Airline Pilot Central Forums

Airline Pilot Central Forums (https://www.airlinepilotforums.com/)
-   Money Talk (https://www.airlinepilotforums.com/money-talk/)
-   -   Dave Ramsey's methods (https://www.airlinepilotforums.com/money-talk/126310-dave-ramseys-methods.html)

JayBee 12-30-2019 07:48 AM

Dave Ramsey's methods
 
Any of ya'll follow Dave Ramsey? A friend of mine turned me on to him. Seems pretty legit but I do have a question about his process.

For those unfamiliar he has this deal called 7 baby steps -

1 - Save $1000 emergency fund
2 - Pay off all debt except house
3 - Save 3-6 months of expenses in an emergency fund
4 - Invest 15% of income in retirement
5 - Save for children's college fund
6 - Pay off home early
7 - Build Wealth


So basically on my own I was already doing some of this so my question has to do with procedure. I have steps 1,3 & 4 done. Step 5 does not apply. My only debt other than the house is a car loan. I have enough money to pay off the car, however before coming across Dave's advice I was going to put that money towards my mortgage. I'm not the most mathematically minded guy but I assumed I would save a ton in amortization over the long term.

If I was to follow Dave's advice I would pay the car off and then work toward paying off the mortgage. It makes sense but as previously stated wouldn't the money go a longer way over the long term if I threw it at the mortgage? What about putting into retirement savings?

Also, paying the car off would take my 6 month emergency fund down to 1-2 months... I know I can build it back up at a faster rate but... its kind of relaxing to know that I have 6 months of bills in the bank. That begs the question though - what can I do with that money to earn back on the short term? something that I can access the money if need be? rather then just sit in my bank at 2%

Thanks

Pilotdude3407 12-30-2019 08:05 AM

Here is the core of what DR preaches.

1.) Home mortgage is the only appropriate debt because you (should) have a decent amount of equity in your home. Cars keep very little if any equity so it is bad debt and in his perfect world you shouldnít get a car loan anyway. We all know that is not always feasible so you can have one but it is as bad as credit card debt. Pay it off.

2.) In terms of paying off debt, he would want you to keep your emergency fund in tact Vs paying off the debt however it should be a priority to pay off debt.

3.) how to pay off debt he says to budget your monthly expenses including some fun money but any remainder should go to debt. You will pay the minimum on all credit cards and cars and take the lowest debt and add anything extra you can to it. When it is paid off, use all of the minimum+extra you used for that debt and apply it to your next lowest. Pay that off, then take all of that and apply it to the next highest, so on and so forth until you have snowballed your debt gone.


Sent from my iPhone using Tapatalk

drywhitetoast 12-30-2019 08:21 AM

Dave's getting out of debt program is awesome. His investing advice is terrible.

iceman21 12-30-2019 08:42 AM

Www.choosefi.com

I love Dave's method but once you are in control of your money, as the previous poster stated, you are not getting the best bang for your buck using Dave's investment advice.

JayBee 12-30-2019 08:51 AM

"In terms of paying off debt, he would want you to keep your emergency fund in tact Vs paying off the debt however it should be a priority to pay off debt."

That was my biggest hang up, didn't make sense to abandon the emergency fund to payoff what amounts to a pittance of interest money. I agree in a 'perfect world' I would pay cash for a car and plan to in future purchases. I accept that the car loan sets me back to a degree and that's the price I pay for convenience of a new car now versus later.

"His investing advice is terrible."

Interesting.

"choosefi"

thanks for the link

loganeich 12-30-2019 11:32 AM

I paid my house off around 5 years ago, and incredible how much freedom you have to save with no payments. My retirement and daughters college fund are growing very quickly.

Pay your car off as soon as possible, but keep existing emergency fund. Maintain the same lifestyle and roll the savings from your car payment into your mortgage payment as extra. Letís say your car payment was $400, then that would be an extra $4,800 a year in principal reduction on your mortgage. You can look at an amortization schedule to see how far this shortens youíre mortgage just by doing one year. The reason he says to pay smallest debt first is to snowball those payments towards the larger debt. ďDebt snowball.Ē

Iím not a great source for flying knowledge, but know a good bit about money, taxes, and business. I regret at 42 is that I was not more aggressive in my 20ís. A little more effort back then compounded over 20 years would have been great.

aviatormjc 12-30-2019 02:31 PM

Quote:

Originally Posted by drywhitetoast (Post 2947625)
Dave's getting out of debt program is awesome. His investing advice is terrible.



