?
Not only do they know where you live, they also know some guys with a tow truck that will happily pick it up if you miss too many payments or when that check bounces!
When a dealer accepts a personal check, they usually require you to fill out a loan application at the same time, and include verbiage in the contract that if your check bounces the loan application will automatically be activated and they will finance you at whatever rate they can find--not to mention the additional fees.

A reputable dealer will only activate the app if you do bounce the check. Less reputable dealers will activate the app regardless, so you have to be careful with this. I have left the car on the lot, telling them I'll pick it up when they are sufficiently sure the check won't bounce that they don't need me to fill out the contingency loan application.

They don't like this, but if they want my business, that is what they do.
Never had this happen before. Paid cash numerous times.
whodidntante wrote:
Mon Sep 10, 2018 8:36 pm
My current car is financed at a credit union at 1.89%, for 60 months. I'm happy to take on debt at that rate and term. I still see rates advertised for about 2%, but they are 36 month loans. In my case the manufacturer financing was for the same rate, and I had to give up one of the three rebates to get it (could not get both). So I took the credit union loan instead.
Here's the process to follow to maximize your cash in pocket:

Take the dealer financing that provides the highest rebate. If they run a zero percent or low percent financing offer, it usually reduces the rebate (because a portion comes from their financing arm). If you take their regular rate (today would be 4.99 or 5.99%) for a higher rebate, you then refinance within days at your local credit union. You keep the rebate, and pay the lower rate. Or pay off the first loan.

Right now PenFed offers 2.49% for 36 months, 3.24% for 48 months, 3.49% for 60 months, and 3.74% for 72 months.
2pedals wrote:
Mon Sep 10, 2018 9:07 pm
Sometimes you can get manufacturers cash back rather than a 0% loan and on top of that dealer incentives. I like to wait for the cash back deals and pay cash. I have no problem saving money and don't need to save specifically for cars. I drive them for a long time, typically 15-20 years.
Just like expense ratio isn't everything with mutual funds (a higher return rate can compensate for a higher expense ratio), one aspect of the deal isn't everything with buying a car.

Manufacturers often offer multiple rebates on a specific model. Could be $1,500 customer cash back plus $1,000 for buying a specific trim of that model plus ... Total is say $3,500. Next quarter they come out with new rebates. $1,000 customer cash back plus $1,500 for buying the specific trim.. Total is $3,500. Same total.

As stated above, you should examine all rebates to ensure you maximize them. Often the credit arm of the company offers a rebate of $X if you take their zero or low financing offer, but double or triple $X if you take their regular financing rate. Take the regular rate, then refinance at a credit union or pay off the loan days later.

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queso
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Re: Anyone else not save for cars?

Post by queso » Tue Sep 11, 2018 7:22 am

Cycle wrote:
Mon Sep 10, 2018 5:31 pm
As with everyone else, we plan on paying to get rid of it in 5 years when everyone switches to the autonomous ride sharing fleets.
lol.. if that happens in 5 years your next bike is on me.

BuckyBadger
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Re: Anyone else not save for cars?

Post by BuckyBadger » Tue Sep 11, 2018 9:25 am

Kenkat wrote:
Mon Sep 10, 2018 5:50 pm
I usually finance my cars with our Home Equity Line. Prime minus 1/2% and I pay it off over 4-5 years. I prefer that to building up a bunch of cash over time to make a cash purchase several years down the road.
I'm surprised it took 50 posts to get to this. This is what we do - was even better back when HELOC interest was tax deductible...

Look at the loans offered and at the HELOC rate and go with whatever is better. Pay off by funneling our "other" savings toward the loan until it's paid off. That way we don't have 20k on top of other cash just sitting there doing nothing for us.

I always like having a HELOC available for stuff like this.

Slacker
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Re: Anyone else not save for cars?

Post by Slacker » Tue Sep 11, 2018 9:33 am

whodidntante wrote:
Mon Sep 10, 2018 8:36 pm
triceratop wrote:
Mon Sep 10, 2018 3:20 pm
Catfish Plumber wrote:
Mon Sep 10, 2018 2:08 pm
Is there a trick to getting “near zero” auto loan interest rates?

I checked current rates on bankrate.com and am seeing 4-5%.
My local credit union has rates on 3-5 year loans below the corresponding treasury yield. If I were in the market for a new car that would be “sub zero” from my perspective.

As mentioned, though, it may be even better if you buy from the manufacturer.
My current car is financed at a credit union at 1.89%, for 60 months. I'm happy to take on debt at that rate and term. I still see rates advertised for about 2%, but they are 36 month loans. In my case the manufacturer financing was for the same rate, and I had to give up one of the three rebates to get it (could not get both). So I took the credit union loan instead.
Agreed, the terms and rates are sometimes quite favorable.

