My 2010 Z

cjof2003

I'm sorry if I don't understand, but why are you paying over $10,000 in interest on a $22,500 loan??? (36500 - 7500 - 6500)
Your paying $33,180 with $553/month for 60 months.

Micas

Okay, I'll use this post as an example. There is something very wrong with those terms. I did an amortization on 22.5k @ 3.99 for 60 months. His payment should be $415 and not $553, and total interest cost for the life of the loan would be $2356. Your argument that 0% and 3.99% is basically "marketing" is realistically a $2356 difference, not zero. That's on a 22.5k loan. The person who has that loan did not do the math to see that there was something very out of whack.

If you move the terms to a 32.5k loan, the payment goes to $598 and interest cost of $3403. That's with a very good interest rate.

I guess if somebody considers 2k+ (depending on principal) trivial, then that's fine. A person could make an argument that if you had investments that were earning more than the interest rates paid on a car loan, then it's best just to finance the entire amount. That's valid, but I think that's risky.

Personally, I think if you don't pay interest, you're a few thousand ahead in the long run, and the philosophy of not financing anything but a house has a multiplicative effect. It all adds up over a long term, and the returns you can make on that saved money adds up to a significant amount over time. I think a lot of people ramp up their outflow of money to close to, or more, than their income and that's a very bad thing.

In terms of your idea about spending less on a house in order to afford a car, it's a legitimate point. I'm just saying that you can pick any arbitrary number for a house to offset anything else you'd like to buy. Managing income and expenses is all about just deciding on what you want. If a certain car gives you a lot of value, you can certainly balance that against what you spend on other things. It's all up to the individual. Some people are perfectly happy with a Civic, but they want a $15k home theatre, or whatever. Some people want it all, and work like crazy to make a lot of money.

The point is, I think people should stop thinking about buying cars in terms of monthly payments, and reduce needless expenses. I consider interest paid as a needless expense (except on a house). I think living pay check to pay check is a recipe for disaster.

If you want to know the difference between a 15 year loan, and a 30, you can check a calculator. Keep in mind that the interest rates are different based on the length of the loan. You can't get a 5 year home loan I don't think. I think the shortest they go is like 7.5, but I'm not positive about that. If you have a high enough credit rating and significant assets, you can get a signature loan for whatever period you want in order to buy a house, but that's not a good idea because you can't deduct the interest.

Mortgage/Loan Calculator with Amortization Schedule

Anyway, I'm mostly repeating myself and ruining the thread, so I'll stop.

Slynky

A man after my own (aging) heart. We could probably sit down and make a toast to "waiting till you can more or less afford something" versus catering to what our (my kidz, for example) current generation has learned growing up--"Want it now? Get it now!"

In your and my times, you just didn't decide you wanted to watch a movie and download it right then. Or that you got tired of this game for your gaming platform (as if we had one of those any better than an Atari) and run to Blockbuster and get one. Tired of your 2,000 songs on your iPod? Just go to the iTunes store right now ! Tired of this channel on TV? Switch to one of the hundred other channels. Instant messaging and instant gratification go hand-in-hand these days.

It leads to, for example, my 19-year-old son wanting EVERYTHING now instead of waiting (like I did). And all he wants to know is if he can afford the monthly payment.

And there you go. The question every dealership salesman asks because s/he doesn't want you to worry about the price you'll ultimately wind up paying, he only wants you to look at this car one month at a time.

As Micas said (if I can paraphrase), you need to worry about the total cost of that car and the amount of interest over the life of the loan as well as the monthly bill.

As to a house and what amount should you spend on one or how much could you qualify for... a rough guide is you can afford a house 3 times your yearly gross salary. Make $70K a year? You should be able to get into a house around $210K. That assumes anything else you owe money for isn't too far out of kilter.

When wife and I decided on how much to spend on building our new house, we could have easily qualified for a $275K house. We opted for $220K because we wanted to have money left to live comfortably as well. Maybe that helps with one of the questions. We bought in '98 and it will be paid off in 5 more months. We pay $3,000 a month now.

Our credit card (Amazon) is used for our convenience and we haven't ever paid a bit of interest on the balance because we pay in full every month.

If I get a new car (Z), I'll pay about half of it down ($20K) and the remainder will be paid off in about 10 months. Money wasted on interest will be somewhat minimal. The RSX I own was paid off in about a year (had a balance of $18K at purchase).

Hope this helps and hope the comments about the younger generation aren't seen as anything other than constructive.

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dudafunk

My question from this - LOOKING BACK - do you feel you would have been going crazy in a house worth $200k instead of $220k - and thereby been in a position to afford an extra $20k on your car. I'd put my money on YES which is why I'm so into buying a 'better' car first. But I'm open to change my thinking and would love to understand why someone would say NO to this.

Slynky

Well, without figuring it out, the difference in a house payment for $200K -vs- $220K will mean a difference of about $120 per month. If this amount of extra money would mean the difference between you getting a nice car or a REALLY nice car, then I guess you have your answer.

What Micas was wanting you to be concerned about was the amount of money one puts forth in total when going into debt for a huge chunk of cash. It's, in reality, wasted money. So, as long as you're trying to determine, for instance, if buying a cheaper house will allow you to have a more expensive car, you should also consider if paying/wasting (for example) $3,000 in interest over the life of the loan is worth having it NOW instead of saving up for it.

That's the sort of thought I weighed when considering purchasing a Z for myself... if paying/wasting (for example) $500 is worth having a 2010 model instead of waiting for the 2011 model and having just about all the cash I need.

Hope this answers your question.

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dudafunk

The reason why I don't cry about the $3000 interest and call it 'borderline marketing' is because I could be picking a car which advertises 0% interest and then just eliminate this factor --- but no. That wouldn't be right. So I will look at it holistically - that OK, I'm going to be spending $X overall - for SOME product. And is it going to be ok living in a house $X cheaper than what I would buy if I don't buy a $X car.

Overall, I feel consensus though, with mica's and your arguments. BTW I'm 24.

Slynky

If you can get a car at ZERO interest, just make sure it somehow isn't built into the price of the car. If you're bringing your own loan company, then obviously that's not a worry.

Getting a car at ZERO % is pretty much like paying straight cash for it (but a little at a time). In fact, better because money inflates (to some degree).

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Slynky

And to specifically answer...

We had a Honda Accord purchased one year earlier. We sold it in 2006, so we didn't really get a new car. We did, however, buy a Nissan XE PU the same year. Paid it off in about 18 months. If we had gotten a house for $20K less, I don't think we would "gone crazy". I also doubt we would have done anything differently as it relates to car buying. (but the house would have been paid off by now... LOL)

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Micas

Okay, I lied, one last thing.

You're quibbling over 20K so you can "afford a car", as if that 20k is going to be putting you at your limit. You're looking at it in very strange terms.

Let's get right down to it. How old are you and what's your annual income? I'm betting that you make less in a year than you want to spend on a car. The sense that I get is that you're a young guy who really wants a car he has no business getting, and is that 19 year old type that is Slynky's son.

Young people do stupid things. I did. I'm not going to tell you not to buy something, that's obviously pretty pretentious. I can try and talk you out of leveraging everything in order to satisfy a material desire, but ultimately we're all product of our mistakes as well as our successes. Being held hostage by a big debt for a long time is a lesson that sometimes needs to be learned the hard way.