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I just read this:

The average monthly car payment was $554 for a new vehicle and $391 for used vehicles in the U.S. during the first quarter of 2019, according to Experian data.Sep 12, 2019
 
And people are taking out 6 and 7 year loans on cars. Seems like a lot of money to me.

So then I read this article.

https://www.cnbc.com/2019/11/04/follow-this-simple-rule-for-car-buying-if-you-want-to-get-rich-says-millionaire-money-expert.html?utm_source=pocket-newtab

Never spend more than this much of your income on a car

To save others from making this costly mistake, I came up with the 1/10th rule for buying a car. It’s simple: Spend no more than 10% of your gross annual income on the purchase price of a car.

Why? Because the upfront cost of a vehicle isn’t going to be the only thing you pay for, and cutting down your base price budget is the most effective way to save money.

If you make the median per capita income of about $42,000 a year, for example, you should limit your budget to $4,200. If you make the median household income of about $62,000 a year, don’t spend more than $6,200 on a car.

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Ya don’t get much of a car for $4200. 

I have seen 6&7 year car loans, but I live in the south. It should still look pretty good after it’s paid off. 
 

Maybe that was a yearly cost. Don’t spend more than 10% of your yearly income on the payments??

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6 minutes ago, 2Far said:

Ya don’t get much of a car for $4200. 

I have seen 6&7 year car loans, but I live in the south. It should still look pretty good after it’s paid off. 
 

Maybe that was a yearly cost. Don’t spend more than 10% of your yearly income on the payments??

 No he means if you make $60000 drives a $6000 car.

 Even with maintenance hesays it's cheaper than paying $600 a month for a car loan for 5 years 

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My wife has bought $18,000 used cars forever. They have served us well. The only one she traded in that wasn’t used up was a 2013 Accord when she wanted to buy that Pilot that I now use as my guy car.

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13 minutes ago, 2Far said:

Ya don’t get much of a car for $4200. 

I have seen 6&7 year car loans, but I live in the south. It should still look pretty good after it’s paid off. 
 

Maybe that was a yearly cost. Don’t spend more than 10% of your yearly income on the payments??

6 and 7 year loans seem crazy to me. Am I the crazy one for thinking that?

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4200 dollar cars that have to take you to work every day seem crazy to me.

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9 minutes ago, maddmaxx said:

4200 dollar cars that have to take you to work every day seem crazy to me.

My car is worth less than $4200. I ride my bike most of the time.

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A very successful guy I know says, buy any car want, but pay cash. If you only have 1000.00 your choices are limited.

I knew him when he was driving $50.00 cars, that was 50 years ago, but even then a 50 dollar car wasn't much.

He told me when he wanted a better car than he could afford, he concentrated on saving money. 

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5 minutes ago, Further said:

I knew him when he was driving $50.00 cars, that was 50 years ago, but even then a 50 dollar car wasn't much.

 

I have only owned three cars that I paid less than $100 for. I got my money’s worth out of all three.

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A good friend of mine has a 4 seater car.  She drives it daily just within city. Goes out of town several times per month.  So now this car is over 15 years old.  She told me she spent at least over $8,000 in the last 18 months.  I think she needs to plunk down another $5,000 for repairs this year.

For whatever reason she doesn't want to buy at least  newer 2nd hand car.  

I was ...actually glad for my brother made his car last nearly 20 years before he bought a new one this year. Primarily local trips.  He doesn't drive out of the city...such a homebody.  He's younger than I.

A work colleague won a new Lexus car from a hospital charity fundraiser. It was worth $70,000.  He took the money instead....paid part of home mortgage and bought a 2nd hand SUV.  They often go to the mountains per month since he does skiing, kayaking, etc.

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3 hours ago, dennis said:

6 and 7 year loans seem crazy to me. Am I the crazy one for thinking that?

Yeah it’s seems kinda long but, interest rates are pretty low right now so it can make the monthly more palatable with not as much of a interest hit. We tend to pay ours off in 3 years but that’s us.

