I guess I’m out of touch with many consumer issues these days. We haven’t financed anything other than real estate in over 5 years, so I’m not hip on the going rates. I was looking at a newspaper last week and my bottom lip hit the floor when I saw an ad promoting a six year loan payment of $272 per month for a new Honda Civic! What is the world coming to?
Long Term Payments Are Nothing New
Vendors have been offering extended term monthly payments for years. It doesn’t matter what the sticker price is as long as you make the payments low enough for consumers to think they can afford it. We rationalized ourselves to this philosophy for years. The problem is that once you owe lots of money and have payments, adding a few more seems like no big deal. It’s no big deal until you wake up one day and realize all of your salary is going toward monthly payments.
Car payments used to be no longer than 5 years. If you couldn’t pay off the car in that amount of time, you couldn’t afford it. Then, in the mid 2000’s dealerships started offering longer terms for more expensive cars. I know when we bought our truck in 2006, we took a 6 year loan with a payment of around $430 per month. We didn’t buy it because it was a good deal, we waited until the salesman offered a payment we thought we could afford. Now, you can do this with a Honda Civic, which to me, has always been the symbol of affordability and reliability. I guess that’s no longer true when you buy it on the six year plan.
I Get The Desire For Nice Things
When Jim graduated from college in 2000, the first thing we did after he got his first teaching job was go out and buy a brand new Nissan X-Terra. He’d never had a new car, and we felt like he deserved one. Never mind the fact that he still owed thousands in student loans or that we’d go on over the next decade to become tens of thousands of dollars in debt. We wanted a new car, and it was easy to finance one.
With these long term loans, anyone can finance a vehicle. I’ve known people who claim to be struggling financially, but then go out and buy a new car. I have no idea what they payed or are paying, but the consensus from almost everyone was that the new payment was lower than their old one. I guess if you finance it out for a decade, it will make the payment lower, but you’ll never be out of debt either.
I Guess I’ll Never Have Another New Car
After looking at some of the other ads, I realized the prices of new cars is insane. You can get the same 6 year deal on a new Honda Accord, but for $355 a month. Since no purchase prices were listed, I went to the dealer’s website to see how much the cars are selling for. You have to call to get actual prices, but using their “How Much Can I Afford” calculator, it seems that Civics are running around $20K and Accords are around $30K. Those are both with a 6.9% interest rate when financing!
The interesting thing about the affordability calculator was that is didn’t take your income into consideration at all. It was just a place where you could put in various down payments and loan terms to get a payment that seemed to fit your budget. That doesn’t tell you how much you can afford. It only tells how much of payment you want to saddle yourself with.
Since I don’t want a car payment, and it would make me cry to pay $20,000 for a new Civic, I guess I better hope my car lasts for a long time. I know that at some point, it will wear out, and I’ll have to replace it. At this point in my life, I could care less about having a new car. They do smell nice, but after I add a kid and a dog, a car is just a vehicle full of crumbs and doggy drool.
It’s All About Choices
When I was looking at rental properties with a realtor at the end of last year, I was driving our old beater 1999 Civic. This was a new realtor I was trying, and I only knew her casually. She gave me a strange look when I pulled up in a car that was obviously not what she expected. I’m not sure why I felt the need to explain, but I told her I drove this so that I could afford rental property. We both kind of laughed.
Years ago, that would have embarrassed me. Now it makes me proud. Although it might not seem that way, I really am not judgmental (well, maybe I am just a little bit). I think people should spend their money however they want, but I’m afraid we often spend money we don’t have because we feel like that’s what we’re supposed to do. I’ve been there, and I can speak from experience. It’s all about choices. I’m not going to be able to sleep in my new car when I retire. It won’t buy my meals or pay doctor bills. If you buy a Civic on a six year payment plan so that you can max out your retirement and put all your side income into a SEP IRA, then I think that’s a great. If not, do you really want a tiny car that takes 6 years to pay off?
Did you know “affordable” cars now came with 72 month payment plans? Why are new cars so attractive?