Reality Check

[frugalone]

Recently, my brother informed me that he has a $440 a month loan for his truck. This is more than I pay for rent on a single home. I was totally astonished.
When I ran it by a close friend of mine who is an attorney, she didn't seem blown away by this figure at all.
I thought car loans were more like $250 a month. Needless to say, I do not have one.

Am I living in an alternate universe or something? Do people seriously think this is normal, to pay that sort of money for a vehicle?

Help me out here, fellow frugalers.

[catherine]

Guilty as charged. I am ashamed to say that i had a $550 car loan for my Prius. I simultaneously was paying my DH Honda Fit loan for $391. I did pay them both off early, but I was about two-three years into both loans when I found Dave Ramsey and realized the error of my ways.

Now, I have an automatic withdrawal for a car replacement fund with ING.

[frugalone]

I wonder if this is why, when I suggested my brother sell his truck and get a cheaper vehicle, family members acted shocked...as if there's no alternative to a brand-new, shiny, showroom vehicle.

[decemberlov]

Wow!! I'm with you frugalone... $440 a month is outrageous!! When I bought my used Honda Passport I did what was called a balloon payment, I put something like $1,000 down and then paid $100.00 a month until I got my income tax and paid the balance off...worked out really well :)

[ApatheticNoMore]

Well to contextualize, it's less than half of what I pay in rent for a 1 bedroom apartment. I'm currently paying nearly $300 a month for health insurance despite having employer provided (yes it's a rip off, that totally occurs to me :)). I know many people paying hundreds a month for student loans. So in that context it might not seem so bad, $440 for a vehicle, and afterall in most parts of the country you probably need *some* kind of vehicle, even just to keep a job, right? It's not $440 a month for rhinestone studded shoes, afterall ..... But really it does seem high, although I don't even know what car payments tend to run as I've never had them. They are worse if you have bad credit I think.

[bunnys]

I remember in 1990 when I was a teller seeing someone come into pay his Ford Thunderbird payment of $450. I was floored.

I think many people have these kinds of loan payments.

But more importantly, how did you ever find a house to rent for less than $450 per month?

[leslieann]

Yes, many people DO have these kind of payments. I suggested saving and buying a used car to an acquaintance and she was absolutely flabbergasted. She had never considered such a thing, and pointed out that it is so far out of her experience that even her 78 year old father has a car payment.

And don't forget that people can be underwater on cars, too. This lady is that...even if she sold the car she would never get what she owes because she rolled other loans into the car loan. What a terrible thing to offer people! They have no idea how stuck they can get.

Just differences, I guess. I am grateful to have cars that run, more or less, and no payments.

[SteveinMN]

It all should be taken in context. You can't rent a home here in Minneapolis/St. Paul for $450 a month without some major issue, like a really undesirable location (truly sketchy part of town or 75' under the planes landing at MSP) or some very expensive repair(s) due very soon. Maybe you could do it in outstate Minnesota, but then there are other drawbacks, like no public transportation, no sidewalks, even no shopping or jobs within walking/biking distance. frugalone, I would argue that, on this, you are the exception rather than the rule.

As a result, spending 300-500 a month on a car payment does not seem so out of line. I carried a $400 note for the car I'm currently driving because I wanted to finish the loan in less than two years. Right now many lenders will quote five- or six-year terms on car loans :0! -- timeframes which guarantee the borrower will be upside-down for almost the entire loan. And that's before the previous loan's remnants are rolled over.

And used does not always fill one's risk tolerance. Consider how many people on this site are conservative with their investments because they fear volatility and loss of principal. Consider that many people feel that way about their transportation -- the older a car gets, the more likely it will fail, sometimes leaving you stranded. And the cost of fixing that, whether it was something you did yourself, or the previous owner did/didn't do to the vehicle, or a design flaw, is almost always entirely on you. Even if it's at a bad time in your pay cycle. Here in Minnesota, for about four months out of the year, exposure to the weather can kill you. People want to be able to count on their car as much as some folks want to count on their money being there. For them, buying new is the equivalent of investing only in CDs and T-Bills. At least with a new car you get a decent warranty for your monthly payment.

And, finally, new works well for us, too, because we drive our cars till they drop. I treat my vehicles as the expensive device they are. I've seen how most other people drive and take care of their vehicles. I don't want someone else's abused oh-no-money-for-the-oil-change-this-month vehicle. I'm keeping it forever; let's give it a good start.