Can you explain your reasoning?


Sent from my iPhone using Tapatalk

SonicFlyer 12-30-2019 04:12 PM

Quote:

Originally Posted by aviatormjc (Post 2947897)
Can you explain your reasoning?

Because it is a one-size-fits-all square peg in round hole very generic and overly simplistic advice. Also past performance has nothing to do with how an investment instrument will perform in the future, Dave doesn't understand this (or bother to explain it to his listeners).

In short, he is on the right track, but he leaves out a lot of detail which will cause people to not see the returns they should be seeing for the same amount of risk.

Telling people "broad based mutual fund" is silly.

How about this:

no load, not actively managed funds in US large, value, large value, small, small value, int'l large, int'l small stocks, and of course some in bonds and cash. Dave's advice isn't diverse enough.

Also, a bit riskier, is to do real estate / rental properties with loans if you're smart about it the risk is still pretty minimal. You have to be in a financial position to do this but it is possible. Rental debt secured with real estate is pretty low risk, but again, it assumes you know what you're doing and are careful.

SonicFlyer 12-30-2019 04:13 PM

Quote:

Originally Posted by JayBee (Post 2947593)
That begs the question though - what can I do with that money to earn back on the short term? something that I can access the money if need be? rather then just sit in my bank at 2%

There are some good low risk options for just that out there:

https://youtu.be/UwWeHSuU4WA

aviatormjc 12-30-2019 04:47 PM

Quote:

Originally Posted by SonicFlyer (Post 2947979)
There are some good low risk options for just that out there:



https://youtu.be/UwWeHSuU4WA


Graham Stephan is a cocky 29 year old that has no business giving financial advice. I followed him for a few weeks and his videos are clickbait packed with no real substance. I disliked and unsubbed from his channel. Just like his merch that says ďdislike. unsub.Ē

Iíve followed Dave Ramsey for 8+ yrs and have gone from step 1 to 7 in those 8 yrs. Iíve just completed Step 6 end of OCT and I fully standby Dave Ramsey and his teachings.

Dave Ramsey does not teach broad stroke mutual funds. He suggests mutual funds that are Growth, Growth & Income and Aggressive Growth which are also classified as Large Cap, Mid Cap and Small cap. And then one International mutual fund. So thatís 4 funds, 25% each.

He does suggest no load mutual funds if your are saving up to buy real estate with cash. So once you hit $100-$150K you pay less in fees when you pull that money out to buy the real estate.

He does not suggest REITs. He believes in owning real estate you can physically put your hands on.

Dave Ramsey loves real estate. He suggest that every time you save up $100-$150K, you go buy some property.

He believes the quickest path to wealth is by not having debt.

The advice he gives is the same advice he follows. He has a net worth close to 60 million and zero debt.




Sent from my iPhone using Tapatalk

wannabee 12-30-2019 04:58 PM

The thing you have to understand about Dave Ramsey is that his target audience is people who have a really hard time managing money and have either:
A) Spent too much on college and now have too much debt, or
B) Spent too much on junk and now have too much debt.

Itís a one size fits all approach to getting and staying out of debt, and it actually works really well. We used it to pay off all our student loans in just a couple of years. The debt snowball method is not necessarily the most logical sequence of paying down loans, since you start with the smallest loan rather than the one with the highest interest rate. Itís meant to give you a psychological edge and keep you motivated to stick with it. Itís also designed to get rid of your bad debt first and your ďgoodĒ debt last.

But yeah, his investing advice isnít great. Find yourself a good financial planner for that.

captive apple 12-30-2019 05:08 PM

Have cash, no debt, invest?
That is common sense.

SonicFlyer 12-30-2019 10:32 PM

Quote:

Originally Posted by aviatormjc (Post 2948006)
Graham Stephan is a cocky 29 year old that has no business giving financial advice.


https://yourlogicalfallacyis.com/ad-hominem



Quote:

Originally Posted by aviatormjc (Post 2948006)
Dave Ramsey does not teach broad stroke mutual funds. He suggests mutual funds that are Growth, Growth & Income and Aggressive Growth which are also classified as Large Cap, Mid Cap and Small cap. And then one International mutual fund. So thatís 4 funds, 25% each.

