Sure, ideally you should never borrow money to purchase a depreciating asset, but the reality is most people need a car and they don't have the cash to buy it outright.
I actually do follow this rule for myself, the last car I bought was $4k, paid cash. I'd never spend 5 figures on a car, let alone 6.
There should be zero overlap on a Venn diagram of people scrounging together money for basic transportation and those considering a $100k pseudo-truck. Anyone who needs to borrow money for a basic car but buys a cyber truck instead is in for a world of financial hurt.
1. Never buy a new vehicle. Vehicles depreciate most quickly up-front. Buying a vehicle coming off of a lease is often a good bet. Most of the quick depreciation is done and now you're in the period of a slowly depreciating. You also have a relatively new vehicle.
2. Always put down at least 20% of the vehicle's purchase price, i.e. don't finance more than 80%. This does two things. One, it ensures your loan is unlikely to be upside down. Two, it limits how much you can borrow which keeps you from financing fantasies. For example, you had $4K cash for the last car you purchased. Given that, I would say that you should have kept your budget at $20K or under. $20K, even today, can get you a nice used car.
>Buying a vehicle coming off of a lease is often a good bet. Most of the quick depreciation is done and now you're in the period of a slowly depreciating. You also have a relatively new vehicle.
I assume you mean buying a used car that someone else leased from the dealership. If you leased then want to buy out your leased vehicle at the end of the contract, you end up spending more than if you bought it outright.
>Always put down at least 20% of the vehicle's purchase price, i.e. don't finance more than 80%. This does two things. One, it ensures your loan is unlikely to be upside down. Two, it limits how much you can borrow which keeps you from financing fantasies. For example, you had $4K cash for the last car you purchased. Given that, I would say that you should have kept your budget at $20K or under. $20K, even today, can get you a nice used car.
You may not be from the US, but this is typically poor advice. Even with 20% down, you're likely upside down on the loan regardless after a year. US auto dealerships (credit dependent) have great loan rates, zero percent to 3%, which means every dollar you put down is wasted versus putting it in a money market that are getting nearly 5% now. The optimal strategy in this setup is to put zero down, borrow at ridiculously low rates, and get gap insurance for the portion that you're upside down on.
I have not seen zero or very low rate car loans for used cars. You do see them for new cars, but they are just taking whatever they would have given you as a cash discount and converting it into a low rate. Maybe a bit more, as they charge fees on the loan that they roll into the balance owed.
I meant up-front loan fees like origination fees, etc. You're saying they don't have those? It's been a long time since I financed a car at a dealer. Also title work/documentation fees, warranties, and whatever else they might talk you into.
Not necessarily. When I bought a used car a few years ago I got a great rate (< 2.5%) from my local credit union, and the rate the dealership offered was almost as low. Rates are much higher across the board these days, but the principle should still hold.
I should have pointed out that $20K is your max budget, and you don't have to budget your max. Getting a nice used car for $4K is a bit challenging but do-able. Under $10K opens up a lot of options for you. But yes, we're both in agreement that paying the kind of money people are paying today for a car is unnecessary. It's about want more than need.
They say you should try to never finance more than 20% of your annual income on a car.
Make $60k? Find a car for $12k or less. Find a perfect car for $13k? Pay the extra $1,000 down.
Hard sell but cars are such a waste of money in almost every aspect. They shouldn't tank your ability to afford your life any more than they absolutely must.
I feel like we need more definition of a $4k nice car. Make, model, model year, and miles would go along way. Even better if there is a link or two to someplace like cargurus.com, carfax.com or caredge.com with car in question.
I actually do follow this rule for myself, the last car I bought was $4k, paid cash. I'd never spend 5 figures on a car, let alone 6.