It is freeing – literally – to not have to come up with the average (with good credit!) $734 monthly new car payment (as of 2024).
But it’s not just that.
They – the lenders and those who rely on your willingness to buy this much debt – don’t want you to think about what else comes along for that ride, in addition to that monthly payment.
The insurance payment, for instance.
If you’re financing – that is, if you are borrowing – you also be paying for full-coverage policy that is based on the full replacement cost of the vehicle.
This is entirely reasonable – and justifiable – from the standpoint of the lender, who is in fact the actual owner of the vehicle you’re making payments on every month. (If you doubt who the actual owner is, irrespective of the name on the title, see what happens when you stop making those payments on what isn’t your vehicle until after you’ve paid off what you owe on it.)
If you wreck their vehicle, the lender would be left holding the bag. Hence the requirement – a condition of the loan and your conditional possession of what is not your vehicle in fact – irrespective of the etymological fiction – that you pay for a policy that will pay out whatever it takes to either repair the vehicle or replace it.
How much does that cost?
How about roughly $2,500 per year – on average? That’s – roughly – another $200 per month you’ll be paying, rounding out to just shy of $1,000 per month.
That used to be roughly enough to just about cover a mortgage on a modest single family home. It is still enough to cover about half the cost of a monthly mortgage payment on a modest single family home. Which explains why so many people cannot afford to make the monthly mortgage payment on a modest single family home anymore. How many can afford to pay roughly $2,000 a month for the mortgage and $1,000 (roughly) more for a new car payment plus the cost of insuring it?
That’s $36,000 per year – or roughly about half the average household income in this country. It doesn’t leave much for groceries – or gas – does it?
If you do own your vehicle, not only aren’t you making monthly payments, you can choose to pay less for insurance as well. Because you can choose to buy minimum, liability-only coverage. Regardless, you’ll pay much less to insure an older vehicle with a lower replacement cost than a new vehicle. So, zero monthly car payments – and perhaps only $500 annually in insurance payments.
Some states also have what are styled “personal property taxes” on vehicles that are – like insurance – are based on the value of the vehicle. The newer it is, the more expensive the tax is. This tax can add another couple hundred per month to the cost of owning – that is, making payments on – a new vehicle you don’t actually own yet.
But even if you are fortunate enough to not live in a state that taxes you each year just for owning a vehicle (so as to render ownership a farce, since even after you pay off the loan you must still pay the government for as long as you don’t actually own the car in order to be allowed to retain use/possession of it) the cost of those other payments is still so high very few can afford it.
Even if they can make the payments. Wait. Allow me to explain that one.
The opportunity cost of making all those payments – for years, in most cases – is extravagantly high. What else might you have done – what else might you not have had to do – if you didn’t have to come up with roughly $1,000 bucks each month to pay for the car you don’t actually own yet?
During the mass-panic event still referred to by pretty much everyone as “the pandemic,” those in debt – who lived with the knowledge that another payment was coming due at the beginning of the next month – were in a tough position when told by their employer that they’d have to wear a “mask” if they wanted to come to work. And if they refused? No more job! Then no more car, either. And very possibly, no more roof (or food) either.
But when you don’t owe anyone any money, you don’t need as much money and you aren’t owned. You can get by without that job because you have time to find another – and you’ll still be eating (and indoors) in the meanwhile.
You’ll also be able to take advantage of unexpected opportunities that come up because you’ll have the money to take advantage of them. If you haven’t had to pay $1,000 each month for even five months, say, you will have roughly $5,000 more in hand to pay for whatever you’d like. Maybe a nice vacation. Maybe a new water heater. The latter being one of those unexpected expenses that always seems to come up when you haven’t got the money to pay for it. They often lead to cascading debt because if you can’t pay cash for the new water heater – because you’ve got to pay that monthly payment – you’ll have to put the water heater on the card and then make monthly payments on that, too.
What often happens next is something else – and then that goes on the card, too. And before you know it, you’re owned by the credit card companies and you don’t even own the car you’re still making payments on.
. . .
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And I told you the Stargate was real!
https://www.dailymail.co.uk/sciencetech/article-14179243/cia-docs-reveal-life-mars-pyramids.html
Mele Kalikimaka!
I was cussing and swearing and bellyaching and enduring the misery of doing an unwanted task. You spend money to solve a problem. Has to be done. You save money by doing it yourself.
You do what you gotta do. After you have done that, the money is gone, don’t even know what it looks like.
Just a better world.
