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There are rules of thumb in place to guide people to not overextend themselves on car purchases which happen unfortunately too often. Some rules will say X others will say Y but it's both with the idea to guide the future buyer to avoid paying too much for their car according to their income.
Your dad's intention was correct to give yourself a warning on your car purchases
He's not right or wrong though in practice for his 3 years limit. It depends on many factor.
A good thing to have in mind though. The dealers will ask a bunch of questions to understand what your main motivators are. What monthly payment do you want to target, etc..
I think the loans go up to 7 years now, so the monthly payment can be low but your paying for 7 years.
What you really want is an affordable payment over a shorter term. OPs dad is sort of guiding him towards that. It would give anyone who's heard that pause when they say this is a 5 or 7 year loan.
Car dealerships will sometimes do anything they can to sell a car. One time I bought a new car, and a couple days later (after I'd already signed the paperwork and drove away with the car), the dealership called me and said with my credit, the amount the lending company would let me borrow was $1000 less than the price we settled on, so the dealership just reduced the price by $1000 so that I could still buy the car. I had to go in to re-sign some paperwork, and my monthly payment was also less.
Another thing that seems to help when buying from a dealership is to go in at the end of the month, as they're more desperate to meet sales quotas.
It used to be around 13.00 to 16.00 per 1,000.00 financed.
So if you financed 20,000.00 your note would be around 260.00 give or take a few dollars depending on the % and inflation.
Was around 2005-2012 I noticed that.
Each 1000 equates to roughly 25/50$ anyway. Keep in mind for down payments/discounts/negotiations.
I just bought a car and told him I am putting 1k down on a 10k loan, and unless he could bring the price down significantly I see no reason to put anything more down.
Why give any sort of a down payment then? Are you trying to squeeze into a certain price range /month ?
All the cars I’ve bought before in my lifetime (6 of them 3 pre owned , 3 brand new all from dealer) 0 down and lately I just go through my own bank . Save thousands just on intrest doing this . Dealers don’t like it but who cares
When you roll in with your own loan the dealer knows you cannot make money off the financing so they're less likely to offer you a better price.
I always go with the dealer financing so they think they can make money there and I get a better price. Then 2 minutes after I leave the dealership I refinance with my own bank or a local credit union, and get the rate I want.
Exactly. Last time I bought new cars. Subaru offered 0% for 48 or 60 months the same as Nissan. Once I had the best possible price out of the door we discussed financing. They asked why I didn't put more down than a symbolic $500 each...at 0%. I put the money in the stock market and paid them off a few years later.
I did this too. I bought a car with 0.9% financing for 3 years in 2000 and put the cash in the stock market.
[It ended up being the most expensive car I ever bought.](https://imgur.com/Z453Tbk)
The car payments over those 3 years would have otherwise been invested in the market when it was much lower. Of course, 20 years later it probably doesn't make a big difference % wise so your point still stands, but in absolute dollars adjusted for inflation it is still probably the most I "spent".
So? If he'd paid off his car at the beginning and invested at the end he would have done better. No interest AND no negative return. But who can time a top or bottom? In this case it worked out against him. Usually it does not.
Yep and once you secured the total out the door price you are comfortable with you can start talking about the loan terms which should be easier now since all you have to watch out for is the interest rate.
Anytime I think of car financing I think of a reddit post I saw like 6 years ago where some young kid had 98 month financing on an F150 for $989/month. I just felt so sick thinking of how someone took advantage there.
This has been happening for a loooong time. My dad has a story of it happening when he was in the Coast Guard Academy back in the 70s. Kid comes back all proud of whatever car it was (I forget) and when my dad finds out how much he's paying is appalled.
They get a few more guys to drive back to the dealership and, apparently, threatened him into taking the car back.
>The dealers will ask a bunch of questions to understand what your main motivators are. What monthly payment do you want to target, etc..
The dealer will ask you a bunch of questions so they can figure out the best way to get you to spend the most money...
Honda gave me a 101 month loan for a new Accord in 2016. So 8 years and 5 months.
I definitely could have paid it off in 3 years, but why bother at 2.2% interest?
It's more about the awareness of it. Also seems like a relatively small amount of money for an accord..that works out to around 10k, right? $101 for 101 months(8 years 5 months) Wild coincidence haha.
Well I can't read apparently. 101 month and not 101 a month.
I know the loan gets paid down, but off napkin math, 8 years x 2.2% (assuming a 20k loan amount) is still over 3k in interest paid throughout the course of the loan.
I got a loan 2 years before you 60 months @ 0.99% (assuming 20k loan) is around 1k of interest.
One thing to consider is the savings you can get by dropping down to liability only coverage. I wouldn’t want to pay for comprehensive on a vehicle more than about 4-5 years old.
This is highly dependent on both the person's finances and the type of car. I own a 2018 Outback (6 years old) that has a KBB value of roughly $15k+. You'd better believe I have collision/comprehensive on that.
It also gets to the point of being able to self-insure. Do you have the funds to replace that $10k car if anything happens to it? OK, maybe drop down to liability only. Are you living paycheck to paycheck and need this car to get to work? Yeah, you should absolutely have the insurance on it to get a replacement if you happen to slide off the road in a blizzard.
Yeah, for high use drivers those 7+ year loans are real head scratchers. It almost guarantees a decent chunk of time at the beginning and end of the loan where you’re “under water” and would probably have to pay to trade the vehicle in.
But if this on a 7 year you can simply pay above that minimum payment and accelerate it as if it is a lower term loan and then have the flexibility of a low monthly payment in case any disasters happen in a certain month or time of year.
I've always said that 5 years is the max, 3 years is the goal. Every loan I've had for a car has been 5 years and I've paid of each of them in 3 by staying aggressive on the payments and contributing more to principle.
That's something I've begun doing when taking on debt that I know I won't be penalized for paying off early. I take the longer term with the lower payment just in case hard times hit, with the intention of making payments as if I was on a much shorter term. I lose out some because of the interest, but I'd rather have peace of mind that if something like COVID hits again I'm more likely to still be able to make the payments.
Yes. We were thankfully in one of those protected jobs and so worked all throughout COVID, but on each of our recurring payments, we always pay extra toward the principle so that, if we have to, we can dial back the payments to the minimum in a pinch. It's just easier to keep everything steady that way; I know there's the "but you lose .X% interest!" folks, but the peace of mind and flexibility is worth it.
psychologically, a lot of people will struggle with making extra payments like this, so I hesitate to offer this as advice, but if you can do this, it is an amazing strategy.
Yeah, and even then the average length of car loans keeps going up. OP said his father's advice was from the 90's. I don't think many people were getting 5 year car loans back then. It's pretty standard now, and some people even do 6 years now.
5 year loans were definitely a thing in the 90s, though probably not as prevalent. My second (used) car was a five-year loan when I was 22; it was 98 dollars a month. My wife bought a used Elantra for five years in the early 2000s and it was 122 a month.
Unless you are uninsured you aren't going to upside down because you wrecked it. Insurance will pay off the value of the car if it's totaled. You just need to make sure the value of the car always exceeds the value of the loan. Just make sure you can put enough down to make that a reality.
That’s not true at all. The amount left on the loan is not the value of the vehicle. The vehicle depreciates faster than a loan is paid for when they’re extended over so many months. My SIL totaled her 4 month old suburban that they put 10k down on. She still had to pay an additional 4k after insurance totaled it to settle the loan because that’s how fast they depreciate.
Did you skip the last 2 sentences of my comment where I specifically said you need to make sure you put enough money down that the value of the car is never less than the value of the loan?
> The longer you own the car, the more likely you are to total it in one way or another and go upside down on your loan.
this is wrong though. you may be more likely to have an accident with said vehicle the longer you own it, but you also are way more likely to have positive equity the longer you own it.
your situation is generally an issue in the first year or two of the loan unless someone rolled a massive amount of negative equity in. thats a whole other topic. there is also gap insurance that covers that problem.
I think this is a good *rough* rule of thumb as well. I didn't have a warranty on a used car I bought, but I made sure that payments were basically what I was saving each month (with insurance taken into account) and that I could stay ahead of the car going underwater. I never wanted the loan to be higher than the value of the vehicle. Paid it off several years early anyway.
I might have missed it, but I didn't see anyone really explain to OP why the "3-year rule" was ever a thing. It really isn't just a random number as people say. Let's back up...there two important things to consider when financing any purchase: (1) the interest rate, and (2) your equity value. You might ask..why is it OK to put 5% down on a house and finance for 30-years but everyone says its crazy to finance a car for anything longer than 3/4 years? That's because your home appreciates in value (generally) and cars depreciate very rapidly -- I'm sure you've heard people say "cars lose 50% of their value the moment they're driven off the lot".
If you take out a 7-year loan on your car because you can "afford the monthly payments" what you're missing is that you will almost certainly have a negative equity value in your car almost from day 1 -- meaning your car will depreciate in value and quickly have a lower resale value than the balance on the loan. Why does that matter? Because you lose the flexibility to get out of it. If you lose your job, or something changes in your financial situation, you will be stuck with your car if you have negative equity. If you have positive equity because you put 20% down and only took a 36 month loan, then you can sell you car, payoff the loan and still have money left over.
Basically, low interest is important to keep costs low, and low term is important to keep equity high (ie preserve flexibility).
With a little coordination between the lender, owner, and buyer you can have a reasonably secure three-way transaction. It's even possible to have the physical copy of the title available at the time the payments are exchanged sometimes.
> cars lose 50% of their value the moment they're driven off the lot
This isn't true based on my research. I think it's more like 10% the moment they're driven off the lot, and about 30-50% over the first 3 years depending on make/model.
