Dealerships Are Sneaky

[FastDriver]

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[Mustang5L5]

I feel like we need a finance forum here on SN now

 

[mikestang63]

What's kind of amazing is that once you break the cycle and you have enough to pay cash for things, you start looking at the expense in terms of how much time it took you to save that amount of money. Financing has a way of letting people get into something without realizing the amount of years they are a slave to that decision. They make it easy to get the thing you're excited about, but they don't bother telling you the true cost to your life.

I'm an analyst. I break stuff like this down for fun (nerd).

Consider this: A guy who was not in debt and had a choice of 2 straightforward alternatives: own and drive a new mustang for 5 years vs. invest his money instead.

Buying the mustang: I priced a base Mustang GT and added the performance package at a cost of $36,500 (click for true car estimate). Assuming 3% financing (Ford advertises 4.9% APR), Ford's 84 month term, payments over the same 5 year period, a 7% sales tax, a 10% downpayment. Depreciation for a Mustang GT will be between $17k-$21k. (Link 1, Link 2) We'll go with $19k depreciation. Given these assumptions, after 5 years he will pay ~$32k, he'll still owe ~$11k, the car will be worth $17.5k, and his equity will be about $6,600. He'll lose $25k in exchange for the fun of his daily drive.

Investing the money: If he decides to keep driving his car and invest the downpayment and ~$468/month instead. Assuming a somewhat below average market return of 8%, he'll earn nearly $5k in that same 5-year period, and have a total of ~$36.6k invested, and he'd be earning an additional $2,548/year in the market (vs. $0/year for the car buyer). His decision has made him a difference of $30k, and continues to earn more money for him every year thereafter.

There's some other financial factors to consider: Warranty (advantage mustang). Cost of maintenance (advantage Focus). Insurance (advantage Focus). Fuel Mileage (advantage Focus). Your Focus is new enough that it'll still depreciate, but still is a huge advantage over the mustang. You still owe some payments, but not as long or as much. At some point, if you want to get ahead, you have to break the cycle. Keep the focus, and start investing sooner.

I choose not to owe anyone anything. I own 2 fox bodies, a 2000 7.3 Powerstroke F250, and a 2002 Saturn SL2. I maintain pristine mechanical conditions on them. Having the truck gives me a utility vehicle and a backup while my daily undergoes repairs. My cars are too old to depreciate, other than mileage wear & tear, which my Saturn soaks up, and it doesn't get any cheaper than maintaining the Saturn. I'm not perfect, though. My financial sin is in the money I invest in modifications, and the missed opportunity of investment returns instead of owning 4 cars (soon to be 3). That said, the value of my cars combined is less than the value of one new Mustang GT, and they aren't depreciating. The combined liability insurance I pay is far cheaper, too. I am not living a spartan life though, because I absolutely LOVE driving my fox when I feel the urge to have fun. In fact, I'm certain driving my fox and handing asses to guys in new stuff is even more fun

I know I'm on a Mustang site, and I'm probably supposed to reinforce the passion we have for the cars and the hobby, but I want to provide the side of reason, so you get the opposing view of the feelings of passion. I'm not giving the immediate fun perspective, but maybe you'll be happier overall by taking the modest approach.

Good luck with your decision,

Chris

Great Job Chris at breaking it down.. the other option is for Mike to take out a Home Equity Line for the amount of the loan, which will accomplish three things

1. stretch out the payments to a longer term- thus lowering the payment, and the amount needed for the down payment
2. The HELOC interest would be tax deductable
3. Allow Mike to invest the delta of additional money into the investments or if he chooses pay down the loan faster

 

[General karthief]

Where do I sign up for the sn economics class.

 

[Black1987]

True, that would ease the monthly burden, increase cash flow, and flexibility. Ultimately, perfectly restructuring the loan in my hypothetical cannot save the guy more than the finance charges of $3,548, though. There's no way to avoid the depreciation or taxes of ~$21,500. Of course, he can't eliminate the finance charges or shave much off, because really 3% and 84 months is pretty darn good.

Thank you for your time on the analysis.

See I agree with your analysis which fairly close to the numbers. However, feel tid bits I left out.

The focus is financed with the extended warranty $1800, + 15.9k purchase price @ 1.9% for 70 months which comes to over 20k for a focus

The focus seems to now be burning coolant which ford has a recall on the Fusion and Escapes but nothing on us yet.

