Should I pay cash for a car or should I finance it? This is a common question that often doesn't get looked at thoroughly. Let's jump deeper into this discussion as to whether paying cash is better than financing when it comes to buying a new or used car.
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who on earth (who cares about their money) would ever spend $30k every 5 years on a car? Also, in most parts of the US cars are essential, so its more of a need than a want. I would be curious how this would look if you actually took into account realistic numbers. I want to see these calculator with 15-20k on a car every 10 years, because you then can assume even though the cars costs go up over time, you may have some trade in on your already paid off car. Also, what is the alternative you are suggesting? Financing? That will cost you more monthly than having a separate car fund that you know you wont be making money on because, you wont be paying interest which will cost a small fortune on 30k cars every 5 years.
Hi Amber -
It is interesting the different perspectives on cars. You obviously have a much better outlook on your money and debt than many do. Car costs become relative to income. For some a 30k car is crazy, to others a 30k car is inexpensive.
There are many who would buy a 60k car every 5 years - yes there are those out there.
However, if you think about it, and I don't know these numbers exactly, but as an example, someone who makes 150k per year, a 30k car is not out of the realm. The ratio of car cost to income is about 20%.
Now take someone making 40k and they buy a more reasonably priced car a 15k. Well reasonable is in the eye of the beholder, because now the ratio of car cost to income is 37.5%.
Which is worse?
Sadly there are those who make 50k per year and buy a 30k car. That car cost to income ratio is 60% - INSANE - but I see it all too often. Car rich, assets poor.
You get the idea....it's not the car cost per se. It's all relative to your income. I like the rule of thumb of perhaps 10% -15% of income. So, if you are making 40k, you might be looking at cars that are 4000 to 6000.
More importantly cars should come AFTER. you've learned to save and "pay yourself" first, at least 10% of your gross income. You never give up on paying yourself, just to buy a car. Ride a bike...LOL.
Hope that helps....thanks for your comment!
This man is completely wrong. I buy my car cash. no car payment. life of no student loan, no credit cards. Live below your means. you job is not promise tommorrow. CASH IS KING. You take out a car loan you lose both ways. You Pay bank fees. what happen if you lose your job. the repo man will be waiting for you.
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