This time next year I will be in the market for a new car. My current car, 06 Kia Spectra, is getting up there in miles and by next summer I will probably have reached the point where some form of maintenance will exceed the value of the car. It currently has 170k miles on it and I drive around 18k miles a year. I plan on putting about 6k down on an approximately 20k hybrid car. I plan on buying new for the first time due to the warranty on the hybrid system. I would love to avoid having to finance a vehicle in the future. I'd love to hear some strategies to get out of the car loan cycle. I'm all for driving a car into the ground so my next car will likely last me 10+ years. Are any of you buying your cars with cash?
Strategies for Getting Out Of the Never Ending Car Payment Cycle
- Thread starter imjoe
- Start date
cocobird
Level 2 Member
Yes. I have been paying cash for my cars since I bought the first one in my 20s and driving them into the ground before I buy the next. I have never paid more than $22,000 all in (car, registration, taxes), and always purchase new. While used cars may represent a better overall value, one cannot be sure that the car has not been in a serious accident, is a lemon, or has been in a flood. In addition, car odometers are often rolled back. In addition, overall car quality keeps improving so that for practical purposes, most cars will last a decently long time period.
The average car buyer pays around six months salary for the vehicle. We have paid considerably less than that and still gotten perfectly fine transportation.
I compare that to having a gold band versus having a diamond ring. The symbolism is the same - it gets the job done!
The average car buyer pays around six months salary for the vehicle. We have paid considerably less than that and still gotten perfectly fine transportation.
I compare that to having a gold band versus having a diamond ring. The symbolism is the same - it gets the job done!
A car is a depreciating asset - though physically it is harder to see than financially. Sadly, there is no way out of paying for something that will continually decay, if you can't find a way to live without a car then you have to put it down into a longer term consumable purchase. Clearly there are ways (that you both are looking at) to reduce such expenses by buying savvy and not changing cars with every new model released, but that only reduces cost.
The FIRE concept I discussed on this site is one where you build up sufficient assets to offset your expenses - you will always have expenses in life, food being the obvious one, and a car may be in that category if a bike/walking isn't viable, or desired. So with that in mind the best strategy I can suggest in addition to what you have already is to build up cash flowing asset that produce a greater rate of return than the loan rate, aka arbitrage, no different than the other expenses here.
We should note that not all debt is equal, so while car loans can be found with very low APRs another route would be to take something perhaps from a HELOC if the tax adjusted rate was lower.
The FIRE concept I discussed on this site is one where you build up sufficient assets to offset your expenses - you will always have expenses in life, food being the obvious one, and a car may be in that category if a bike/walking isn't viable, or desired. So with that in mind the best strategy I can suggest in addition to what you have already is to build up cash flowing asset that produce a greater rate of return than the loan rate, aka arbitrage, no different than the other expenses here.
We should note that not all debt is equal, so while car loans can be found with very low APRs another route would be to take something perhaps from a HELOC if the tax adjusted rate was lower.
iamjoe, I hear you. After many years of car payments, I decided never again. My simple solution was to pay off the car with regular car payments, and once done, continue to pay myself in a separate account, that same car payment amount. I currently use a conservative ETF (iShares S&P US Pref Stock Idx Fnd, current yield over 6%-not exciting). Even with deducting money to pay for parts and maintenance (but I am fortunate in that routine maintenance, brakes, exhausts, etc could be done by my husband), I was able to buy a car of my dreams ( a Volvo, no less) with cash. However, I did keep that first car for 13 years, and I continue to fund my new car account for my next purchase. That kept me free from car payments from that time on....over 30 years (I was very young at the time). AND, you would not believe how large that fund is today. My kids have done the same -- first car with a loan, but any car after that will be cash. I'm sure there are many solutions to your dilemma, but this worked for me.
cocobird
Level 2 Member
There are a couple of other strategies that might be helpful when looking to minimize the initial car cost. For instance, many people demand a new car have very little mileage. I purchased a new car that had less than 500 miles on it because it was used at a major golf tournament. That bit of mileage resulted in a substantial discount off of the MSRP (as I recall it was 25 or 30 percent), then I placed the maximum the dealer would take on a credit card (to be paid off before any interest accrual, but getting the card rewards as a bonus).