My wife’s car price was more than 10% of our gross income and we can afford the car note easily on a 3 year loan so I don’t think it applies to all situations. 

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I finally got to the point where I bought my last car without a loan. It was an $18,000 (total, no trade-in) 2013 Honda Fit.  If I buy my next car in 2028 after a typical-for-me 15 years of ownership, it's probably going to be at least $30,000 so I make sure I pay myself $2000/year by buying CD's and bonds specifically designated for the next car.  I'll be 78 in 2028, so I'm saving a little more than $2K/year because I'll definitely want the automatic parking, driving assistance, etc. options that will be available then.

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I know people who tell me things like, "I really made out great with the new car.  My monthly payment is less than I was paying on my trade-in."

Of course, they had 4 more payments left on the trade-in and now have 6 years to pay on the new car!

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7 hours ago, dennis said:

My car is worth less than $4200. I ride my bike most of the time.

This is far from an available option for many.

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I am of the mind that you should buy as much car as you can comfortably afford and keep it a long time.  My airport car is 13 years old now.                                                                                                                                                                                              

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4 minutes ago, maddmaxx said:

This is far from an available option for many.

I would die if I tried to bike to work. There’s just no safe way to do it.

While I agree with the principal of minimizing debt, spending 1/10th of gross annual income seems impossible to buy a reliable automobile that is essential for transportation to get to work. I think the author of the article has forgotten this aspect, as he laments buying the  Mercedes G500 SUV instead of the condo in San Francisco, a $30,000-$40,000 car isn’t a frivolous luxury purchase.

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6 minutes ago, wilbur said:

I am of the mind that you should buy as much car as you can comfortably afford and keep it a long time.  My airport car is 13 years old now.                                                                                                                                                                                              

I had one of those when I was a consultant.  I joked that the airport parking service actually owned the car and loaned it to me on weekends.  The car finally rusted to death while sitting in an open parking lot covered in snow for a week or two at a time.  It was an older car that owed me nothing however and it saved having the family get up to have me at the airport for a 7am flight.

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8 hours ago, dennis said:

My car is worth less than $4200. I ride my bike most of the time.

Rule of wheels: your car should never cost more than your bike. 

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Cars hold up a lot better now than they used to.  It used to be 100k was near the end of a life for a vehicle, now 100k is nothing and most hit 200k without to much of an issue with just basic maintenance.  I don't buy new vehicles because I prefer to let someone else take the big depreciation hit, but my accountant wife always wants loans with the longest terms possible.  She likes that to bring the payment as low as possible as it gives us more financial flexibility month to month.  Now she doesn't pay the minimum due and we pay stuff off early, but if something unexpected pops up, it's nice to have that lower monthly payment if you need to pay less one particular month.

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9 hours ago, dennis said:

6 and 7 year loans seem crazy to me. Am I the crazy one for thinking that?

No. I believe that you should never take out a loan that longer than the car's warranty. For example WoJSTL's car had a 5 year warranty and she took out a 4-year loan on it.

Most car salespeople ask you how much you want to spend each month then try to put you in a more expensive vehicle by pushing out the number of months. I ask for the total price and often they don't want to say.

Like others here, I keep a car a long time. WoJSTL's was bought new in 2012 and we will probably keep it another 4 years or so. We like to get at least 100K miles on a car before buying a new one. We do like buying new cars but only about once a decade.

Don't get me started on leasing. That makes sense for very few people and is much more costly than buying. 

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1 hour ago, JerrySTL said:

No. I believe that you should never take out a loan that longer than the car's warranty. For example WoJSTL's car had a 5 year warranty and she took out a 4-year loan on it.

Most car salespeople ask you how much you want to spend each month then try to put you in a more expensive vehicle by pushing out the number of months. I ask for the total price and often they don't want to say.

Like others here, I keep a car a long time. WoJSTL's was bought new in 2012 and we will probably keep it another 4 years or so. We like to get at least 100K miles on a car before buying a new one. We do like buying new cars but only about once a decade.

Don't get me started on leasing. That makes sense for very few people and is much more costly than buying. 