Government’s Shocking Proposal to Ban VINTAGE CARS in 2025!
https://www.youtube.com/watch?v=E-HfrIjWGkA
Clickbait
If you live in a state controlled by CARB you get what you deserve. No surprises there but certainly isn’t going to happen in 2025z
Yeah.. our household doesn’t do loans. Never did.
Merry Christmas friends!
Timely post Eric. Front page of the Wall Street Journal echoing the exact same sentiment today.
https://www.wsj.com/economy/housing/home-insurance-property-tax-vs-mortgage-cost-43ab76ed
They are just bleeding us dry on taxes & insurance on all fronts basically. 😕
I recently bought two new vehicles at two different dealerships. Both finance guys were nice enough, kinda got me figured out pretty fast, and cut the BS. Sign and get me out of here.
It might have helped that I waved a hundred dollar bill to cut the crap, and they did.
The interesting part to me was they both told me that a lot of people are now buying with 7,8,9 and even 10 yr loans!!!! They both told me that they advised the buyers that if you can’t buy a car with 48 months or less, you can’t afford it. Whether they actually did or not is questionable.
Good stuff, Chris –
It’s nice to know some car salesmen are ok!
My father was a Ford Credit lifer. The old rule of thumb was that the car was essentially valueless at 8 years and the max term of a loan shouldn’t be more than 84 months, 90 max, and those were only under extreme circumstances.
He’s probably doing cartwheels in his grave if they are really writing 10 year loans.
The typical EV will probably need a battery at 7-8 years, obligating the borrower to purchase the replacement regardless of cost or be held in default and sued by the party holding the car note.
For what it’s worth, I took out five year loans on my current car, and my previous car. The main reason was the lower interest rate, but I paid both off in three. I kept the previous car for 12 years, and am on year four with the current one.
Thought about adding my two cents to the blog but then saw a family walking down the road obviously homeless. All I could think was wow, what a country!
Merry Christmas….
A penny saved is a penny earned, said Ben Franklin.
Today, it’s a dollar instead of a penny.
All (((governments))) are lying liars telling lies, stealing your monies and calling them taxes.
Realizing that the US government has declared war upon it’s citizens explains logically why the seemingly insane actions of the last 40 years male sense.
It’s going to get a lot worse before it gets better, so please plan accordingly.
Bigly… YMMV!
And Merry Christmas!!!
Hi Saxon. When you consider all the taxes we have now compared to Ben’s time it now means a penny saved is 1 1/3 pennies earned (at best).
I have lived my life by this- pay cash, buy used, waste nothing. I repaired everything myself and about the only thing I won’t do is human surgery.
Unfortunately the ability to do this is going away quickly. Cars are grossly over complicated and no longer worth the effort to repair. Household appliances are so cheaply made as to be in the same category, and electronics went all solid state so long ago that radio repair shops and Radio Shack no longer exist. And housing and structures are under the heavy fist and greedy eye of the gooberment.
The bumbledicks have finished their hog pen and are trying to close the gates. If you don’t want your ass to be ham, you need to plan and act accordingly.
“Unfortunately the ability to do this is going away quickly. Cars are grossly over complicated and no longer worth the effort to repair. Household appliances are so cheaply made as to be in the same category, and electronics went all solid state so long ago that radio repair shops and Radio Shack no longer exist. And housing and structures are under the heavy fist and greedy eye of the gooberment.”
Ernie all those are personal choices.
Plenty of vintage / modern cars around that are easy to service
Household appliances- go shop Goodwill, buy a vintage toaster without microchips and heating elements that don’t get hot because . . . Well lawyers. I still use my $5 goodwill toaster bought in college. Working fine and it s about 40 years old. No joke.
With respect to electronics – there are still tube amplifier stereo amplifiers being produced in 2024 so there’s that. If you want an 80” OLED Teeeveee . . . Well I can’t help you there.
With respect to affordable housing – move to a locality that doesn’t have building codes and zoning. If you want to stay where you’re at . . . Again a personal choice.
‘No more job! Then no more car, either. And very possibly, no more roof (or food) either.’ — eric
That’s the position our idiot Uncle Schmuel finds hisself in:
$36T fedgov debt / $29.375T nominal GDP = 122% debt-to-GDP ratio
Whereas Rogoff & Reinhart found that debt/GDP levels over 90% are like kryptonite for an economy, slowing it down to a shuffling crawl.
The founders clearly understood that democracy self-destructs when people with no stake in the system can vote themselves unlimited bennies. That’s why voting was restricted to property owners, at a time when corporations were rare and had to be individually chartered by the legislature.
