[Benedict1957]

Originally Posted by Gibson6594

It depends on your interest rate I suppose, but I don't get this line of thinking. Wouldn't you rather have that money in an account working for you? My loan interest is 0.9. No way I'm paying that off early, it's practically free money. I'll take that payoff amount and keep it earning and use that money to pay off the car.

I've considered financing in the past but I've never been offered anywhere near 0.9%. My credit score is impeccable.

All of my potential auto loans interest rates are in the ballpark of 2-3%.

If I could get 0.9% financing I'd finance in a heartbeat.

[Cbozz]

88% here, I work at Burger King so barely making it.. have to donate blood and sperm to make up for the gas and mods

[let me out of this forum]

0%. My car was bought cash. That´s why i had to go for a 1 serie.
It´s amazing how little enthusiasm you meet, when the salesman finds out that you are not interested in a leasing deal. The actual car is not the sales object anymore.

[Nkc]

Originally Posted by Benedict1957

I've never leased or financed a car and so I don't particularly go by gross income. These days I don't spend more than 1% of my total net worth on any individual car at any given time, and I keep cars until they're unusable. Collectively having purchased my 2008 M3, my wife's 2012 RX450h, and my son's 2010 328i all brand new (I don't like driving used cars even though I know it's irrational and not financially wise) all three cars constitute a little over 2% of my current net worth (roughly - I'm ignoring time value of money here).

I've personally only driven 2 cars over the last 22 years, a 1994 Mercedes E class that I purchased new in 1994 and my current 2008 M3. Ironically I broke my own rule when I purchased the '94 E class. That car was more than 1% of my net worth at the time, but well within my comfort zone given my income at the time.

My wife drives less than 7500 miles per year and her car will almost certainly last her for another 20+ years, especially given Lexus' reliability. I bought my son's car for him when he was 22, but he's going to purchase his next vehicle by himself. He's racked up over 100,000 miles on his 328i so I suspect he'll be purchasing a car within the next couple of years.

I think for younger individuals who haven't had the luxury of time to build significant assets yet <10% gross income is a reasonable rule of thumb for car payments, but it's extremely arbitrary and ignores a whole host of variables that significantly change the equation.

TMI bro TMI...

[Benedict1957]

^ I edited it.

[Mr Tonka]

Originally Posted by Gibson6594

It depends on your interest rate I suppose, but I don't get this line of thinking. Wouldn't you rather have that money in an account working for you? My loan interest is 0.9. No way I'm paying that off early, it's practically free money. I'll take that payoff amount and keep it earning and use that money to pay off the car.

This.

The last vehicle i financed through the entire term was an E92 M3. At $0 down and .09% i paid a whopping $1,746 interest on the full term. In the same time period market investments returned a meager average of 6.7% annually.

While i was using adequate income to pay for the car, the portion of market investments equal to the purchase price of the car earned: $25,660. Even if the interest rate were 3x higher, you'd still be ahead to the tune of $20k.

Unless you have stupid amounts of disposable money sitting around, there is no financially sound reason to pay cash. If you don't have a few hundred grand of play money each year and otherwise would be forced to used money otherwise invested to make a cash purchase. You're much better off financing. I mean, you're better off either way, but some people have their retirement set up and still have loads of disposable cash. Some of them just prefer to stroke a check or possibly have bankruptcy on their CR forcing them to pay cash.

Owning a car free and clear is a good feeling, however it's not a nice feeling once you realize that you just paid $70k for a vehicle, drove it off the lot making it worth a significant amount less.

[BayMoWe335]

Some pretty legit numbers in here...

Triple every percentage given and we might be in the ballpark.

[tracer bullet]

Currently 0% since its paid off. I did have a loan at 1.9% so I was in no hurry to pay it off. At the time that was ~ 1/8 of my "take home" pay.

[NemesisX]

Originally Posted by Mr Tonka

This.

The last vehicle i financed through the entire term was an E92 M3. At $0 down and .09% i paid a whopping $1,746 interest on the full term. In the same time period market investments returned a meager average of 6.7% annually.

While i was using adequate income to pay for the car, the portion of market investments equal to the purchase price of the car earned: $25,660. Even if the interest rate were 3x higher, you'd still be ahead to the tune of $20k.