We financed our newest vehicle for 60 months at 1.80% through the dealership (we did use some "cash" by putting the max the dealership would let us on our 2.5% cash back VISA and paying that $5,000 off a week later).

ryman554
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Re: Anyone else not save for cars?

Post by ryman554 » Tue Sep 11, 2018 9:43 am

BuckyBadger wrote:
Tue Sep 11, 2018 9:25 am
Kenkat wrote:
Mon Sep 10, 2018 5:50 pm
I usually finance my cars with our Home Equity Line. Prime minus 1/2% and I pay it off over 4-5 years. I prefer that to building up a bunch of cash over time to make a cash purchase several years down the road.
I'm surprised it took 50 posts to get to this. This is what we do - was even better back when HELOC interest was tax deductible...

Look at the loans offered and at the HELOC rate and go with whatever is better. Pay off by funneling our "other" savings toward the loan until it's paid off. That way we don't have 20k on top of other cash just sitting there doing nothing for us.

I always like having a HELOC available for stuff like this.
I thought HELOC was only officially tax deductible to the extent you were using it to buy/maintain/improve your home. I guess you could argue that a car is required to drive to the home despot to gather supplies to suss up your adobe....

Nissanzx1
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Re: Anyone else not save for cars?

Post by Nissanzx1 » Tue Sep 11, 2018 9:56 am

I save about $300/mo for "car fund"

This can be for parts/repair or to purchase a different car with. I don't personally do car payments, I consider it a middle class trap personally.

Beehave
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Re: Anyone else not save for cars?

Post by Beehave » Tue Sep 11, 2018 9:58 am

It's true that the zero or near-zero percent loans are appealing. However, there is another side to the story. Walking into a buying situation in which you say "I have cash in hand and will buy today" facilitates getting an excellent deal in which you dictate the terms.

BuckyBadger
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Re: Anyone else not save for cars?

Post by BuckyBadger » Tue Sep 11, 2018 9:59 am

ryman554 wrote:
Tue Sep 11, 2018 9:43 am
BuckyBadger wrote:
Tue Sep 11, 2018 9:25 am
Kenkat wrote:
Mon Sep 10, 2018 5:50 pm
I usually finance my cars with our Home Equity Line. Prime minus 1/2% and I pay it off over 4-5 years. I prefer that to building up a bunch of cash over time to make a cash purchase several years down the road.
I'm surprised it took 50 posts to get to this. This is what we do - was even better back when HELOC interest was tax deductible...

Look at the loans offered and at the HELOC rate and go with whatever is better. Pay off by funneling our "other" savings toward the loan until it's paid off. That way we don't have 20k on top of other cash just sitting there doing nothing for us.

I always like having a HELOC available for stuff like this.
I thought HELOC was only officially tax deductible to the extent you were using it to buy/maintain/improve your home. I guess you could argue that a car is required to drive to the home despot to gather supplies to suss up your adobe....
It's been a while, so I'm not sure about these limits, but it's just a higher limit if it's for home improvements. We never borrowed very much.
. A final benefit to using a home equity loan or HELOC to improve (or even purchase) your home is that the interest is tax deductible, just as it is on a primary mortgage, up to $1 million. You can deduct only up to $100,000 if you use the money for another purpose. (However, you can't deduct more than the house's fair market value.)

BuckyBadger
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Re: Anyone else not save for cars?

Post by BuckyBadger » Tue Sep 11, 2018 10:01 am

Beehave wrote:
Tue Sep 11, 2018 9:58 am
It's true that the zero or near-zero percent loans are appealing. However, there is another side to the story. Walking into a buying situation in which you say "I have cash in hand and will buy today" facilitates getting an excellent deal in which you dictate the terms.
Although this may sometimes be true, it's isn't the universal that many on this board claim it to be. It's been my experience that you'll often get a BETTER deal if you agree to take the financing, as there is often a bonus to the dealer if he can get more people signed up.

The days of "$2000 off OR 0%" are gone. Often you'll get the better price WITH the financing and find that they aren't willing to give you anything beneficial in exchange for cash.

They'd much rather you finance.

UpperNwGuy
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Re: Anyone else not save for cars?

Post by UpperNwGuy » Tue Sep 11, 2018 10:04 am

Seems like a lot of the comments assume that the choice is between a car loan or having an ordinary (low-interest) savings account. I save for half the price of the next new car in Vanguard money market funds. I'll take a loan for the balance because, not having a mortgage, I want an installment loan to show on my credit reports.

bloom2708
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Re: Anyone else not save for cars?