Now lobbies push for corporate welfare (e.g. a trillion-dollar ‘defense’ [sic] budget), just as teeming hordes of Democrats push for $30,000 per pupil school budgets and universal basic income.
Restoring gold-backed currency would help. It’s very difficult for a country to live beyond its means when it’s obliged to maintain gold backing. But it’s also very unlikely to happen. We’ve already degenerated too far with unfunded promises, creating a culture of entitlement, narcissism and parasitism. Sic transit gloria americana.
In 2010 my wife and I moved to West Sacramento, California from Lane, Oklahoma. Bought a house for $305,000 (sold new in 2005 for $530,000). Borrowed $270,000. We paid it off in two years seven months, saved $150,000 in interest that we would have paid over the life of the loan. But, but, the interest is tax deductible, say the idiots. Do the math, idiots. Sold the house in 2020 for $620,00, moved back to Oklahoma (Midwest City), purchased a new, high-end home in a gated subdivision for $300,000, $300,000 in the bank. Alas, my wife won’t let me buy a helicopter with the profit. Or a flamethrower.
Hi Antoine, just have the retailer list the flamethrower as a de-weeding device on the invoice and she should be none the wiser. 🙂
You won’t get much helo for 300k. But the flamethrower these days can be had for $300. That’s not even high on the toy budget, though I confess I haven’t taken that plunge yet.
“Alas, my wife won’t let me buy a helicopter with the profit.” Even if she did your HOA might not like you parking it in your driveway.
We humans are an odd bunch. Unlike other mammals, we’re able to anticipate the future and plan for it. But it takes discipline. Otherwise we’re no more than whitetail deer, just randomly acting on impulse and getting hit by cars.
“I never saw it coming!”
Well, that’s because you’re an idiot. Everyone else saw it, and you probably see it now in hindsight. If you had spent 5 minutes thinking about just why someone would hand you the keys to an $80,000 pickup with no more than a signature and a smile, that’s on you. There’s a price to be paid and it will be much worse than cash up front.
I’ve had car loans over the years. Every one of them was paid off early because I got tired of cutting that check every month. It caused me great pain. Same thing with my mortgage, I wanted rid of that thing as soon as signed the paperwork. Insurance and taxes I’m stuck with though. The price of “freedom,” I guess…
Most of us are familiar with the concept of a “black swan” event. This is something that can’t be anticipated and comes out of nowhere. It’s usually applied to macroeconomic discussions, but I imagine some people’s lives are one black swan event after another. Then they start to compound. First they get too far over their skis on credit card bills. Then the water heater starts leaking. Then the car busts a timing chain. Then the refrigerator quits. Pretty soon all that credit adds up, and they start getting insurance for stupid stuff like home maintenance. If they’d just think for 10 minutes about how old the water heater is, or what the maintenance schedule is for their over-engineered engine, they could plan for replacement and do a little shopping around. I’d rather replace a perfectly fine water heater on my schedule than roll the dice on one that’s past its prime and could go at any moment.
Lately, the plumbers want you to buy the Japanese tankless “on demand” water heaters so they’re spec-ing traditional tank units which last no more than 3-4 years at about a third of the price of the tankless which *can* last more than 10 but, of course, no guarantees.
And the installation cost just keeps going up, especially for gas units.
Hi Roscoe. The hot water tank that was in my house when I bought it only lasted 42 years before a stuck thermostat took it out . The next one only lasted around 24 years before it sprung a leak as well. I’m on a well with very hard water for what it’s worth. All the tanks were electric.
Three to four years is crazy Roscoe. Your water may be science project worthy. Installed thousands of water heaters over all my years in plumbing. Average lifespan was fifteen to twenty years. Its almost always the raw water supply will make it fail. Usually over eighty grains of hardness will do that. In which case you should have at least a basic water softener/filter on your inlet supply. That level of hard water is enough to cause all kinds of skin problems as well as ruining your faucets.
Tankless are BS imo. Although they are superior for RV and off grid installation, for a standard home, not so much. The only thing you really save in the end is some space.
I got the hard sell on tankless, but I held out for the traditional water heater. We’ll see how long it really lasts.
The previous traditional unit lasted less than 12 years.
Texas municipal water is increasingly hard as surface water sources have been inadequate for close to a decade and the systems quietly tap the deep aquifer to accommodate population growth. No word on the long term plan as the aquifer recharges much more slowly than the current rates of witdrawal.
I put one of those tankless in, only to gain some room in a very very small utility room.
I thought the same thing, about 5yrs, but it has gone 16 so far.
On-demand water heaters are designed for the designer bathrooms with the wife’s “long hot bath” tubs and multi-head showers. Not much use for them otherwise.