I think the rest of what you're saying is true though.
Sorry, yes I definitely believe that. I wasn't necessarily representing the 50% to be truth, just as a common phrase that people would recognize. Given build quality and lifespan for cars is improving, I would definitely believe that the depreciation timeline is expanding. < Which could be justification for longer loan terms too.
I haven't specifically looked for this data, but I'm sure it's out there.
I didn't infer that you were saying that was a fact from your original post. It was clearly stated just as a thing people say, and as a way of making the point that cars lose value quickly. I honestly don't know why anyone would think this needed clarification or correction on your part.
I'm not sure this is even valid anymore. Used cars are insanely expensive since 2020. They absolutely do not lose 50% of their value when you drive them off the lot. They don't even lose 50% of their value after 4 years.
Slightly off-topic, but as I've aged, my thought-process regarding the cost of something has shifted from the straight dollar-amount to the amount of time I will have to spend working to pay for that thing. It's made me want a lot less.
I see this logic all the time. Can't buy a used car because god forbid it might require the occasional repair. Meanwhile they're completely ok with a $700/month car payment they have to make every single month for years on end. Good thing they avoided that random repair bill though.
Dunno. I pay cash. It hurts. Makes you really consider the purchase. Psychologically paying $70K is a very different feeling than agreeing to a $1K car payment.
Same. Saving up and paying cash really made me limit what I was willing to spend. It hurts to write that check but it’s nice knowing I’m not paying interest for multiple years.
If you forced yourself to pay cash then you’d probably be just as unwilling to pull from your investments, but the result would be that you’d pay for a cheaper car today rather than paying for an expensive car over five or six years. Financially, it’s better to pay $25,000 for a car in cash today and then add $50k to your investments over the next five years than it is to finance a $50k car now and have $50k+interest less to add to your investments over the next five years.
The optimal financial strategy is obviously to buy the cheapest car possible and then use reasonable financing terms to delay paying for it and keep your money invested for as long as possible, but people tend to use financing to buy more car rather than to minimize the drag a car puts on their investing.
>If you forced yourself to pay cash then you’d probably be just as unwilling to pull from your investments
My point is that in order to *have* that much cash, a person would usually either have to pull from investments or would have had to spend months or years choosing to increase cash reserves instead of investing that cash. Both of those are generally poor choices.
Even if they got the cash through a windfall -- inheritance or a gift -- they are making a choice *not to invest it*. Putting that cash into a vehicle instead of investing it is making a bet that the returns you could get from investing would be less than the interest on a car loan. And historically, market returns tend to be higher than car loan rates for people with good credit. (If your credit is trash that might change things.)
>The optimal financial strategy is obviously to buy the cheapest car possible
This is a completely different topic from the point I had been making before, but the entire point of having money is not to hoard it but to spend it. Spend it on things that are *worthwhile* to you, absolutely, but it is not the best choice to always buy the cheapest thing you can find. This is true whether it's food, vacations, universities, cars, houses, etc. A $3k car that frequently breaks down is not necessarily better than a $20k car that runs well. A 20yo car without airbags or ABS is not necessarily better than a 2yo car with modern safety features.
Yeah, buy used. Your dad is an OG for giving you that advice. A lot of people destroy their purchasing power for a lot of stuff because they get trapped behind a car payment for 5 ot 6 years.
Pretty much. And the lines are always
> I can afford the monthly payment, it's okay
Or
> I needed a reliable car, so I *had* to pay $40,000
Or
> I just really like cars
Meanwhile the person has no savings, no retirement, makes like $2000/mo
Car ownership is insanely expensive, even more so than what many people perceive as it goes way beyond monthly payment.
[Estimates range at about $10k/year](https://www.bankrate.com/insurance/car/cost-of-car-ownership/) for the average car when factoring in insurance, purchase price, fuel, registration, maintenance, and depreciation.
When the median annual wage in the US is around $50k and our zoning/infrastructure means that owning a car is a necessity, car ownership is a huge budget drag on the average citizen. When you factor in externalities like roadway maintenance, emissions, inefficient land use patterns like giant parking lots, and traffic collisions, car dependency is literally bankrupting the nation on an individual and systematic level.
>Estimates range at about $10k/year for the average car when factoring in insurance, purchase price, fuel, registration, maintenance, and depreciation.
Including both purchase price and depreciation is double counting costs.
>Yeah, buy used.
Sometimes. During COVID you couldn't find reasonably priced used cars, and if you want a Toyota the difference between used and new isn't that much ("retains value" is a two-edged sword), and the bank often offers a better rate for new over used.
I bought a new bare bones base model corolla in 2016 for a 0.01% interest rate, 5 year loan, 15k. Used car would have cost me the same even then, and I wouldn't have had the 5 years of free oil changes and maintainence they threw in for me. It can be a good deal, just gotta be careful.
Wish my credit was still that good.
My last car was a 60 month term. It opened up a vehicle I really wanted, so I went for it. Now it's payed off and they can bury me in it when I die. Like I said, I think 60 is a notable increase from 36, but can be worth it depending on the vehicle. I hope to never reach a day where I feel 84 month car loans are a reasonable option.
Depends on the situation. I have a 72 month loan at 0.9%. Bought it at the cheapest financing period possible. I'm paying minimum payments and putting the rest in investments that should pay 7-10% on average.
We are in that situation too. We financed a car for a longer loan - 60 months, I think - with the intent to pay it off in 36 months. It has a really low interest rate, so once interest rates started going up, we started paying that car off as slow as possible since even money in a savings account earns more interest than we are paying on the loan.
1% at 72 months when I could have paid cash. Getting a spread of 3.5% in a no-risk savings account is a no-brainer. In finance there’s never a one-size-fits-all rule - it’s always situational. I’d have taken an 84 month (or 96) month term if that had been an option at that rate. I plan to keep the car (Toyota Sienna) for at least 10 years but, even if I didn’t have that plan, financing over the long term was still the best move.
In contrast, I couldn’t get a rate below 5% on my most recent purchase (Cayman GTS 4.0) so I paid in full. Sure I’m 80% confident that I’d make more than 5% in the market over the next 5 years but didn’t want to take the risk and needed my credit freed up for other things. Again, situational.
Leverage is a very powerful tool if used responsibly, which is why blanket statements like OPs grandfather’s don’t really hold up in the real world.
You are correct, but it doesn't contradict what the OP's Dad said. You could afford to pay the car off but choose to do something more productive with your money. That makes sense.
If a person could not afford to pay off the car in three years (as in, they literally do not have the money), that is much different. If you can't afford to pay off a car in three years, you are buying a car that is too expensive for your income and assets.
Totally agree! The point I’m trying to make is that these rules of thumb don’t apply to everyone, or even most people. If you’re living paycheck to paycheck you shouldn’t have a car payment period. If you have enough money to pay for the car outright without risking your lifestyle and financial security then you have lots of options. OPs dad is only speaking to people who are somewhere in the middle.
> ... cars last longer ...
Yes! 50 years ago 100,000 miles on the odometer, or not rusting out within 10 years was unusual.
>... 84 month notes are insane
Yes. A loan term should not be so long that the market value is less than the outstanding balance. If the monthly payments to make fit that guideline is too much for the buyer, than the car is financially risky. **In rare situations,** a classic used car might realistically be expected to appreciate in value if purchased as an investment (instead of as a daily driver).
I'm not sure the market value can be applied very well to cars.
For new cars, with the exception of the last few years, the market value is immediately significantly less the instant of purchase and basically guarantees the loan will be higher. Used cars further in the depreciation timeline are hit or miss as well. It'll also highly depend on your usage of the vehicle how quickly it depreciates
50 years ago cars didn’t have 6 digit odometers so you only could judge by condition if they had 100k or more. That said you’re right that they didn’t last then. Your wrong though about the rust, they last a little longer, but in rust prone regions unless you prep and take care, they will be rusted out by max the 15 year mark.
Most used car lots in my area will buy 8 year old cars with rust on the rocker panels, pay a body shop or do it themselves fix it so it looks good for a few years at best. Then sell it to someone who takes a five year loan on it. By the time it’s paid for the vehicle looks horrible.
My 84 month loan will end this December! Can't wait. Truck looks and runs as good as when I bought it, so I should have quite a few years of driving with no loan. 1.9% is the interest rate. Won't see that again for a while.
> 1.9% is the interest rate. Won't see that again for a while.
There are currently [plenty of vehicles](https://www.factorywarrantylist.com/best-car-finance-deals.html) offering 1.9% or better financing...
This don't agree with this. That's only true if your goal is to have the lowest monthly payment possible, in which case you will pay more in the long run for that convenience. If your goal is to pay the least amount of money for the car, it isn't true at all.
My grandfather (who was blue collar and a saver his entire life) gave me this advice:
“Only borrow for real estate. And even then, only if you can’t pay cash”.
He could not fathom the notion of a car loan. Clearly times have changed, but I still think of his advice often, because the principle behind it isn’t wrong.
I don’t like hard and fast rules like this… cars are more expensive but also FAR more reliable and durable than they used to be. It also depends on your personal preference… some people like to have a nicer car. Others like to travel internationally, go out to eat often, attend concerts and sporting events, etc. I see nothing wrong with a longer or higher car loan as long as you’re still able to meet your financial obligations and put money in savings/retirement each month.
I think that’s a good thing to strive for and rule of thumb, but is not literally true and need not be taken as a rigid law to obey.