Yes I'm a dummy on that buy, but the mustang with added leather and upgraded Brembo comes out to $34k after rebates, military/student without the depreciation of the Focus...which is stupid huge bc @38k mileage it went from almost $16k down to less than $8k. Ford offered over $9k , almost $10k without even seeing the car.

I understand breaking the cycle but I'm also losing my a$$ on the us. Will I lose my a$$ on Mustang too definitely, but smiles per gallons

I bought the focus for the wife bc of commuting 120miles a day 5 days a week. She now has a beater and I drive my beater that are paid off. The us racked up too many miles and we passed the point of what the car should be worth and what it is now.

And I just plain hate the focus and been in the shop for other dumb crap the shouldn't of went bad in 38k but hey it was driven by a woman so.

Nonetheless the car can be financed with 2.3% for 72 months, which isn't bad but I hate car payments but hate the us more.

So I don't want to do but least I got to drive something different for a few days.

 

[RangerJoe]

When I bought my F150, used, it was $16k. I considered paying cash for it, but after talking it over with my investment guy, I decided on the loan. Here is why:

-used car loan was 3.49% for 5 years, I pay something like $1400 interest over 5 years

-leaving my $16k in my investment accounts earns me about $900 a year in interest, over 5 years roughly $4500.

If I had paid cash, I would have lost $3k in the end. Now, that's not an excuse to go buy all my "wants", but this purchase was very much a need. The key is to not borrow so much that you cannot save. Your savings should be automatically drafted every month just like a bill.

Just my $.02 (see what I did there).

Joe

 

[95BlueStallion]

I hate money, and love burnouts.

Jokes aside, having a fun daily is a big deal to me. So much so that I sold my '11 GT fair weather car to afford the SRT8 that is my daily. Sold my old boring daily to buy the fox to restore. I get to work in better moods, enjoy a spirited drive over lunch if I need a pick me up, and let the sound of 6.1 liters sooth me as I unwind driving home. Its basically like seeing a therapist! Think of money and time saved not going to a quacks office!

 

[CarMichael Angelo]

Hmmmm,.....there's a thought,....Worrying about proper investment strategies on a website where people dump tens of thousands of dollars into a car that isn't worth a fraction of that now, nor will it be after.

If everybody considered depreciation, and were all such thrifty savers, the new car industry would be dead.

Yes,...You could slash around in the Focus for the sake of not getting bit in the ass financially. OR,... You could save all of that money you're losing and then one day,..write a check for a 2027 car instead (if there even is a Mustang in 2027)
In the meantime, you can ignore what it's like to buy a new car,..The smell,..the new ride,..the new tech,...426 HP.
I mean after all,...buying a new car over time is one of the most financially irresponsible acts anybody can put on themselves right?

Or you could buy somebodies slightly used version of that car in 4-5 years...(But then you'd be buying a used car wouldn't you? and after all,...the guy that drove it before you probably babied that thing,...what could go wrong? Warranties are for wusses.)

Whether you buy the car new and finance it, or whether you purchase the thing outright,...YOU take the depreciation burden regardless. Right along with the other 10's of millions that buy a new car every day here in the US. What a bunch of losers those guys are....

I guess you could save your money as well,..buy old cars, and keep them until they are truly freakin old. Work your ass off doing whatever it is you do,..and with all the money you save, pay somebody to work on your old junk for you.

Buy what you want, so you have the benefit of a warranty on the new stuff,...when it breaks it's stupid expensive and most of the time beyond the capabilities of most of us to fix. Then you can work on your own old junk so you can justify the depreciation by not having to pay some shop to work on the old car.

 

[hoopty5.0]

I couldn't live without having something fun to drive everyday. Finances be damned! I bought a coyote and never questioned if it was the right decision afterward. Only mods are intake, exhaust, and a tune (all paid for by PO) and I've had it 2 years and still love it.

 

[CarMichael Angelo]

I couldn't live without having something fun to drive everyday. Finances be damned! I bought a coyote and never questioned if it was the right decision afterward. Only mods are intake, exhaust, and a tune (all paid for by PO) and I've had it 2 years and still love it.

As well you should. Even considering that it's a Mustang.

 

[5.0Droptop]

I say go back and negotiate. Be willing to walk away and see if they let you walk off the lot before they come back with a better deal.