Post by bloom2708 » Tue Sep 11, 2018 10:05 am

It is an interesting decision tree.

In general, debt sucks. So there is that.

If you have the ability to save the money for a car, actually save the cash, then you have the money and a 0% loan or <1% loan can be considered.

I think most/many/some don't have the fortitude/ability/desire to save the money to pay cash for a car. That is fine. There are many, many competing uses for each dollar.

If you don't save the money, then it is also quite easy to justify taking out a low interest rate loan. Your choices at that point are don't buy or buy with a loan. Car shopping almost always leads to car buying.

Do what you will. Don't care what others do. Don't be appalled or shocked or dismayed when someone pays with cash or goes with a loan. Be completely indifferent as it is outside of what you can control.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

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Earl Lemongrab
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Re: Anyone else not save for cars?

Post by Earl Lemongrab » Tue Sep 11, 2018 10:35 am

bloom2708 wrote:
Tue Sep 11, 2018 10:05 am
In general, debt sucks. So there is that.
Does it? I have enjoyed using other people's money for low cost to me.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

Admiral
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Re: Anyone else not save for cars?

Post by Admiral » Tue Sep 11, 2018 10:41 am

Most of the advice on the forum about saving up and paying cash for a car (versus making payments) is because it's much more likely to overspend using financing than having to experience the "pain of paying" cash for a new car.

There's nothing intrinsically wrong with a low-rate loan, provided you are financially savvy and don't buy more than you can afford. Many people finance things (think: house) even if they have the cash, if rates are advantageous.

dave_k
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Re: Anyone else not save for cars?

Post by dave_k » Tue Sep 11, 2018 11:31 am

Not specifically, it comes out of the emergency fund. At this point we are unlikely to buy a car more expensive than what we could pay cash for. Last year when my wife needed a new car, we just wrote the dealer a check. We were originally looking at lightly used cars, but we found such a good deal on a new one that we went for it. No super low rate financing options at the time, or we would have done that.

michaeljc70
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Re: Anyone else not save for cars?

Post by michaeljc70 » Tue Sep 11, 2018 11:36 am

I don't save specifically for a car, but pull it out of savings/investments when it is time. If I know it is coming soon, I will try to sell investments so as to not have to sell them at a bad time (in a market downturn). This usually doesn't happen though as I keep cars a long time and usually don't desperately need a new one and can delay the purchase. If they offered me a rate of the 10 year treasury or less (without the option to get a cash rebate if you didn't take it), then I'd probably just finance it.

azanon
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Re: Anyone else not save for cars?

Post by azanon » Tue Sep 11, 2018 1:23 pm

mountain-lion wrote:
Mon Sep 10, 2018 6:24 pm
Kenkat wrote:
Mon Sep 10, 2018 5:47 pm
azanon wrote:
Mon Sep 10, 2018 4:02 pm
The last time I bought one (~ 6 years ago), I actually just wrote a regular personal check for 31K at their desk. I noticed they just took it and eventually handed me the keys. I eventually was tempted to ask, "Aren't you going to call the bank and make sure it's good?". The salesman just said he knows where i live if there's a problem. I think maybe I looked (or acted) like I was good for the 31K?
Not only do they know where you live, they also know some guys with a tow truck that will happily pick it up if you miss too many payments or when that check bounces!
When a dealer accepts a personal check, they usually require you to fill out a loan application at the same time, and include verbiage in the contract that if your check bounces the loan application will automatically be activated and they will finance you at whatever rate they can find--not to mention the additional fees.

A reputable dealer will only activate the app if you do bounce the check. Less reputable dealers will activate the app regardless, so you have to be careful with this. I have left the car on the lot, telling them I'll pick it up when they are sufficiently sure the check won't bounce that they don't need me to fill out the contingency loan application.

They don't like this, but if they want my business, that is what they do.
That didn't happen the last 2 times I bought a car with a personal check. They just took the check and said thanks.

On one of the two car purchases I made, it was literally like I went to Best Buy and bought something. I was in-and-out in 30-45 minutes, tops. This was a brand new car from VW. When you don't finance, don't buy extended warranties, and basically say no to just about everything extra they try to sell you, there's just not a lot of paperwork.

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Earl Lemongrab
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Re: Anyone else not save for cars?

Post by Earl Lemongrab » Tue Sep 11, 2018 1:31 pm

I asked about that when I bought with cash. If you write a bad check for a vehicle, they call the police.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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sunny_socal
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Re: Anyone else not save for cars?

