Topic: Is your car driving you to ruin?

[Trainman]

From todays Vancouver Province: (http://www.canada.com/theprovince/news/money/story.html?id=479af361-bad7-4064-beeb-00b959acd57e)

Is your car driving you to ruin?
New vehicle every couple of years a recipe for bankruptcy   

Ray Turchansky, CanWest News Service
Published: Monday, April 10, 2006

Decades ago, people worried about being "house-poor" -- having so much money tied up in your house that little is left to pay living expenses.

Now we have those who are "car-poor."

I have heard of a couple who never owned a house all their lives -- because the husband

didn't believe in having a mortgage -- but thought it was important to have a new car every two or three years. He died and his widow is now in dire financial straits.

I know of another widow who was having trouble paying her income taxes because much of her income went into running a 1969 auto that her husband had bought new.

Her life turned around when she sold the gas-guzzler for a tidy sum as an antique, thus getting income and eliminating expenses in one fell swoop.

Another gent, in his 80s, is looking for subsidized housing despite having never married and having never had the expense of raising a family.

He did, however, get a new car every second year for decades, and is now plowing money into repairs on an aging vehicle with more than 300,000 kilometres on it.

It's not just the elderly who find themselves "car-poor."

A woman, barely 20, bought a "beater" that required a bank loan and $500 in immediate repairs, plus high insurance rates since she was no longer living at home.

She ran up bills of $2,000 in unpaid taxes and $500 in unpaid health-care premiums, then got rid of the car and paid off her debts within two years.

Recently, the Office of the Superintendent of Bankruptcy Canada released An Overview of Canadian Insolvency Statistics up to 2004, which painted an interesting portrait of people in bankruptcy or with proposals to creditors.

The average person was 42.5 years old, making a net annual salary of $22,650 and owed $70,250. In 89.25 per cent of the cases, credit-card debt was involved.

The most frequent type of asset listed by these people -- in 67.6 per cent of bankruptcies and 75.9 per cent of creditor proposals -- was a car, slightly ahead of furnishings.

"And you're going to see it more and more," said Stanley Kershman, author of Put Your Debt on a Diet, concerning the nouveau poor.

"The trend now is that you don't need to buy a car; you can lease a car every two or three years.

"The problem people don't understand is that leasing a car doesn't give you any equity and it becomes a monthly payment, like a mortgage payment, forever."

Similarly, there are people who buy a new vehicle before the old one is paid off.

"They add the cost of the old debt to the new vehicle, so they may have a $25,000 vehicle with $35,000 of debt on it," Kershman said.

Here are some of Kershman's suggestions about vehicles:

"Buy a vehicle that's one or two years old, that's in good condition, with payments you can afford. Pay off the vehicle and seriously consider keeping it for another two or three or four years, so you're driving payment-free. Use the extra money for RRSPs, savings, buying a home or for your next vehicle.

"Unless it works from an income-tax perspective, do not lease a vehicle. It is too expensive, and you're building up no equity in your vehicle.

"Vehicle costs for the monthly payments should be no more than $400 or $500. Once you're starting to pay $700 or $800 a month for a vehicle, that's a lot of money to spend just on the loan or vehicle lease alone, leaving aside insurance, gas, repairs and maintenance."

We probably all know people like this.  Thoughts?

[y2chuck]

I knew a guy who bought 3 vechicles in the span of about 2 years and each new one was more expensive than the last AND he was upside down on EACH loan.  "Yeah, but the monthly payment is the same!!" was his answer.

To each their own, I will always lease one vehicle as I always want a newer car every few years.   Most people only care about a monthly payment, not the overall cost and not everyone has the luxery of saving enough to buy a car cash either.

Given the choice between a managable monthly payment and a having a car that gets me all hot and bothered just by looking at it, I'll gladly take a higher lease payment.

[skypoint]

"Vehicle costs for the monthly payments should be no more than $400 or $500. Once you're starting to pay $700 or $800 a month for a vehicle, that's a lot of money to spend just on the loan or vehicle lease alone, leaving aside insurance, gas, repairs and maintenance."[/color]

We probably all know people like this.  Thoughts?