 

[5.0Droptop]

oh and fix your pictures......





My mom has the same color but in a 6 cyc convertible with black leather interior.

Im more partial to the ruby red.....

 

[FoxMustangLvr]

Haha! Yeah, Mike, damn the finances. Don't be a wuss. Winners buy new cars.

LOL, I knew it wouldn't be the popular vote, but if you're smart with your finances, stay out of debt, and mitigate depreciation, you will have a lot more car for the money, and maybe you'll maintain some life balance that keeps the family happy, too. But, I mean, don't be a loser who thinks through the best way to leverage resources in order to be happier (and faster) in the long term.

Maybe, I'm reading into the OP's situation too much, but it sounds like he's military enlisted or NCO with a family. That had an impact on my interest in him. In my experience, most of my guys never had any form of financial education.

Well there's different logic in the way people can spend money (for the most part) depending on their situation. Single people or married couples with no children will likely throw money around a little more carelessly as opposed to a single parent or married couple with children that have to have their kids bests interests first before locking down long term financial obligations. For me, I think a lot like @FastDriver , monthly commitments and depreciation and what I could've done with the money had I bought used and invested my money elsewhere. I've either always owned my vehicles or paid them off very quickly. I own all my vehicles (3 of them) and my dirt bikes. My ex was into financing everything while I hated the idea of it. I love getting my paycheck and not having creditors hands all over it and not having much left to myself and constantly counting the days till my next payday. I feel brand new vehicles are for suckers but we need those suckers to buy them or else I'd never be able to scoop up their depreciated vehicles at a bargain price. I plan on leaving some money and assets to my children. Heck my kids are 8 years old and my twins turn 4 this July and I'm already saving money for them to get braces and buy them vehicles because it takes a long time to save that kind of cash.

I've sat in these new Mustangs and their very nice but I can't get over the long but steeply sloped glass with a ton of blind spots. I feel like I can't see out of the dang car!

 

[RangerJoe]

Well there's different logic in the way people can spend money (for the most part) depending on their situation. Single people or married couples with no children will likely throw money around a little more carelessly as opposed to a single parent or married couple with children that have to have their kids bests interests first before locking down long term financial obligations. For me, I think a lot like @FastDriver , monthly commitments and depreciation and what I could've done with the money had I bought used and invested my money elsewhere. I've either always owned my vehicles or paid them off very quickly. I own all my vehicles (3 of them) and my dirt bikes. My ex was into financing everything while I hated the idea of it. I love getting my paycheck and not having creditors hands all over it and not having much left to myself and constantly counting the days till my next payday. I feel brand new vehicles are for suckers but we need those suckers to buy them or else I'd never be able to scoop up their depreciated vehicles at a bargain price. I plan on leaving some money and assets to my children. Heck my kids are 8 years old and my twins turn 4 this July and I'm already saving money for them to get braces and buy them vehicles because it takes a long time to save that kind of cash.

I've sat in these new Mustangs and their very nice but I can't get over the long but steeply sloped glass with a ton of blind spots. I feel like I can't see out of the dang car!

We started investment accounts for both our children within the first month they were born. Something I never had. I helped out with bills at home while I was in high school working 32 hours a week. Then I moved off to college and worked 40 hours a week, went to school full time and still left with $18k in loans. While I feel it built a lot of responsibility in me, I want my kids to have more financial freedom.

My wife and I balance our finances well. We owe on our home and have small cars loans, but I could pay them both of right now if need be. We try to splurge here and there, but the Fox is a toy. It will disappear the first second I can't out food on the table or I see myself sinking in debt.

Joe

 

[Black1987]

Haha! Yeah, Mike, damn the finances. Don't be a wuss. Winners buy new cars.

LOL, I knew it wouldn't be the popular vote, but if you're smart with your finances, stay out of debt, and mitigate depreciation, you will have a lot more car for the money, and maybe you'll maintain some life balance that keeps the family happy, too. But, I mean, don't be a loser who thinks through the best way to leverage resources in order to be happier (and faster) in the long term.

Maybe, I'm reading into the OP's situation too much, but it sounds like he's military enlisted or an NCO with a family. That had an impact on my interest in him. In my experience, most of my guys never had any form of financial education.