Then he has expanded his investing advice since I last heard him. But yes, still, there is more to it than just what he describes. How much churn, which sectors, rebalancing, actively managed or not, etc are all factors hat are equally as important.

rickair7777 12-31-2019 10:13 AM

Quote:

Originally Posted by loganeich (Post 2947774)
I paid my house off around 5 years ago, and incredible how much freedom you have to save with no payments. My retirement and daughters college fund are growing very quickly.

Pay your car off as soon as possible, but keep existing emergency fund. Maintain the same lifestyle and roll the savings from your car payment into your mortgage payment as extra. Let’s say your car payment was $400, then that would be an extra $4,800 a year in principal reduction on your mortgage. You can look at an amortization schedule to see how far this shortens you’re mortgage just by doing one year. The reason he says to pay smallest debt first is to snowball those payments towards the larger debt. “Debt snowball.”

I’m not a great source for flying knowledge, but know a good bit about money, taxes, and business. I regret at 42 is that I was not more aggressive in my 20’s. A little more effort back then compounded over 20 years would have been great.

Some commentary on aggressive debt reduction and aggressive retirement savings....

I'm all for that, conservative by nature, and practiced what I preach from a young age (with a few strategic exceptions, career change and dream home).

However...

If something very bad happens in the future, either to you personally or the economy/society generally, your hard earned sacrifices and savings may end up worth far less than you imagined, or even nothing at all.

If push comes to shove you can't eat or wear money in a digital bank account, and investment instruments are only as valuable as other people think they are at the time when you need to cash them in. You can still live in your paid-off house, but you darn well better still have a job so the government can keep getting their property taxes.

Point being don't forget to enjoy life a little along the way. Because there are many folks who are enjoying life TODAY on the fruits of your labor. They are promising to pay you back someday, but that's only going to happen if all of the stars line up right :rolleyes:

The wealthiest members of our society, the ones living very high on the hog, are all mortgaged to the hilt. There's a reason for that... they like other people supporting their lifestyle. If it all comes crashing down, they don't want to be the ones left holding the bag.

That's just some philosphy, not "financial advice".



With that said, pilots (more so than white collar) can be subject to catastrophic long-term (permanent) loss of livelihood. So you need to have a Plan B for that contingency. Whatever Plan B is acceptable to you, but you should have one.

That might involve having everything paid off and living modestly so you can keep your lifestyle on LTD, or it could involve a planned downshift of lifestyle. But you want to plan so you're not having to liquidate all of your assets in a fire sale while also dealing with medical issues.

sailingfun 12-31-2019 04:42 PM

So Daveís advice is to payoff debt and save money. How much do people pay Dave for those bits of financial wisdom?

TiredSoul 12-31-2019 05:52 PM

Quote:

Originally Posted by sailingfun (Post 2948695)
So Daveís advice is to payoff debt and save money. How much do people pay Dave for those bits of financial wisdom?

Zero, nothing....itís free.
Syndicated radio show and free apps and YouTube podcasts.
Been listening to him for 3 years now and heís awesome.
We have no car payments, no cc payments and on accelerated mortgage payments that will have our house paid off in another 6 years for a total of 17 years out of a 30-year mortgage.
Weíre doing 90% DR as weíre building an emergency fund which is equal to 6 months total income not 6 months of expenses.
So push come to shove and we button down the hatches we should be able to go a year if weíre both laid off.
Basically every year I get a pay raise the extra money is made to disappear and we just maintain our budget and lifestyle.
Same come upgrade time.
All the extra money will go to mortgage then savings and investments.

Amphibian 01-01-2020 08:55 AM

We follow Ramsey methods and practices at our house as well. They work.
As an older and more experienced aviation mentor recently told me "we should currently enjoy our blessings because things can change very rapidly in our profession".

Name User 01-01-2020 07:50 PM

Quote:

Originally Posted by JayBee (Post 2947593)
Any of ya'll follow Dave Ramsey? A friend of mine turned me on to him. Seems pretty legit but I do have a question about his process.

For those unfamiliar he has this deal called 7 baby steps -

1 - Save $1000 emergency fund
2 - Pay off all debt except house
3 - Save 3-6 months of expenses in an emergency fund
4 - Invest 15% of income in retirement
5 - Save for children's college fund
6 - Pay off home early
7 - Build Wealth


So basically on my own I was already doing some of this so my question has to do with procedure. I have steps 1,3 & 4 done. Step 5 does not apply. My only debt other than the house is a car loan. I have enough money to pay off the car, however before coming across Dave's advice I was going to put that money towards my mortgage. I'm not the most mathematically minded guy but I assumed I would save a ton in amortization over the long term.