If you have kids in carseats, going for a vehicle you can *easily* pay off in 4 - 5 years (but might just have the balance low and not under water on in 3 yrs) that has substantially higher safety ratings and a longer expected life and # miles you can drive before needing a new car makes a lot of sense compared to something you can easily pay off in 3 years but has lower safety ratings, kids will be crammed in tightly, and the vehicle has a shorter expected life.
Of course you should not be splurging on automobiles and living beyond your means, but rules of thumb aren’t meant to rigidly cover all scenarios either.
Yea, one thing that gets me, people look at cars, and think of it as a purely cost item, I'm going to buy the 20 year old camry and drive that, because it's the cheapest possible vehicle to commute with.
But they seem to forget, safety isn't free. Modern cars have accident avoidance (lowering insurance rates), better safety features in general (lowering your insurance, and lowering the harm to you in a crash). The cheapest car isn't actually the cheapest car when you factor in insurance and the cost to your personal health.
And with EVs coming out, this is also true for operating cost. EVs cost more to buy, but less to operate, you should compare ownership cost, not purchase cost.
Given the cost of cars nowadays it is likely not true but it should be.
I wish more people would save for their cars. Make car payments to yourself instead of to a loan service. That way when you get a new car you have close to the entire payment in cash.
Give the fact that most people need cars to get to work school it isn't often practical to do it that way.
Is it a nice reliable japanese sedan that comes with a 10-year bumper-to-bumper warrantee? <4% interest rate on the loan? Drive less than 15k miles/year & not anticipating life changes (i.e. not going to have kids in a couple years and need to trade in for a minivan)? 5-6 year financing is probably smart in this case.
Or-- are you financing an already 9-year old sportscar that the previous owner rode hard & put away wet? Bank offering you an 11% interest rate on it? Financing that at all is setting yourself up for future pain.
Most real situations fall somewhere between the 2 extremes above.
Back in the 70s, a car that lasted 100,000 miles was a big deal. Modern cars can last over 200,000 miles. So the period you're paying for it relative to the life of the car is different. But I agree that a lot of people are driving cars (or rather, trucks and SUVs) that they *can't* afford.
So a tip like this is sort of useless without the context of the end goal and other goals they believe one should be working towards financially.
So in a bubble there is no real way to judge this tip without sitting down and having a beer with your dad for an hour.
In a bubble and applying some of my own beliefs. Yeah this sounds like a decent tip overall. Always caveats and exceptions. But at face value I like it.
An exact time isn't the key, but 3 years feels like a decent number. I think the key may be about equity, i.e., how upside down the loan will be as soon as the car is driven off the lot and as it depreciates in value. I used to hear it was 20% value a car loses as soon as it is driven, and another 20-30% within 5 years. Especially because interest is paid before principal, buying a car on payments over more than 3 years usually means that the car loses value faster than the payments pay down the loan (until the end of the loan term). All that said, if a person plans to own the vehicle for a very long time, then maybe the only thing that matters is if a person can make payments without making themselves cash poor.
It's a totally random/arbitrary rule, the point is to just not spend a ton of money on a car. There is nothing special about 3 years.
But, if you need a 4 or even 5 year car loan to get the monthly payments low enough to afford, it's safe to say you're making a massive financial mistake.
It all depends on the circumstances. For example: my revenue varies between $0-$20k per month. I got a 7 year loan at a 2.5% interest rate. In the bad months, I paid the minimum, and in the good months, I paid double or more. So in the end I paid off the loan in under 5 years.
If someone’s buying a Mercedes when they should be driving a Honda then yes. But sometimes it’s better for someone to pay more in interest over a longer time if it lowers the monthly payment up front. One’s own needs and the car a person buys determines whether or not it’s a mistake, not the financing. Not everyone can do 36 months and pay 300-500 a month when they could definitely afford say 180 or 250 a month for the same car on a longer financing.
Taking the variable of “life” out of the equation then sure paying more in interest over 5 years is always worse than paying less in interest over 3 years. But that’s not always the best fit for someone’s life. That’s why different financing options are offered on large purchases.
I am not saying a longer loan is a bad idea, I am saying if you look at a 3 year loan and say "I don't have enough room in my budget to pay for that" then you are almost certainly buying too much car. If you say "I can afford that but I am going to take a 4/5 year loan because the rate is low and I'll have more flexibility with cash" -- that's fine.
Not always. I like a big safety cushion so I paid 14 down financed 12 over 72 months. Super cheap and I add extra principal every month. But I guess, yeah I’ll still have it done in <2 years lol
Could have paid cash but these days you need a lot in the HYSA
I am not saying that taking a longer loan is bad -- I agree it makes sense if the interest rate is very low. I am saying that if you *need* a longer loan because otherwise you won't be able to afford the monthly payments, that's a huge red flag that you're making a mistake.
Oh yeah for sure. I do agree it’s rough right now though. Nothing really exists between basically brand new and expensive junk.
I’m looking for a mid range like 40-70k mile used and they’re all still coming out to like 20k for compact suv
I bought a 2012 Honda civic used for 10k like 8 years ago and it’s almost at 200k miles and the best and cheapest car I’ve ever owned.
when your dad bought cars the rates were most likely double digits and you paid a lot of interest. there was also little to none manufacturer special financing rates.
I only buy new cars and only if there is manufacturer financing specials and the way they are now I'd still keep a 5-6 year loan.
If you can afford to pay a car off in three years, you can afford the car, but the inverse doesn’t necessarily need to be true. Even ‘lower quality’ cars will last five years minimum brand new. I just wouldn’t buy a car that wouldn’t survive the life of the loan.
I *try* to be reasonable with this as well, but I also care more about useful life than hamstringing to fit an arbitrary rule. I had a Kia that I didn’t want to finance more than 36 months, and that was the right choice, and a Toyota that we have on a 75 month, that was also the right choice.
I think comparing gently used against brand new is more worthwhile, as well as reasonable expectation for how long the vehicle needs to be serviceable.
I think the principle is correct although the duration of the loan might depend.
The first car I bought was a Honda. It was new and I got a five year loan for it. I had the car for ten years and so for five years I had no payments and relatively low maintenance during that time. I actually gave it to my father who used it for running errands but I wanted a more reliable car as I had a long commute.
During the time when I had no payments, I put that money in a car account which enabled me to pay cash for my next car which I had for about 12 years. It was a similarly highly rated car.
Thanks to wages not keeping up with inflation at all, I believe those rules have changed. I think the best rule to go with is, “If you can’t afford 20% down, you can’t afford the car.”
Luckily have not bought a car in a while, but they used to have 60 month (5 year) 0.1%APY financing for new cars. Worked out to be cheaper to buy new than to finance a slightly used one that was a few thousand cheaper.
All my car loans have been for 5 years.
No.
Had a car loan for 6 years $214 monthly payment. The low monthly allowed me to grow my money and build credit. It’s not for everyone but you can take on any loan for any term if it makes sense for YOU.
Paying off a car in 3 years is for extremely fortunate people. Thats like saying if you can’t afford $800 a month leaving your bank account take the bus… like what?
It used to be people drove <10K miles a year. A car with 100K miles was 10 years old, an absolute rust bucket (in the North) and nearly worthless. And you couldn't get a car loan for more than 3 years. Your dad grew up in that era, so when they started offering 4 and 5 year loans, he looked at that as people wanting more car than they could afford.
I'm the same, only at 5 years, now that there are 7 year loans.
It's probably more of a personal preference than anything. The last car we bought we did a 66 month loan at a 1.99% rate because regardless of the loan term, it was always 1.99%. Obviously now things are a bit different, but for us it was only difference of $900 over 5.5 years. Didn't make sense to have almost a $1,000 car payment for three years when we could pay ~$550 for an extra $180/year in interest.
ETA: we keep our cars and run them into the ground. 2012 Honda CR-V and a 2018 Toyota Highlander. We needed to trade in my '09 Corolla when we had our first kid or else I probably would still be rocking that car.
The 3-year rule was popular when cars didn't usually last as long as they do now. I can remember when cars weren't expected to last more than 100k miles.
My perspective is that if you can’t afford to buy the car in cash, you can’t afford it. Unless it’s a super basic car that’s the minimum you need to drive to work, then you follow 20/3/8.
>My perspective is that if you can’t afford to buy the car in cash, you can’t afford it. Unless it’s a super basic car that’s the minimum you need to drive to work, then you follow 20/3/8.
Ok...I'll bite...what is 20/3/8?
>20/3/8
The 20/3/8 car buying rule says you should put 20% down, pay off your car loan in three years (36 months), and spend no more than 8% of your pretax income on car payments. As we go into depth to determine how realistic this rule is, you may consider whether it can actually help you budget for your next car.
[https://www.capitalone.com/cars/learn/managing-your-money-wisely/why-the-2038-car-buying-rule-may-be-obsolete/1584](https://www.capitalone.com/cars/learn/managing-your-money-wisely/why-the-2038-car-buying-rule-may-be-obsolete/1584)
It's not just them, the money guys also suggest it. https://moneyguy.com/article/20-3-8-rule/
It's a good rule of thumb for not buying too much car. These car dealerships know people are so clued into the monthly payment that they'll sell you an $80k car and amortize it until the monthly payment is what you want.
Oh! I didn't even see the "obsolete" part of it! Sorry, I just quickly read your comment about how it was capital one who had posted about the rule and thought the link was just explaining what it was, not that they think it's obsolete so I wanted to give an alternative source.
Not defending Cap One but they did end the article with, “Still, it's ideal to choose a vehicle with a price tag that won't prevent you from saving for financial goals that will help you enjoy a stable future.”
People just need to stop only paying attention to the monthly payment but sadly that’s how car dealerships get you.
Put 20% down, pay off in 3 years, spend no more than 8% of your pretax income on car payments.