We buy used usually with 75 to 100k depending on the vehicle and then keep it a while.  I have kept my last 2 cars for 5 years and WoKzoo 6 and 9 years.  I like to do 5 year loans on them.  I've been running mine to 250k+ and WoKzoo between 150k and 200k.

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3 hours ago, maddmaxx said:

I had one of those when I was a consultant.  I joked that the airport parking service actually owned the car and loaned it to me on weekends.  The car finally rusted to death while sitting in an open parking lot covered in snow for a week or two at a time.  It was an older car that owed me nothing however and it saved having the family get up to have me at the airport for a 7am flight.

I get my wife's hand me downs.  This one is a 2006 Rav4 with 40,000 km on the odometer.  Her cars live in the garage and don't see winter so they are pristine but old when I get them.  :) 

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4 hours ago, maddmaxx said:

This is far from an available option for many.

We all make choices. When you see the avg savings rate in the U.S. and the avg priced paid for a car, the numbers are out of whack. 

I've spent less than $30k on all of the cars I have owned combined. All have been reliable transportation. My bikes have been the most reliable and fun way to get around.

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2 hours ago, JerrySTL said:

No. I believe that you should never take out a loan that longer than the car's warranty. For example WoJSTL's car had a 5 year warranty and she took out a 4-year loan on it.

Most car salespeople ask you how much you want to spend each month then try to put you in a more expensive vehicle by pushing out the number of months. I ask for the total price and often they don't want to say.

Like others here, I keep a car a long time. WoJSTL's was bought new in 2012 and we will probably keep it another 4 years or so. We like to get at least 100K miles on a car before buying a new one. We do like buying new cars but only about once a decade.

Don't get me started on leasing. That makes sense for very few people and is much more costly than buying. 

Then I am in trouble, I don't usually buy cars with warranties.  I am to cheap, when I bought the Infiniti, they tried to sell me an extended warranty, I started rattling off everything likely to go wrong, the cost associated with it and how much of it I could pay for, for the cost of the warranty.  The sale guy finally got the point and gave up.  The cost of the warranty on it, wouldn't pay for it's self since it didn't cover the big ticket item, the top.

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New cars and used cars are both, on average, way above an "average" Americans ability to afford based on a 10% or even 20% gross income rate.  

I wholeheartedly agree that folks are WAY over-extended in their car-to-income ratios.  But as prices go up, up, up, it is sort of hard for them to rightsize their expenses, and then, once in it, there is a cycle of debt that many folks fail to get out of since they NEVER finish paying off the car they have before they go back into debt to buy the next one.  I'm in the "buy it outright" club, but that's not normal for most folks :(  What would be a good path, once folks realize they are on the wrong one, is to buy used for the next one, pay it off completely (immediately or overtime), continue driving it after it is paid off, and put aside the "saved" cash for several years to eventually replace the car with another used car (& paid for in full).  Also, switching from 2 to 1 car per household would help a lot.

072919-RL-Average-car-price-SEO-refresh_Graph_WP_1540x1000.thumb.jpg.4aa0ad04f5a2c2a99e968883d4504655.jpg

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I took out a 5 year loan and pay extra, plan to pay it off early.  Holy crap would my household income need to increase to have the car I do.

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13 hours ago, dennis said:

My car is worth less than $4200. I ride my bike most of the time.

Was that what you paid or what it is worth now?

My 16 yr old Accord is worth less than $4,200 (I assume), but not when I bought it.

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18 minutes ago, Razors Edge said:

Was that what you paid or what it is worth now?

My 16 yr old Accord is worth less than $4,200 (I assume), but not when I bought it.

I'd guess it's worth less than $1k now. It's 17 yrs old. I bought it used in 07 maybe.

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WoW’s car is a 2005 Mazda 6. While the miles aren’t high, it needs some maintenance before long that I would just as soon pay toward a newer car. We are looking at used and not far beyond the 10% guideline. I just want something I can drive to the Black Hills and Phoenix without worrying about something wearing out in the middle of nowhere. Found a few years old CX-5 at a killer price for the condition. I know the dealer. He gave me the background. It should fit our needs. 