If I was to follow Dave's advice I would pay the car off and then work toward paying off the mortgage. It makes sense but as previously stated wouldn't the money go a longer way over the long term if I threw it at the mortgage? What about putting into retirement savings?

Also, paying the car off would take my 6 month emergency fund down to 1-2 months... I know I can build it back up at a faster rate but... its kind of relaxing to know that I have 6 months of bills in the bank. That begs the question though - what can I do with that money to earn back on the short term? something that I can access the money if need be? rather then just sit in my bank at 2%

Thanks

If you are serious about cleaning up your finances you first need to see where you are spending your money. Check out a financial aggregator like Personal Capital (my favorite) as it will boil down where your spending goes each month/year.

What is interesting about this approach is it allows you to focus on where your money is going. If you want to become financially free you must do two things a) reduce overhead expenses and b) buy things that make you money, not cost you money.

The argument that a car is bad debt is superfluous. I would argue it can be good debt (if reasonable and reliable) AND bad debt (if you bought a luxury car). Same goes for a house. You have to live somewhere, but at some point a house really becomes a liability as it costs money to maintain, heat/cool, and pay taxes on. So clearly something larger and more expensive than needed (not wanted; two very different things) becomes a liability.

I have no idea what your background/working history/age is. But at the money we are making now as professional pilots, there is ZERO REASON to be struggling. And a 15% savings rate is absolutely horrendous.

In 2019 our net worth increased $600k (we are in our 30's). If I had decided to pay off mortgage debt instead of investing the money instead, it would've been a LOT less.

As an example, $250k would've returned $75k in the market last year. At 3% interest you would've "saved" under $10k in interest paying that down. You would've lost over $65k paying off your mortgage...in a single year...

Low interest debt is not a big deal as long as you are accumulating assets. It's leveraging up and buying the big house, $40k-$50k car, etc while having nothing to your name that gets people in trouble.

Things will turn for this profession. If it's not the economy it will be single pilot or autonomous vehicles. The getting is good right now. Stuff cash hand over fist into investments (SP500 fund 100% is my recommendation, nothing else needed beyond rentals if you want to expand your base after hitting a mil or so) and keep expenses low. Make hay while the sun is shining.

SonicFlyer 01-02-2020 12:05 PM

Quote:

Originally Posted by Name User (Post 2949381)
The argument that a car is bad debt is superfluous. I would argue it can be good debt (if reasonable and reliable) AND bad debt (if you bought a luxury car).

Ehhhh debt on things that depreciate is never a good thing. I understand sometimes it is necessary but should be avoided if possible.

Quote:

Originally Posted by Name User (Post 2949381)
In 2019 our net worth increased $600k (we are in our 30's). If I had decided to pay off mortgage debt instead of investing the money instead, it would've been a LOT less.

As an example, $250k would've returned $75k in the market last year. At 3% interest you would've "saved" under $10k in interest paying that down. You would've lost over $65k paying off your mortgage...in a single year...

Low interest debt is not a big deal as long as you are accumulating assets. It's leveraging up and buying the big house, $40k-$50k car, etc while having nothing to your name that gets people in trouble.

Very good point, but you forget to factor in risk. If for whatever reason you go bankrupt, in many states they can't take your primary residence. Having a house that is paid off increases your financial security.

JayBee 01-02-2020 12:13 PM

Quote:

Originally Posted by Name User (Post 2949381)
If you are serious about cleaning up your finances you first need to see where you are spending your money. Check out a financial aggregator like Personal Capital (my favorite) as it will boil down where your spending goes each month/year.

What is interesting about this approach is it allows you to focus on where your money is going. If you want to become financially free you must do two things a) reduce overhead expenses and b) buy things that make you money, not cost you money.

The argument that a car is bad debt is superfluous. I would argue it can be good debt (if reasonable and reliable) AND bad debt (if you bought a luxury car). Same goes for a house. You have to live somewhere, but at some point a house really becomes a liability as it costs money to maintain, heat/cool, and pay taxes on. So clearly something larger and more expensive than needed (not wanted; two very different things) becomes a liability.

I have no idea what your background/working history/age is. But at the money we are making now as professional pilots, there is ZERO REASON to be struggling. And a 15% savings rate is absolutely horrendous.

In 2019 our net worth increased $600k (we are in our 30's). If I had decided to pay off mortgage debt instead of investing the money instead, it would've been a LOT less.

