Recently I’ve looked into purchasing a car to get a more reliable vehicle to get to and from work. I travel 66 miles round trip a day for work so a reliable car is needed to protect my ability to get to work and ultimately my livelihood. When you talk to the salesman often they make you think you can afford anything.
Of course going to some salesmen of cars for financial advise is like going to some stock brokers to ask about buying cars. They have some idea of what they are talking about but, it isn’t their specialty.
The tactic I have seen employed the most from the salesmen in my area is just talking about the payment per month. The total cost does not even enter into the conversation. Don’t get me wrong most salesmen are great guys and are doing their best to place you in a car; which is why you go to a dealership in the first place. Knowing the total cost “out the door” which includes tax, title, extra dealer charges is important.
Purchasing a car is like purchasing a pencil; only more expensive. The car like the pencil has a job to do and depreciates in value over time. Eventually they both can’t fulfill their purpose and are gotten rid of.
A big question of “Is Zero Percent Financing the same as cash?” I have had people say to me yes it is, there is no difference except you get your car sooner and enjoy it while you are paying for it. I disagree. Anytime you owe money the lender owns your future time. Saving for things rather than financing puts you in a position where you own your future time. Many things can happen in life; loss of job, health issues, natural disaster, divorce, birth of a child, etc which change your finances in a short amount of time. If you have more obligations of debt you will have less options to deal with those things that can happen. Keep in mind things happen because life happens.
Risk should be looked at even in cases of “zero percent financing”. The risk of something happening to compromise your ability to pay back a loan is greater than most people think. What if you lose your job after your purchase using zero percent financing? The average American earns about $30-40K and it takes about a month of looking per each $10K in salary. So by quick estimates it is 3-4 months of looking on average. The average car payment is between $300-$500 per month. The range is $900-$1200 to $1500-$2000 over the unemployed period needs to be paid or you lose the car. This is money to be spent along with the other expenses (food, shelter, heating, fuel, etc).
If you have no money coming in which takes priority; food or car payments? Also if you stop making payments on a car with zero percent financing they will take it away just as quick if you have interest bearing financing. Any money you have put towards the purchase of the car is gone… you lose money on a “zero percent financing” deal.
WAVE-B 