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13 hours ago, dennis said:

6 and 7 year loans seem crazy to me. Am I the crazy one for thinking that?

I do a self car payment.  I pay myself a certain number each month towards my next new car and necessary car maintenance comes out of that fund.  My next new car should be around 2029.  This is how we are able to pay cash for a new vehicle.

So, gauging how long a car has lasted us in the past, I would divide the total vehicle cost by that number of years.  I can well afford our full sized truck.  It's beautiful and we love it.

Man, did we ever do well on our new truck.  Sticker price was 43 grand.  We went out the door at 34 grand. 

I am a saver.

 

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Our last truck lasted us about 18 years, and we sold it for 5500 at the end.  

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My last three cars were purchased new.  The last two, I have have put down 25% or more of a down payment or equivalent trade-in.  I tend to pay them off in short order and have nearly perfect credit and receive 0% interest rate.  Generally, my intentions are to keep the car for ten years and I failed miserably with my last one as I traded it in for a RAV4.

I buy new as I don't like owning other people's problems; other people's children.  People don't take care of their cars; they are disposable items.  And, when I have attempted to buy used, either the dealership or owner, I have never been allowed to take the used car to have compression checks etc... done by my mechanic.

Mudkipz

 

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I think some of the discussion here and in general conversation shows that folks can justify spending more than the OP and his 10%. I'd say folks will generally justify all sorts of misguided behavior, so we shouldn't be too surprised when it carries over into car buying. 

 

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4 hours ago, JerrySTL said:

Most car salespeople ask you how much you want to spend each month then try to put you in a more expensive vehicle by pushing out the number of months. I ask for the total price and often they don't want to say.

Don't get me started on leasing. That makes sense for very few people and is much more costly than buying. 

We had many go rounds when we bought my wife’s car. How much do you want to pay monthly.  Let’s focus on the price of the car as we already broke down the monthly. Sales guy passes us off to manager, so what’s your monthly budget...  Look, we know our budget and the price the car needs to be at to meet our budget on a 36 month term.  Can you meet our number on this car  yes or no...

Several dealers told us to pound sand, one worked with us and got our business.

Leases worked out OK for us. My wife leased 3 consecutive cars before buying. Short term leases, low to little down and reasonable payments.  Service was always included and we put $0 into oil changes & such.

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9 minutes ago, Razors Edge said:

I think some of the discussion here and in general conversation shows that folks can justify spending more than the OP and his 10%. I'd say folks will generally justify all sorts of misguided behavior, so we shouldn't be too surprised when it carries over into car buying. 

 

For many cars are a status thing too so will overspend to have the fancy car to impress girls or their friends.   They were always a function of utility for me and although I want some creature comforts I don’t need to get them from a luxury brand.

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I bought a very expensive (for me) car.

I like it and would do it again.

I may never buy another mid range car again and may move back to affordable cars, so I did it while I could afford it.

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5 minutes ago, Razors Edge said:

I think some of the discussion here and in general conversation shows that folks can justify spending more than the OP and his 10%. I'd say folks will generally justify all sorts of misguided behavior, so we shouldn't be too surprised when it carries over into car buying. 

 

I am a little confused by this.  I would assume that if a car lasts 19 years, then you would divide the number by the amount of years.  Correct?  

So, for me, well within that 10%, even with the purge of cash for a 34 thousand dollar truck.  I think one of the big issues here is that cars are really expensive and many families require two of them.  We don't drive to work all that often. 

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1 minute ago, Dirtyhip said:

I am a little confused by this.  I would assume that if a car lasts 19 years, then you would divide the number by the amount of years.  Correct?  

So, for me, well within that 10%, even with the purge of cash for a 34 thousand dollar truck.  I think one of the big issues here is that cars are really expensive and many families require two of them.  We don't drive to work all that often. 

No, you and hubby should have only paid 10% of your one time annual Gross Income.  So, if that's $340k, you were good. Otherwise...