Unless you have stupid amounts of disposable money sitting around, there is no financially sound reason to pay cash. If you don't have a few hundred grand of play money each year and otherwise would be forced to used money otherwise invested to make a cash purchase. You're much better off financing. I mean, you're better off either way, but some people have their retirement set up and still have loads of disposable cash. Some of them just prefer to stroke a check or possibly have bankruptcy on their CR forcing them to pay cash.

Owning a car free and clear is a good feeling, however it's not a nice feeling once you realize that you just paid $70k for a vehicle, drove it off the lot making it worth a significant amount less.

Where do you get 0.09% financing? No one in their right mind would pay cash over .09% financing. Hell, no one in their right mind would pay cash over .9% financing. I suspect most people don't have access to that kind of loan.

Your analysis is correct but in a sense you're probably preaching to the choir. People don't pay cash because they don't understand the time value of money. Most generally well-educated people do. People pay cash because they don't get anywhere near the loan rates that are being mentioned in this topic.

I'm curious to delve into the mind of a lender that offers .09% financing. They're shooting themselves in the foot. Why are they giving you the opportunity at free money when they could be making (conservatively) 3-7% from broad spectrum ETFs in the stock market?

Philosophically a lender's goal is to set interest rates such that they "win out" more often than they lose. They're shedding risk from stock market volatility and replacing that with the risk of a lendee defaulting on his or her loan (which obviously is a function of credit score, among other factors like available collateral).

Originally Posted by BayMoWe335

Some pretty legit numbers in here...

Triple every percentage given and we might be in the ballpark.

This is precisely why I find these topics to be useless. At the end of the day, statistics that adequately describe the entire population are meaningful. Median and standard deviation (assuming a roughly normal distribution) generally do a good job of giving people a good overall picture.

Here's one stat I've found over the years from one particular source. The median luxury car owner makes $98,000/year. Half make less. Half make more. The median price paid for a luxury vehicle is something like $45,000. We're looking at roughly 50% of AGI as a rough rule of thumb. Lastly, only about 6% of luxury car owners in the United States have a liquid net worth > $1M. 94% do not. This statistic is from the early 2000s when roughly 3% of households had a net worth > $1M. In other words, if you were a luxury car owner in the early 2000s, you were twice as likely as the general population to be a millionaire (not including primary residence).

Very few people pay less than 10% of their gross income on a vehicle.

Asking a question like this on an internet forum is going to get you nothing but inflated numbers mired by self-selection bias. If you pay a particularly low percentage of your income on your car, you're probably more likely to respond (possibly as a form of bragging rights).

[RickFLM4]

Originally Posted by NemesisX

Very few people pay less than 10% of their gross income on a vehicle.

It seems you may be overthinking a simple question. OP is wondering how much others allocate (as a % of income) in their monthly budget for car payments. That is not the same as % of AGI since car payments typically occur over a period of years, not one year. It wasn't designed as an economic analysis for the Federal Reserve. It's just a question.

[NemesisX]

Originally Posted by RickFLM4

It seems you may be overthinking a simple question. OP is wondering how much others allocate (as a % of income) in their monthly budget for car payments. That is not the same as % of AGI since car payments typically occur over a period of years, not one year. It wasn't designed as an economic analysis for the Federal Reserve. It's just a question.

No. It seems you're completely misunderstanding the point of my post.

Car payments as a % of monthly income is rigorously not the same as total cost as a % of AGI - you're correct, but they're both proxies for the same thing. It doesn't really matter what proxy you use because regardless of your situation (lease to new lease, lease to own, finance to own, purchase outright, or other) you can always describe any situation in common equivalents.

If person 1 leases a new M3 every 3 years and person 2 pays cash outright and drives her M3, you can compare both situations in terms of an equivalent monthly payment using whatever assumptions you want to use.

I gave statistics for average cash purchases because that's all I had. To mention that this is not the same thing as car payment as a % of monthly income is testament to the fact that you don't quite understand the point of this topic. I'm not sure where the hell you're getting "Federal Reserve economic analysis" from my post, either.

[RickFLM4]

Originally Posted by NemesisX

No. It seems you're completely misunderstanding the point of my post.