As an example, $250k would've returned $75k in the market last year. At 3% interest you would've "saved" under $10k in interest paying that down. You would've lost over $65k paying off your mortgage...in a single year...

Low interest debt is not a big deal as long as you are accumulating assets. It's leveraging up and buying the big house, $40k-$50k car, etc while having nothing to your name that gets people in trouble.

Things will turn for this profession. If it's not the economy it will be single pilot or autonomous vehicles. The getting is good right now. Stuff cash hand over fist into investments (SP500 fund 100% is my recommendation, nothing else needed beyond rentals if you want to expand your base after hitting a mil or so) and keep expenses low. Make hay while the sun is shining.

I think you hit the nail on the head with what I was thinking. I want to get while the getting is good but I also don't really want to tap into that 6 months of emergency fund savings. So its aggressively pay off car loan and then mortgage or put some more money into investments.

I'm 45 - first career mechanic, second career short stint with Air Force, rolled into the Reserves and concurrently got my helicopter license, started at the airlines 2017 and still doing MIL stuff in Reserves. So looking at civilian 401k at Regional airline, 401k at Military and future pension from Military. All my previous retirement savings I cashed in to get my Helicopter license. Freshly divorced concurrently with the Regional Airline in 2017 so started all over from scratch. Bought a modest house and modest car in 2018. So I'm easily in the black even with car and house payment.

JayBee 01-02-2020 12:13 PM

Quote:

Originally Posted by SonicFlyer (Post 2949745)
Ehhhh debt on things that depreciate is never a good thing. I understand sometimes it is necessary but should be avoided if possible.

Very good point, but you forget to factor in risk. If for whatever reason you go bankrupt, in many states they can't take your primary residence. Having a house that is paid off increases your financial security.

Guess we were typing at same time, good points.

Name User 01-02-2020 12:19 PM

Quote:

Originally Posted by SonicFlyer (Post 2949745)
Ehhhh debt on things that depreciate is never a good thing. I understand sometimes it is necessary but should be avoided if possible.

Very good point, but you forget to factor in risk. If for whatever reason you go bankrupt, in many states they can't take your primary residence. Having a house that is paid off increases your financial security.

It's irrelevant whether you use cash or debt to fund the purchase.

What matters is how much of either you use. Paying in full for a $50k car is way worse than $5k, as the $50k car will cost you more in one year in depreciation what the $5k cost you total, and the little amount of interest you'd pay pales in comparison.

Plus, at the rates/interest you pay for car loans these days, you'd would've made 10x that had you had it invested in one year alone.

Fourpaw 01-02-2020 02:23 PM

Letís say the 6 months of Emergency money is in a low yield money market account. Could it be acceptable to invest a percentage of this money in mutual funds? IE 10-25%?

FNGFO 01-02-2020 02:38 PM

Quote:

Originally Posted by Fourpaw (Post 2949857)
Letís say the 6 months of Emergency money is in a low yield money market account. Could it be acceptable to invest a percentage of this money in mutual funds? IE 10-25%?

Not per Dave. This money is essentially insurance. Itís not there to make money.

TiredSoul 01-02-2020 03:43 PM

We paid cash for our cars.
My wife drives a $2500 car that had 109k on it when we bought it and I drive her old beater with 225k as all I need is a roof over my head around town anyway. I do the brakes myself and $19.98 Walmart oil changes as you canít do it yourself for that kind of money.
Something that DR does is change your way of thinking and how you spend.
Couldnít tell you how many times Iíve now passed a Starbucks and go...nah...not going to spend $6 on a coffee.
Tonight I bought a 12- pack for $11.99 on sale instead of the $14.99 next to it.
Still drink beer itís just a $3 difference.
All this nickel and dime-ing adds up at the end of the month.
Bought ammo at 30% off at a store going out of business.
Bought a metal toolbox at a thriftstore for $8 instead of $18 at Harbor Freight or $27 somewhere else.
Had seafood stew for dinner with....shark...at $5.59/lb
Last but not least, spousal unit approved a new gun purchase from money I saved from my Per Diem allowance. There...company pays for my new gun.
Ramsey approves.
The ďemergency fundĒ is exactly what it says it is. House on fire, water heater exploded, car wrecked, family members terminally ill, or both of us furloughed or laid off as we both work in aviation.
Because of the volatility of our industry weíve decided to go for 50% of our yearly income in a savings account instead of the 3-6 months of ďexpensesĒ.
Weíre also doing the steps slightly out of order as weíve already started paying off extra on our house.
Next pay raise in March ( add year seniority) Iím going to 10% on 401k.
It works for us and thatís really all that matters.