BUT

I would say, a more common sense approach would be that your AVERAGE trans cost - averaged over the life of a car - should be under 10% of your AGI or taxable income.  So, your $34k truck, which costs $xxxx dollars a year to fuel, maintain, and insure, will have some sort of total lifetime cost.  That lifetime cost is what would matter to you, since the purchase price is only about half of the total cost of ownership.  I assume that's sort of what the OP meant, but he could be trying harder to make a point.

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23 minutes ago, Razors Edge said:

I think some of the discussion here and in general conversation shows that folks can justify spending more than the OP and his 10%. I'd say folks will generally justify all sorts of misguided behavior, so we shouldn't be too surprised when it carries over into car buying. 

 

To be clear, I am not suggesting people follow the 10% guideline. I have not in my life. I believe you should do what is right for you. 

I just stumbled on the article and found it interesting. I read another by the same person stating eating out is better than cooking at home. It was pretty stupid imo. He's a financial adviser and seems to put money above all else. 

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Just now, Razors Edge said:

No, you and hubby should have only paid 10% of your one time annual Gross Income.  So, if that's $340k, you were good. Otherwise...

Oh baloney. 

What if the years afterward are 0 cost for a car?  That money would be banked toward that value.  

We save so much of our income that this vehicle is well within our justifiable auto budget

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Just now, Dirtyhip said:

Oh baloney. 

What if the years afterward are 0 cost for a car?  That money would be banked toward that value.  

We save so much of our income that this vehicle is well within our justifiable auto budget

HIS point (not mine or Dennis) is that there are on-going costs of ownership - obviously. 

I updated my post with MY feelings - using total cost of ownership and % of taxable income.

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5 hours ago, Indy said:

Cars hold up a lot better now than they used to.  It used to be 100k was near the end of a life for a vehicle, now 100k is nothing and most hit 200k without to much of an issue with just basic maintenance.  I don't buy new vehicles because I prefer to let someone else take the big depreciation hit, but my accountant wife always wants loans with the longest terms possible.  She likes that to bring the payment as low as possible as it gives us more financial flexibility month to month.  Now she doesn't pay the minimum due and we pay stuff off early, but if something unexpected pops up, it's nice to have that lower monthly payment if you need to pay less one particular month.

We looked for a used truck and there wasn't many options for something with low miles.  They seemed to be just about as expensive.  Having the dealer take off 9 grand really helped sell the deal.  

As far as loans go, Ick.  I dislike owing any entity.  Interest is a drain on finances. 

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35 minutes ago, Razors Edge said:

I think some of the discussion here and in general conversation shows that folks can justify spending more than the OP and his 10%. I'd say folks will generally justify all sorts of misguided behavior, so we shouldn't be too surprised when it carries over into car buying. 

 

Do you consider it misguided to rely on a 4,200 car to take you to work reliably over a 30 mile one way trip every day?

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12 minutes ago, maddmaxx said:

Do you consider it misguided to rely on a 4,200 car to take you to work reliably over a 30 mile one way trip every day?

You trying to justify an expense?

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1 minute ago, Razors Edge said:

You trying to justify an expense?

No.  Just pointing out that expenses are not always the expenses.  It makes little sense to limit the up front cost if repairs add too much each year.

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1 minute ago, maddmaxx said:

No.  Just pointing out that expenses are not always the expenses.

Common sense shows, though, that something like a brand new, full warranty Honda Fit at $13k new will fulfill 99% of folk's commuting needs.  So, maybe I'm cool setting the $13k as a better number :D

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17 minutes ago, maddmaxx said:

Do you consider it misguided to rely on a 4,200 car to take you to work reliably over a 30 mile one way trip every day?

I've done it. I had a friend do it for years. It depends on the car. My friend drove an old Mazda that had 200-300k. minimal maintenance. The car looked like shit but was reliable.

It's not misguided. Do you care about amenities? I don't. My car is ugly but reliable.

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Live close to work and the car issue becomes non existent. 

Our truck is more for fun and not a necessity for living. I can get to grocery, hospital or work with less than an hour gentle walk. 

Wanna be rich or feel rich? Don’t have kids. Brutal honesty there. 

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