The key thing is that you need to be flexible on what you want versus what is available. For example, I consider things like car color as somewhat unimportant (as long as it isn't disgusting). I also tend not to buy a lot of extras. One time that worked in my favor as the dealer threw in the extras on a car that met my specifications because the relatively bare car I wanted was not readily available.
Also, always be ready to walk away. I believe that in most negotiations, the first one to name a figure loses. I have often started out the door without naming a number, simply saying it's too much, while the salesman keeps dropping the price to keep me there. This tactic works and has served me well in the purchase of autos, jewelry, and houses. It has also worked to increase the salary of both myself and my husband in negotiating new jobs.
The key thing is that you need to be flexible on what you want versus what is available. For example, I consider things like car color as somewhat unimportant (as long as it isn't disgusting). I also tend not to buy a lot of extras. One time that worked in my favor as the dealer threw in the extras on a car that met my specifications because the relatively bare car I wanted was not readily available.
Also, always be ready to walk away. I believe that in most negotiations, the first one to name a figure loses. I have often started out the door without naming a number, simply saying it's too much, while the salesman keeps dropping the price to keep me there. This tactic works and has served me well in the purchase of autos, jewelry, and houses. It has also worked to increase the salary of both myself and my husband in negotiating new jobs.
Maybe I am a bit frugal, but I like buying cars that are 4-5 yrs old, they tend to be 40-50% cheaper than MSRP. I usually hold on to them for 6-8 years. I think most cars made in the last couple of decades can easily last for 15 years without major repairs, just standard maintenance schedule and regular oil changes. I tend to get Japanese made cars, so I may be an exception, but it has worked for me. We have a "car fund", I contribute to it every month, it builds up over the years, I use some of that money for maintenance work, and eventually I buy another car with money in that account. So we still have a car payment, just into our savings account and not to a bank -- sorry cannot use Evolve here.
Cheers,
PedroNY
Cheers,
PedroNY
+1 for PedroNY.
How anyone spends their money is up to them, but I still say that buying a new car is a losing proposition. Buy a used car that has a high resale value and save a ton of money. Yes, it's still a depreciating asset, but but your percentage of value lost will be much lower.
Many cars lose half of their value in the first 4 years or so. Let someone else take the hit. Here is just one example:
http://www.edmunds.com/car-buying/how-fast-does-my-new-car-lose-value-infographic.html
How anyone spends their money is up to them, but I still say that buying a new car is a losing proposition. Buy a used car that has a high resale value and save a ton of money. Yes, it's still a depreciating asset, but but your percentage of value lost will be much lower.
Many cars lose half of their value in the first 4 years or so. Let someone else take the hit. Here is just one example:
http://www.edmunds.com/car-buying/how-fast-does-my-new-car-lose-value-infographic.html
Yes, we buy our cars outright. Keep in mind that these are inexpensive used cars <$8K, but we've done it for the last 3 cars and will never go back to the car payment lifestyle. We share 1 car and don't need a second one. Next time we by a car I hope to have a 5x card.
I saw this on the ERE forum but its originally an idea from Car Talk. In their opinion the best strategy would be to buy a quality 9 year old car, drive it for a year, sell it, and repeat the cylcle. I'm still rolling this around in my head but it seems like the depreciation from year 9 to year 10 would be almost nothing and you could sell it for close to the price you paid. In that case you'd only pay for gas, insurance, and maintenance. Insurance and maintenance would be minimal because of the age and the fact that you hopefully buy the car in good shape and don't abuse it.
This might not be viable for those who prefer new cars (for whatever reason) but it has me intrigued.
This might not be viable for those who prefer new cars (for whatever reason) but it has me intrigued.
Last year, I leased a car for the first time. In the past I've always figured that car leases aren't really worth it, but in this case there were a lot of factors that made my lease worth it.
