-
We’re currently investigating an issue related to the forum theme and styling that is impacting page layout and visual formatting. The problem has been identified, and we are actively working on a resolution. There is no impact to user data or functionality, this is strictly a front-end display issue. We’ll post an update once the fix has been deployed. Thanks for your patience while we get this sorted.
What are People Thinking?? Average new Car Loan now at 6 years
Page 3 - Seeking answers? Join the AnandTech community: where nearly half-a-million members share solutions and discuss the latest tech.
Okay.. I have seen more than one person say.. "if you cant pay it off in 3 or 4 years get a cheaper car"
Most people who work need a car.. I work and support a family.
Even if I buy a 12k Kia I dont think I could pay it off in 3 years.
I am hoping to get a Honda Civic.. will probably end up with a 6 year note.
My down payment will be small to none... such is life.
Used cars are not always cheaper. Everytime I get a used car I end up spending about 2k
to make it safe and reliable... then after a couple of years its junk.
Peace
Rich
Most people who work need a car.. I work and support a family.
Even if I buy a 12k Kia I dont think I could pay it off in 3 years.
I am hoping to get a Honda Civic.. will probably end up with a 6 year note.
My down payment will be small to none... such is life.
Used cars are not always cheaper. Everytime I get a used car I end up spending about 2k
to make it safe and reliable... then after a couple of years its junk.
Peace
Rich
2-3 years ago it might have cost you 10% or more to get a 5 year loan on a used car. Now, I can a 5 year loan for 4.25% on a late model, used car.
Last car we bought, we ended up going that route. Mainly because our income varies greatly at different times of the year. My wife works part time some parts of the year, and full time some parts of the year. We made our payments so that they were reasonable when was only working part time, but bank the money when she works full time and will have it paid off in 2 years instead of 5.
Yes, paying for it in cash is the optimal situation - but lets face it - it's tough to come up with $20,000 in down payments when you have no equity off a trade in. So long as we pay it off 3 years early, we save ourselves a boatload of interest, but still have reasonable monthly payments when we need them to be.
Last car we bought, we ended up going that route. Mainly because our income varies greatly at different times of the year. My wife works part time some parts of the year, and full time some parts of the year. We made our payments so that they were reasonable when was only working part time, but bank the money when she works full time and will have it paid off in 2 years instead of 5.
Yes, paying for it in cash is the optimal situation - but lets face it - it's tough to come up with $20,000 in down payments when you have no equity off a trade in. So long as we pay it off 3 years early, we save ourselves a boatload of interest, but still have reasonable monthly payments when we need them to be.
Somebody could answer this better than me - but I *THINK* you would come out ahead doing it your way (finance over 5 years)
Assume this - You have $20,000 in the bank gaining X.X% rate. Now you finance that amount over 5 years @ 0% interest. That works out to payments of $333.33 a month. You pull out $333.33 every month from that account while the balance is accumulating interest.
On the flip side, say you pay $20,000 out of pocket, and then put in $333.33 into an account every month for 5 years gaining equal interest rate.
I *think* you would come out better chipping away at the 20k than the other way around because of compounded interest. Sort of the inverse reason of making two payments a month on your mortgage. You cut down interest faster that way, so my way would gain interest quick....or at least it seems it would.
Can somebody check the math on that?
Demon-Xanth
Lifer
Before this thread I didn't even KNOW you could get a loan for more than 5 years.
A good example of a car with that kind of schedule is mine:
$19,470 for my Dakota+tax+license+doc+extended warrentee (not even two years old and is already over 32k miles)=$22,800, -$5k down is $17,800 financed, I got 0% and have car payments of about $494, but I round upto $500. I only have $5924 left (just checked) and my car's worth $16k. So I have $10k in equity on a two year old car.
NogginBoink
Diamond Member
Let's see... if I can get a 3 year loan at zero percent or a six year loan at zero percent on the same car, the six year loan leaves me a whole lot more money that I can invest and use for a positive rate of return. Classical economic theory says that in this case the longer loan is the wiser choice.
Vic
Elite Member
No. In fact, if given the option for a $0 down 0% interest loan, you should jump on it, as it is better than paying cash. Not only is it "free money," but because of inflation it is better than free money. Then you should take the money that you would have otherwise used to pay cash for the car and put it in a bank or investment account, making the monthly payments out of that account. That account will appreciate, and in the end you will come out ahead. There is also no danger of being "upside-down" or having negative equity in the car because you have the money to pay off the loan at any time set aside. I would recommend this course of action for any auto financing of 3% and below (roughly 3% being the average rate of inflation).
edit: oops, should have read the whole thread. 😱 The important thing here is not just that the interest rate on the loan be below any savings account rate, but also that the interest rate on the loan be less than the average inflation rate. In financing, any interest rate less than the average rate of inflation has the nickname of "free money," because that's what it really is. Yes, a long term can make more sense from an investment/liquidity viewpoint, but I still believe that 60 months should be the longest term that anyone ever take out on a car.
And if you really knew what you are talking about you also know that to get the 0.0% you give up the $4000 off for GM etc... So unless you are going to make up that $2000-$4000, you again will be in the wrong. Its part of buying a car, and % is only one thing to account for. If you can't pay it off in 3 years or less, you are shopping with your eyes, not your brain.
Parrotheader
Diamond Member
If I wasn't planning on starting a family sometime in the next year or two, that would be my goal too. Fortunately, we won't have to buy a car for at least 4-5 years now I'm hoping.
I was going to buy a new Tacoma DoubleCab earlier this year, but since Toyota didn't have any good financing deals and since the deprecitation on 1 or 2 year old Tacomas is virtually non-existant I jumped down over 8+ grand in price and got a nearly as nice, 3-year old 'new to me' Nissan Frontier Crew Cab with very low miles on it. We actually had enough money in our savings to buy the whole thing outright and still have a decent amount left in savings. But I like the security factor of having at least 6 months worth of living expenses in liquid assets at all times. So we put roughly 50% down and financed the rest for 3 years (I honestly don't remember the rate because it was from my credit union and very strong; plus I'm actually hoping to have it paid off in two years or less anyway.) Even though I'll be paying it off fairly quickly I hope to be driving this thing for the next 8+ years. That'll be at least 6+ years without a car payment for my vehicle. Regardless of any statistical benefits of financing vs buying outright, in an everyday practical budgeting sense, its what works best for us by giving us only a small amount of major purchases to focus on at a time while still having a decent amount of money in the bank should something majorly bad happen.
We find it's a lot easier for us to manage our wants vs needs by forcing ourselves to pay off most major purchases immediately or ASAP instead of being sucked into the world of financing EVERYTHING like so many people I know do. We're currently saving up for some major furniture purchases (bedroom suit, new couch/chair/ottoman) and we plan on buying those outright regardless of any finacing specials. It might not always make sense to some, but it's kept us humble while still allowing us to buy nice things for ourselves on a middle class income.
BrunoPuntzJones
Lifer
Bought a new car financed through Bank of America and the rate was the same at 4 years as it was 5. No penalty for early payment (over something like 8 months and no penalty). So no reason not to do 5 and pay it off in 4.
TRENDING THREADS
-
Discussion Zen 5 Speculation (EPYC Turin and Strix Point/Granite Ridge - Ryzen 9000)- Started by DisEnchantment
- Replies: 25K
-
Discussion Intel Meteor, Arrow, Lunar & Panther Lakes + WCL Discussion Threads
- Started by Tigerick
- Replies: 25K
-
Discussion Intel current and future Lakes & Rapids thread- Started by TheF34RChannel
- Replies: 24K
-
-