MikeBates 05-05-2020 09:11 AM

Im very grateful that I am living the Dave Ramsey principles these days (covid-19). While my pilot brothers and sisters worry about money, I know that I have enough in my emergency fund to stay afloat for six months.

i have no debt except the mortgage and that is a real blessing right now!!

Please give his program a look. He is offering financial peace university online for FREE right now. You can get all the content for two weeks. Plenty of time to complete the course.

https://www.daveramsey.com/

bababouey 05-05-2020 10:33 AM

His cash envelope budgeting method is also extremely effective. And just a friendly airline pilot reminder that a divorce will crush most money saving plans, good luck fellas.


Sent from my iPad using Tapatalk

Silver02ex 05-15-2020 12:21 AM

I use his plan to get out of debt, build the 6 months of EF and 15% into my 401k along with our kids 529, and a 15 year mortgage. The issues I have is his plan is not a 1 size fits all approach. A couple years ago I purchase a new car that I intended to pay cash. The dealer offered 7K off MSRP if I finance with the manufacturer. I did that and paid it off once I got the first statement. Dave would not approve of it, and if I followed his plan, I would have to pay cash even if it cost more. I also use a Cash back credit card, that I get $1,500 a year in cash back and never paid any interest. We also track our spending every day and do a budget. I guess you can say we are Dave-ish.

TiredSoul 05-15-2020 09:51 AM

Quote:

Originally Posted by Silver02ex (Post 3056310)
I use his plan to get out of debt, build the 6 months of EF and 15% into my 401k along with our kids 529, and a 15 year mortgage. The issues I have is his plan is not a 1 size fits all approach. A couple years ago I purchase a new car that I intended to pay cash. The dealer offered 7K off MSRP if I finance with the manufacturer. I did that and paid it off once I got the first statement.

Dave would agree, you essentially paid cash.
Itís the spirit of the law not the letter of the law.
You achieved the same thing.

AirBear 05-15-2020 09:13 PM

I watch some of Dave's videos and occasionally the live show. Some good advice. I bought a new car last summer, got a good discount on the 2019 closeout's. After agreeing on the drive away price the salesman handed the wife and I a financing application. I pulled out the checkbook and said we didn't need to finance. Should have seen the look on his face, then he had to make a quick trip to see the sales manager. I got the feeling had they known we were paying cash we wouldn't have gotten as good a price.

I also use a rewards credit card, it pays 2% to be used on travel related expenses. Put everything on it and pay it in full each month. Between that and my hotel points I have left over from NetJets we almost never pay for a hotel room.

742Dash 05-17-2020 09:34 AM

Quote:

Originally Posted by AirBear (Post 3057120)
I pulled out the checkbook and said we didn't need to finance. Should have seen the look on his face, then he had to make a quick trip to see the sales manager. I got the feeling had they known we were paying cash we wouldn't have gotten as good a price..

There was a WSJ piece a few months ago about this. The bottom line is that the dealerships make more money on the financing than on the actual sale, which is often only a few hundred dollars. And they don't just make it on their internal financing, apparently kickbacks from local banks and credit unions are common.

I have worked with a local VW dealership for years. Small, no advertising, relies on repeat customers. Anyway, the GM told me upfront that he could take another $500 off if we financed it. So we did, and paid it off 2 months later.

It is even worse if you try to shop the higher end cars. BMW/Auid/Volvo do not seem to want cash customers at all. Cash buyers do not support the lease/CPO system where they sell the same car twice, get the financing incentives and have the buyers tied to the dealership.

AirBear 05-17-2020 06:00 PM

Dealers do often make more on financing than on the new car. They give so much business to their bank that they get good incentives, plus they can often beat your own bank on interest rates. In my case I froze my credit with all 3 bureaus back in 2016 when my ID was stolen and it's still frozen. So it's a hassle to unfreeze, although Transunion and Experian are pretty easy but Equifax is totally incompetent. Depends on which bureau they use. If there had been a nice $$$ incentive if you financed it might have been worth it as long as no early payment penalties. You also have to look at how much interest you might pay in that 1st month. Could offset any $$$ incentive.

BTW, it's pretty easy to freeze your credit and in many states they can't charge you for doing it.