Car payments as a % of monthly income is rigorously not the same as total cost as a % of AGI - you're correct, but they're both proxies for the same thing. It doesn't really matter what proxy you use because regardless of your situation (lease to new lease, lease to own, finance to own, purchase outright, or other) you can always describe any situation in common equivalents.

If person 1 leases a new M3 every 3 years and person 2 pays cash outright and drives her M3, you can compare both situations in terms of an equivalent monthly payment using whatever assumptions you want to use.

I gave statistics for average cash purchases because that's all I had. To mention that this is not the same thing as car payment as a % of monthly income is testament to the fact that you don't quite understand the point of this topic. I'm not sure where the hell you're getting "Federal Reserve economic analysis" from my post, either.

It is quite clear that the cost of a car can be expressed in equivalent terms such as a percentage of annual income or a percentage of net worth. OP asked a simple question because he felt like asking it - no more, no less. You are grossly over analyzing it and you are not telling anyone anything they don't already know when making such a point.

The comment about "Federal Reserve economic analysis" was to make fun of you for taking such a simple, harmless question so seriously and trying to turn it into something it is not. Who gives a shit what people answer? It is for fun and curiosity, not setting economic policy. Hopefully that clarifies it for you.

[NemesisX]

Originally Posted by RickFLM4

It is quite clear that the cost of a car can be expressed in equivalent terms such as a percentage of annual income or a percentage of net worth. OP asked a simple question because he felt like asking it - no more, no less. You are grossly over analyzing it and you are not telling anyone anything they don't already know when making such a point.

The comment about "Federal Reserve economic analysis" was to make fun of you for taking such a simple, harmless question so seriously and trying to turn it into something it is not. Who gives a shit what people answer? It is for fun and curiosity, not setting economic policy. Hopefully that clarifies it for you.

I'm well aware your comment was meant to make fun at me you condescending prick. My original post was merely questioning the intentions of the people who reply seriously to these kinds of topics.

This is a cute quote, though:

It is quite clear that the cost of a car can be expressed in equivalent terms such as a percentage of annual income or a percentage of net worth.

Rick: A and B are not the same

Me: Yes, but you can always re-formulate either A or B to describe both A and B in similar terms, so the fact that they're not the same is completely missing the point. You can fiddle with the statistic (describing situation 'A') on your own time to come up with equivalent comparisons to whatever your personal situation is.

Rick: It's quite clear to me that you can describe A and B in similar terms.

Do you realize how this makes you look? I haven't seen this much back pedaling since watching the Tour de France in rewind.

[RickFLM4]

Originally Posted by NemesisX

I'm well aware your comment was meant to make fun at me you condescending prick. My original post was merely questioning the intentions of the people who reply seriously to these kinds of topics.

This is a cute quote, though:



Rick: A and B are not the same

Me: Yes, but you can always re-formulate either A or B to describe both A and B in similar terms, so the fact that they're not the same is completely missing the point. You can fiddle with the statistic (describing situation 'A') on your own time to come up with equivalent comparisons to whatever your personal situation is.

Rick: It's quite clear to me that you can describe A and B in similar terms.

Do you realize how this makes you look? I haven't seen this much back pedaling since watching the Tour de France in rewind.

Re-read the sentence. Twice if necesssary. It neither states nor implies A and B are the same thing. Of course, I think you already realize it.

No back pedaling here. I continue to think you are over analyzing a simple question and then trying to distort things to make yourself relevant. Enjoy the rest of your Sunday. I've had enough of your verbal (edit: written, not verbal, since inevitable you will post a couple of paragraphs about the word "verbal" if I don't clarify for you) diarrhea for today.

[NemesisX]

Originally Posted by RickFLM4

Re-read the sentence. Twice if necesssary. It neither states nor implies A and B are the same thing. Of course, I think you already realize it.

No back pedaling here. I continue to think you are over analyzing a simple question and then trying to distort things to make yourself relevant. Enjoy the rest of your Sunday. I've had enough of your verbal (edit: written, not verbal, since inevitable you will post a couple of paragraphs about the word "verbal" if I don't clarify for you) diarrhea for today.

You are the poster child for the Dunning-Kruger effect.

