Do you think financial advisors like Dave Ramsey..etc give people good or bad car buying advice on car buying? (SUV, truck)
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Ive heard Dave Ramsey and many similar financial advisors comment on how car payments are a waste, and if you have to make payments, you cant afford the car, so you should save up and buy cars cash. Then they will usually quote the average payment is $450-650 a month for 6-7yrs at average 8-10% interest. Im not sure how many Americans are actually buying $30-50K cars where they have to make 6-8 year payments at such high and almost insane interest rates.
Then the next advice that is given is for people to buy a $1500-$3000 car and then save the $4-600 a month on car payments to buy the next car cash, while pretty much neglecting the topic of upkeep on old beaters. As per many threads in this forum, we can all agree that a $1500-$3000 car will most of the time need $1000-3000 of work to be in top shape, reliable , and give you a piece of mind that it will start and not leave you stranded, unless you are a DIY person or got a previously owned well maintained car.
Many of my friends are now buying into this car advice, so my questions are:
Are they getting good advise or setting them up for trouble?
Do you consider car payments a waste or bad debt?
Should you buy a car cash only?
If you cant afford to buy a car cash, do you consider it that you cant afford the car and living above your means?
For people that take his/her advice, if your car broke down and you need a car ASAP, what other options do you have other than car payments if you dont have $3000, $5000, $10K set aside for a car?
Would you trade in your current car for a 10-15yrs old $1500 car, just so you dont have car payments aka debt?
Well, obviously Dave has critics, but also supporters. Thing is, he does advise to cut the expenses to the bone. That being said many HATE to give up the goodies and to suffer for the future. The other side of the coin is that not many can really afford a $40K truck or car.
Believe it or not, more than 40% of the us workers are making LESS than 30K a year. Dave deals with people making a tad more though.
So while the low income CAN benefit from his advice, it seems to be more focused on $40K or above to me...
The thing also is, you CAN take a $1K beater, drop $4K INTO it and it'll last may just very well last another 10 years....I have a van which I paid $3K for Paid it off and now have a choice of putting $1,400 into it and driving it for 2-3 years and saving money for another van purchase in 2-3 years. In the meantime, the engine is going south, and even with oil changes and maintenance, it'll die one day, maybe I'll have $1K maybe I'll have 5k saved up..Won't know till the day comes, but if I have the $5K I can be "Picky" as to what I'll buy...
Many females are absolutely clueless on car upkeep and maintenance.
90% of females I know with cars approaching 90 or have 100K miles and I ask them, when is the last time they have changed their transmission fluid, coolant, timing belt (if applicable), serpentine belt, or even got a tune up, ALL say the same exact thing...whats that, I just drive the car and I do my oil changes. So that probably explains why some overheated and destroyed their engine, had transmission failure due to burnt fluid, blown engine on broken timing belts and more.
Ramsey and other financial advisors needs to specifically warm people about expensive upkeep if they are going to buy $2-3000 cars if he is going to give any car advise.
He gives financial advice, not "how to buy a used car" advice. There are others who can do that.
Dave Ramsey gives good debt reduction & elimination advice. As someone who used his method to pay off a number of debts including a car loan, I can say that his advice is good. It is not the best economic advice, but his baby steps and snowball methods are VERY psychologically effective.
That said, once you're out of debt, his personal finance advice is very bad.
My principles for car buying:
1) It's a consumer good, not an investment, like any TV, etc... It is going to cost you money, period.
1a) That said, transportation is a necessity. Unless you live in a handful of American cities with good public trans, you need a car, period.
2) Used is always cheaper than new. I repeat, used is always cheaper than new, even taking into account significant repairs. A new transmission is $2500 or so. Interest on a new car finance charge is probably 5-7K over the life of the loan.
3) However, if you can afford new and you want new, do it. My over/under for a new car deal is $300/mo, 3% or less apr, 60 months or less. If you have good credit, you can get deals like that or much better. Chrysler is still desperate and gives out 0% finance deals like crazy (they will desperately try to up-sell you on the warranty though)
Personally, I don't always want new. I prefer to spend the extra 5K that I would pay over 5 years of interest on a new base or mid-level car to rather buy a high-end model with all the options I want 1-4 years used.