I did a 3 year lease for a 2013 Nissan Leaf. The main thing that made this worth it is the government incentives available for an electric car. The federal rebate is $7500 and California offered a $2500 rebate. In the case of a lease Nissan get the federal rebate but they factor that into the cost of the car when I lease it. The $2500 CA rebate comes to me by mail a few weeks after I purchase/lease the car. At the time of my lease, Nissan was competing with the Chevy Volt for their share in the electric vehicle market. I was able to negotiate a lease where I essentially paid $200/month for 3 years after a $2500 down payment. Nissan let me write them a check for $2500 and agreed to hold the check until I got my CA rebate and then I essentially used the CA rebate towards my down payment.
The extra value of this deal for me comes in the form of the gas savings. Since we drive our car an average of 1,000 miles a month we are essentially saving 33 gallons of gas a month(assuming a replacement car at 30mpg). Gas is more expensive than $3 in Southern California(probably closer to $3.80 last I checked) but I will be conservative and assume $3/ gallon x 33 gallons and say we are saving $100/ month by using our electric vehicle instead of a gas vehicle. Also, by underestimating the gas costs I'm accounting for the fact that it does cost a few bucks to charge our vehicle every few days($20-30/ month if you're curious)
So my $200 car payment also saves me $100 in gas every month, so I'm essentially leasing a ~$30K 2013 Nissan Leaf for $100/ month for 3 years. At the end of the 3 years I'll have to move on as I don't think the incentives for electric vehicles will be this enticing again but this happens to be a real nice deal that fits me and my families lifestyle at the moment. A few other bonuses to leasing an electric car:
-a 3 yr lease means I don't have to deal with any potential long term battery issues that might arise from an electric vehicle
-The car is pretty much under warranty for the life of the lease
-There are no fluid changes in an electric vehicle so I'm actually saving even more by not needing oil changes every few months. All I need is $25 tire rotation every 5,000 miles.
Just something to consider right now while the incentives are still there. Figured I'd throw it out there since I believe a lot of electric car manufacturers are eager to get their cars out there and the government rebates are making this a good deal for those who are interested.
Outside of this deal, I'm generally in the "buy a 2-5 year old car" camp as I think its generally the most cost efficient. But its always good to keep an eye out for conditions that might foster a deal like this.
I did a 3 year lease for a 2013 Nissan Leaf. The main thing that made this worth it is the government incentives available for an electric car. The federal rebate is $7500 and California offered a $2500 rebate. In the case of a lease Nissan get the federal rebate but they factor that into the cost of the car when I lease it. The $2500 CA rebate comes to me by mail a few weeks after I purchase/lease the car. At the time of my lease, Nissan was competing with the Chevy Volt for their share in the electric vehicle market. I was able to negotiate a lease where I essentially paid $200/month for 3 years after a $2500 down payment. Nissan let me write them a check for $2500 and agreed to hold the check until I got my CA rebate and then I essentially used the CA rebate towards my down payment.
The extra value of this deal for me comes in the form of the gas savings. Since we drive our car an average of 1,000 miles a month we are essentially saving 33 gallons of gas a month(assuming a replacement car at 30mpg). Gas is more expensive than $3 in Southern California(probably closer to $3.80 last I checked) but I will be conservative and assume $3/ gallon x 33 gallons and say we are saving $100/ month by using our electric vehicle instead of a gas vehicle. Also, by underestimating the gas costs I'm accounting for the fact that it does cost a few bucks to charge our vehicle every few days($20-30/ month if you're curious)
So my $200 car payment also saves me $100 in gas every month, so I'm essentially leasing a ~$30K 2013 Nissan Leaf for $100/ month for 3 years. At the end of the 3 years I'll have to move on as I don't think the incentives for electric vehicles will be this enticing again but this happens to be a real nice deal that fits me and my families lifestyle at the moment. A few other bonuses to leasing an electric car:
-a 3 yr lease means I don't have to deal with any potential long term battery issues that might arise from an electric vehicle
-The car is pretty much under warranty for the life of the lease
-There are no fluid changes in an electric vehicle so I'm actually saving even more by not needing oil changes every few months. All I need is $25 tire rotation every 5,000 miles.
