Quote:
Originally Posted by Micas
Okay, I'll use this post as an example. There is something very wrong with those terms. I did an amortization on 22.5k @ 3.99 for 60 months. His payment should be $415 and not $553, and total interest cost for the life of the loan would be $2356. Your argument that 0% and 3.99% is basically "marketing" is realistically a $2356 difference, not zero. That's on a 22.5k loan. The person who has that loan did not do the math to see that there was something very out of whack.
If you move the terms to a 32.5k loan, the payment goes to $598 and interest cost of $3403. That's with a very good interest rate.
I guess if somebody considers 2k+ (depending on principal) trivial, then that's fine. A person could make an argument that if you had investments that were earning more than the interest rates paid on a car loan, then it's best just to finance the entire amount. That's valid, but I think that's risky.
Personally, I think if you don't pay interest, you're a few thousand ahead in the long run, and the philosophy of not financing anything but a house has a multiplicative effect. It all adds up over a long term, and the returns you can make on that saved money adds up to a significant amount over time. I think a lot of people ramp up their outflow of money to close to, or more, than their income and that's a very bad thing.
In terms of your idea about spending less on a house in order to afford a car, it's a legitimate point. I'm just saying that you can pick any arbitrary number for a house to offset anything else you'd like to buy. Managing income and expenses is all about just deciding on what you want. If a certain car gives you a lot of value, you can certainly balance that against what you spend on other things. It's all up to the individual. Some people are perfectly happy with a Civic, but they want a $15k home theatre, or whatever. Some people want it all, and work like crazy to make a lot of money.
The point is, I think people should stop thinking about buying cars in terms of monthly payments, and reduce needless expenses. I consider interest paid as a needless expense (except on a house). I think living pay check to pay check is a recipe for disaster.
If you want to know the difference between a 15 year loan, and a 30, you can check a calculator. Keep in mind that the interest rates are different based on the length of the loan. You can't get a 5 year home loan I don't think. I think the shortest they go is like 7.5, but I'm not positive about that. If you have a high enough credit rating and significant assets, you can get a signature loan for whatever period you want in order to buy a house, but that's not a good idea because you can't deduct the interest.
Mortgage/Loan Calculator with Amortization Schedule
Anyway, I'm mostly repeating myself and ruining the thread, so I'll stop. |
A man after my own (aging) heart. We could probably sit down and make a toast to "waiting till you can more or less afford something" versus catering to what our (my kidz, for example) current generation has learned growing up--"Want it now? Get it now!"
In your and my times, you just didn't decide you wanted to watch a movie and download it right then. Or that you got tired of this game for your gaming platform (as if we had one of those any better than an Atari) and run to Blockbuster and get one. Tired of your 2,000 songs on your iPod? Just go to the iTunes store right now ! Tired of this channel on TV? Switch to one of the hundred other channels. Instant messaging and instant gratification go hand-in-hand these days.
It leads to, for example, my 19-year-old son wanting EVERYTHING now instead of waiting (like I did). And all he wants to know is if he can afford the monthly payment.
And there you go. The question every dealership salesman asks because s/he doesn't want you to worry about the price you'll ultimately wind up paying, he only wants you to look at this car one month at a time.
As Micas said (if I can paraphrase), you need to worry about the total cost of that car and the amount of interest over the life of the loan as well as the monthly bill.
As to a house and what amount should you spend on one or how much could you qualify for... a rough guide is you can afford a house 3 times your yearly gross salary. Make $70K a year? You should be able to get into a house around $210K. That assumes anything else you owe money for isn't too far out of kilter.
When wife and I decided on how much to spend on building our new house, we could have easily qualified for a $275K house. We opted for $220K because we wanted to have money left to live comfortably as well. Maybe that helps with one of the questions. We bought in '98 and it will be paid off in 5 more months. We pay $3,000 a month now.
Our credit card (Amazon) is used for our convenience and we haven't ever paid a bit of interest on the balance because we pay in full every month.
If I get a new car (Z), I'll pay about half of it down ($20K) and the remainder will be paid off in about 10 months. Money wasted on interest will be somewhat minimal. The RSX I own was paid off in about a year (had a balance of $18K at purchase).
Hope this helps and hope the comments about the younger generation aren't seen as anything other than constructive.