Post by sunny_socal » Tue Sep 11, 2018 1:47 pm

Earl Lemongrab wrote:
Tue Sep 11, 2018 1:31 pm
I asked about that when I bought with cash. If you write a bad check for a vehicle, they call the police.
My dealer would have had me wait for 3 days before picking up the vehicle. I let them run my credit and I got the vehicle immediately despite giving them a check.

michaeljc70
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Re: Anyone else not save for cars?

Post by michaeljc70 » Tue Sep 11, 2018 1:59 pm

sunny_socal wrote:
Tue Sep 11, 2018 1:47 pm
Earl Lemongrab wrote:
Tue Sep 11, 2018 1:31 pm
I asked about that when I bought with cash. If you write a bad check for a vehicle, they call the police.
My dealer would have had me wait for 3 days before picking up the vehicle. I let them run my credit and I got the vehicle immediately despite giving them a check.
I got into an argument 2 cars ago. It was late Saturday and the bank was closed so they couldn't call. They wanted to pull my credit. I said no way, I don't want an inquiry since I am not getting any credit. I told them I wouldn't come back. They took the check. I imagine they also use a check service like most retail places that tells them if you bounce checks.

StealthRabbit
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Re: Anyone else not save for cars?

Post by StealthRabbit » Tue Sep 11, 2018 3:01 pm

I try to not require a loan for my car(s)

$35 daily driver that gets 50 mpg on free fuel (waste Oil) since 1976

At that price I keep quite a few spare cars around the farm yard.
My limit for repairs = $0.10 / mile... If I spend $1000 (never !) I need to get an additional 10,000 miles out of it. (most are already over 300k miles, not broken yet ;) )
Actual costs are <$0.03 over life of car (including cost of car / maint / fuel / tires...)
Frugal BH.

Eventually the 'Estate Sale' will net a few bucks, but not nearly enough for a 'real-car'

Same for the tractors, dozer, excavator, Bobcat, dump truck, motorcycles... minimal investment - no loans - each vehicle must earn their keep (>10% / yr)

srt7
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Re: Anyone else not save for cars?

Post by srt7 » Tue Sep 11, 2018 3:21 pm

jalbert wrote:
Mon Sep 10, 2018 1:53 pm
armeliusc wrote:
Mon Sep 10, 2018 11:18 am
I don't, because I just do not have anything left after trying to max HSA, 401K, and saving what's left to increase EF to our goal.

I honestly don't know how it seems that (almost) everyone here can afford to max out 401K, IRAs, HSA, have 2 years EF, taxable, separate savings for cars, vacation, paying extra for mortgage, and never take a loan for anything. It just seems that everyone here have very large income.
The term maxing out an account like a 401K can mean to the legal limit or it can mean to the limit of your budget.
This is news to me. At least on this board.
I can't think of anything more luxurious than owning my time. - remomnyc

srt7
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Re: Anyone else not save for cars?

Post by srt7 » Tue Sep 11, 2018 3:25 pm

I don't save specifically for cars. To me that is like saving specifically for electric bill or property taxes etc. Most areas within the USA requires a car so there is no escaping it. I also try to utilize any low APR offers available. Some like paying cash and other like holding on to it. To each their own!
I can't think of anything more luxurious than owning my time. - remomnyc

Ron
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Re: Anyone else not save for cars?

Post by Ron » Tue Sep 11, 2018 3:52 pm

armeliusc wrote:
Mon Sep 10, 2018 11:18 am
<snip...>I honestly don't know how it seems that (almost) everyone here can afford to max out 401K, IRAs, HSA, have 2 years EF, taxable, separate savings for cars, vacation, paying extra for mortgage, and never take a loan for anything. It just seems that everyone here have very large income.
We're all upper income folks! :mrgreen:

You can find out where you stand by using the following: http://www.pewresearch.org/fact-tank/20 ... dle-class/

- Ron

TSR
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Re: Anyone else not save for cars?

Post by TSR » Tue Sep 11, 2018 3:54 pm

Based on numerous worries about future expenditures (car, roof, etc.) and some encouragement from Bogleheads, I decided a few years ago to increase my emergency fund to $50,000. I have found that I feel very comfortable with this amount of money lying around in a savings account -- it doesn't feel like too much (losing out on interest) and it doesn't feel like too little. It's not a car account, but when I buy my next car I will likely draw from that account. If I have a major home emergency I'll do the same. FWIW, my car is approximately 13 years old at this point. I plan to hang onto it for as long as possible.

tesuzuki2002
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Re: Anyone else not save for cars?