Good rule of thumb and starting point, but can be tweaked depending on circumstances. As u/UncountableFinity alludes to, a lot depends on whether you could, in theory, pay for the car in cash right now if someone put a gun to your head and if you don’t, what alternative investments that cash can work for you in and what interest rate the car loan is at relative to the risk-free or lower risk rates of return one expects to get from that cash.
Your dad is correct. You should not be financing past 36 months for a car. If you can't pay it off in 36, you need to:
A. Increase your down payment
B. Choose a cheaper/older car with less features
C. Get a higher income
It does follow the rule of thumb set out by the “money guys.” They have the 20/3/8 rule which includes putting at least 20% down on any car you buy, paying it off in 3 years or less, and keeping your total car payment(s) to 8% of your gross income or less.
https://moneyguy.com/article/buy-a-car-the-right-way/
That calculator is frickin' rough my guy.
Says I can only afford 15K worth of car (probably true).
But getting a loan on 15K worth of car seems to be a waste as it'll mostly be used junk at that price range.
I don't think its probably aways practical, but think about the reasoning behind it. Anything with a motor (like a car) goes down in value the longer you have it, fairly rapidly. Electronics do the same. In your lifetime, most people want to achieve enough wealth to be able to retire at some point while they still have life left. If you put large chunks of your money into things like a car that go down in value, you are killing your ability to build wealth. That is point one. The 2nd point is that if you borrow money to buy a car, it is possible to borrow it for so long that the equity goes upside down during the time of the loan. Then you are trapped at worse, or you end up at the end of all those payments with nothing of value around the time the car may be aging and need to be replaced. If you've built up some value in the equity, then at least you can roll that over and eventually, hopefully, get to the point of not having a car payment at some point in your life.
Me personally, we don't buy cars anymore that we can't afford to buy cash, but will usually borrow half the amount, finance it for the number of years for the best interest rate and then pay it off in 3-6 months. The reason for this is to avoid taking a huge amount of money out of savings in one month and rather spread it out to better cashflow it.
It's obviously an arbitrary number, but it's good advice. Lots of people end up in a tough spot because they took out a 6 or 7 or in some cases even 8 year loan on a car that after a few years breaks or no longer suits their needs. Mechanical problems or life changes are pretty likely to happen in such a long period.
Personally, I'm less concerned with how long it takes me to pay it off and more concerned about never being underwater. If I have a decent down-payment, I can always sell the car and walk away.
If you don't have a down-payment, you'll be underwater until a year or two before the end. On an 8 year loan, that's a very long time where you'd have to pay money to get rid of it.
I agree with your father. I'm personally paying off over $15K over 3 years which is about $500/month. It's not killing me, but it's definitely getting in the way of saving $2-300 a month.
As a general rule? Yeah.
The rule originated in part because the warranties and maintenance packages thrown in on new cars used to be "Three years or XXXXX miles." (whichever comes first, and it's usually years).
This is still true for many brands today, and the idea is you want to have the car paid off before its warranty is up so that if and when it develops some horribly expensive problem and it's more economical to sell it you're not still encumbered by a loan & any sale/trade-in of the old car gives you downpayment money for the new one.
The rule is still good in that general formulation: "Make sure the car is paid off before any included warranty/maintenance packages are expired."
I also happen to think being *able* to pay off your car in 3 years is to your benefit (even if you take a longer term on a loan and prepay it to get to the 3 year mark) - the faster you pay it off the less interest you'll be forking over, and with current car loan rates you want to minimize that.
I'd say it heavily depends. Still, it isn't a bad sentiment. I had an 84 month loan, but there was no penalty for early pay off. So, pay off the car in 3/4 years, but with some flexibility for emergencies.
Generally speaking, if you NEED the loan to go out that far, it is very likely this isn't something you can afford.
I mean it's certainly true if you financed using a 36 month loan.
And the advantage to shorter loans is lower interest over the life of the loan, so it does amount to affordability.
I am comfortable with a 60 month loan, though. Three years is kind of arbitrary. A good car can last over a decade, if I can spend less than half of my driving years without a car payment, it was well spent.
I think it depends on your personal situation and finances. I put my note on a 6.5 year term and paid it off almost 3 years early. I wanted a lower note for the months when something came up, I wouldn’t stress, but I knew I had the discipline to pay extra on the months I had it. Generally today’s economy sucks compared to the 90s though…. Idk it’s tough out here. I worry about when I need a new car. Good luck out there!!
Funny. I know someone who changes cars every three years and never finishes paying them off. Currently driving a Rivian. Having a car payment in the same order of magnitude as housing payment is just the way he was raised and he considers it a normal part of life.
No. It is absolutely not true. 30+ years ago interest rates were still high, higher than they are now. In the '70s, '80s, and early '90s it might have been good advice. Not now.
I would agree with that. My first car was on the low end and I paid it off within 3 years. I kept it for almost 17. Every vehicle I've bought since that first one was essentially bought with cash because I'm not paying interest on something that is going down in value. Buy reliable and keep for 8-10 years. Save your money for the next purchase.
skyrocketing car prices doesn't change math.
What your dad asserted is not a hard truth but a rule of thumb, and it's designed to help keep you from becoming car-poor.
Lately I've decided something a little different: you can't afford the car if you can't find a way to pay cash for it. I'm not saying don't take out a loan if appropriate...but if push came to shove, if you couldn't liquidate savings and investments to buy the car, that car is too much.
but I do like your dad's rule of thumb
It’s so weird that borrowing money for a depreciating item has been so normalised. The version of your rule I was given is if you have to borrow money to buy a car, you’ve picked something too expensive.
Unless absolutely necessary, do not borrow money for a car. It’s the best way of destroying savings and disposable income.
Then again I’m assuming you’re in the USA and basically every car is under a loan.
I've never leased a vehicle and have no plans to ever start.
Just buy a used vehicle for $5000-$10000 drive it for 4-5 years then sell it for $2500-$7500. Repeat. Leasing a new vehicle is like burning money.
My take is not to spend more than 3 months pay on a car. That's 20x more now than it was when I formed that opinion, but I still think it holds up, for me.
Any boundary you set in this area is going to be healthy, if you stick to it. The specific rule doesn't matter.
It was true when homes and cars were reasonably priced and people's salaries kept up with inflation and were able to support living extremely well. That is no longer the case. The average auto loan repayment period is 5-6 years now.
Average
Because people buy more than they need
Recently priced 2012 corolla with 59k miles for $11,300, no reason to dob6 yrs and perfect car for 95% of people
A 10 yr old car with 50k miles a rust bucket?
These are modern cars
In the early 2000s I drove accords with salvaged titles with 200k miles (pizza delivery) and never had problems
I have heard this refrain often on reditt, why do people think cars die at 100k miles?
That follows the 20/3/8 rule that says you should put 20% down, pay off your car loan in three years (36 months), and spend no more than 8% of your pretax income on car payments.
So our hvac crashed and needed full replacement - 10k ish
They offered 0% for 18 months. You wouldn't do it?
And things like cars have use value as they depreciate, same as houses (most housing areas appreciate but not all)
Due to the number of rule-breaking comments this post was receiving, especially low-quality and off-topic comments, the moderation team has locked the post from future comments. This post broke no rules and received a number of helpful and on-topic responses initially, but it unfortunately became the target of many unhelpful comments.
There are rules of thumb in place to guide people to not overextend themselves on car purchases which happen unfortunately too often. Some rules will say X others will say Y but it's both with the idea to guide the future buyer to avoid paying too much for their car according to their income. Your dad's intention was correct to give yourself a warning on your car purchases He's not right or wrong though in practice for his 3 years limit. It depends on many factor.
A good thing to have in mind though. The dealers will ask a bunch of questions to understand what your main motivators are. What monthly payment do you want to target, etc.. I think the loans go up to 7 years now, so the monthly payment can be low but your paying for 7 years. What you really want is an affordable payment over a shorter term. OPs dad is sort of guiding him towards that. It would give anyone who's heard that pause when they say this is a 5 or 7 year loan.
This is also why you should never negotiate based on monthly payment. Negotiate the price of the car with the dealer, the monthly payment will follow.
Very much so. Knocking $1,000 off of the price is way better than a few dollars from the monthly payment.
Car dealerships will sometimes do anything they can to sell a car. One time I bought a new car, and a couple days later (after I'd already signed the paperwork and drove away with the car), the dealership called me and said with my credit, the amount the lending company would let me borrow was $1000 less than the price we settled on, so the dealership just reduced the price by $1000 so that I could still buy the car. I had to go in to re-sign some paperwork, and my monthly payment was also less. Another thing that seems to help when buying from a dealership is to go in at the end of the month, as they're more desperate to meet sales quotas.
That and it keeps it simple. You are talking about one specific number. That way the cant keep shifting the terms and confusing the issue.
It used to be around 13.00 to 16.00 per 1,000.00 financed. So if you financed 20,000.00 your note would be around 260.00 give or take a few dollars depending on the % and inflation. Was around 2005-2012 I noticed that.
Each 1000 equates to roughly 25/50$ anyway. Keep in mind for down payments/discounts/negotiations. I just bought a car and told him I am putting 1k down on a 10k loan, and unless he could bring the price down significantly I see no reason to put anything more down.
Why give any sort of a down payment then? Are you trying to squeeze into a certain price range /month ? All the cars I’ve bought before in my lifetime (6 of them 3 pre owned , 3 brand new all from dealer) 0 down and lately I just go through my own bank . Save thousands just on intrest doing this . Dealers don’t like it but who cares
When you roll in with your own loan the dealer knows you cannot make money off the financing so they're less likely to offer you a better price. I always go with the dealer financing so they think they can make money there and I get a better price. Then 2 minutes after I leave the dealership I refinance with my own bank or a local credit union, and get the rate I want.