Quote:

Originally Posted by 742Dash (Post 3058107)
There was a WSJ piece a few months ago about this. The bottom line is that the dealerships make more money on the financing than on the actual sale, which is often only a few hundred dollars. And they don't just make it on their internal financing, apparently kickbacks from local banks and credit unions are common.

I have worked with a local VW dealership for years. Small, no advertising, relies on repeat customers. Anyway, the GM told me upfront that he could take another $500 off if we financed it. So we did, and paid it off 2 months later.

It is even worse if you try to shop the higher end cars. BMW/Auid/Volvo do not seem to want cash customers at all. Cash buyers do not support the lease/CPO system where they sell the same car twice, get the financing incentives and have the buyers tied to the dealership.


SonicFlyer 05-17-2020 10:46 PM

Quote:

Originally Posted by 742Dash (Post 3058107)
It is even worse if you try to shop the higher end cars. BMW/Auid/Volvo do not seem to want cash customers at all. Cash buyers do not support the lease/CPO system where they sell the same car twice, get the financing incentives and have the buyers tied to the dealership.

Yeah. They have nearly designed these things to be unworkable when stuff breaks. You certainly can't work on it yourself, most independent mechanics can't either because the proprietary nature of things now. Which means your only option is to take it to the dealership.... which means that in many circumstances the cost of the repair is beyond a realistic option.

Ask yourself this.... why don't you see any older BMWs and Benz' on the road any more? It used to be that those things would last forever. hmmmmm

jumppilot 05-18-2020 06:26 AM

Quote:

Originally Posted by AirBear (Post 3058416)
. So it's a hassle to unfreeze, although Transunion and Experian are pretty easy but Equifax is totally incompetent.

Funny, that was my experience as well.

CFI Guy 05-19-2020 10:22 AM

Quote:

Originally Posted by 742Dash (Post 3058107)
There was a WSJ piece a few months ago about this. The bottom line is that the dealerships make more money on the financing than on the actual sale, which is often only a few hundred dollars. And they don't just make it on their internal financing, apparently kickbacks from local banks and credit unions are common.

I have worked with a local VW dealership for years. Small, no advertising, relies on repeat customers. Anyway, the GM told me upfront that he could take another $500 off if we financed it. So we did, and paid it off 2 months later.

It is even worse if you try to shop the higher end cars. BMW/Auid/Volvo do not seem to want cash customers at all. Cash buyers do not support the lease/CPO system where they sell the same car twice, get the financing incentives and have the buyers tied to the dealership.

I spent years in the car business when I was young including working for a subprime auto lender. I had the chance to wear all the hats and know the business intimately. I got out right after 9/11 when interest rates went to zero and the used car market folded. The wife got a new Toyota last December. It was amusing to chat with the sales and finance manager while nodding my head to their BS. Things have changed but a lot of the tactics are the same.

The dealers don't make a whole lot of money on the financing anymore because the laws have changed. If it's an incentivized rate they might make a couple hundred bucks in commissions from the bank (Toyota Motor Credit). We were going to pay cash for my wife's car but I found an extra grand rebate if we financed at a "non incentivized" rate. The rate they gave me was terrible compared to the incentivized rate but I didn't plan on keeping the loan very long anyway. The finance manager told me I had to "make 3 payments" or they would take the rebate back (complete BS). The reason he said that was the lender would recapture their commission if I paid it off too soon. I called Toyota motor credit a few days later and paid the car off in 6 days which cost me $36 in interest.

The reason why dealers prefer leases (aside from repeat customers) is because there are frankly more ways to screw the buyer. Paying cash is cut and dry and easy to shop against other dealers. Lease buyers are generally payment sensitive and there are more ways to hide profit in money factor mark ups and other "fees" which may or may not be legit. The more variables you introduce (financing, lease, trade in, etc) the more ways I could make your head spin before you come "out of the ether".

I don't even know how small mom and pop dealers survive anymore. Most dealers are now large corporations (Auto Nation, etc). They actually lose money on each car, pay their salesman nothing and make it up with factory-to-dealer incentives based on sales volume.

SonicFlyer 05-19-2020 10:32 AM

Personally I buy my cars from CarMax. No BS, just choose what I want from the website, walk in, sign the papers, and pick it up. Of course I may be paying slightly more for a used car, but I know it isn't a turd and I don't have to haggle.

rickair7777 05-20-2020 12:04 PM

Quote:

Originally Posted by SonicFlyer (Post 3059748)
Personally I buy my cars from CarMax. No BS, just choose what I want from the website, walk in, sign the papers, and pick it up. Of course I may be paying slightly more for a used car, but I know it isn't a turd and I don't have to haggle.