Just something to consider right now while the incentives are still there. Figured I'd throw it out there since I believe a lot of electric car manufacturers are eager to get their cars out there and the government rebates are making this a good deal for those who are interested.
Outside of this deal, I'm generally in the "buy a 2-5 year old car" camp as I think its generally the most cost efficient. But its always good to keep an eye out for conditions that might foster a deal like this.
Or the time to sell it? I know when I listed my car on craigslist it took over a month to sell because people changed their mind cancel appointments or don't show up. Plus I work during the week so only so many hours during the week that I am free.
Also when I shop for cars one of the things I look for is someone that bought it new and is now selling after 4-5 years of having the car. Someone who had the car for a year and is selling to me is suspicious. Sounds like you want to get rid of some big maintenance cost thats coming up.
Outlying Anomaly
Level 2 Member
@imjoe asked if anyone buys cars with cash. We're in the market to buy our 2nd with cash, but prefer to put as much as possible on a card for obvious reasons, then pay it off immediately. We did this ~5 years ago. We buy new after running into the ground. No car payment for 10 years. Next car: A great deal AND having > $5000 put on a card are slim to none, but I'm going to still let the dealers know when I open the bidding process that that's what might be my tipping point in choosing them instead of their competitor.
Since you mentioned a hybrid, if you're even considering Ford, they offer $500/750 customer cash in ADDITION to dealer incentives. You just have to request a brochure from their marketing dept. Supposedly a "chance" to get one, but I got the deal in 2 out of 2 brochures after I told them I was heavily leaning toward a repeat purchase, but hubby just didn't want the same thing...100% true. (I get the Fusion, so I don't care!)
We've had a Fusion Hybrid for 5 years, and are looking at a 2nd (Energi is actually cheaper with tax rebate), or maybe just a Focus (about same MPG w/o hybrid). Also, some cars now have lifetime warranty on the hybrid batts - hopefully everyone will do that eventually. All electric isn't practical with hurricanes, long commute, and not in CA.
We plan on selling old car to CarMax or the dealer, whichever offers the most for a very well-used, old car (not much). Agree with @Alex1432 - would never do Craigslist or eBay - too much work and worry.
My car starts with a screwdriver and hasn't had a working driver's window for years. The easiest way to get out of the "never ending" car payment cycle? Never buy what you can't afford. If you don't have money to pay cash, buy the cheapest/safest option that will get you from Point A to Point B. Refuse to feel pressured to keep up with the Joneses. Spending less on a car will get you more of something else at some point.
Since you mentioned a hybrid, if you're even considering Ford, they offer $500/750 customer cash in ADDITION to dealer incentives. You just have to request a brochure from their marketing dept. Supposedly a "chance" to get one, but I got the deal in 2 out of 2 brochures after I told them I was heavily leaning toward a repeat purchase, but hubby just didn't want the same thing...100% true. (I get the Fusion, so I don't care!)
We've had a Fusion Hybrid for 5 years, and are looking at a 2nd (Energi is actually cheaper with tax rebate), or maybe just a Focus (about same MPG w/o hybrid). Also, some cars now have lifetime warranty on the hybrid batts - hopefully everyone will do that eventually. All electric isn't practical with hurricanes, long commute, and not in CA.
We plan on selling old car to CarMax or the dealer, whichever offers the most for a very well-used, old car (not much). Agree with @Alex1432 - would never do Craigslist or eBay - too much work and worry.
My car starts with a screwdriver and hasn't had a working driver's window for years. The easiest way to get out of the "never ending" car payment cycle? Never buy what you can't afford. If you don't have money to pay cash, buy the cheapest/safest option that will get you from Point A to Point B. Refuse to feel pressured to keep up with the Joneses. Spending less on a car will get you more of something else at some point.
Deltahater
Tequila, Miles and Suites
What are peoples' thoughts on buying new vs leasing?