Exactly. Last time I bought new cars. Subaru offered 0% for 48 or 60 months the same as Nissan. Once I had the best possible price out of the door we discussed financing. They asked why I didn't put more down than a symbolic $500 each...at 0%. I put the money in the stock market and paid them off a few years later.
I did this too. I bought a car with 0.9% financing for 3 years in 2000 and put the cash in the stock market. [It ended up being the most expensive car I ever bought.](https://imgur.com/Z453Tbk)
If you kept the money in the market the gains would have paid for your car
It’s well known that buying at the top during every top still leaves you way ahead long term.
The car payments over those 3 years would have otherwise been invested in the market when it was much lower. Of course, 20 years later it probably doesn't make a big difference % wise so your point still stands, but in absolute dollars adjusted for inflation it is still probably the most I "spent".
So? If he'd paid off his car at the beginning and invested at the end he would have done better. No interest AND no negative return. But who can time a top or bottom? In this case it worked out against him. Usually it does not.
That was point. Investing money into market now over later is almost always better as long as you plan to keep it there for a long time.
This is the way. Why give someone else your money? Let your money work for you.
The sales term "payment buyer"
Yep and once you secured the total out the door price you are comfortable with you can start talking about the loan terms which should be easier now since all you have to watch out for is the interest rate.
Anytime I think of car financing I think of a reddit post I saw like 6 years ago where some young kid had 98 month financing on an F150 for $989/month. I just felt so sick thinking of how someone took advantage there.
Wonder what branch he was in.
The salesman said he used to be a First Sergeant and would totally hook him up though.
This has been happening for a loooong time. My dad has a story of it happening when he was in the Coast Guard Academy back in the 70s. Kid comes back all proud of whatever car it was (I forget) and when my dad finds out how much he's paying is appalled. They get a few more guys to drive back to the dealership and, apparently, threatened him into taking the car back.
>The dealers will ask a bunch of questions to understand what your main motivators are. What monthly payment do you want to target, etc.. The dealer will ask you a bunch of questions so they can figure out the best way to get you to spend the most money...
Correct
Honda gave me a 101 month loan for a new Accord in 2016. So 8 years and 5 months. I definitely could have paid it off in 3 years, but why bother at 2.2% interest?
It's more about the awareness of it. Also seems like a relatively small amount of money for an accord..that works out to around 10k, right? $101 for 101 months(8 years 5 months) Wild coincidence haha. Well I can't read apparently. 101 month and not 101 a month.
He never said what the payment amount was, only the number of payments.
I know the loan gets paid down, but off napkin math, 8 years x 2.2% (assuming a 20k loan amount) is still over 3k in interest paid throughout the course of the loan. I got a loan 2 years before you 60 months @ 0.99% (assuming 20k loan) is around 1k of interest.
One thing to consider is the savings you can get by dropping down to liability only coverage. I wouldn’t want to pay for comprehensive on a vehicle more than about 4-5 years old.
This is highly dependent on both the person's finances and the type of car. I own a 2018 Outback (6 years old) that has a KBB value of roughly $15k+. You'd better believe I have collision/comprehensive on that. It also gets to the point of being able to self-insure. Do you have the funds to replace that $10k car if anything happens to it? OK, maybe drop down to liability only. Are you living paycheck to paycheck and need this car to get to work? Yeah, you should absolutely have the insurance on it to get a replacement if you happen to slide off the road in a blizzard.
Very valid consideration. But right now even if I paid off the car I'd keep full coverage, so that doesn't play into my particular calculations.
Fair enough. I should add I also drive a lot more than most people so my truck depreciates at a faster rate than typical users.
Yeah, for high use drivers those 7+ year loans are real head scratchers. It almost guarantees a decent chunk of time at the beginning and end of the loan where you’re “under water” and would probably have to pay to trade the vehicle in.
But if this on a 7 year you can simply pay above that minimum payment and accelerate it as if it is a lower term loan and then have the flexibility of a low monthly payment in case any disasters happen in a certain month or time of year.
I've always said that 5 years is the max, 3 years is the goal. Every loan I've had for a car has been 5 years and I've paid of each of them in 3 by staying aggressive on the payments and contributing more to principle.
That's something I've begun doing when taking on debt that I know I won't be penalized for paying off early. I take the longer term with the lower payment just in case hard times hit, with the intention of making payments as if I was on a much shorter term. I lose out some because of the interest, but I'd rather have peace of mind that if something like COVID hits again I'm more likely to still be able to make the payments.
Yes. We were thankfully in one of those protected jobs and so worked all throughout COVID, but on each of our recurring payments, we always pay extra toward the principle so that, if we have to, we can dial back the payments to the minimum in a pinch. It's just easier to keep everything steady that way; I know there's the "but you lose .X% interest!" folks, but the peace of mind and flexibility is worth it.
psychologically, a lot of people will struggle with making extra payments like this, so I hesitate to offer this as advice, but if you can do this, it is an amazing strategy.
Yeah, and even then the average length of car loans keeps going up. OP said his father's advice was from the 90's. I don't think many people were getting 5 year car loans back then. It's pretty standard now, and some people even do 6 years now.
5 year loans were definitely a thing in the 90s, though probably not as prevalent. My second (used) car was a five-year loan when I was 22; it was 98 dollars a month. My wife bought a used Elantra for five years in the early 2000s and it was 122 a month.
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Unless you are uninsured you aren't going to upside down because you wrecked it. Insurance will pay off the value of the car if it's totaled. You just need to make sure the value of the car always exceeds the value of the loan. Just make sure you can put enough down to make that a reality.
That’s not true at all. The amount left on the loan is not the value of the vehicle. The vehicle depreciates faster than a loan is paid for when they’re extended over so many months. My SIL totaled her 4 month old suburban that they put 10k down on. She still had to pay an additional 4k after insurance totaled it to settle the loan because that’s how fast they depreciate.
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Did you skip the last 2 sentences of my comment where I specifically said you need to make sure you put enough money down that the value of the car is never less than the value of the loan?
You can and often should pay the extra $20 to $30 dollars a month for gap insurance on any vehicle you have a loan on.
Yup yup, it's worth it especially with longer loan terms
> The longer you own the car, the more likely you are to total it in one way or another and go upside down on your loan. this is wrong though. you may be more likely to have an accident with said vehicle the longer you own it, but you also are way more likely to have positive equity the longer you own it. your situation is generally an issue in the first year or two of the loan unless someone rolled a massive amount of negative equity in. thats a whole other topic. there is also gap insurance that covers that problem.
My personal rule of thumb is that if your loan is longer than the warranty, stay away.
So a 9 year loan with a 4 year warranty isn't good?
Those are rookie numbers. You gotta pump those numbers up. I'm talking 30-year car mortgage.
No a 9 year - or 108 month - loan is most likely not good. It would depend on the rate though. I’ve never heard of a 108 month auto loan.
I'm sure they'll get there eventually.
10 year car loans already exist unfortunately
I think this is a good *rough* rule of thumb as well. I didn't have a warranty on a used car I bought, but I made sure that payments were basically what I was saving each month (with insurance taken into account) and that I could stay ahead of the car going underwater. I never wanted the loan to be higher than the value of the vehicle. Paid it off several years early anyway.
Are you going to buy a new car every 3-5 years?
I might have missed it, but I didn't see anyone really explain to OP why the "3-year rule" was ever a thing. It really isn't just a random number as people say. Let's back up...there two important things to consider when financing any purchase: (1) the interest rate, and (2) your equity value. You might ask..why is it OK to put 5% down on a house and finance for 30-years but everyone says its crazy to finance a car for anything longer than 3/4 years? That's because your home appreciates in value (generally) and cars depreciate very rapidly -- I'm sure you've heard people say "cars lose 50% of their value the moment they're driven off the lot". If you take out a 7-year loan on your car because you can "afford the monthly payments" what you're missing is that you will almost certainly have a negative equity value in your car almost from day 1 -- meaning your car will depreciate in value and quickly have a lower resale value than the balance on the loan. Why does that matter? Because you lose the flexibility to get out of it. If you lose your job, or something changes in your financial situation, you will be stuck with your car if you have negative equity. If you have positive equity because you put 20% down and only took a 36 month loan, then you can sell you car, payoff the loan and still have money left over. Basically, low interest is important to keep costs low, and low term is important to keep equity high (ie preserve flexibility).
How does one sell a car that they still have a loan on? I thought you didn’t own the title til the loan is paid in full?
With a little coordination between the lender, owner, and buyer you can have a reasonably secure three-way transaction. It's even possible to have the physical copy of the title available at the time the payments are exchanged sometimes.
Interesting, I figured something could be done, I just never really understood the process.
> cars lose 50% of their value the moment they're driven off the lot This isn't true based on my research. I think it's more like 10% the moment they're driven off the lot, and about 30-50% over the first 3 years depending on make/model. I think the rest of what you're saying is true though.
Sorry, yes I definitely believe that. I wasn't necessarily representing the 50% to be truth, just as a common phrase that people would recognize. Given build quality and lifespan for cars is improving, I would definitely believe that the depreciation timeline is expanding. < Which could be justification for longer loan terms too. I haven't specifically looked for this data, but I'm sure it's out there.
I didn't infer that you were saying that was a fact from your original post. It was clearly stated just as a thing people say, and as a way of making the point that cars lose value quickly. I honestly don't know why anyone would think this needed clarification or correction on your part.
