How 0% Financing Deals Destroy Your Car's Value

The Wall Street Journal ^ | Tuesday, October 8, 2002 | KAREN LUNDEGAARD

[hopespringseternal]

I had a Saturn. It was great at first, but as time goes on, I started wishing someone would hit the thing. After the newness ( I did buy it used, but it was new to me) wore off, it just wasn't that great to spend two hours a day in.

At 100k miles, it started burning oil and I was about to have to pull the engine to change the clutch. I was just too hard on it, hitting the rev limiter once a day. The only way to get the thing to move is to drive it like you stole it.

By the time I traded it, I would have paid the salesman to take it.

[wardaddy]

Because of an evergrowing family, I bought a K1500 Suburban with all the bells and whistles at auction a few months ago for 28K. It was one year old with 15K miles. The list the previous year was almost 40K. It was GM certified too.

Buying a new car will hammer you the first couple of years with rare exceptions like the Land Rover Defender Ragtop...but then that's a whole nother issue...Land Rover reliability(oxymoron...for morons like me). Those Defenders have held their value very very well. They still go for around 80% of cost even if 7/8 years old.

Like I said above, I appear to be stuck with my MB M class....even if I dump it...it will have cost me from 6-800 bucks per month in depreciation alone.

[Petronski]

New cars are for suckers.

[rmmcdaniell]

You are wise. Too many people I know continually by $25k brand new vehicles, and cannot imagine not having a car payment. Some live their lives with TWO car payments, in addition to mortgage! They consider car payments as a regular charge of life, lumping it in the same category as mortgage payments.

Must be the same yuppie liberals who don't care about how high their taxes are

[Brookhaven]

I think this guy is overstating something that was true even before the 0%. Used cars lose between 1/3 to 1/2 of their retail in the first 2 years of ownership... trade in is nearly always about 1/2 of retail 2 years down the line unless very low mileage and pristine.

What he says makes no sense to me. Either you lose money when you buy the car by paying interest, or you lose money when you sell the car because the initial cost was lower due to 0% financing. So what?

If I had my choice, I would much rather pay less for the car up front and get less when I resell it, than pay more up front just so I could get more when I resell it.

[Petronski]

My goal is 300,000 miles before I consider getting rid of it.

Crown vics are well-nigh indestructible. I just turned over 100k miles, and I'm rolling toward 200k.

[Petronski]

At 195,000 I had to replace the cap and rotor because it started arcing.

LOL. Ya think so? I think that's something like a 60k-100k mile part, You're not really supposed to leave them in until they arc. LOL

[6ppc]

Me too. I've paid cash for every vehicle since 1987, and only one of them was new. Just donated a 91 Explorer with 170K to charity, replaced it with a 97 Camry for $6500.

[agrace]

Thanks, that's good to hear. And I'll have to agree - the small ones are certainly small. I took my husband's little SL to my mom's last weekend while he was home with the kids and I came home and said to him, "I can't believe you fold your 6'1", 210 lb body into it every day for 2 hours." He's a big dude, not fat at all, just big, I'm considerably smaller of course and was quite uncomfortable!

[RightWhale]

Nice to know there will be plenty of used cars to choose from at good prices.

Sure looks like there will be plenty of late-model used cars for a long time to come. Roads are choked with the new ones. But around here I don't see any major discounts on used cars. They are still keeping their asking prices about the same as ever.

[NativeNewYorker]

I put my newborn son in my brand new 1995 wagon and told him the car would be his HS graduation present. I meant it.

[TroutStalker]

Hey TS, the misses gonna let Max ride in the new wheels???

Oh sure, in addition to the German Shepherd, she'll take the Weimaraner and Great Dane as well. Now go back to work. ;-)

[Huck]

Hmm. I haven't really been paying attention to prices here in NJ. I do see lots of new cars on the road. I always wonder how all these folks can afford it.

[RightWhale]

how all these folks can afford it

There is a lot of refinancing happening, and second mortgages. Everything will be fine so long as the economy holds together and everybody keeps their jobs. Appparently it is popular now to exchange home equity for cash and spend the cash.

[brianl703]

I'm 6' 2" and have no trouble fitting in a Ford Escort/Contour/Mustang.

[agrace]

Well I'm also 6 1/2 months pregnant so that may have contributed significantly to my discomfort. :)

[zx2dragon]

Let's see, I paid 11.5% interest on my first new car, and then received $800 on a trade in seven years later. Bought my second new car at 0.9% interest and will trade it in at the 7 year mark for just a little more.

[ActionNewsBill]

Well, for those of us who never buy new cars, this is good news. My '91 Mercury Capri XR2 has 148K miles on it. I hope to have it for a while longer,

Dang! you must do a lot of driving. I've got an 86 Olds Cutlass 5.0 L V-8 RWD with about 140 K, and I plan on keeping it forever. It looks like it just came off the lot, and runs like a top. No rust, and I live in the "snow belt".

One of the best cars I've ever owned, and it's fairly easy to work on, not a lot of computer crap on there as far as I can tell.

[SamAdams76]

People who finance new cars are crazy. Why finance a depreciating asset? Pay cash for your cars. For people who say they can't afford to pay cash for their cars, I tell them that I can't afford NOT to pay cash for my cars!

Consider that the average new car these days sells for about $20,000. If you get a $2,000 trade-in on your old wreck and finance the remaining $18,000 at todays interest rates, you are paying about $500 a month for a total payment of $24,000. That's $26,000 if you include the trade-in.

Now here's my system for paying cash for your cars. If you still owe money on your current car, pay it off. Then keep your car and continue making whatever payment you were making to yourself. If your car is already paid off, even better. Start making a car payment to yourself now.

I've been putting $400 a month aside in a separate account for myself. I use that account to pay all car expenses, such as repairs, insurance, etc. Whatever is left over is used to purchase my car. Originally, I had intended to use this money to buy a brand new car. But once you see all that money sitting there, guess what, you don't WANT to buy that new car anymore! Now you want to either hold on to the car you've already got a little longer or you want to shop around for the best used car you can find so that you don't spend as much of your own hard-earned money.

This is how the car dealers get you psychologically. They sell you the car on the installment plan. Forking over $500 a month for a new car doesn't sound so bad. It sounds doable. You can drive a brand new car off the lot today with no money down and E-Z payments! But you are paying through the nose whether you get a zero percent interest rate or not. Handing over a check for $20,000 cash is not as easy as it seems, even if you have it sitting in the bank.

BTW, this is the same tack that the IRS uses with tax withholding. Taxes don't seem so bad when they are already removed from your paycheck. Some of us even think we are "getting something for nothing" if we get a paltry tax refund for having too much taken out. But if we all ever got bills for the whole amount at one time that was due April 15, we will fill the streets and have another revolution.

[ThinkDifferent]

Like so many other rational people here on FR, I consider car payments an avoidable evil.

Yep, ditto for credit card interest payments. It's amazing the benefits you can get with a tiny bit of math knowledge and common sense.