[ryandrake]

Exactly. This is going to come off as incredibly privileged, but I'm not a huge fan of car loans. In fact, I'm not a huge fan of leveraging to afford any asset unless it's appreciating in value or generating income. I buy and drive old, nearly junker cars because I can't afford a $40K new car. I can "afford" the monthly payments on a $40K car, but it's just a terrible financial idea. Totally nutty. A $750 monthly payment (I don't even want to know the term) for something that is losing value every day is absolutely bonkers.

The amount of debt Americans routinely and causally take on is honestly ridiculous.

[_heimdall]

The standard recommendation of taking out sent so you can invest your money and "make it work for you" frustrates me to no end.

Yes, on paper I can accrue more wealth if I mortgage my house and invest that same amount elsewhere. No, I would not trade owning a house outright for having a house that will be taken from me if I can no longer pay, strict insurance requirements, and a pile of someone else's debt that I call money and ignore the risk implied in investing in someone else's gamble.

[supertrope]

I don't think gp comment is advocating doing a cash out re-finance, but to exploit leverage when first financing the purchase.

I used to be very debt averse. Owing a six figure sum seemed like a huge burden. Now I understand that mortgagees are non-callable. If you put 20% down that removes a lot of risk of being underwater. Fannie Mae is eating inflation risk for you. It's a way of smoothing expenses over multiple life stages. With a 30 year mortgage you can get a smaller payment when you're younger, earning less, and paying for daycare. When you're older you're earning more, might be an empty nester, and inflation has made each payment easier. By not rushing to pay off low interest debt you've effectively transferred money from 50 year old you to 30 year old you.

If you stayed employed, locked in a 3% mortgage, and contributed to your 401k, you won the wealth re-distribution game of 2020-2022.

[_heimdall]

Respectfully, you're effectively describing the argument I take issue with.

> Now I understand that mortgagees are non-callable.

How are you defining non-callable? If you stop paying on your mortgage that sent will eventually be called and you will be kicked out.

> If you put 20% down that removes a lot of risk of being underwater

That removes the risk of being underwater for any market correction sub-20%. Real estate prices in any areas have grown more than that ovwr the last few years, the risk of a 20%+ correction is on the table.

> With a 30 year mortgage you can get a smaller payment

And a 40 year loan would be even smaller. Where do we draw the line, and why? 30 year loans weren't always the norm, you don't have to go too far back to find an average mortgage on 10 or 15 year loans.

> When you're older you're earning more, might be an empty nester, and inflation has made each payment easier.

Income doesn't always move up, and inflation only makes payment easier if you (a) secured a fixed rate loan and (b) stay in the same home long term.

> By not rushing to pay off low interest debt you've effectively transferred money from 50 year old you to 30 year old you.

Or if it doesn't work out, 30 year old you has a home at the expense of 35 year old you.

> If you stayed employed

That's a big if, and you not only need to stay employed, you need wages to at least keep up with true inflation. Your 401k won't matter until you are at an age where you can withdraw, or we have another pandemic-style response where we allow people to cash in 401ks without the early withdrawal fees.

[itake]

The people in the camp of payoff early often highlight the emotional safety of paying off the debt…

But that logic never made sense to me, because homes are always callable: if you stop paying property taxes, Thats not your house any more.

If house burns down, Thats not your house any more.

Safety comes from optimizing your wealth for size and liquidity.

The person that kept things liquid, leveraged into the stock market 401k etc will be much better in a catastrophic event (job loss, flood, etc) than the person that has less liquid assets and a property tax payment due.

[Esophagus4]

I agree - I think it’s bad advice. And cars make even less sense than houses, which should hopefully appreciate in the long run. People think of car loans like “free money” if I can buy a car on credit and pocket the spread between my investments and my APR.

The problem is:

1) that encourages you to buy more car (and lose more money in depreciation and fees) than you would if you just paid cash for a cheaper car

2) there’s no guarantee you can beat your APR in the short run (to beat your APR you almost always have to move out on the risk frontier… T bills are not doing it)

I view it as: if capturing that marginal spread of whatever% is important to you, you are spending too much money and you’re probably taking your eye off a bigger loss you’re taking by spending all that.

[adriand]

It’s not ridiculous, it’s how the whole system works. People need to live their lives, and if they only way they can get around (or throw a birthday party, or have a funeral, or some other human thing) is to borrow money, they borrow money. Which in turn props up a huge proportion of the businesses that make up the economy.

[raw_anon_1111]

The problem with old junkers is that if you don’t have the money in cash, how do you fix a major car repair? You can get a loan for a new car with money.

The car “generates income” because it allows you to get to work and hopefully make more than your car note.

[Esophagus4]

You can also take out a loan from a credit union for the repair bill on your older car. Or even putting it on a credit card is an option.

A $3k repair loan is a lot easier to pay off than a $30k new car loan.

A lot of the people I know try to justify “new car fever” and will use some version of “I don’t feel safe in it anymore” or “I don’t think I can trust it.”

[raw_anon_1111]

It’s a lot easier to get a secured loan for a car than an unsecured loan depending on your credit.