[Laser_Cat]

Yeah I would love to know how anyone is renting a house that cheap, I suppose it's the area. They run around $1400 a month here. I think when I had my honda fit I was paying $250 a month for the payment but after you add all the gas and insurance and such it was easily over $500.

[JaneV2.0]

Houses around here supposedly rent for $2500 a month. Makes me want to shack up with the SO and maximize my investment. http://www.kolobok.us/smiles/artists/just_cuz/JC_cheesy.gif

I can see paying $400 a month for a very short term car loan. I've paid on car notes for a grand total of three years total; in general, I'd rather not go heavily into debt for an automobile. But that's just me.

[cdttmm]

Long before I read YMOYL and got on the path to simple living I leased an SUV. Back in 1997 this fabulously stupid decision cost me $328 per month and I chose to lease because the monthly payment was less than if I were to buy the vehicle. So I don't find it at all surprising that to buy a truck in 2012 would come with a monthly payment of $440. Would I sign myself up for that kind of debt now? Nope. I do buy either new cars or late model used cars for cash, but I can understand why when people need a car and can't pay cash for it they end up taking out a loan and buying new. Most people assume their financial situation will improve over time -- not sure why they assume this, but it does seem to be the case...

[frugalone]

We looked for months and months, and it was more than a decade ago. Our landlord has not raised the rent. On the other hand, we are responsible for most repairs, they don't do ANY repairs (unless it's something dire, like a broken furnace), they don't paint, they don't even check to see if we've burned down the house. ;)


I remember in 1990 when I was a teller seeing someone come into pay his Ford Thunderbird payment of $450. I was floored.

I think many people have these kinds of loan payments.

But more importantly, how did you ever find a house to rent for less than $450 per month?

[frugalone]

All very good points, well stated!


It all should be taken in context. You can't rent a home here in Minneapolis/St. Paul for $450 a month without some major issue, like a really undesirable location (truly sketchy part of town or 75' under the planes landing at MSP) or some very expensive repair(s) due very soon. Maybe you could do it in outstate Minnesota, but then there are other drawbacks, like no public transportation, no sidewalks, even no shopping or jobs within walking/biking distance. frugalone, I would argue that, on this, you are the exception rather than the rule.

As a result, spending 300-500 a month on a car payment does not seem so out of line. I carried a $400 note for the car I'm currently driving because I wanted to finish the loan in less than two years. Right now many lenders will quote five- or six-year terms on car loans :0! -- timeframes which guarantee the borrower will be upside-down for almost the entire loan. And that's before the previous loan's remnants are rolled over.

And used does not always fill one's risk tolerance. Consider how many people on this site are conservative with their investments because they fear volatility and loss of principal. Consider that many people feel that way about their transportation -- the older a car gets, the more likely it will fail, sometimes leaving you stranded. And the cost of fixing that, whether it was something you did yourself, or the previous owner did/didn't do to the vehicle, or a design flaw, is almost always entirely on you. Even if it's at a bad time in your pay cycle. Here in Minnesota, for about four months out of the year, exposure to the weather can kill you. People want to be able to count on their car as much as some folks want to count on their money being there. For them, buying new is the equivalent of investing only in CDs and T-Bills. At least with a new car you get a decent warranty for your monthly payment.

And, finally, new works well for us, too, because we drive our cars till they drop. I treat my vehicles as the expensive device they are. I've seen how most other people drive and take care of their vehicles. I don't want someone else's abused oh-no-money-for-the-oil-change-this-month vehicle. I'm keeping it forever; let's give it a good start.

[frugalone]

This is a pretty cheap area, all in all. And it's pretty depressed. The house is very old (and I mentioned in another reply some of its condition). No yard, barely enough room to park one car, neighborhood is near a state highway and two local very busy streets. But it is working for us, more or less.


Yeah I would love to know how anyone is renting a house that cheap, I suppose it's the area. They run around $1400 a month here. I think when I had my honda fit I was paying $250 a month for the payment but after you add all the gas and insurance and such it was easily over $500.

[dmc]

Just $16,000 divided by a 3year payment is $444 a month with no interest.

[ctg492]

Payments, material possessions, savings, investments, all can be relative to an income. Not always of course. Sometimes it is easy to forget that. Just the same as home values and income varies widely in parts of the country.

[Tammy]

We are paying about 450 monthly for our gently used jeep.