I'm of the opinion that transportation will cost you a certain amount of money no matter what. One of my cars is a 1988 S-10. It runs well, but it has to go in the shop about once every 4 months for small to moderate repairs. I paid only $1200 for it, but it costs me about $125 a month in repairs and maintenance to keep it running reliably. I choose to keep it well maintained and am very proactive at fixing its problems - at its age, it needs parts thrown at it several times a year. I have another car as backup - kind of a necessity if you're going to go old-car because they will go off-line now and then.
Around $100 a month to operate a car is the best you can ever do in my opinion. Go used and you'll have repair costs. Go new and you'll have finance costs.
Then his advice doesn't apply to your situation. Dave's advice is for the group of people who are sinking in debt and can see bankruptcy on the horizon. This advice is meant to be taken as a last ditch effort to steer clear of that. Not for those who are managing decently, or managing very well.
I think he understands the risk of losing everything to bankruptcy against driving around in an older vehicle. You can find decent $2k-$3k vehicles that are safe and reliable if you really look. I've owned plenty that I paid far less than that for. He doesn't mean for this to be your mode of transportation forever, but just while you are trying to get out of debt.
Imagine that you are on the verge of financial ruin...... you have a $300k house with a $1,500/mo mortgage. You have a car that you owe $40k on with a $800/mo payment. If you sell that car and pay cash for a $3,000 car you just freed up $300/month to go towards another bill. He's not telling you to worry about what you will pay in the long run, but instead freeing up cash for the short term to pay off debt.
Downsize to a rental house at ~$800 a month and you have now saved yourself $1,000 per month to help pay down other bills. As for repairs, he also mentions an emergency fund set aside in advance to cover things like repairs.
I'm a little old to have benefited from Dave's advice, but I discovered most of it myself in the 1980 crash. I learned the hard way that you can't trust the economy, and that if you go into debt you are handing someone else control of your cash flow. It was physically painful to watch the Dow drop to 800 and not have enough money to buy even a single share of stock. The next time it happened I had my ducks in a row. My total assets doubled between 2007 and 2010, in a large part because of the freedom of having control over my finances.
His advice to start with baby steps is very sound. In 1982 I noticed that I was paying $200/mo to my credit card and never reducing the balance. I got industrious and paid it off, then started putting that same $200 into a savings account. When it was really my money I discovered I didn't want all that junk so much, and ended up with over $2k in that savings account after a year. I just built from there. When the recession was over I didn't forget the lessons I had bled to learn.
Dave Ramsey gives good debt reduction & elimination advice. As someone who used his method to pay off a number of debts including a car loan, I can say that his advice is good. It is not the best economic advice, but his baby steps and snowball methods are VERY psychologically effective.
That said, once you're out of debt, his personal finance advice is very bad.
My principles for car buying:
1) It's a consumer good, not an investment, like any TV, etc... It is going to cost you money, period.
1a) That said, transportation is a necessity. Unless you live in a handful of American cities with good public trans, you need a car, period.
2) Used is always cheaper than new. I repeat, used is always cheaper than new, even taking into account significant repairs. A new transmission is $2500 or so. Interest on a new car finance charge is probably 5-7K over the life of the loan.
3) However, if you can afford new and you want new, do it. My over/under for a new car deal is $300/mo, 3% or less apr, 60 months or less. If you have good credit, you can get deals like that or much better. Chrysler is still desperate and gives out 0% finance deals like crazy (they will desperately try to up-sell you on the warranty though)
Personally, I don't always want new. I prefer to spend the extra 5K that I would pay over 5 years of interest on a new base or mid-level car to rather buy a high-end model with all the options I want 1-4 years used.