I’ve only had new car fever once. When I was 25 and bought my second car - a Mustang in 1999. I drove my Mercury Tracer that my parents bought me in 1991 as a junior in high school.

But that car was wrecked in 2008. I gave my next car - a Honda Civic - to my step son in 2014 and my next car after that - a 2012 Chevy Sonic bought slightly used from CarMax in 2020 when I started working remotely and we went down to one car.

But I would still much rather by a cheap newish car that I don’t have to worry about than a beater that might put me down or more importantly my wife.

[_heimdall]

Old car repairs generally don't cost as much as you'd expect, especially when you aren't paying $750/no on a loan plus higher insurance premiums.

My mechanics often perk up when I bring in my 80s era pickup. It has very low miles, they can generally diagnose it with very basic tools, and parts are cheap. When I have the time to work on it myself I appreciate it for those exact same reasons.

[ryandrake]

Yea, that $750/mo that you're now not paying can be saved to pay for the occasional repair bill that you're going to face while owning a junker car you didn't take on a loan for. Or, not, if you bought a 1995 Toyota Camry or something which is probably going to outlive you.

[potato3732842]

>s probably going to outlive you

You mean "rod the block next week because it was used as an uber and before that it was owned by three successive hipsters who didn't change the oil because 'lol it's a Toyota' or whatever"

Dollar for dollar Toyotas were a bad buy as soon as Reddit started trying to tell everyone to buy them.

[_heimdall]

Right. I buy old cars, but I'm picky as hell and buy ones that have been taken care of, still have parts availability, and are models with proven reliability.

I still recommend anyone buy a later model Buick Lesabre if you find one in good shape. They're very cheap, the 3800 motor is excellent, and are still very comfortable rides that get around 30mpg on the highway.

[master_crab]

3800 is in a lot of things. Chevy impala, Monte Carlo, etc. lots of cars benefit from that reliable and easy to maintain engine. Also gets decent gas mileage (not earth shattering but mid-high 20s is friendly to most bank accounts).

[_heimdall]

Yeah I'll keep an eye out for all of them when I'm in the market. I generally find the best results with the Buicks though, its more common to find one in good shape with a good service history.

The one I drive now was a one owner, it was literally a little old lady's Sunday church car that she sold because she decided to give up her keys. Its not perfect, and the AC compressor needed to be replaced, but they were the kind of owners that took it in ever 3k miles to a mechanic they trusted and fixed whatever the shop recommended.

[ElevenLathe]

My first car was a Katrina-damaged Impala that smelled like puke until I hit it with an ozone generator. Drove it for almost 6 years including twice cross country. Most I ever put into it was a new water pump.

[raw_anon_1111]

And when you buy the car hypothetically and the motor goes out or the transmission within three months?

And it’s one thing if your car breaks down on a side street, it’s completely different if it breaks down on an interstate. If you have a daughter would you be comfortable with her driving an unreliable car? Your wife? Your mother?

[smileysteve]

A car that averages 15k miles/year, has a maintenance record, and appears in good condition tends to be less likely to be a lemon than most brand new cars.

For an anecdote, consider that Jeep just bricked thousands of new cars, including on interstates 2 weeks ago.

That GM recalled most 6.2l engines made in the last 5 years; ... Toyota engine castings, bmw chain tensioners, Ford Ecoboost coolant passages, Porsche bearings... Most of these problems became apparent before a long term first owner sold (yes, you should do research)

A pre purchase inspection, and all around maintenance (brake, coolant, oil, transmission oil, and differential oil) will get you a long way; a $2k suspension refresh will take you even further.

[_heimdall]

Sure, your motor or trans can go out on any vehicle and unless you still have a warranty its your problem.

It sucks if you spend $3500 on a car only to spend another $2000 because the transmission went out and the timing was bad luck. I wouldn't recommend anyone buy an old car I'd they have no emergency fund left after the purchase though.

My wife does regularly drive our old cars. If it dies on the highway we'll deal with it. I don't have a daughter, but I wouldn't worry about my kid driving the kind of old cars I pick up - I'm patients picky, and able to work on them myself. The car would be the least of my worries if I had a young daughter with a drivers license.

[baubino]

> I can "afford" the monthly payments on a $40K car, but it's just a terrible financial idea.

I like to say that I can afford it, I just don’t want to and refuse to afford it.

[chneu]

Americans finance things to keep up imagery.

This country is insanely ego and pride focused or fixated.

Capitalism exploits this in advertising.

Americans throw money at everything and then wonder why they're broke.

Or in the case of cars, people finance a new car and throw money at repairs instead of doing what folks like you and I do. Buy a reliable older car that's cheap to work on. But that takes "learning" and most Americans are convinced that learning is a waste of time, just throw money at the problem.

[supertrope]

A common advertising technique is to exploit peoples' problems. Buy Product(tm) and your problem(s) will be solved! Sometimes this problem doesn't even exist but the advertiser will exploit your fear. If you don't buy Product(tm) for your family you don't love them/are putting them in danger/you are not a real man!