We justify it cause we share one vehicle between me and my husband, I only drive 3 miles to work, his work is one block away, he sleeps in it when hunting and camping and working festivals, we got 3% on the loan cause of good credit, I pay extra each month above the payment, and we live in 650 sq ft so we have about 40% of the housing costs of our peers.

We choose to max out retirement plans and keep a nice emergency fund instead of paying it off faster.

We could live cheaper, but there are some things we love ... It's all a risk benefit ratio, along with considering percentage of total income. We cut out lots of other things less important to us, but really enjoy the jeep.

[Kestra]

Our car loan is $521/month. We were going to pay cash but the loan interest rate over 4 years was half what we are making on our savings account so it seemed fine to finance. Yes, we bought a new car, but it was a conscious choice and we can afford it.

[iris lily]

My friend Sue and I have a saying: we will not pay more for an automobile than we paid for our houses. And um we bought decrepit Victorian piles many years ago and so we are creeping up on that dollar amount, in another ten years I will have to eat my words or else find used cars under the mark. I think I'll be ok, will probably drop dead before I seriously have to face this challenge.

[Spartana]

I have only had one car loan ever. It was when I was around 17 or so and I worked in some fast food joint (Jack in the Box) and I just HAD TO HAVE this used Ford Pinto (yes, a Pinto!). So I got my Mom to co-sign on the $68/month loan for me. So while I had my dream car (jacked up, fat tires with chrome rims, hydraulic lifts, tiny chrome steering wheel, and custom painted in gold metallic sparkles with a marsh scene - GEEZE!) I had to work to pay for it while my friends were out playing. I HATED that loan and vowed never to get in to debt again. And I never did. So since then I have always saved up my pennies to buy whatever vehicle I wanted for cash - even new vehicles. So I am with you Frugalone - a high car loan over several years seems crazy to me. But I understand that many people like a higher priced car and spending that money is no biggie to them. But I will tell you that when someone decides to pay cash for a vehicle rather then get a loan, it acts as a reality check in that it is MUCH harder to part with $45,000 or more in cash for an expensive car then $10,000 or less in cash when buying a budget car (just picture yourself handing over a check for $45K for a car - GULP!). So having a monthly payment - even a big monthly payment - sort of softens the blow of what the full cost would be and doesn't seem like THAT much to most people.

[Lainey]

You're right as far as how quickly we can get accustomed to larger dollar amounts.

I remember 18 years ago when my sib bought a condo in NY for $250,000. The family here out West was shocked that we had a sibling who had a mortgage of a quarter million dollars... of course, that same place is now worth twice that.

[awakenedsoul]

Many people in LA have payments of $500. a month for brand new trucks. It's kind of a status thing here. Unfortunately, many of them pour all of their money into their trucks. That's their top priority.

I had a car payment of $141.62 on my Kia Rio. I paid it of early. I had always paid cash for used cars before, but I decided I needed a newer car with all of my LA commuting. (It's hard to keep up on the freeways of LA in an old clunker.) I got the Kia through Enterprise. At the time, I didn't have any savings. I think that's why a lot of people have car payments.

I ride my bike most of the time now, and I hope my Kia lasts me another 25 years or more!

[gimmethesimplelife]

Reading this thread makes me feel grateful that I don't have a car.....For me bussing it, the light rail, and having a bike are plenty good enough and I have managed to make a go of this even in sprawling, auto-centric Phoenix. However, I live very close in to downtown, and I don't live somewhere very cold, either. I think these two factors make a huge difference.

Things have changed for me recently financially and for a brief period of time I was debating getting a car and then I realized - nope, don't want those kinds of bills in my life until I am on more solid ground as to what I am going to be doing for income in the future. Especially if I am going to go back to school in the fall - I just don't need the bills a car would reintroduce to my life. Rob

[frugalone]

You know, when I think about it, I don't even know if I really want to own a car myself.
My boss doesn't have one. Never got a driver's license. And we live in an area where it's very difficult to get along without a car. Somehow he's managed to do it for 30+ years. Lives w/in walking distance of work, rides a bicycle to the grocery store, or walks there, gets a ride from a friend or relative when none of the above will work. He lives pretty modestly--no cell phone, uses the city's free (but somewhat unreliable) wireless service, doesn't have long distance on his phone.

I wish we had better public transport here and/or a light rail. For e.g., I can take a bus to work, but when my shift ends, there is no public transportation. It is not feasible to walk. There are cabs, but that's an added expense.

Sometimes I think if the government took even a fraction of the money they spend on bullsh*t and put it toward better public transport, the U.S. would be a much better place!