As anyone who believes in “Findependence” well knows, it’s best to torpedo debt as early in life as possible. This starts with student loans and high-interest credit-card debt and proceeds to home mortgages. As the book says more than once, “The foundation of financial independence is a paid-for home.”
This also applies to financing automobiles. I only ever bought a brand-new car once and that was a Dodge Shadow in 1989, purchased for around $10,000 or $12,000. If it was financed it wasn’t for long. Since then, it’s been slightly used cars bought with cash, including my current car, a late-model hybrid Camry that had only 12,000 clicks on it when I liquidated some tech stocks in the spring.
So I can’t speak with authority about the high cost of financing cars. But for those that want to go that route, read a piece in the Financial Post this weekend: The Great Car Bubble. In it, the Post’s resident cheapskate Garry Marr (@dustywallet on Twitter) and Barbara Schecter investigate the explosion in car loans and describe how car loans can soon end up ballooning into debt that exceeds the car’s value. The temptation is for consumers to be enticed by low interest rates and then compound the error by stretching out loan timelines. For example, it cites a case of paying out a total of $55,000 on a car that would cost just $35,000 if purchased for cash outright.
I don’t know about you but I could think of better uses for the $20,000.
While perusing the Post, hop on over to this Personal Finance piece by Melissa Leong about couples going halves to get a foot on the housing ladder. This is called “co-ownership.” You can also see Melissa Leong on video over at the Video Hub at sister site Findependence.TV.