@IsambardPrince, I have to disagree with your premise which is essentially, "all credit is bad". The fact is, credit is a tool not unlike a chainsaw; use it wisely and reap the benefits, use it foolishly and get hurt. Case in point, in many instances, car loans can be had for less than many HYSAs and typically for a lot less than typical investment yields; if you pay cash for a vehicle versus taking out a vehicle loan, you will have less money when at the end of the proposed term of the loan than you would have if you simply financed said vehicle.
As an example, I bought a new Tacoma in 2022; I could have paid cash for it, but I got a 2.49% interest rate loan for 48 months, at the same time the money I would have used to buy it outright was sitting in a HYSA earling 4.25%. I would have been foolish to have taken the money out of that savings account (and even more foolish to have taken it out of my investments); said another way, in the 21 months since I took out the loan I've paid about $1,350 in interest, however, had I taken the money out of my savings and then replentished it at the same rate I'm paying the loan down I would have lost out on an additional $786(ish) earnings on my money over what I have paid in interest on the loan.
The only time your argument makes any sense is when you cannot take out a loan for a lower interest rate than the average rate or return from investment money, and even then the argument is shaky.
@IsambardPrince wrote:The average new car rate is 7% right now and many are getting offered something even worse.
Financing means you can't afford it and it also gives the salesman a laugh because they can steer you into more vehicle than you can afford, trap you into 7 years of payments to make you focus on the payments instead of what the thing really costs, and throw all sorts of useless overpriced junk and fees into it in the finance room since you already told them what kind of a payment "I can afford."
If you can really afford something, buy it. Don't play their game.
I'm not sure where you're getting your information from, but you missed the mark in several areas:
- "The average new car rate is 7% right now...", I'm seeing manufacturer supported financing rates as low as 1.99% on new cars today and generic new car loans from the likes of PenFed and NFCU which are below 5%.
- "Financing means you can't afford it...", did you read my post above? If you did, maybe you didn't understand it; the fact is I financed my new Tacoma because doing so made me money compared to paying cash for the vehicle, even though I could easily afford to do so.
- Regarding your comments about long term loans and lots of add-ons, that's on the buyer; all they need to do is say "no", such comments have nothing to do with whether or not to finance a vehicle.
@Horseshoez wrote:
@IsambardPrince wrote:The average new car rate is 7% right now and many are getting offered something even worse.
Financing means you can't afford it and it also gives the salesman a laugh because they can steer you into more vehicle than you can afford, trap you into 7 years of payments to make you focus on the payments instead of what the thing really costs, and throw all sorts of useless overpriced junk and fees into it in the finance room since you already told them what kind of a payment "I can afford."
If you can really afford something, buy it. Don't play their game.
I'm not sure where you're getting your information from, but you missed the mark in several areas:
- "The average new car rate is 7% right now...", I'm seeing manufacturer supported financing rates as low as 1.99% on new cars today and generic new car loans from the likes of PenFed and NFCU which are below 5%.
- "Financing means you can't afford it...", did you read my post above? If you did, maybe you didn't understand it; the fact is I financed my new Tacoma because doing so made me money compared to paying cash for the vehicle, even though I could easily afford to do so.
- Regarding your comments about long term loans and lots of add-ons, that's on the buyer; all they need to do is say "no", such comments have nothing to do with whether or not to finance a vehicle.
The majority of people aren't going to get loans at anywhere near that rate.
If Experian, which would know, says the average loan is 7%, that means that many new car loans are a lot worse than 7%.
Manufacturers sometimes finance their own cars as a subsidy to a dealer, but then you also lose something somewhere else, like they'll offer you 2% or $3,000-4,000 rebate, it's either-or, so you don't really get 2%, you just think you did because you gave up a rebate.
If you lose $3,000-$4,000 and throw it in and pay it, with interest, what is the low interest from the manufacturer finance really costing you?
They made it very clear that you can't have both. It's one or the other. So they get you in there with all these incentives and then you pick one, and when the spread between their 2% financing and the 5% offer from a credit union and the $3750 in rebates isn't wide, you might as well take the $3750 instead of throwing it in at 2% on top of the rest of the loan. In other words, the 2% is a seductive mirage that requires you to give up something potentially more valuable. Especially if you can pay for the car with money, not financing, or at least make a significant down payment, which is easier with a more practical car which tends to cost less.
