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Comment by dillonmckay | Hacker News Reader

Also, the owner of the dealership is probably friendly with the local banks.

which is why i find buying a car on credit is such a poor practise. Unfortunately required for people who need a car for transport for work.

A car depreciates. One should never buy a depreciating asset on a loan. A car should be treated like a consumable - buy it with existing cash.

The only thing that one should buy on a loan is an appreciating, or income generating asset.

I don't disagree with you, but I do want to explicitly call out how uncommon it is for most people to be able to afford a car in cash. A decent used car, say 3-4 years old with 40-50,000 miles on it with a certified inspection/warranty (which, again, most people are wildly unqualified to actually inspect a used vehicle themselves) can easily cost over $15k, and we're not talking indulgent luxury vehicles, but sedans or crossovers from Toyota, Subaru, etc.

Based on the median U.S. income, it could take literally years expecting no additional discretionary income to come up with that kind of cash, or even longer if individuals are trying to keep cash reserves to situations like one we're currently experiencing. In practice. owning a car as an asset it generally considered a positive versus alternatives like leasing, which results in the accumulation of no vehicle equity over time.

There's not really a great solution here. Cars are capital assets--they're complicated to build yet already somewhat commoditized in their pricing. They can also last for much longer than most other consumables assuming reasonable use. With regular maintenance, I don't think it's unreasonable to assume well over 10 years of use from most modern vehicles, with most automotive loans having a shorter period. I'm not sure I can think of another commonly-used product that closely matches those conditions...

I realize a surprising number of people are paid close to minimum wage (I believe the number is close to 30% in the US) a brand new Honda Fit is $16k. Federal minimum wage is close to that annually and some state's minimum wage can double that. If you can save up a recommended emergency fund, that's most of the way there.

I do think most people buy way more car than they need, which drives up all sorts of costs. If you can get out of the car loan cycle it's incredibly freeing. If you have a solid driving record and an emergency fund you can drop collision on your insurance (it's required if you have a loan) and save a few hundred each month to put towards your next car.

You’re paying a couple hundred a MONTH for collision alone? My entire insurance including collision and comprehensive is under $100/mo per car.

I haven't needed to look in years, but I'm pretty confident it was around that back then. This site [1] says the average is $596 for collision and $192 for comprehensive. So for a brand new car for someone in their 20s I don't think it would be too far out of line for what I would have paid--but wouldn't represent everyone.

[1] https://www.insurance.com/auto-insurance/coverage/comprehens...

A new Honda Fit is $16k _before_ the dealer starts playing games.

Last time I went to buy one, the local Honda dealer tried to rig up a deal where a 2-yr-old model listed at $11k would cost me $19k. They were willing to budge on one of the $2k "mandatory" upgrades that weren't in their posted price, but I walked on the deal.

I think slightly older used cars can usually be had pretty reasonably though and can be a nice way to break out of the car loan cycle (if you can budget $1k cash for the likely event where there are hidden problems). The end of that story is that I bought a 10-yr-old Honda Fit for $5k, they didn't try any manipulative sales tactics, and 20k miles later I haven't had any notable issues (ran over a couple nails and needed to plug the tire). That's still a lot of money at minimum wage, but it's a lot more manageable than a new car.

I really hate the dealer game, but if you're stubborn and persistent you can often get what you want. It sounds like the best approach is to email multiple dealerships and make it clear you're only coming in after you commit to a price--you just can't overplay your hand. I bought a new Fit a few years ago when they shifted production between countries and kind of skipped a model year. So there was a shortage, especially the 6-speed low end. When I located one I didn't have much leverage to negotiate down, but I could stand firm on extra junk they tried to add to drive up the cost.

The used car market used to be fantastic before the 2009 Cash For Clunkers system seemed to have skewed it. It doesn't look like it has "recovered" but that could be due to other factors like better reliability overall. I mostly used a new car as a worst reasonable case scenario where the price doesn't fluctuate.