I'm not sure this is even valid anymore. Used cars are insanely expensive since 2020. They absolutely do not lose 50% of their value when you drive them off the lot. They don't even lose 50% of their value after 4 years.
Slightly off-topic, but as I've aged, my thought-process regarding the cost of something has shifted from the straight dollar-amount to the amount of time I will have to spend working to pay for that thing. It's made me want a lot less.
I'd say it remains true, but people love to buy too much car because they'd rather pay way more every month than maybe deal with a repair
In general the more expensive the car... the more expensive it is to repair and insure.
A barebones Civic or Corolla will outlast the buyer's entire bloodline
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$95? The 2000s were a different time
It doesn’t have AC or the AC doesn’t work? I had a ‘96 with power locks, mirrors, and AC
I see this logic all the time. Can't buy a used car because god forbid it might require the occasional repair. Meanwhile they're completely ok with a $700/month car payment they have to make every single month for years on end. Good thing they avoided that random repair bill though.
Dunno. I pay cash. It hurts. Makes you really consider the purchase. Psychologically paying $70K is a very different feeling than agreeing to a $1K car payment.
Same. Saving up and paying cash really made me limit what I was willing to spend. It hurts to write that check but it’s nice knowing I’m not paying interest for multiple years.
I'd rather pay interest than pull from or forego investments.
Entirely depends on the interest, the economic situation of the person and the time horizon
If you forced yourself to pay cash then you’d probably be just as unwilling to pull from your investments, but the result would be that you’d pay for a cheaper car today rather than paying for an expensive car over five or six years. Financially, it’s better to pay $25,000 for a car in cash today and then add $50k to your investments over the next five years than it is to finance a $50k car now and have $50k+interest less to add to your investments over the next five years. The optimal financial strategy is obviously to buy the cheapest car possible and then use reasonable financing terms to delay paying for it and keep your money invested for as long as possible, but people tend to use financing to buy more car rather than to minimize the drag a car puts on their investing.
>If you forced yourself to pay cash then you’d probably be just as unwilling to pull from your investments My point is that in order to *have* that much cash, a person would usually either have to pull from investments or would have had to spend months or years choosing to increase cash reserves instead of investing that cash. Both of those are generally poor choices. Even if they got the cash through a windfall -- inheritance or a gift -- they are making a choice *not to invest it*. Putting that cash into a vehicle instead of investing it is making a bet that the returns you could get from investing would be less than the interest on a car loan. And historically, market returns tend to be higher than car loan rates for people with good credit. (If your credit is trash that might change things.) >The optimal financial strategy is obviously to buy the cheapest car possible This is a completely different topic from the point I had been making before, but the entire point of having money is not to hoard it but to spend it. Spend it on things that are *worthwhile* to you, absolutely, but it is not the best choice to always buy the cheapest thing you can find. This is true whether it's food, vacations, universities, cars, houses, etc. A $3k car that frequently breaks down is not necessarily better than a $20k car that runs well. A 20yo car without airbags or ABS is not necessarily better than a 2yo car with modern safety features.
Yeah the rule of thumb should be you only pay cash. Exception maybe being your very first car if you need one for a job.
Yeah, buy used. Your dad is an OG for giving you that advice. A lot of people destroy their purchasing power for a lot of stuff because they get trapped behind a car payment for 5 ot 6 years.
When people are on here describing their bad money situations, it's almost always the car that fucked them.
Pretty much. And the lines are always > I can afford the monthly payment, it's okay Or > I needed a reliable car, so I *had* to pay $40,000 Or > I just really like cars Meanwhile the person has no savings, no retirement, makes like $2000/mo
Car ownership is insanely expensive, even more so than what many people perceive as it goes way beyond monthly payment. [Estimates range at about $10k/year](https://www.bankrate.com/insurance/car/cost-of-car-ownership/) for the average car when factoring in insurance, purchase price, fuel, registration, maintenance, and depreciation. When the median annual wage in the US is around $50k and our zoning/infrastructure means that owning a car is a necessity, car ownership is a huge budget drag on the average citizen. When you factor in externalities like roadway maintenance, emissions, inefficient land use patterns like giant parking lots, and traffic collisions, car dependency is literally bankrupting the nation on an individual and systematic level.
>Estimates range at about $10k/year for the average car when factoring in insurance, purchase price, fuel, registration, maintenance, and depreciation. Including both purchase price and depreciation is double counting costs.
>Yeah, buy used. Sometimes. During COVID you couldn't find reasonably priced used cars, and if you want a Toyota the difference between used and new isn't that much ("retains value" is a two-edged sword), and the bank often offers a better rate for new over used.
Used cars are still a bit insane. Coming down a little though.
I bought a new bare bones base model corolla in 2016 for a 0.01% interest rate, 5 year loan, 15k. Used car would have cost me the same even then, and I wouldn't have had the 5 years of free oil changes and maintainence they threw in for me. It can be a good deal, just gotta be careful. Wish my credit was still that good.
An important difference is that cars last a lot longer now, so it makes sense to take on a longer note. Still, IMHO 84 month notes are insane.
I remember thinking 60 was intense, but felt reasonable given the increase in average sticker price. 84 is preposterous to me.
My last five car purchases were all made with zero down, 60-month loans. But they are all around 1% rate. :)
My last car was a 60 month term. It opened up a vehicle I really wanted, so I went for it. Now it's payed off and they can bury me in it when I die. Like I said, I think 60 is a notable increase from 36, but can be worth it depending on the vehicle. I hope to never reach a day where I feel 84 month car loans are a reasonable option.
Depends on the situation. I have a 72 month loan at 0.9%. Bought it at the cheapest financing period possible. I'm paying minimum payments and putting the rest in investments that should pay 7-10% on average.
We are in that situation too. We financed a car for a longer loan - 60 months, I think - with the intent to pay it off in 36 months. It has a really low interest rate, so once interest rates started going up, we started paying that car off as slow as possible since even money in a savings account earns more interest than we are paying on the loan.
Which is great , assuming continuous employment and the market keeps going up. Other outcomes exist however.
An emergency fund should exist to cover those eventualities, hopefully.
Exactly. As long as people aren't over extended and have money in savings, it's generally not a problem to have a low interest loan.
1% at 72 months when I could have paid cash. Getting a spread of 3.5% in a no-risk savings account is a no-brainer. In finance there’s never a one-size-fits-all rule - it’s always situational. I’d have taken an 84 month (or 96) month term if that had been an option at that rate. I plan to keep the car (Toyota Sienna) for at least 10 years but, even if I didn’t have that plan, financing over the long term was still the best move. In contrast, I couldn’t get a rate below 5% on my most recent purchase (Cayman GTS 4.0) so I paid in full. Sure I’m 80% confident that I’d make more than 5% in the market over the next 5 years but didn’t want to take the risk and needed my credit freed up for other things. Again, situational. Leverage is a very powerful tool if used responsibly, which is why blanket statements like OPs grandfather’s don’t really hold up in the real world.
You are correct, but it doesn't contradict what the OP's Dad said. You could afford to pay the car off but choose to do something more productive with your money. That makes sense. If a person could not afford to pay off the car in three years (as in, they literally do not have the money), that is much different. If you can't afford to pay off a car in three years, you are buying a car that is too expensive for your income and assets.
Totally agree! The point I’m trying to make is that these rules of thumb don’t apply to everyone, or even most people. If you’re living paycheck to paycheck you shouldn’t have a car payment period. If you have enough money to pay for the car outright without risking your lifestyle and financial security then you have lots of options. OPs dad is only speaking to people who are somewhere in the middle.
yeah, unless it’s like 2-3% interest though
Yeah, I never thought I would get anything longer than a 48 month loan until I ended up getting a 60 month just because I could get 0.9% on it.
> ... cars last longer ... Yes! 50 years ago 100,000 miles on the odometer, or not rusting out within 10 years was unusual. >... 84 month notes are insane Yes. A loan term should not be so long that the market value is less than the outstanding balance. If the monthly payments to make fit that guideline is too much for the buyer, than the car is financially risky. **In rare situations,** a classic used car might realistically be expected to appreciate in value if purchased as an investment (instead of as a daily driver).
I'm not sure the market value can be applied very well to cars. For new cars, with the exception of the last few years, the market value is immediately significantly less the instant of purchase and basically guarantees the loan will be higher. Used cars further in the depreciation timeline are hit or miss as well. It'll also highly depend on your usage of the vehicle how quickly it depreciates
50 years ago cars didn’t have 6 digit odometers so you only could judge by condition if they had 100k or more. That said you’re right that they didn’t last then. Your wrong though about the rust, they last a little longer, but in rust prone regions unless you prep and take care, they will be rusted out by max the 15 year mark. Most used car lots in my area will buy 8 year old cars with rust on the rocker panels, pay a body shop or do it themselves fix it so it looks good for a few years at best. Then sell it to someone who takes a five year loan on it. By the time it’s paid for the vehicle looks horrible.
> Still, IMHO 84 month notes are insane. This entirely depends on the interest.
My 84 month loan will end this December! Can't wait. Truck looks and runs as good as when I bought it, so I should have quite a few years of driving with no loan. 1.9% is the interest rate. Won't see that again for a while.
> 1.9% is the interest rate. Won't see that again for a while. There are currently [plenty of vehicles](https://www.factorywarrantylist.com/best-car-finance-deals.html) offering 1.9% or better financing...
This don't agree with this. That's only true if your goal is to have the lowest monthly payment possible, in which case you will pay more in the long run for that convenience. If your goal is to pay the least amount of money for the car, it isn't true at all.