Post by tesuzuki2002 » Tue Sep 11, 2018 4:24 pm

Kywildcat wrote:
Mon Sep 10, 2018 10:22 am
I have a 10 year old Hyundai Elantra with 150k miles that is still going strong and in good condition for its age. However, I realize that I will probably need to buy a new car in the next few years. I often see people talk about saving for new cars so that no loan is required; however, I'm not sure this makes the most sense given the combination of two factors.

1) I don't know for sure when I will buy a new car. It could be next week if it requires an expensive repair or it could be 4 years from now. This seems like a long time to have a decent chunk of money sitting in a savings account to avoid a car loan.

2) Car loans are cheap.

As further background, I contribute about $1k to a taxable account each month (after maxing out 401k, Roth, HSA) that gets invested into Total Stock Market. My thought was that I could get a car loan and then re-direct my taxable savings to the car loan for 1-2 years. This would allow me to be fully invested at all times and have no tax consequences of selling appreciated shares. If it makes any difference, I am relatively young (32) so my time horizon is decently long from an investing perspective. Just curious if others have similar thoughts or if I'm missing anything.
Interesting.. I drive a 15 year old Jeep with 140K miles on it... Paid for... But I'm planning to drive this another 10 years unless something major happens to it.

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wander
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Re: Anyone else not save for cars?

Post by wander » Tue Sep 11, 2018 4:28 pm

I will sell my mutual fund for new car when it happens.

JackoC
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Re: Anyone else not save for cars?

Post by JackoC » Tue Sep 11, 2018 4:34 pm

mervinj7 wrote:
Mon Sep 10, 2018 4:25 pm

+1 Local credit union offers 2.69% for a 5 year auto loan. The current 5 year Treasury Yield is 2.78%. When we bought our 2018 Nissan Leaf, the manufacturer offered 0% for 5 years plus an extra $500 credit for taking their "financing" option.
NItpick, which was more important when rates were lower (and there were generally more 0%, 1% etc loans) and the curve steeper. You make level payments on a car loan so considering the principal payments the average maturity of a 5 yr loan is slight over 3 yr. Again right now that's pretty nitpicky since the 5 yr yield is only around 7 bps higher than the 3 yr yield. It was pretty significant a couple of years ago. Anyway apples to apples is the average life, same with mortgages, they aren't really 30 yrs.

More significantly the treasury interest would be federally taxable and car loan interest is not tax deductible. So it's significant negative carry at non-zero federal tax bracekt. Even the best 3 yr CD rate, 3.33% is not actually an arbitrage against a 2.69% car loan unless in a quite low (<19% combined) fed/state tax bracket.

The other thing though which is potentially larger than the relatively few $'s difference in risk adjusted rate on $30K (or whatever) for only 3 yrs, is that you generally AFAIK have to retain comprehensive/collision insurance on a financed car for life of loan. GEICO is charging me $538 a year in coll/comp on a new $61k (all-in including sales tax) car. The negative carry of financing a 3.33% CD at my fed/state marginal tax rate (~37%, so 2.10% after tax) with a 2.69% non deductible car loan would only be another ~$180/yr on ~30k average balance of the loan over 5 yrs. But I *do* have comp/coll right? But I'll drop it soon, which I couldn't if the car was financed. Those costs aren't gigantic compared to total ownership cost, but not insignificant either.

Car loans are not an economic slam dunk and I don't get it when people say or imply that, at least for some of the rates they say it about. Though personal situations differ. If a person can't buy a car for cash without undershooting their allowed tax deferred retirement contributions they probably should finance IMO. It's not unreasonable to finance a car to make taxable investments in risky assets, but you can't count what you'd *like* to make on stocks v the loan cost as any kind of arbitrage. Financing could often be avoided by buying used cars, but those aren't for everyone.

The key as almost everyone would probably agree is not buying car(s) you cumulatively can't afford, and not as much whether the car is financed, leased or cash. We don't save for cars, but rather have enough cash around for general purposes to buy a car for cash when necessary/desired, and I much prefer the simplicity of just doing that.

michaeljc70
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Re: Anyone else not save for cars?

Post by michaeljc70 » Tue Sep 11, 2018 7:40 pm

Ron wrote:
Tue Sep 11, 2018 3:52 pm
armeliusc wrote:
Mon Sep 10, 2018 11:18 am
<snip...>I honestly don't know how it seems that (almost) everyone here can afford to max out 401K, IRAs, HSA, have 2 years EF, taxable, separate savings for cars, vacation, paying extra for mortgage, and never take a loan for anything. It just seems that everyone here have very large income.
We're all upper income folks! :mrgreen:

You can find out where you stand by using the following: http://www.pewresearch.org/fact-tank/20 ... dle-class/

- Ron
They should go over to the thread on "low earners" where people that make $250k+ are posting......

viewtopic.php?t=215469

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camillus
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Re: Anyone else not save for cars?