Let's say you want to buy a high end luxury vehicle for $80,000. The lease payments are say $1,000. You want a new car after 3 years. Your lease payments are then $36,000. If the 3 year old car is worth more than $44K ($80K-$36K), you should buy the car outright? Or did I make a mistake? I am also assuming that TTL is similar the money down demanded by the dealer for a lease.
Let's say you want to buy a high end luxury vehicle for $80,000. The lease payments are say $1,000. You want a new car after 3 years. Your lease payments are then $36,000. If the 3 year old car is worth more than $44K ($80K-$36K), you should buy the car outright? Or did I make a mistake? I am also assuming that TTL is similar the money down demanded by the dealer for a lease.
Mike Tetlow
Level 2 Member
I would say that the lease or buy decision also depends on how hard you are on the car (excessive wear and tear penalties), and especially the amount of miles you drive. The penalties could throw your math out of whack pretty quick, depending on how it all goes on turn in.
If you're looking for a fun decision, I say do it, buy or lease based upon gut feel of hitting penalties, and just accept the consequences. Who knows, maybe you'll want to keep it after 3 years.
If you're looking for the deal/finance forum suggestion well... crown vic or pontiac vibe is the way to go depending on the forum you're reading at the moment.
If you're looking for a fun decision, I say do it, buy or lease based upon gut feel of hitting penalties, and just accept the consequences. Who knows, maybe you'll want to keep it after 3 years.
If you're looking for the deal/finance forum suggestion well... crown vic or pontiac vibe is the way to go depending on the forum you're reading at the moment.
I'm still thinking through this idea myself but I believe that with a little creativity and know how it could work.
imjoe: Taxes and fees could be minimized by not going through a dealer, correct? I suppose there would still be some minor things like title and registration but that would still be worth it if you are avoiding the cost of the car itself.
Alex1432: This is the biggest hinderance to me as well, there could be a lot of hassle involved.
Even considering these points I think its a viable plan if you have a little know how when it comes to cars and stick to low cost, quality used cars rather than luxury cars.
I had just the opposite experience. The first car I sold (Toyota Corolla) was 14 years old with 150k miles on it. You would've thought I was giving away gold. The first day I had 15 calls before lunch, and set up 3 appointments that evening. Of course I let each person know that it was first come first serve. The first guy that came bought it, drove it away the very next day. The second car I sold (another Toyota Corolla) was 11 years old with 190k miles on it. Again, sold it to the first person that looked at it, and drove it away the same day. They didn't even haggle one dime on the price.
Still... even with those great experiences it's not something I'd want to deal with every year. More so for the hassle of buying a car. That is what gives me headaches.
It's not a coincidence that leased rhymes with fleeced.
Outlying Anomaly
Level 2 Member
Exactly. I'm trying the Fighting Chance method within the next couple of months. I bought the "package" online and feel it was well worth the money spent (and I'm as frugal as they come). In a nutshell:
- Go to test drive and ONLY test drive. No money is discussed (or get a quote in <5 minutes, I'll wait for that, but no longer).
- Do the rest of the negotiations from the comfort of your home where you have more control over them. Have the complete price in hand when you walk in to buy.
There is no way to avoid the taxes and I'm sure they would add up quickly.
El Ingeniero
Level 2 Member
I've just buy a used, roughly 10 year old car using reliability ratings on old cars on Kelly Blue Book and similar sites as a guide. One thing that I've found saves a lot of money is to buy cars which come with low insurance rates.
I do live in Minnesota, so heated seats and mirrors are important, and that usually means they will be leather seats and power mirrors.
For the last year, I've driven a 98 Subaru Forester S. Liability, Comprehensive and Collision costs me 25% less than Liability insurance alone on the previous vehicle did, and that's after being at fault for totalling the previous car.
I do live in Minnesota, so heated seats and mirrors are important, and that usually means they will be leather seats and power mirrors.
For the last year, I've driven a 98 Subaru Forester S. Liability, Comprehensive and Collision costs me 25% less than Liability insurance alone on the previous vehicle did, and that's after being at fault for totalling the previous car.
Sky WIzard
Level 2 Member
I tried just saving double my payments in another account, and eventually had enough to afford my next car out right. Takes dedication but is attainable.