A $7,000 down payment can be 30% or 10% of the car, depending on how dead set you are on obtaining transportation and realizing that it's a grocery getter that takes you to work and stuff, or whether you're dead set on keeping up with the Joneses.
Ford pulled this on my ex in 2019 before COVID and before car prices went through the darn roof, when I was negotiating in the finance room on a car for him, and at the time he not only would have had to surrender the manufacturer rebate to get the "low financing", but he also would have had to surrender an ADDITIONAL rebate of $750 for being a federal police officer which Ford gives out pretty broadly to anyone who works for the Department of Homeland Security as well as other federal agencies. So I think he was going to lose $3,750 in rebates to take the 0% and the rebates were coming out of a Fiesta Hatchback that was brand new, but the dealer wanted rid of it because it was taking up a slot and they wanted one of those $70,000 trucks to pawn off on a Boomer who goes "I'll just finance it for a million years so mah payment gets sehr klein!" 
I don't know why I broke into German at the end of that sentence, you figure it out.
Everything they do at the dealership, or involving banks, or banks and the dealership, is designed so that they can make it seem they gave you something big when in fact they gave you nothing at all and just reached into another one of your pockets and picked it clean over there.
You could always do what I do. Go near closing time when they all want to go home for the night and drag it along until they give up to get you out of there.
A loan does not make you money. A loan costs you money, it's only a matter of how much. Even when they say you got a "good rate", it's a condescending thing, like telling a dog that just pooped on the carpet what a good dog it is and what a smart dog it is even when you know it is being neither good, nor smart. Of course the salesman will tell you it's a good rate. He's robbing you out of another pocket while he's saying that.
Me, personally, I'd be happier driving a rolling oil leak (and believe me I've had a few) than something costing me $700-800 a month in payments for 5-6 years, or 7 years, and the insurance tripling that comes along with it. But I'm a practical kind of guy.
My current car isn't "that bad" and I actually own it. It's got a couple of scratches and dents, but it's not a bad car. It runs fine. Why do I need a lien or a car fleece, and "payments" when I'm paying such low insurance premiums now and don't have anyone threatening to take my car away if I were to fall off the payment treadmill?
I don't care that FICO says "Lack of recent installment loans." That's a good thing. I could be walking around being perversely rewarded by a debt score for financing a SUV that's as big as a house and half as aerodynamic, and a jet ski, and making payments, and being very irresponsible, but watching a debt score go up because I would be in debt.
There's a very high rate of people financing something like this and ending up in a horrible accident with it, because people who are fiscally reckless enough to finance an $80,000 war wagon are not the most responsible drivers in traffic, and then they cause more damage to what they hit, and may suffer on the insurance side of it as well.
Another common mistake at the dealership is not bothering to ask your insurance company what the premiums will run for various vehicles.
When you're in an $80,000 war wagon that's as big as a house and half as aerodynamic, the insurance company uses these things called "actuarial tables" to figure out what kind of people buy that, how many accidents they have, and what they cost them. So surprise surprise, you bought it, you suffer with it.
Another common mistake is you may be better with finances, but bring a fiscally reckless spouse/SO/friend with you, and the salesman realizing that he can't break through to you and make you pliable, starts to engage with them, and then they relay what he wants you to do, thus penetrating your defensive barrier. In a relationship, there's almost always one partner that's just not as good with money or negotiations, and salesmen will seize on that.
Dealers are not your friends, the banks are not your friends.
My in-laws have high FICO scores. They've also got over a dozen credit cards they never pay off, they have a house that hasn't appreciated considering inflation, but has eaten them with interest payments, property taxes that have quadrupled since they "bought it", and insurance that only ever goes up, and three vehicle payments. Their latest brilliant move (by debt score standards) was deciding somewhere in their brains that their children deserved brand new BMWs, and then a few years later, they found out that their parents hadn't saved anything for college tuition and they now need student loans.
Here's an entire family making the absolute "couldn't be more wrong" financial moves, and being rewarded for it with a very high debt score.
That very high FICO score is costing them tens of thousands of dollars in bank interest every year in exchange for almost nothing except not getting sued every month a payment goes in.
Two people, 160 hour work weeks between them sometimes. Never home to enjoy it, banks want their payments.