Post by camillus » Tue Sep 11, 2018 9:51 pm

The main benefit of buying with a car fund is controlling the purchase price.

"I only have $15k set aside for a car. I will buy a $15k car."

vs "I have no money for a car, but rates are low and I make good money. Let's look at $30k cars."

Committing yourself to paying with cash out of a "car fund" eliminates a lot of behavioral issues. In my experience, It's hard to go about a car purchase rationally. There are a lot of hooks that get you to overpay: perceived status, hedonistic treadmill, new doo-dads you can't imagine how you got by without, etc.

Now you can invest your car fund, it doesn't have to be sitting in cash waiting around until car buying season. That eliminates one part of perceived opportunity cost to keeping a car fund.

So there are two variables we are talking about: purchase price and potential interest rate arbitrage. The thing about interest rates is you could theoretically come out ahead by taking out an auto loan and investing the cash, but you also need to think about the purchase price.

You aren't coming out ahead if you take out a car loan at near 0%, but invest, while you bought a $30k car while intending originally to buy a $15k one. You are rationalizing getting caught up in the bright shiny sales process. If you bought your $15k car instead, you have $15k principle (or cash flow) remaining that earns interest - making it apples to apples.

A car fund makes you consume less car. :happy

Each of my family's cars has a value of <10% of our annual income. Our cars are making us wealthy.
Last edited by camillus on Wed Sep 12, 2018 9:55 am, edited 6 times in total.

jnet2000
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Re: Anyone else not save for cars?

Post by jnet2000 » Wed Sep 12, 2018 12:26 am

If you love debt. Go for it . Get a car Loan.

I wouldn't. We drive 8-12 year old autos with 120,000-180,000 miles.

We are conservative investors and savers.

If we need a new used car, we'd pay cash for it.

I'd divert the extra grand to a savings account until I had enough to replace your current car.

We keep it simple.

We don't do debt. Period.
"You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing" Warren Buffet

cusetownusa
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Re: Anyone else not save for cars?

Post by cusetownusa » Wed Sep 12, 2018 10:24 am

tesuzuki2002 wrote:
Tue Sep 11, 2018 4:24 pm

Interesting.. I drive a 15 year old Jeep with 140K miles on it... Paid for... But I'm planning to drive this another 10 years unless something major happens to it.
what kind of jeep do you have? My Jeep Grand Cherokee is only 7 years with 72,000...I am hoping to get at least 15 years, 150,000 miles out of it.

randomguy
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Re: Anyone else not save for cars?

Post by randomguy » Wed Sep 12, 2018 12:55 pm

jnet2000 wrote:
Wed Sep 12, 2018 12:26 am
If you love debt. Go for it . Get a car Loan.

I wouldn't. We drive 8-12 year old autos with 120,000-180,000 miles.

We are conservative investors and savers.

If we need a new used car, we'd pay cash for it.

I'd divert the extra grand to a savings account until I had enough to replace your current car.

We keep it simple.

We don't do debt. Period.
I do debt. Why? Because I like money and using debt properly results in a higher net worth than being afraid of taking out loans when they make financial sense. So far it has been 50/50 about if paying cash or taking the loan is the right move.

tesuzuki2002
Posts: 529
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Re: Anyone else not save for cars?

Post by tesuzuki2002 » Wed Sep 12, 2018 10:18 pm

cusetownusa wrote:
Wed Sep 12, 2018 10:24 am
tesuzuki2002 wrote:
Tue Sep 11, 2018 4:24 pm

Interesting.. I drive a 15 year old Jeep with 140K miles on it... Paid for... But I'm planning to drive this another 10 years unless something major happens to it.
what kind of jeep do you have? My Jeep Grand Cherokee is only 7 years with 72,000...I am hoping to get at least 15 years, 150,000 miles out of it.
I have an '03 Jeep Liberty the KJ.

workerbeeengineer
Posts: 110
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Re: Anyone else not save for cars?

Post by workerbeeengineer » Thu Sep 13, 2018 12:24 am

We took a middle approach with last two vehicle purchases. Significant down payment, with cash taken from extended EF, and balance of purchase funded through loan from Credit Union at work. As mentioned by others here, the very low interest rates probably influenced our thinking to some degree.

EnjoyIt
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Re: Anyone else not save for cars?

Post by EnjoyIt » Thu Sep 13, 2018 12:55 am

Same as some other posters. We keep a 6 month Emergency fund in cash. last time we needed a car we used that and $5k on a credit card. We replenished the emergency fund shortly thereafter. We will likely do the same thing the next time we need another car though willing to take on financing and then paying it off relatively quickly if it gets us a better deal.

