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Old 02-20-02, 10:31 PM   #1
Dahon.Steve
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How much car can you afford?

Over the years I have seen quite a few people declare bankruptcy, drop out of college, move back with their parents etc. etc. because they bought a new car. Not many people know the actual cost of what it takes to afford, maintain and insure a new car. It shocks me at the ease of which creditors give tens of thousands of dollars to new car owners who are living right on the cutting edge.

I just did a search on the net “How much car can I afford” and found nothing but bad advice. Here are some of the gems I found.

1. >>>>>“In figuring out the purchase of a new vehicle, the CCCS recommends keeping your debt-to-income ratio below 15 percent. If your figuring shows a ratio already higher than that, CCCS recommends that you shouldn't attempt car payments at all until you pay off at least some of your credit bills” Add up all your monthly installment payments such as car payments and credit card payments (do not include regular living expenses like rent, mortgage, or utilities). Divide the total by your monthly take-home pay, after taxes and other withholdings have been subtracted. The resulting percentage is your debt-to-income ratio.” >>>>>

This is insane. This is terrible advice. “DO NOT INCLUDE REGULAR LIVING EXPENSES LIKE RENT, MORTGAGE OR UTILITIES” ??? You got to be kidding me. I guess the writer expects my mortgage and utility company to stop sending me bills
or my landlord to forgive rent payments while I make car payments!! Living expenses have to be included in the equation of buying a new car or else you will run out of cash real fast and start skipping payments. Madness.

2. Here’s another one I found to determine how much car you can afford.

Highest payment you can afford $300.00
Cash down payment: $3,000.00
Trade in: $3,000.00
Interest rate 6.9%
Loan term 60 months
Loan amoun $5,186.76
Total: $21,186.76

Based on this information, the most expensive car you can buy is $21,186.76.

This is insane. There are many so called calculators like this which do NOT take into account your current living expense or personal debt. Nor does this calculator take into account insurance, gasoline, tolls, repairs, tickets, fees, vandalism and parking. There is no question in my mind that this calculator and others like it are a recipe for financial disaster. How can a person tell what is the HIGHEST PAYMENT THEY CAN AFFORD? You will find in many cases the $300.00 is ALL THE DISCRETIONARY
INCOME THEY HAVE IN THE MONTH!!

No wonder we have so many bankruptcies in this country with advice like this. It’s a pity the humble bicycle does not fit into any of these equations as an alternative means of transportation.
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Old 02-21-02, 08:19 AM   #2
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The best advice I ever heard was that if you can't pay a car off in two years, you can't afford it. I assume that means take the highest payment you can afford, multiply that by 24 months, and there you have the price of the car you should buy. Then you can stretch that loan for 3 to 5 years and not be as worried about payments.

Just make sure you don't walk into a dealership knowing only the payments you can afford. They love to tweak that and you never figure out exactly what you are paying for the car.

Me, I want to buy my next car with cash (I hate debt). I just need to make my current car last for a few more years. Maybe by then I'll discover that I don't need a car after all.

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Old 02-21-02, 08:53 AM   #3
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Simple rule:

If an asset is expected to appreciate in value (real estate), buy it on time. If the asset is expected to depreciate (car, appliance, etc.), pay cash for it.

Worked for my grandma...works for me.

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Old 02-21-02, 08:56 AM   #4
John E
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Teresa is right. Pay attention to fuel economy and long-term reliabilty (check Consumer Reports before buying), and buy something within your real-world budget. To save a few hundred dollars on a new car purchase with less haggling, read edmunds.com and seek out a direct fleet sales referral, such as through Costo or carprices.com. To save significantly more money, buy a well-maintained late model used car with a well-documented history.

I did not even own a car until I was 26. Thanks to bicycling, public transportation, walking, and careful maintenance, my wife and I are easily able to keep our cars running reliably and economically for 15 to 20 years. Those of us who complete most of our shorter trips by bicycle or on foot avoid many engine-wearing, fuel-wasting cold strarts.
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Old 02-21-02, 09:00 AM   #5
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ok, I get it...

