Monday Musings

Long-time friend and Disaffected Musings reader Robert sent me an email with a long list of post suggestions. I won’t tackle all of them today, but let me start with this: the increasing length of new car loans.

Many realtors have told me that when most people/families buy a house, they’re really trying to buy a payment they can afford. The price of the house is one factor in that price, but not the only factor.

Cars are becoming more expensive so car loans are getting longer in order to reduce the monthly payment. The problem, of course, is that because of slower amortization the buyer is more likely to be upside down on the car and the buyer pays more interest over the life of the loan. I recently read that even with longer terms, the average monthly payment for a new car has moved past the $500 mark to $539.

If a person borrows $30,000 on a 4-year loan at 4% to buy a car, their payment is $677/month. If the term is stretched to seven years, and car loans are now offered at that term and even longer, the monthly payment is $410/month at the same interest rate.

However, in the first example $7,057 is paid in principal the first year and total interest paid over the life of the loan is $2,514. In the second example, only $3,790 in principal is paid in year one and total interest paid is $4,445.

I “stretched out” the loan term on the first vehicle I purchased with my own money, much to the chagrin of my father, because I wanted to make sure I could afford the payment. I took out a 5-year loan, which was not common when I purchased the car (the late 1980s). However, I could easily afford the payment and I wound up paying off the loan several months early, anyway.

What is the highest monthly payment you’ve ever had on a vehicle? As I have written before, I have not had a car payment in a long time (13 years) and my wonderful wife has not had one for even longer (16 years). I know most people do not have the resources to pay cash for a car, but we do not like to borrow money and to pay interest in order to acquire something that depreciates in value over time.

See the source image

From a picture of a 1988 Chevrolet S-10 Blazer, which was the first vehicle I ever purchased exclusively with my money. My automotive tastes are not the same now as they were 30 years ago and I am no longer concerned with getting to work in bad weather as I am (involuntarily) retired.

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