Arbitraging the interest rate vs investing $30k-$50k after deducting taxes for 3-5 is some money in the bank but it really isn't all that much so why bother?

jnet2000
Posts: 299
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Re: Anyone else not save for cars?

Post by jnet2000 » Fri Sep 14, 2018 1:35 pm

randomguy wrote:
Wed Sep 12, 2018 12:55 pm
jnet2000 wrote:
Wed Sep 12, 2018 12:26 am
If you love debt. Go for it . Get a car Loan.

I wouldn't. We drive 8-12 year old autos with 120,000-180,000 miles.

We are conservative investors and savers.

If we need a new used car, we'd pay cash for it.

I'd divert the extra grand to a savings account until I had enough to replace your current car.

We keep it simple.

We don't do debt. Period.
I do debt. Why? Because I like money and using debt properly results in a higher net worth than being afraid of taking out loans when they make financial sense. So far it has been 50/50 about if paying cash or taking the loan is the right move.
I like money and I like stuff. But I like owning it and not owing a cent to a bank. But I know my wife and I are pretty conservative and we are not your typical Americans. We view debt as very risky so we stay away from it.
"You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing" Warren Buffet

Thesaints
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Re: Anyone else not save for cars?

Post by Thesaints » Fri Sep 14, 2018 1:42 pm

Kywildcat wrote:
Mon Sep 10, 2018 10:22 am
I have a 10 year old Hyundai Elantra with 150k miles that is still going strong and in good condition for its age. However, I realize that I will probably need to buy a new car in the next few years. I often see people talk about saving for new cars so that no loan is required; however, I'm not sure this makes the most sense given the combination of two factors.

1) I don't know for sure when I will buy a new car. It could be next week if it requires an expensive repair or it could be 4 years from now. This seems like a long time to have a decent chunk of money sitting in a savings account to avoid a car loan.

2) Car loans are cheap.

As further background, I contribute about $1k to a taxable account each month (after maxing out 401k, Roth, HSA) that gets invested into Total Stock Market. My thought was that I could get a car loan and then re-direct my taxable savings to the car loan for 1-2 years. This would allow me to be fully invested at all times and have no tax consequences of selling appreciated shares. If it makes any difference, I am relatively young (32) so my time horizon is decently long from an investing perspective. Just curious if others have similar thoughts or if I'm missing anything.
Car loans are cheap, but if you take on a car loan you have to also buy a full collision policy, which is expensive.
I cannot see an instance were taking a car loan to purchase a new/semi-new car makes more sense than buying an older car for cash.

Olemiss540
Posts: 583
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Re: Anyone else not save for cars?

Post by Olemiss540 » Fri Sep 14, 2018 2:00 pm

I like the simplicity of buying 10k cars in CASH from a paperwork, monthly hassle, and insurance cost standpoint. The 10k car versus the 22k car seems like a 12k difference until you factor in state and local registration/taxes, increased insurance coverage costs, etc.

If I could afford the 22k car in cash with liability only insurance, I would do it in a heartbeat. So nothing against those who spring for higher cost vehicles.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Daryl
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Location: Malvern, PA (I like to sleep near my money!)

Re: Anyone else not save for cars?

Post by Daryl » Fri Sep 14, 2018 3:34 pm

The manufacturer was providing a low rate loan so I went with it. Financed 100% of the car's price. Signed a couple of forms and they handed me a set of keys. Buying a car with $0 money down (and a super low rate) was surreal. I've worked hard to stay on top of my personal finances, and my credit score reflects that. I just never realized how much of an impact that can have.

You Know What I Mean
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Re: Anyone else not save for cars?

Post by You Know What I Mean » Fri Sep 14, 2018 6:18 pm

We do save for cars because we like to plan for large purchases. Also, we have concerns about future interest rates, and we appreciate the flexibility that safe funds provide.

Since we are retired now, we currently “save” for cars by rebalancing our accounts. I adjust for the car amounts needed using my “Cash & Stable Value” category. I plan for each car to last 10 years, so for a $30,000 car purchase I increase safe funds by $3,000 per year for each car. (Actually, we’ve never spent $30,000 on a car, but maybe someday we’ll want to spend that much….)

I know that’s not optimal, but it’s nice to have the cash when needed. With the bull market of the last nine years, it certainly would have been better to have more invested in the stock market rather than safe funds. And my previous car lasted 17 years (yay!) rather than 10, so those safe funds were there for an extra 7 years. On the other hand, we’ve lost three cars early due to accidents, and it’s nice to have the safe funds available because collision insurance isn’t enough. I lost my favorite car prematurely when it was totaled by being rear-ended at high speed on an interstate.