Guilty. I pay $650 a month on my car financing.

But I'll once it's paid off in Jan 2009, I plan on keeping it for at least 3-4 more years. Plus the car isn't proving to be that much of a drain on my finances, since I have no other debts at all to pay at this point.

[dr_spock]

I would not go into debt for car.  It's bad enough with a mortgage.

[locutusx]

Yeah that article rings very true for me -- in the sense that, because I didn't want to get into the typical "young person" situation as detailed in that article, I waited more than 2 years after finishing college before buying my own car.

But now, it's quite affordable for me. Even without a job, making car payments and insurance payments on it is pretty doable.

[kelli]

The X is costing me about $200 more per month than the kia was.. it doesn't seem like much but it would come in handy to pay down some debt. I don't have a lot, but i also don't own a house yet. Credit card debt drives me nuts, so i keep those paid off.. i just have some student loans left and some minor line of credit debt.

I still have enough to pay my debt, it will just take me a bit longer to do. I plan on driving the X until it dies (which i hope isn't for MANY years from now) so hopefully i made the right decisiion in getting the car i wanted this time so i won't get the itch to get another one like i did since about 4 weeks after i had the rio =)

[Gwendly]

Guilty. I pay $650 a month on my car financing.

But I'll once it's paid off in Jan 2009, I plan on keeping it for at least 3-4 more years. Plus the car isn't proving to be that much of a drain on my finances, since I have no other debts at all to pay at this point.

Guilty as well

or well soon to be anyways. But I could have had a lower payment if I would have chosen to spend my loan over more than th 36 months I chose. Since I'm saving like $1500 in interest from 3 to 4 years (different % rate) it just made sense. Last time I bought a veichle was in 1999 and I intend to use that veichle still (I don't think I've done anything but general maintence on that car either) just like my new veichle. I'm a drive yer car for 10ish year before adding another one to the fleet kinda guy

[picard]

I am not guilty.  I paid off car loan long time ago. Now I am looking for new car when this one dies in 3yrs.

[johngenx]

Only pay cash now.  No more car loans, ever.  We put a sum away every month to cover the cost of a new-ish car when the time comes.  The longer we milk out of an old unit, the better off we get.

It's my own experience that cars, if you chose carefully, can last beyond 12 years and 250K without repairs even coming close to the cost of a new car.  We dumped our Mazda 626 at 17 years old.  Many, many years of super-cheap driving that car gave us.  My current MB has been payment free (my last new car) for nearly six years, and it's bliss.  The ~$1000 a year in service/repairs it runs is a fraction of the cost of a lease payment on a base Yaris.

Buying a three-year old lease-return in good condition from Toyota, Honda, Nissan, Subaru or Mazda is a pretty safe bet when it comes to getting a nice car that will last you for a long time.

I also love not having to worry about the odo reading.  Warranty is gone and I'm not saving the value for a sale.  When it's done, it's probably donated or sold off for next-to-nothing.  So, I drive!

[tpl]

I agree with JGX to a certain point.

When the last manual transmission is made ( in a car I want and can afford) I'll buy it just to not have to drive an automatic.

When i am allowed by the gov to buy a decent modern diesel ( in a car I want and can afford)  I'll do that as I have no interest in saving the world buy driving with a laptop battery for power or a fuel cel

sooooo when the bmw gets old, maybe a golf Mk 5 diesel or a BMW 320D

[Snowman]

I’m an automotive enthusiast; I have resolved myself to the fact that I will have a car payment until someone takes my drivers licence away. I drive a new car but do not let it affect other priorities. Our recent automobile purchase and lease payments have dropped by $200/month.

[airbalancer]

Cars will last a long time now.
It is the feeling of wanting that kills me.
I think my son has it now.
He was at the Bimmer place in Halifax to pick up something.
He saw a M3 and it was if I can get so much  for mine then it is only so much ..............
The cycle never ends

[UmroAyyar]

My car financing payments are $330 a month and insurance at $233/month on the Corolla. I had the loan spread to 5 years so the payments were a bit low and I couldn't qualify for anything less for the lack of credit record (1 yr immigrant that time). Plus it fits in the overall financial plan, instead of 5 years, I am on track to pay it off in 3 years saving $1100 in interest. That coincides with our second or a bigger car requirement and insurance cost would go down as well by then.