[NemesisX]

I'm extremely impressed by your income (which is easily back calculable within a reasonable range and what I speculate is the true purpose of this topic), though, Rick.

Originally Posted by RickFLM4

I shoot for 5-7% of gross for 2 cars (mine and my wife). Self-employed so sometimes I am over or under. Her car is paid off so that helps.

Edit: 5-7% is before tax deduction I take for business use of M4, which is leased.

Bravo.

[bimmer456]

Wow some interesting discussion indeed! How much you choose to spend or what percentage of income is really a matter of personal taste IMO. If you have more money you can probably spend a greater percentage of it on the simple pleasures of life without going broke. If you're minimum wage probably not so much.

[RickFLM4]

Originally Posted by NemesisX

I'm extremely impressed by your income (which is easily back calculable within a reasonable range and what I speculate is the true purpose of this topic), though, Rick.

Bravo.

Not sure if you misread the original question or are just easily impressed. But thank you anyway. All's well that ends well.

[RobC2]

Originally Posted by NemesisX

Where do you get 0.09% financing? No one in their right mind would pay cash over .09% financing. Hell, no one in their right mind would pay cash over .9% financing. I suspect most people don't have access to that kind of loan.

My loan is 0.9% through BMW. It was one of the incentives at the time I purchased. I went for 72 months because it is basically free money.

[zx10guy]

Originally Posted by RobC2

My loan is 0.9% through BMW. It was one of the incentives at the time I purchased. I went for 72 months because it is basically free money.

When was this? Just curious as when I bought my car new, the F&I guy thought he could beat the interest rate my credit union was offering. He didn't even get close to the 1.49% I got from my credit union.

[Nkc]

First time going with 36mth financing with 0% and got a brand new 17 Jeep SRT in Dec at dealer invoice less a little bit more. Traded in wife's dd at retail too. Rest are cash.

Wife's dd still sitting on the lot and I can honestly buy it back for less that I traded it in for.

[Mr Tonka]

Originally Posted by NemesisX

Where do you get 0.09% financing? No one in their right mind would pay cash over .09% financing. Hell, no one in their right mind would pay cash over .9% financing. I suspect most people don't have access to that kind of loan.

Your analysis is correct but in a sense you're probably preaching to the choir. People don't pay cash because they don't understand the time value of money. Most generally well-educated people do. People pay cash because they don't get anywhere near the loan rates that are being mentioned in this topic.

I'm curious to delve into the mind of a lender that offers .09% financing. They're shooting themselves in the foot. Why are they giving you the opportunity at free money when they could be making (conservatively) 3-7% from broad spectrum ETFs in the stock market?

Philosophically a lender's goal is to set interest rates such that they "win out" more often than they lose. They're shedding risk from stock market volatility and replacing that with the risk of a lendee defaulting on his or her loan (which obviously is a function of credit score, among other factors like available collateral).



This is precisely why I find these topics to be useless. At the end of the day, statistics that adequately describe the entire population are meaningful. Median and standard deviation (assuming a roughly normal distribution) generally do a good job of giving people a good overall picture.

Here's one stat I've found over the years from one particular source. The median luxury car owner makes $98,000/year. Half make less. Half make more. The median price paid for a luxury vehicle is something like $45,000. We're looking at roughly 50% of AGI as a rough rule of thumb. Lastly, only about 6% of luxury car owners in the United States have a liquid net worth > $1M. 94% do not. This statistic is from the early 2000s when roughly 3% of households had a net worth > $1M. In other words, if you were a luxury car owner in the early 2000s, you were twice as likely as the general population to be a millionaire (not including primary residence).

Very few people pay less than 10% of their gross income on a vehicle.

Asking a question like this on an internet forum is going to get you nothing but inflated numbers mired by self-selection bias. If you pay a particularly low percentage of your income on your car, you're probably more likely to respond (possibly as a form of bragging rights).

Because it's BMW financing and they get to sell a car while also doing the financing. The interest from financing, in that respect is a bonus above the sale. .09% was a promotion. I wasn't the only one who took advantage of it.

I actually didn't lie about car payment as percentage of income. I didn't do it to brag, i did it to highlight much of what you're saying. Hardly any of these answers will help the OP very much when it comes to learning because there are far to many factors to consider with each individual.