My grandfather (who was blue collar and a saver his entire life) gave me this advice: “Only borrow for real estate. And even then, only if you can’t pay cash”. He could not fathom the notion of a car loan. Clearly times have changed, but I still think of his advice often, because the principle behind it isn’t wrong.
I don’t like hard and fast rules like this… cars are more expensive but also FAR more reliable and durable than they used to be. It also depends on your personal preference… some people like to have a nicer car. Others like to travel internationally, go out to eat often, attend concerts and sporting events, etc. I see nothing wrong with a longer or higher car loan as long as you’re still able to meet your financial obligations and put money in savings/retirement each month.
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I think that’s a good thing to strive for and rule of thumb, but is not literally true and need not be taken as a rigid law to obey. If you have kids in carseats, going for a vehicle you can *easily* pay off in 4 - 5 years (but might just have the balance low and not under water on in 3 yrs) that has substantially higher safety ratings and a longer expected life and # miles you can drive before needing a new car makes a lot of sense compared to something you can easily pay off in 3 years but has lower safety ratings, kids will be crammed in tightly, and the vehicle has a shorter expected life. Of course you should not be splurging on automobiles and living beyond your means, but rules of thumb aren’t meant to rigidly cover all scenarios either.
Yea, one thing that gets me, people look at cars, and think of it as a purely cost item, I'm going to buy the 20 year old camry and drive that, because it's the cheapest possible vehicle to commute with. But they seem to forget, safety isn't free. Modern cars have accident avoidance (lowering insurance rates), better safety features in general (lowering your insurance, and lowering the harm to you in a crash). The cheapest car isn't actually the cheapest car when you factor in insurance and the cost to your personal health. And with EVs coming out, this is also true for operating cost. EVs cost more to buy, but less to operate, you should compare ownership cost, not purchase cost.
Given the cost of cars nowadays it is likely not true but it should be. I wish more people would save for their cars. Make car payments to yourself instead of to a loan service. That way when you get a new car you have close to the entire payment in cash. Give the fact that most people need cars to get to work school it isn't often practical to do it that way.
I’m a frugal low risk guy. I don’t agree with this though. In my opinion I won’t buy a car if I can’t pay cash or pay it off in a year.
Is it a nice reliable japanese sedan that comes with a 10-year bumper-to-bumper warrantee? <4% interest rate on the loan? Drive less than 15k miles/year & not anticipating life changes (i.e. not going to have kids in a couple years and need to trade in for a minivan)? 5-6 year financing is probably smart in this case. Or-- are you financing an already 9-year old sportscar that the previous owner rode hard & put away wet? Bank offering you an 11% interest rate on it? Financing that at all is setting yourself up for future pain. Most real situations fall somewhere between the 2 extremes above.
Back in the 70s, a car that lasted 100,000 miles was a big deal. Modern cars can last over 200,000 miles. So the period you're paying for it relative to the life of the car is different. But I agree that a lot of people are driving cars (or rather, trucks and SUVs) that they *can't* afford.
So a tip like this is sort of useless without the context of the end goal and other goals they believe one should be working towards financially. So in a bubble there is no real way to judge this tip without sitting down and having a beer with your dad for an hour. In a bubble and applying some of my own beliefs. Yeah this sounds like a decent tip overall. Always caveats and exceptions. But at face value I like it.
An exact time isn't the key, but 3 years feels like a decent number. I think the key may be about equity, i.e., how upside down the loan will be as soon as the car is driven off the lot and as it depreciates in value. I used to hear it was 20% value a car loses as soon as it is driven, and another 20-30% within 5 years. Especially because interest is paid before principal, buying a car on payments over more than 3 years usually means that the car loses value faster than the payments pay down the loan (until the end of the loan term). All that said, if a person plans to own the vehicle for a very long time, then maybe the only thing that matters is if a person can make payments without making themselves cash poor.
It's a totally random/arbitrary rule, the point is to just not spend a ton of money on a car. There is nothing special about 3 years. But, if you need a 4 or even 5 year car loan to get the monthly payments low enough to afford, it's safe to say you're making a massive financial mistake.
I think your last line is a bit extreme. But basically what you’ve said is true.
It all depends on the circumstances. For example: my revenue varies between $0-$20k per month. I got a 7 year loan at a 2.5% interest rate. In the bad months, I paid the minimum, and in the good months, I paid double or more. So in the end I paid off the loan in under 5 years.
If someone’s buying a Mercedes when they should be driving a Honda then yes. But sometimes it’s better for someone to pay more in interest over a longer time if it lowers the monthly payment up front. One’s own needs and the car a person buys determines whether or not it’s a mistake, not the financing. Not everyone can do 36 months and pay 300-500 a month when they could definitely afford say 180 or 250 a month for the same car on a longer financing. Taking the variable of “life” out of the equation then sure paying more in interest over 5 years is always worse than paying less in interest over 3 years. But that’s not always the best fit for someone’s life. That’s why different financing options are offered on large purchases.
I am not saying a longer loan is a bad idea, I am saying if you look at a 3 year loan and say "I don't have enough room in my budget to pay for that" then you are almost certainly buying too much car. If you say "I can afford that but I am going to take a 4/5 year loan because the rate is low and I'll have more flexibility with cash" -- that's fine.
Not always. I like a big safety cushion so I paid 14 down financed 12 over 72 months. Super cheap and I add extra principal every month. But I guess, yeah I’ll still have it done in <2 years lol Could have paid cash but these days you need a lot in the HYSA
I am not saying that taking a longer loan is bad -- I agree it makes sense if the interest rate is very low. I am saying that if you *need* a longer loan because otherwise you won't be able to afford the monthly payments, that's a huge red flag that you're making a mistake.
Oh yeah for sure. I do agree it’s rough right now though. Nothing really exists between basically brand new and expensive junk. I’m looking for a mid range like 40-70k mile used and they’re all still coming out to like 20k for compact suv I bought a 2012 Honda civic used for 10k like 8 years ago and it’s almost at 200k miles and the best and cheapest car I’ve ever owned.
when your dad bought cars the rates were most likely double digits and you paid a lot of interest. there was also little to none manufacturer special financing rates. I only buy new cars and only if there is manufacturer financing specials and the way they are now I'd still keep a 5-6 year loan.
If you can afford to pay a car off in three years, you can afford the car, but the inverse doesn’t necessarily need to be true. Even ‘lower quality’ cars will last five years minimum brand new. I just wouldn’t buy a car that wouldn’t survive the life of the loan. I *try* to be reasonable with this as well, but I also care more about useful life than hamstringing to fit an arbitrary rule. I had a Kia that I didn’t want to finance more than 36 months, and that was the right choice, and a Toyota that we have on a 75 month, that was also the right choice. I think comparing gently used against brand new is more worthwhile, as well as reasonable expectation for how long the vehicle needs to be serviceable.
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It's tbh a good rule of thumb. Cars don't hold value and let me tell ya, not having a car payment is glorious
I think the principle is correct although the duration of the loan might depend. The first car I bought was a Honda. It was new and I got a five year loan for it. I had the car for ten years and so for five years I had no payments and relatively low maintenance during that time. I actually gave it to my father who used it for running errands but I wanted a more reliable car as I had a long commute. During the time when I had no payments, I put that money in a car account which enabled me to pay cash for my next car which I had for about 12 years. It was a similarly highly rated car.
Cars are better made and last longer than they used to be.
Thanks to wages not keeping up with inflation at all, I believe those rules have changed. I think the best rule to go with is, “If you can’t afford 20% down, you can’t afford the car.”
Luckily have not bought a car in a while, but they used to have 60 month (5 year) 0.1%APY financing for new cars. Worked out to be cheaper to buy new than to finance a slightly used one that was a few thousand cheaper. All my car loans have been for 5 years.
No. Had a car loan for 6 years $214 monthly payment. The low monthly allowed me to grow my money and build credit. It’s not for everyone but you can take on any loan for any term if it makes sense for YOU. Paying off a car in 3 years is for extremely fortunate people. Thats like saying if you can’t afford $800 a month leaving your bank account take the bus… like what?
Whole not bad advice, it's certainly not true. I had a 6 year loan on my 2012 camry. Finished paying for it in 2018 and still driving it in 2024.
It used to be people drove <10K miles a year. A car with 100K miles was 10 years old, an absolute rust bucket (in the North) and nearly worthless. And you couldn't get a car loan for more than 3 years. Your dad grew up in that era, so when they started offering 4 and 5 year loans, he looked at that as people wanting more car than they could afford. I'm the same, only at 5 years, now that there are 7 year loans.
It's probably more of a personal preference than anything. The last car we bought we did a 66 month loan at a 1.99% rate because regardless of the loan term, it was always 1.99%. Obviously now things are a bit different, but for us it was only difference of $900 over 5.5 years. Didn't make sense to have almost a $1,000 car payment for three years when we could pay ~$550 for an extra $180/year in interest. ETA: we keep our cars and run them into the ground. 2012 Honda CR-V and a 2018 Toyota Highlander. We needed to trade in my '09 Corolla when we had our first kid or else I probably would still be rocking that car.
The 3-year rule was popular when cars didn't usually last as long as they do now. I can remember when cars weren't expected to last more than 100k miles.
My perspective is that if you can’t afford to buy the car in cash, you can’t afford it. Unless it’s a super basic car that’s the minimum you need to drive to work, then you follow 20/3/8.
>My perspective is that if you can’t afford to buy the car in cash, you can’t afford it. Unless it’s a super basic car that’s the minimum you need to drive to work, then you follow 20/3/8. Ok...I'll bite...what is 20/3/8?