Having the funds available also minimizes concerns about future interest rates. Car loans have recently been at very low rates, but that may not continue. If those rates go up a lot, especially relative to CD rates or expected portfolio returns, car loans may be much less appealing when needed.

Having the funds available provides flexibility, even if you end up not using all of them. You can decide which option to take when the need actually arises. After my 17-year-old car died last year, I was going to pay cash for a new car. However, to get an additional $3,500 rebate I had to take a car loan (at 0% interest!), so I did. That wasn’t my original plan – I’d prefer not to have debt -- but it was the best option at that moment.

Another example: this year I advised someone else buying a new car. There were many financing options. The best deal, to get an additional $1,700 rebate, was to put $5,000 down and take a 6.9% car loan, but pay it off immediately. That’s what she did. She sent a check for the payoff amount before the first payment was even due. That only cost her a few dozen dollars to cover the interest on the few days between the purchase date and when the payoff check was cashed. Flexibility is good.

I think part of the reason we started using this approach was natural risk-aversion coupled with having three kids in high school or college while I was in a good-paying but relatively non-secure job (defense contractor). Now that we are comfortably retired and our kids are on their own, we could probably take a less-conservative approach.

Thesaints
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Re: Anyone else not save for cars?

Post by Thesaints » Fri Sep 14, 2018 6:34 pm

BuckyBadger wrote:
Tue Sep 11, 2018 9:25 am
I'm surprised it took 50 posts to get to this. This is what we do - was even better back when HELOC interest was tax deductible...

Look at the loans offered and at the HELOC rate and go with whatever is better. Pay off by funneling our "other" savings toward the loan until it's paid off. That way we don't have 20k on top of other cash just sitting there doing nothing for us.

I always like having a HELOC available for stuff like this.
Why don't you buy the car with the cash you already have and rebuild your cash stash after ?
If things go south and you do need to your emergency funds before they are fully replenished, then you take the HELOC out.

badger42
Posts: 284
Joined: Thu Apr 09, 2015 9:01 am

Re: Anyone else not save for cars?

Post by badger42 » Fri Sep 14, 2018 6:42 pm

Our normal emergency buffer is enough to buy a car. I'd just as soon not bother with the hassles of a loan.

If we hit "new car needed, buffer depleted, don't want to liquidate securities right now", we would get a loan, or just do without for a while. Uber/Lyft/bikes/transit/feet can actually cover virtually all of our needs. (maybe not all of the wants, but all of the needs)

BuckyBadger
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Re: Anyone else not save for cars?

Post by BuckyBadger » Sat Sep 15, 2018 11:16 am

Thesaints wrote:
Fri Sep 14, 2018 6:34 pm
BuckyBadger wrote:
Tue Sep 11, 2018 9:25 am
I'm surprised it took 50 posts to get to this. This is what we do - was even better back when HELOC interest was tax deductible...

Look at the loans offered and at the HELOC rate and go with whatever is better. Pay off by funneling our "other" savings toward the loan until it's paid off. That way we don't have 20k on top of other cash just sitting there doing nothing for us.

I always like having a HELOC available for stuff like this.
Why don't you buy the car with the cash you already have and rebuild your cash stash after ?
If things go south and you do need to your emergency funds before they are fully replenished, then you take the HELOC out.
We don't keep an extensive emergency fund, it's more of a generous slush fund, so depending on whenever we wanted a car, paying cash would take us lower in extra funds than we'd like or into the negative. All excess money on top of that is invested in a taxable account because all tax advantaged accounts are maxed out. The HELOC would be paid off by this extra cash influx instead of being invested.

We've not used a HELOC for a car since the change in deductions, so we'd have to look at the numbers again, but in general we cash flow pretty much everything. We also would prefer low interest loans and investing more into our 70/30 AA.

I realize this is more aggressive considering that most on this board prefer to compare loan rates to zero risk investments, but it works for us. We rather pay a small interest rate and aggressively invest. Same reason we don't pay off our mortgage early. (Blah blah blah cars are depreciating assets and different than cars... We're just not that worried about it.)

five2one
Posts: 80
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Re: Anyone else not save for cars?

Post by five2one » Sun Sep 16, 2018 8:39 am

OP,

Just depends on your personal approach to money.

I make more in investments than my car loan interests but I will pay cash for my next vehicle.
Sure, in an ideal world I pay cash for everything but that isn't my current ability.
A good credit score and low interest rate (sub 2%) on a honda is still good idea.

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