Also, as another poster pointed out, this scenario only gets better as time goes on, because the fixed payment for the car becomes adjusted downward by at least 3% annually in real terms when accounting for inflation.

It looks like Trent’s friend got it right, but for the wrong reasons and unknowingly.

If someone wants to do a more elaborate proof, fine, but on the face of it it seems that taking the longer loan is NOT a bad deal and you would come out ahead if you took the difference between the 36 month payment and the 72 month payment and invested it in almost anything, from orange direct savings account on up to equities.

I will leave aside the issue of the wisdom of purchasing a $26,000 automobile new. But assuming that you are going to do that, the first poster and yoyoguy are correct.

And Warren Buffett would concur.

For us frugal people, this is a totally foreign concept just like our idea of owning a car forever is repugnant to him.

I would have felt really guilty selling that lemon to some poor soul on the open market, but felt just fine turning it over to a dealer.

Better price than you will get from a dealer on a lot.

Dealers have much more experience in negotiation than you ever will.

Don’t sell (”trade-in”) your car to a dealer either.

If you can afford to pay $549 a month for 5 years for a car, you should be able to save $549 per month for the 5 years after your car is paid off and be able to afford a new, top of the line, car… But of course you need to keep your car for 10 years…

And you could pretty much say the same about leasing. In my opinion both leasing and financing are ways for the dealer to make more money out of the sale. Except for a few cases, most times they are just gimmicks to take your money.

I did my research before going. We didn’t *need* the car that day either. And every time the salesman tried to say “what if we can get your payment to under XXX”, I said “I care about the total cost of the car.”

In the end, we negotiated the car price, the trade-in, and the financing completely separately. They gave me my price when I said “it’s 4 pm, I’m tired, my son is tired, my husband is tired, we’re leaving”. And when we moved onto financing, I wrote a check for the full amount.

We buy a car about every five years (we have two cars, and we drive each car for 9-10 yrs).

Some new cars have great deals for their lower end models, with 0% financing, 36 months, and new everything, it’s not so bad for a new ride, if you have most of the cash to pay it off quickly.

I bought a new car, and this was 4 years ago, with Zero down, and 0% financing for 5 years. Warranty has covered the very few things (ignition lock, and some sort of rod). You can get a new car and make out ahead depending on the situation at that specific time.

I love it! If only we all had the discipline to do this. The key here is delayed gratification, which none of us like. We do really well until that moment of weakness. My father always taught me to shop and walk away, even if you have to do that many times. Not so the sales guy will give you the best deal, but so you are sure that financially you are making the best decision. Boy, how I wish I had always followed his advice. Impulse decisions have been my downfall more than once.
Now we are actively saving for the next big purchase, wanting to not go credit again (unless it is for an income producing asset).

We bought a new car for $26k with 0.9% financing. We looked at buying it used, but our particular model doesn’t depreciate as much as others – certainly not the cut-and-dry 25% you guys have saying.

A 3-year old car would have cost us $21k and the best financing we could get would have been 5.5%. In the end, the used car would have been $1000 cheaper by the time we paid it off.

Judging by previous comments, I’m sure you’re all thinking “well, then, the used car was the better deal”.

But there are lifestyle issues to consider. We want to keep our car for many years. ALL of the used models we found (and we looked for 6 months) were the basic, no-frills packages. In a few years, when I’m (hopefully) driving my young family around, I’ll want some extra safety and conveniece features that I could only get by buying the car new. Had we bought the old one to save a penny upfront, we would have had to spend a dollar later on getting an even newer one to fit our new needs.

New cars aren’t always wrong, used ones aren’t always right. Same goes for loans vs. cash. The point – and I think the point of the post – is that you need to look at the whole picture, and think ahead to the end result.

I will have it paid off by January so I guess it’s not that big a deal, right?

@Marcin
A friend of mine bought a 2009 Accord for $21,500 (final price), so how’s that for your so-called good deal?

I’ve had the same thing happen. A friend of mine told me her car payment was $590 and I thought “that’s nice… my mortgage is $550 and I can live in it!”