Well its just me and my wife, she is now IRR and I'm just a DoD civilian (areo/mech engineer), we live below our means while she is finish her degree (year or so). The no real bills except tuition, the current car payment/insurance and the normal stuff. I planned on taking it back anyways, but there is a Track Pack beside it (same color just regular emblems) that I was wanting but these things are $$$. However unless they come back after I leave the lot with a great offer.... I'm putting around in my beater, plus I cringed driving on my mile long dirt/some gravel main huge random rocks path....and no garage

Well there's different logic in the way people can spend money (for the most part) depending on their situation. Single people or married couples with no children will likely throw money around a little more carelessly as opposed to a single parent or married couple with children that have to have their kids bests interests first before locking down long term financial obligations. For me, I think a lot like @FastDriver , monthly commitments and depreciation and what I could've done with the money had I bought used and invested my money elsewhere. I've either always owned my vehicles or paid them off very quickly. I own all my vehicles (3 of them) and my dirt bikes. My ex was into financing everything while I hated the idea of it. I love getting my paycheck and not having creditors hands all over it and not having much left to myself and constantly counting the days till my next payday. I feel brand new vehicles are for suckers but we need those suckers to buy them or else I'd never be able to scoop up their depreciated vehicles at a bargain price. I plan on leaving some money and assets to my children. Heck my kids are 8 years old and my twins turn 4 this July and I'm already saving money for them to get braces and buy them vehicles because it takes a long time to save that kind of cash.

I've sat in these new Mustangs and their very nice but I can't get over the long but steeply sloped glass with a ton of blind spots. I feel like I can't see out of the dang car!

I actually didn't have any blindspot issues oddly, but I'm like 5'11 flat footed.

 

[Black1987]

That sounds pretty squared away to me. Don't engineers start off in the GS9 or GS11 range? The track pack was how I ended up at the higher prices in my first analysis. That was an extra 4-5k.

I hear ya on the dirt/gravel stuff. I have never regretted having a beater for stuff like that. If you don't mind me asking, what are the aforementioned beaters you have? We used to have a Daily Driver thread around here, somewhere.

GS range is spot on but I'm finish my training program in a month or 2, which a is 12

Beaters:
1999 ZX2--owes me nothing, looks like a red skittle that has been in a baby's mouth too long...also wife hates it. Has been wrecked 2 times and got the value cough $1000 bucks each time.
2001 Acura TL - wifes stupid thing that she loves, but I'm always working on it.
2004 Yukon- Dog mobile for the beach and long trips
1993- Mustang 50 shades of grey and fire damage...drive once a week at least
2015 Phuckus--- the bringer of current debt.
and multiple no motor cars/tractors.

 

[Black1987]

Hahaha, I enjoyed the descriptions. Yukon's a good truck. Looks like you're no stranger to older used stuff. Good to see a 5oh in there somewhere LOL, you must have a farm to store all that stuff!

Are you at Bragg, LeJeune? What else is in NC?

Cherry Point MCAS and Lejeune I bounce between. Bragg, I stay away from Fayettenam unless visiting friends stationed there.

 

[2000xp8]

Here's my rule for buying a car.

I wait until it's 3 years old and is not the first model year (which will likely mean you are buying a vehicle 4 years into it's life cycle). It will usually be something off lease.
You can usually get a $50,000 car for around $25,000.
Just got my sister in law a 2013 explorer limited, 30,000 miles fully loaded for $27,000 certified ford. Stickered for about 50 grand new.

Also unless you are wealthy, I never agree with buying 2 vehicles of the same genre. In other words, if you have a mustang, I just don't see the point of two of them. Let the second vehicle be something more useful, because while mustangs are fun, they are useless.

Keep in mind too, cars are a dying breed. 2 doors even worse. People want Suv's and pick up trucks. Hell, I think every family needs a supercrew pick up truck, I see more than my share of morons at home depot with plywood on the roof of their car.

New cars are like anything else you get to sample (half the people here would get in a new Hyundai and think it's amazing compared to what they currently drive) once the wow factor wears off a new car, all you have left is the payment...

While I do believe more in the theory of get busy living than get busy dying, you can do just as well pre owned certified without going bankrupt.
BTW, that explorer I just mentioned, 2.9 financing, which ain't bad.

 

[5.0Droptop]

Hell, I think every family needs a supercrew pick up truck.

I agree. I love mine. Its been a great family vehicle.

 

[Mustang5L5]

I really need one of those. Problem is three kiddos in day care......