BUY A BIKE!

this is a bike forum after all.......

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Old 02-21-02, 09:01 AM   #6
JonR
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Quote:
Originally posted by Dahon.Steve


No wonder we have so many bankruptcies in this country with advice like this. It’s a pity the humble bicycle does not fit into any of these equations as an alternative means of transportation.
Steve, do you think possibly the debt "counselors" could be influenced, under the table or otherwise, by the car manufacturers and/or oil industry? It wouldn't surprise me a bit.
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Old 02-21-02, 10:02 AM   #7
John E
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Quote:
Originally posted by JonR

Steve, do you think possibly the debt "counselors" could be influenced, under the table or otherwise, by the car manufacturers and/or oil industry? It wouldn't surprise me a bit.
Interesting (and, unfortunately, rational) theory ...



Debt-free and happy for 9.5 years and counting.
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Old 02-21-02, 04:12 PM   #8
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Quote:
Originally posted by lotek
ok, I get it...

BUY A BIKE!
Hey, works for me! It really is very simple.
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Old 02-21-02, 07:04 PM   #9
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Buying nice cars is an easy trap especially for young males. I have finally gotten that bug out of my system.
I bought an Mazda MX-5 (miata) secondhand in 1993, it was a nice car but I hardly drove as I used to catch the train to work.
I did a total of 20,000km/12,500ml in 2.5 years, hardly worth having so I sold it, I "only" lost about $3000 on that car
but the insurance was very high.
Then a few years ago my wife and I went to look at cars on a Saturday afternoon, we actually shook hands
and agreed that we wouldn't buy anything, that we were just looking. Well 4hrs and $26,000 later we were the
owners of a Nissan 200sx (sylvia), BIG MISTAKE. We borrowed the full amount. Even though we could afford it,
after a while it just became a burden, constant mechanical problems, fuel had jumped 25¢ a litre more than when
we bought it, it only used Premium Unleaded. Well after just 1 year we sold it for just $21,000. Lesson learnt.
I'll stick with our little imported Daewoo Cielo, it's pretty gutless in the hills but at least we own it
and it is very reliable.

Think before you buy.

CHEERS.
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Old 02-21-02, 09:27 PM   #10
Dahon.Steve
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>>>"Steve, do you think possibly the debt "counselors" could be influenced, under the table or otherwise, by the car manufacturers and/or oil industry? It wouldn't surprise me a bit.<<<

I doubt it. The debt counselors don't need to get paid under the table since they are making a killing on the current condition of debtors in this courntry. It seems like there are more and more credit counselors advertising all the time in newspapers and tv.

People just don't know how much an automobile will cost them but AAA states the figure is closer to $6000 dollars a year. This is net income folks! Gross income is closer to $8000 bucks a year!!!

If I had to shell out $8000 dollars a year for a new car, I would have some serious cash flow problems. All for an automobile that will spend 85-90 percent of it's life parked and rusting!!
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Old 02-21-02, 10:00 PM   #11
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Usually, if you can't save for it, you can't afford to borrow for it.

Don't borrow unless someone puts a gun to your head. Even then, try running, first.

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Old 02-22-02, 08:41 AM   #12
John E
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To me, the scariest part about driving a car is that most of the true societal cost, including local road maintenance and construction, resource depletion, pollution, carnage, etc. is subsidized by everyone, including nonmotorists. In the U.S., the quasi-fixed costs of vehicle ownership (capital depreciation, insurance, time-scheduled maintenance) greatly exceed the artificially-depressed per-distance costs (fuel, tyres, distance-scheduled maintenance). The net effect is that after one invests $25K in a car, it makes economic sense to use it heavily.

As long as Americans select Chevy Suburbans or Ford Expeditions and drive them 15K miles / 25k km per year, it remains obvious that gasoline is way too cheap.
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