Jumping in here because of a pet peeve, since we're discussing "in the US" things. It blows my mind how people have fallen for the trick of not having sales tax included in discussed prices, and continue to exclude it as if magically someone else is going to pay it, or you don't have to work for that money. On expensive things like cars, it's a large chunk of change. Yes, it varies from state (and sometimes city) to state, but it should at the very least be discussed. That $16k Honda Fit in Los Angeles is going to cost you an additional $1520 in sales tax, real money that you really need to work for and be willing to part with to drive said Fit. If $16k is a problem to pay, that additional $1.5k in sales tax should be a concern to you as well. This is basically meant to mentally trick you into visualizing a lower price, and thinking "oh yea, that money goes to the state, not the merchant" as if, again, somehow that isn't real money _you_ have to part with. It's dishonest and can push some people into making bad financial decisions by treating the deal as if it's ~10% cheaper.

It would be great if we could start discussing real prices, maybe agree on an average sales tax rate which can be used in most discussions, with the understanding that it will vary a bit for you. Or maybe just add a 10% flat sales tax estimate, so that at least you know that most of the time you can expect to pay slightly _less_ than the discussed price, versus the unpleasant surprise of thousand(s) of additional $.

I agree and I wish there was a better solution. In the US you're paying sales tax with new cars as well as used so at least it's apples-to-apples in this conversation. And with cars it can vary sometimes where you purchase or where you live depending on your jurisdiction. I do think with a car thats something you need to shop around for.

I wish the US could suck it up and have correct price labelling. I don't care if they relabel products and it varies location to location or if the price is the same nationally and varying amounts get skimmed out (like credit card fees).

I totally agree with this rationale. What boggles my mind in the US is the fact that people making near minimum wage is pushed to buy cars because cities do not provide public transportation that enable them to have mobility. Here, I am talking about major urban areas around the US, where you are not able to have daily commute to work if you don’t have a car. This is very perverse from the economic mobility.

These people compromise a big portion of their income on Car financing + insurance + gas, that otherwise could be reverted as education, higher quality food, or better quality housing. I believe if we had a proper funded public transportation system, 200 dollars on unlimited public transportation ride ticket would be enough for most of the people.

I have no idea how rich you'd have to be to do that. Like upper 1% I guess. I'm a software engineer and the only car I could afford to buy with cash would be like a 10 years old compact. Or maybe a new Dacia if I saved for a year.

It's basically a 10-year plan, but you start by saving for an ~10 year old car for a few thousand and try to pay cash. Any potential car payment can now go into a fund towards your next car, which could just be a newer used car.

If you have a small savings and are a decent driver you can drop collision insurance (which would be required if you had a loan) and save an extra hundred or two each month.

At some point you should have an emergency fund with 3-6 mo of living expenses. A brand new Honda Fit starts at $16k. That's about a yearly salary of someone making ($7/hr) minimum wage working full time. So that should be in the realm of possibility for someone making more than minimum wage (or in a state with a higher minimum wage).

>>and save an extra hundred or two each month.

How expensive is your insurance?? I have a fully comp insurance with 20 million euro liability that's about ~$500 a year. If I dropped that down to a 3rd party liability only it would save me almost nothing.

[1] https://www.insurance.com/auto-insurance/coverage/comprehens...

Save for a few months and buy something second-hand? Software engineer should be a decent salary in any country. I only buy second hand.

That's what I said though. After saving for a year all I could afford would be like a 10 year old car. That's why I'm saying that buying a new car for cash must be the reserve of someone super rich.

This is often touted as a good rule of thumb but it’s really a fallacy.

Your money does not know or care what it is spent on. If you take out a loan to purchase a car, and then use the money you didn’t spend on the car to purchase investments it is no different to spending the cash on the car and the loan on the investments.

If you have enough money to buy a car AND investments (and you need a car) you’re better off spending that money on a car and saving on the credit cost of the loan.

What this rule actually says is “it’s better to have money and invest it in things that appreciate rather than not have money or spend your money on things that depreciate”.

Well duh!

Hmm, that really depends on the market you’re in and the rate of the car loan. I bought a car on credit at 1.8% and freed up money to invest in the market, which appreciated by a lot more than 1.8% per year. Also buying a car in cash is not considering the time value of money. If I spend $30k in one transaction, yes I don’t pay the extra 1.8% of interest but I also don’t have $30k with which to invest or partially hold as emergency funds.

Exactly - the answer is always that it depends on the exact situation.

“Only borrow to buy appreciating assets, only buy depreciating ones with cash” is a fallacy.

Yes. In other words: money is fungible.

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