How is anyone making over half a million struggling? Much less in that much debt? They need to admit that they don't "deserve" anything.
We all "work hard". We all need to roll up our sleeves, let the little kid that lives in our head going "I want. I want." be muted, and be frugal, and save, and buy things. Payments are for people who are broke, or will be broke. If you could afford, you wouldn't have payments.
People weren't always like they are now. They worked, they put their money aside, and they bought things that were within reach when they saved enough money. As a result, my grandparents (dad's side) left hundreds of thousands of dollars in unspent money behind for their children, and a house! And he was a factory worker, and she never worked.
Nobody has to live "with payments". It's a lack of impulse control normally.
People "make payments" because they can't afford it, but want to "project success" anyway. It's the ultimate contradiction. If you could afford it, you would have bought it.
Interest on a car loan or a credit card, is an IV bag full of poison, drip drip dripping into your financial stability and security. "Earning Interest" is the only way that interest should enter your finances. Otherwise, you're doing it wrong.
Inside everyone's brain, is what amounts to a spoiled entitled 7 year old child throwing themselves on the floor and rolling around at the grocery store over some candy. Only, when you're an adult, it comes out at the car dealership, or the boat dealership, or with a realtor, and you do more damage than a piece of candy.
When I was younger and less seasoned, I was played for a fool because I knew no better. Next time, I will not go quietly. At least I learned, which is more than I can say for some people.
One bank that prequalifies you instantly for a car note told me 10.39% after a hefty down payment was the best they'd do. I took a look at that and laughed and said "Cram it." I don't know if that's the best anyone will do. It's Capital One, so I kind of doubt it, but still even 8% would be too much. I could walk in and buy the car cash money but there's no rush. My car still runs fine and I own it, and I'm in no hurry to call up the insurance people and say double my premium.
Right now, that money is growing due to high interest rate investments. If I cash out right now, I could miss out on thousands in interest payments to me, to buy a car that will heavily deplete my savings, and that's just not a value proposition either.
When the time is right, I can buy it and pay cash and really own my car (not some stupid lien or a car fleece), and that will be after the fed cuts and I couldn't earn interest on savings anyway. By then this car I have will be even older. Things just have to line up or its not worth the opportunity costs.
Right now, most of the APR on savings is earned from the Added Pain and Suffering on car loans for people who blow the whole wad for the next 7 years, with interest.
It never ceases to amaze me how they can mezmerize so many people into thinking "I can't afford a car now so I'll pay for 1.5 cars and only get 1 car by making payments." is a good deal.
They've realized how the people they deal with even think, I know that. They know they're dealing with people who don't say "84 monthly payments is kind of a lot of payments" or "Won't I be having car problems by then while I'm still making payments?"
They're very accomodating with the payments, because it's the only way that people who can't afford an $80,000 war wagon can buy it. It puts them in great risk and makes them run on a treadmill.
Many modern cars are so poorly built that people complain they bought a Buick and the passenger airbag light is on and the computer says "Service All Wheel Drive" by the time the car is 11-12 months old, so they take it to the dealership, and the dealer leaves them without a car for 4-5 months until the part gets in and they bring it around. All while the payments are still due.
How are you going to get to work when that happens?
I ended up with GM's Dex-Cool gunk in my engine coolant passages and plugging up the heater core. I ended up backflushing the system, but it wasn't enough. I ended up using Blue Devil to dissolve it and a bunch more came out and it wasn't enough. Finally I took the engine (all metal) apart down to the lower intake and replaced the failed gaskets and upgraded the coolant elbows to metal parts of an aftermarket improved design. I talked to a Chevy Service Advisor. He recommended the Blue Devil. He said off the record that GM never fixed this problem, so they're seeing 3 year old cars (with 6-7 years of payments) that come in without heat.)
I got my coolant system going again and just transitioned it to extended life green once I worked all of the crap out of it. But what Russ at Chevy told me kind of was off putting about the idea of buying a new GM. "They never fixed that. Three year old cars have problems with that. 84 months of payments why not?"
I've installed aftermarket parts of an improved design all over my 2008 Buick. Not just the improved gasket and coolant elbow kit, but Denso (Toyota) ignition control module and coil packs, and KYB struts, and a Sony car stereo. I mean, why throw all this at an old car? Because for the most part it has good bones and I hate buying cars. Especially now. Anyone who knows anything about mechanical work knows how they make these itty bitty overworked engines out of plastic, with a turbo and overhead cams.