I wouldn't have done this, if I didn't have a family I guess.  Throwing money at every issue/problem used to be the solution.

[Scaerio]

I had to bite the bullet when the 850 died.  I was tempted to borrow up to $15 000 towards a used 1998-2000 V70, but realised I'd need to pay interest on that loan, plus I had no real warranty, on top of the extra costs associated with Euro car ownership.  Decided the 'zuki was a much better choice for now.  With good care it'll last me 10 years.  Then the debts associated with the MBA will be pretty much gone, and I'll be able to play the enthusiast car game again.  I hope Volvo, SAAB, or Subie offer something fun that I can stand the looks of in 2016!  

[Gwendly]

My insurance is cheaper than what some of you prolly are paying.

My car payments will be $667.31 for 36 months. My insurance will be about $130 per month, totalling about $800 month. Considering my house payment is low (volentary(sp?) $800, could be as low as $300) my family could if something went south (ie me or wife losing job, just not both @ same time) pay for both veichle and house at the same time.

Within three years I should be done paying for both house AND car Life will be good then (ok I guess I'll buy a bigger house but I'll have tons of equity by then, yay!)

UmroAyyar I feel for you as far as 'losing' all your credit rating It sucks when you have a really really good rating in your home country and then you move and they see you as worse than 15 yr old kids making $7/hr at McD :/

[sirAQUAMAN64]

Wow, I'm feeling better about my prospects now after reading most of these posts!

Do you mind me asking what you guys pay for car payment alone per month? Don't need to know the term, just the payment. I'm trying to guage what people are comfortable paying per month, since most budget their large purchases around monthly payment affordability nowadays.

For me, I'm contemplating going from no car payment to two options: $140/mth or $400/mth for same length of term. Obviously, one is better than the other, but from where I was standing $400 seemed high (for me) but in perspective it was "only" $260 more than the other option for a car I'd like more and I could make the payments. Easier to justify that way, but the costs add up. Just interested in the monthly payment maximum people are comfy with.

My insurance is only $92/mth. I don't question anything with them as I think I've a pretty good deal goin' with them with a premium like that, especially with about 5 speeding and 1 running an amber light against me. It was more like $155/mth before I turned 25.

[UmroAyyar]

Well, I've set a limit of $500/mo for next car payments (if new) with the expectation that insurance cost will be $200/mo in 2 years time and in line with the overall financial plan, which is more important to me and I am getting better than expected results with the plan in less than 3 years. I won't go beyond 5 years, I'll choose another car to avoid that. It just gives me flexibility to manage the loan as I please.

[Scaerio]

I pay $374.64/month on the Aerio, but when you calculate in the fact that the dealer made my first payment and I got a $750.00 graduate rebate, my effective payment is $355.90, 60 month term, 0% interest.  Insurance is about $100.00/month.

[Gwendly]

Do you mind me asking what you guys pay for car payment alone per month? Don't need to know the term, just the payment. I'm trying to guage what people are comfortable paying per month, since most budget their large purchases around monthly payment affordability nowadays.

To me, the final amount I paid was more important to me than the amount I'm paying per month.  With a $8,000 downpayment this is how it breaks down for me

Mths Per month  Total
12  $1,966.49    $31,597.88
24  $992.08       $31,809.92
*36  $667.31     $32,023.16
48  $525.58       $33,227.84  
60  $449.63       $34,977.80  
72  $385.10       $35,727.20

I chose the 36 month term which is about $1200 than the 48 month term. the 72 month term is well over $3,500 more. That's alot if you ask me.

[safristi]

My first Canuck!!!? Car an MGB had me borrowing $5-600 or so from a room_mate...since then I've made sure I've earned the BUCKS before buyin' the "TRUCKS".........I mean CARS........ONLY 2 NEW so FAR..rest used... and likely to remain so with  2nd hand ROSES in my BLOOMIN" future......