Did that once, worked fine. Might do it again. I rarely buy new anyway, like to do my own MX and that can be an issue with warranties. A detail shop can remove the sticker.

AirBear 05-20-2020 04:51 PM

Quote:

Originally Posted by rickair7777 (Post 3060521)
Did that once, worked fine. Might do it again. I rarely buy new anyway, like to do my own MX and that can be an issue with warranties. A detail shop can remove the sticker.

You'll pay full retail at Carmax but it is a lot easier. Years ago my wife's friend totaled her Saturn. Carmax wanted $9200 for the same year/model. I did some shopping around, found the same car for $6000. Also, some places have part time dealers who'll buy a car at auction for you and mark it up $500 or so. That was 15-20 years ago thou, a medically retired USAir Captain ran an auto repair shop near CLT and knew the guy who would buy at auction.

I've got my wife's hand-me-down 2014 SUV, it only has 43K miles and now that I'm out on medical I barely put 100-200 miles a month on it. Before the lockdown she traveled around a fair amount with her hobby but since she has other medical conditions that put her at high risk if she gets the virus she's pretty much been home for 2 months. She got a new SUV last summer and it's just sitting in the garage.

rickair7777 05-21-2020 09:22 AM

Quote:

Originally Posted by AirBear (Post 3060727)
You'll pay full retail at Carmax but it is a lot easier. Years ago my wife's friend totaled her Saturn. Carmax wanted $9200 for the same year/model. I did some shopping around, found the same car for $6000. Also, some places have part time dealers who'll buy a car at auction for you and mark it up $500 or so. That was 15-20 years ago thou, a medically retired USAir Captain ran an auto repair shop near CLT and knew the guy who would buy at auction.

I've got my wife's hand-me-down 2014 SUV, it only has 43K miles and now that I'm out on medical I barely put 100-200 miles a month on it. Before the lockdown she traveled around a fair amount with her hobby but since she has other medical conditions that put her at high risk if she gets the virus she's pretty much been home for 2 months. She got a new SUV last summer and it's just sitting in the garage.

CARMAX is not the cheapest used car available, but if you're not certain what you want it's nice to be able to shop a lot... especially if you're my wife, no way could I pick out a car sight-unseen for her. Cheaper than new, and some assurance of reliability.

CFI Guy 05-22-2020 09:46 AM

Quote:

Originally Posted by rickair7777 (Post 3061164)
CARMAX is not the cheapest used car available, but if you're not certain what you want it's nice to be able to shop a lot... especially if you're my wife, no way could I pick out a car sight-unseen for her. Cheaper than new, and some assurance of reliability.

Carmax usually prices their cars on the very high end (thousands more) than what I see elsewhere. I'm not really sure what you get for that over any other dealer.

Assurance of reliability is questionable especially if you don't know the car's history. I used to buy hundreds of cars a month from the auctions along with a trade-ins. There are lots of tricks to hide (temporarily) slipping transmissions, bad seals, etc. People knowingly would mask issues right before getting rid of their car. Also, people who get their cars repo'd generally aren't doing the best preventative maintenance. Flood cars can be re titled from out-of-state. Frame damage can be hidden. Don't trust that Car fax report. I've seen it all.

If you are buying a "beater" to drive around for a couple grand then none of this really matters. If you can buy an off lease car still under warranty that is usually your best bet. I don't blow my money on expensive cars anymore. But if I did, I'd only lease a new Mercedes/Audi/BMW, etc. The repairs on those cars (out of warranty) will kill you.

I don't buy new cars very often so I like to buy new and keep them forever. The resale on Toyota/Honda is so high that you really aren't saving that much money buying used (IMHO) if you spread out the depreciation over 10+ years (Domestic cars are a different story). Plus, when I'm on day one on the other side of the world, I don't want to get a call from the wife about the broken down car because I was too cheap to buy a new one (and I'm not around to fix it or deal with the mechanics).

I'm sure people will say they bought tons of used cars and never had issues. I bought a five year old car from my mother-in-law that is now 15 years old and still running.


All times are GMT -8. The time now is 02:00 PM.


User Alert System provided by Advanced User Tagging v3.3.0 (Lite) - vBulletin Mods & Addons Copyright © 2021 DragonByte Technologies Ltd.
Website Copyright ©2000 - 2017 MH Sub I, LLC dba Internet Brands