It's an overdesigned mess that's designed to keep you in car payments for the rest of your life.
When you lifted the hood and there was plastic junk everywhere, they used to do it to hit a price point, now you're seeing that on "up market" brands that cost a lot of money. Plastic does not age well.
Anyway, you can tell that people can't afford their loans and fleeces when they're driving around a 3 year old car that has rust. That's a hoot.
So they got so far in over their head that they couldn't even afford to take it to the car wash and drove it around in Illinois a few years and now it looks like a U-Boat that was on the bottom of the ocean for 70 years.
My car's a lot older and doesn't have any rust on the body. The GM fenders rust, but I knew that when I bought it and I junked them and spray painted and clear coated ones that match the rest of the car that are not rusted. Severe rust on the struts was why I replaced those and other parts of the suspension. If more people were self-sufficient they could just competently repair what they own and keep driving it.
My only interaction with the dealer on this thing was a $20 loss leader deal to clean out my air conditioner condensor . The guy offered to buy the car from me (not the dealer, the guy who worked at the counter offered me cash, $3,000 more than I had in it and I declined) because "It looks like it's a year old.". Yeah, I hand wash it. I go out there with a clay bar and a pressure washer and a wax kit. I baby that thing. I use synthetic motor oils and high efficiency filters. There's nothing wrong with the car. I know full well how badly the new ones age. In 84 months you're going to have a lot of problems with a new one, which is why I'm amazed how many people repeat the same error that burned them the last time.
Didn't look "a year old" when I got it. I was even certain I would have to replace the factory headlight assemblies, but I was wrong. A restoration kit with a drill driver and some sandpaper and buffing wheels and compound and a UV spray, and they've been good as new. They were old and yucky and yellow peeling.
People have laughed at my cheapness, which involves continuing to wear my "holey" underwear, wearing shoes until we're into the rubber underneath the sole, standing on the trash to make it go down, and other stuff, and I wear that with pride, because it means no debt, and no debt means less work, and less work means lower taxes, but I'm not one of these people financing shoes on Affirm payments and making 84 month car loan or a 36 month fleece where you pay for 70% of a car and then turn it in and don't have a car. Oh no.
As for spouses and finances, if they're not on the same page and/or you can't bring them to heel on their poor financial practices which rebound and inevitably harm you, you shouldn't have married them, and if it's really bad it may be time to cut losses.
Another word on FICO scores, AKA debt scoring...
What FICO rewards is people chasing higher incomes for debt servicing which leads to an inability to file a real bankruptcy, and then ending up in a payment plan, either negotiated, or through a Chapter 13 which means making payments anyway and paying back nearly everything, because by the time you realize you need to go bankrupt, your trailing income from trying to keep up with everything was too high.
It's an example of a vicious cycle. If I had been excessively debt burdened when my ex and the hospitals caused all those problems, I would have never been able to file Chapter 7 and discharge it all.
So what if a debt score "punishes" me on high loan rates if I....gasp....don't need a loan? It's irrelevant. I'm patient. I can wait.
A less than ideal debt score rating is not excessively burdening my life. I still have a slew of rewards credit cards that I pay off on time, it may have pushed me to purchase and repair an existing vehicle much cheaper than a loan would have cost, either way.
So far from penalizing me, it simply caused me to adjust my strategy. It only penalizes people who decide to engage and take on a loan. That's the worst they can do to you. And only for a while.
Most types of loans it can penalize, I never used anyway. If I really had to make vehicle payments, I'd just push this car another couple of years and all the old bankruptcy accounts will fall off and we could discuss payments then.
As far as how that's going, even the relatively harsh 10.39% offer from Capital One, which is bad, is an improvement. 4 years ago they were offering me car loans, but they'd have to be on a really used hard and put back in the barn wet vehicle, and at more than 25% interest. Avoiding loans for the past 4 years has already shown real progress.
The only obvious point of a 25%+ loan on a bad car is they expect it to break down on you and you to stop paying so they can take it, crush it for scrap metal, and sue you. You already had a recent bankruptcy so they know you won't escape them.
Sorry Charlie, this fish won't get fried.
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