I'm of the opinion that transportation will cost you a certain amount of money no matter what. One of my cars is a 1988 S-10. It runs well, but it has to go in the shop about once every 4 months for small to moderate repairs. I paid only $1200 for it, but it costs me about $125 a month in repairs and maintenance to keep it running reliably. I choose to keep it well maintained and am very proactive at fixing its problems - at its age, it needs parts thrown at it several times a year. I have another car as backup - kind of a necessity if you're going to go old-car because they will go off-line now and then.
Around $100 a month to operate a car is the best you can ever do in my opinion. Go used and you'll have repair costs. Go new and you'll have finance costs.
Interest is $5,000-$7,000 over the life of a loan?
There's no way the typical new car in America ($36,560) could get anywhere near $7,000 in finance charges given decent credit and today's lending rates.
Interest is $5,000-$7,000 over the life of a loan?
There's no way the typical new car in America ($36,560) could get anywhere near $7,000 in finance charges given decent credit and today's lending rates.
Let's say a 2.9% apr over 60 months - that's right at $5000.
Let's say a 2.9% apr over 60 months - that's right at $5000.
As I stated before, most people don't have a clue what the total amount of interest that they are paying for that new car. Their only concern is what the monthly payment is. The total interest charged is a phantom number and not comprehended.
My problem with the advice to save up and buy a car with cash vs. take out a loan and make payments is that your budget doesn't care one way or the other. You're still setting aside a sum of money every month to pay for the car. And his advice is that once you pay for the car with cash, you start saving up for the repairs and the next car, which is STILL setting aside a monthly sum for the car. it's no different than making payments, as it's still $200-500 a month being set aside for a car... At least when you take out a loan for a new car you get a warranty and don't have to deal with paying for a major repair.
In fact, saving up for a car with cash and then saving up for the next car is no different to your budget than a lease. And again, with a lease, you are always under warranty, so there is no random catastrophic repair payment. So it's easy to budget for a low, fixed, recurring cost.
Also, for most of us who don't live near good public transit, we need a car for work now, not in 2-5 years after we've saved up enough for one. A loan gets you the car now, and you pay for it just like saving up for one later.
I've bought cars with cash, taken out loans for cars, and leased cars. Depended on the situation which one was right to do. And any one of them can be the right thing to do.
My problem with the advice to save up and buy a car with cash vs. take out a loan and make payments is that your budget doesn't care one way or the other. You're still setting aside a sum of money every month to pay for the car. And his advice is that once you pay for the car with cash, you start saving up for the repairs and the next car, which is STILL setting aside a monthly sum for the car. it's no different than making payments, as it's still $200-500 a month being set aside for a car... At least when you take out a loan for a new car you get a warranty and don't have to deal with paying for a major repair.
In fact, saving up for a car with cash and then saving up for the next car is no different to your budget than a lease. And again, with a lease, you are always under warranty, so there is no random catastrophic repair payment. So it's easy to budget for a low, fixed, recurring cost.
Also, for most of us who don't live near good public transit, we need a car for work now, not in 2-5 years after we've saved up enough for one. A loan gets you the car now, and you pay for it just like saving up for one later.
I've bought cars with cash, taken out loans for cars, and leased cars. Depended on the situation which one was right to do. And any one of them can be the right thing to do.
Since when do you not get a warranty if you buy a new car with cash?
It seems to me that there is a difference when paying cash. You're not paying interest when you do that. That can be a big difference over time. I do agree though, that it's usually still costing you money every month whichever way you decide to pay for it.
My problem with the advice to save up and buy a car with cash vs. take out a loan and make payments is that your budget doesn't care one way or the other. You're still setting aside a sum of money every month to pay for the car. And his advice is that once you pay for the car with cash, you start saving up for the repairs and the next car, which is STILL setting aside a monthly sum for the car. it's no different than making payments, as it's still $200-500 a month being set aside for a car... At least when you take out a loan for a new car you get a warranty and don't have to deal with paying for a major repair.
What happens when your car needs a repair out of warranty and you end up with a $700 bill on top of the $200-$500 monthly payment?
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