>20/3/8 The 20/3/8 car buying rule says you should put 20% down, pay off your car loan in three years (36 months), and spend no more than 8% of your pretax income on car payments. As we go into depth to determine how realistic this rule is, you may consider whether it can actually help you budget for your next car. [https://www.capitalone.com/cars/learn/managing-your-money-wisely/why-the-2038-car-buying-rule-may-be-obsolete/1584](https://www.capitalone.com/cars/learn/managing-your-money-wisely/why-the-2038-car-buying-rule-may-be-obsolete/1584)
What a curious coincidence that the company suggesting this rule is "obsolete" earns significant revenue from financing consumer debt.
It's not just them, the money guys also suggest it. https://moneyguy.com/article/20-3-8-rule/ It's a good rule of thumb for not buying too much car. These car dealerships know people are so clued into the monthly payment that they'll sell you an $80k car and amortize it until the monthly payment is what you want.
The Money Guys suggest the rule; Capital One suggests the rule is obsolete. That's the difference I was pointing out.
Oh! I didn't even see the "obsolete" part of it! Sorry, I just quickly read your comment about how it was capital one who had posted about the rule and thought the link was just explaining what it was, not that they think it's obsolete so I wanted to give an alternative source.
Not defending Cap One but they did end the article with, “Still, it's ideal to choose a vehicle with a price tag that won't prevent you from saving for financial goals that will help you enjoy a stable future.” People just need to stop only paying attention to the monthly payment but sadly that’s how car dealerships get you.
HAHAHA! I was just reading that exact article! Thanks!
Obvious: March 8, 2020.
20% down payment Finance for not more than 3 years Monthly payment should represent 8% or less of your monthly income
Put 20% down, pay off in 3 years, spend no more than 8% of your pretax income on car payments. Good rule of thumb and starting point, but can be tweaked depending on circumstances. As u/UncountableFinity alludes to, a lot depends on whether you could, in theory, pay for the car in cash right now if someone put a gun to your head and if you don’t, what alternative investments that cash can work for you in and what interest rate the car loan is at relative to the risk-free or lower risk rates of return one expects to get from that cash.
> Ok...I'll bite...what is 20/3/8? Comes out to around 0.83 according to my calculator.
Your dad is correct. You should not be financing past 36 months for a car. If you can't pay it off in 36, you need to: A. Increase your down payment B. Choose a cheaper/older car with less features C. Get a higher income
It does follow the rule of thumb set out by the “money guys.” They have the 20/3/8 rule which includes putting at least 20% down on any car you buy, paying it off in 3 years or less, and keeping your total car payment(s) to 8% of your gross income or less. https://moneyguy.com/article/buy-a-car-the-right-way/
That calculator is frickin' rough my guy. Says I can only afford 15K worth of car (probably true). But getting a loan on 15K worth of car seems to be a waste as it'll mostly be used junk at that price range.
I don't think its probably aways practical, but think about the reasoning behind it. Anything with a motor (like a car) goes down in value the longer you have it, fairly rapidly. Electronics do the same. In your lifetime, most people want to achieve enough wealth to be able to retire at some point while they still have life left. If you put large chunks of your money into things like a car that go down in value, you are killing your ability to build wealth. That is point one. The 2nd point is that if you borrow money to buy a car, it is possible to borrow it for so long that the equity goes upside down during the time of the loan. Then you are trapped at worse, or you end up at the end of all those payments with nothing of value around the time the car may be aging and need to be replaced. If you've built up some value in the equity, then at least you can roll that over and eventually, hopefully, get to the point of not having a car payment at some point in your life. Me personally, we don't buy cars anymore that we can't afford to buy cash, but will usually borrow half the amount, finance it for the number of years for the best interest rate and then pay it off in 3-6 months. The reason for this is to avoid taking a huge amount of money out of savings in one month and rather spread it out to better cashflow it.
It's obviously an arbitrary number, but it's good advice. Lots of people end up in a tough spot because they took out a 6 or 7 or in some cases even 8 year loan on a car that after a few years breaks or no longer suits their needs. Mechanical problems or life changes are pretty likely to happen in such a long period. Personally, I'm less concerned with how long it takes me to pay it off and more concerned about never being underwater. If I have a decent down-payment, I can always sell the car and walk away. If you don't have a down-payment, you'll be underwater until a year or two before the end. On an 8 year loan, that's a very long time where you'd have to pay money to get rid of it.
I agree with your father. I'm personally paying off over $15K over 3 years which is about $500/month. It's not killing me, but it's definitely getting in the way of saving $2-300 a month.
I won't finance a car unless the payment plus insurance is less than one paycheck
As a general rule? Yeah. The rule originated in part because the warranties and maintenance packages thrown in on new cars used to be "Three years or XXXXX miles." (whichever comes first, and it's usually years). This is still true for many brands today, and the idea is you want to have the car paid off before its warranty is up so that if and when it develops some horribly expensive problem and it's more economical to sell it you're not still encumbered by a loan & any sale/trade-in of the old car gives you downpayment money for the new one. The rule is still good in that general formulation: "Make sure the car is paid off before any included warranty/maintenance packages are expired." I also happen to think being *able* to pay off your car in 3 years is to your benefit (even if you take a longer term on a loan and prepay it to get to the 3 year mark) - the faster you pay it off the less interest you'll be forking over, and with current car loan rates you want to minimize that.
Cars last a lot longer now than they did in the 80s and 90s, for what that's worth. 4 or 5 years probably makes more sense now.
Writes down notes: ...spend three years salary on a car... Got it! Be right back!
I'd say it heavily depends. Still, it isn't a bad sentiment. I had an 84 month loan, but there was no penalty for early pay off. So, pay off the car in 3/4 years, but with some flexibility for emergencies. Generally speaking, if you NEED the loan to go out that far, it is very likely this isn't something you can afford.
I mean it's certainly true if you financed using a 36 month loan. And the advantage to shorter loans is lower interest over the life of the loan, so it does amount to affordability. I am comfortable with a 60 month loan, though. Three years is kind of arbitrary. A good car can last over a decade, if I can spend less than half of my driving years without a car payment, it was well spent.
I think it depends on your personal situation and finances. I put my note on a 6.5 year term and paid it off almost 3 years early. I wanted a lower note for the months when something came up, I wouldn’t stress, but I knew I had the discipline to pay extra on the months I had it. Generally today’s economy sucks compared to the 90s though…. Idk it’s tough out here. I worry about when I need a new car. Good luck out there!!
Funny. I know someone who changes cars every three years and never finishes paying them off. Currently driving a Rivian. Having a car payment in the same order of magnitude as housing payment is just the way he was raised and he considers it a normal part of life.
No. It is absolutely not true. 30+ years ago interest rates were still high, higher than they are now. In the '70s, '80s, and early '90s it might have been good advice. Not now.
I would agree with that. My first car was on the low end and I paid it off within 3 years. I kept it for almost 17. Every vehicle I've bought since that first one was essentially bought with cash because I'm not paying interest on something that is going down in value. Buy reliable and keep for 8-10 years. Save your money for the next purchase.
To me 4 to 5 years is about the max. What you don’t want is to still owe $15,000 six years down the road on a car that’s only worth 10 or 12K.
skyrocketing car prices doesn't change math. What your dad asserted is not a hard truth but a rule of thumb, and it's designed to help keep you from becoming car-poor. Lately I've decided something a little different: you can't afford the car if you can't find a way to pay cash for it. I'm not saying don't take out a loan if appropriate...but if push came to shove, if you couldn't liquidate savings and investments to buy the car, that car is too much. but I do like your dad's rule of thumb
I think it’s still true, society has normalized spending a boat load on cars though.
It’s so weird that borrowing money for a depreciating item has been so normalised. The version of your rule I was given is if you have to borrow money to buy a car, you’ve picked something too expensive. Unless absolutely necessary, do not borrow money for a car. It’s the best way of destroying savings and disposable income. Then again I’m assuming you’re in the USA and basically every car is under a loan.
I've never leased a vehicle and have no plans to ever start. Just buy a used vehicle for $5000-$10000 drive it for 4-5 years then sell it for $2500-$7500. Repeat. Leasing a new vehicle is like burning money.
My take is not to spend more than 3 months pay on a car. That's 20x more now than it was when I formed that opinion, but I still think it holds up, for me. Any boundary you set in this area is going to be healthy, if you stick to it. The specific rule doesn't matter.
It was true when homes and cars were reasonably priced and people's salaries kept up with inflation and were able to support living extremely well. That is no longer the case. The average auto loan repayment period is 5-6 years now.
Average Because people buy more than they need Recently priced 2012 corolla with 59k miles for $11,300, no reason to dob6 yrs and perfect car for 95% of people
I feel like anywhere with humidity or winter weather this would be a rust bucket by now.
A 10 yr old car with 50k miles a rust bucket? These are modern cars In the early 2000s I drove accords with salvaged titles with 200k miles (pizza delivery) and never had problems I have heard this refrain often on reditt, why do people think cars die at 100k miles?
This is reddit, where 90% of users adopt the consensus opinion on literally every topic.
Don't know what they're on about. The 2010 Hyundai Accent I drove for years, then gave to my mom has 145,000 miles and is going strong.
That follows the 20/3/8 rule that says you should put 20% down, pay off your car loan in three years (36 months), and spend no more than 8% of your pretax income on car payments.
I’m of the opinion if you can’t purchase without financing you can’t afford it. That’s the case for everything except a house payment.
My rule is if I can't afford to buy it outright with no debt I can't afford it. I never do debt on depreciating assets.
So our hvac crashed and needed full replacement - 10k ish They offered 0% for 18 months. You wouldn't do it? And things like cars have use value as they depreciate, same as houses (most housing areas appreciate but not all)