A modern tank water heater is really an efficient device, if it’s properly sized for your use. And if you follow a basic routine you can do things like run timers to save a few more bucks. When I lived in apartments the first thing I did was install a water heater timer and fiberglass blanket because I knew I wouldn’t be home all day so why keep the heat topped off? About dinner time I’d have it come on until 8:00, then kick on again about 4:00 AM. Never ran out of hot water but probably saved thousands over the years.
Demand water heaters need a lot of energy to heat up water as it passes through the core. Usually requires a large diameter gas line or 50A electric circuit.
Something to be said for thermal mass.
Hi Ready. In many ways it’s better to learn how to do it yourself rather than hiring someone to repair it for you. I know a mechanic who welded 3 patches on his oil fired hot water tank before he finally bought a new one. Heck I welded a patch on the hot water tank in my buddies RV and that repair outlasted the RV it was installed in.
In many cases the labor costs far exceeds the cost of the parts. What you save on the labor pays for the tools and the after job beer. Looked at YouTube and a guy commented they wanted $400 to replace his muffler and he ordered a direct fit replacement off Amazon for $50 plus the cost of a clamp. After a few small repairs you can save a lot of money.
In my case the former homeowner fancied himself a DYI guy. His plumbing skills were certainly interesting. So for both the new water heater and later the boiler I went with the pros even though it cost me about double. They undid all the bodge jobs and really cleaned it up nice. And they put a bunch of shutoff valves in (pretty much because of code, but still) so next time it will be a do it myself job.
Good stuff RK,
I replace the battery in my cars every 5-6 years to avoid being stuck somewhere on a freezing cold night. I have a similar schedule for the water heater as you mentioned but last year it got me by starting to leak a month before I had planned to replace it, damn thing must’ve been clairvoyant.
Maybe off topic but, I don’t know where it fits.
Eric, you mention the extortion of the Insurance Mafia and allude to it here. These parasitic organizations seem to be second only to Big Pharma in their teevee ad presence. I grant you all are annoying and would insult the intelligence of the average five year old. But, one campaign strikes me as particularly pernicious.
I’m referring to the ads by Progressive touting “we can’t prevent you from becoming your parents”. The horrific actions they deride include such things as light-hearted banter with strangers that shows human bonding in a simple way. Also, small acts of kindness and courtesy such as returning a shopping cart when you are done with it. Acting in a servant-like role toward guests in your home. And much, much more.
This just might be the most disgusting thing on the boob tube. I guess we can start with “Honor thy father and mother”. Gee, why would you want to do that? Most men respect and love their father and seek to develop traits to follow in his footsteps. I know our daughter loves her mother and wants to be like her. Why in Heaven’s name would a company try to denigrate such feelings and actions of children toward their parents? What is the bottom line they are pitching?
The family unit is the basis for Western Civilization. Is that what they seek to destroy? Perhaps “the love of money is the root of all evil” is spot on. These jokers will destroy an entire civilization to sell another policy.
For all those who have lost a parent in the last year, I say screw them.
Here is a montage of disgust: https://www.youtube.com/watch?v=HF4Qmah1CGk
Ironically, until the devices started catching fire, Capo Flo was in the forefront of requiring nanny tech monitoring of your behavior behind the wheel, parenting you regarding your driving habits at every renewal.
Flo doesn’t want you to become your parents. She wants to be your parent.
Lately Flo and that lizard are showing commercials that show white males as complete idiots and women and colored people as all knowing and brilliant.
Please Flo walk anywhere near my car and you’ll be taking a short flight to hell.
I’d gladly pay for the damage to my vehicle.
The sage of Omaha should have been strangled in the crib.
Hi Mark. Whether they know it or not they are just doing what communists have always done. Destroy the family to enhance the power of the state.
Exactly Landru,
That’s what’s behind all the tranny LGBTQABCDEFG “gender” nonsense, the PTB are trying to take control of the children, splitting them from their parents so they can fill their heads with garbage along the lines of having a 5 year old decide what gender he/she/they want to be. The 5 year old in ‘Kindergarten Cop’ got it right, “boys have a penis, girls have a vagina”.
Stop watching it. It’s called programming for a reason. Here is another trick for fun turn off all lights in a room leave the Jewvision box on and watch the light show.
My last truck and first house were the same sticker price 1994 and 2020, I haggled both prices .
Merry Christmas Eric and your significant other, thanks for all the great articles over the year. Have some Jameson whiskey.
Ps: Eric do not engage with idiots
My son was at fault in what I thought was a relatively minor collison where he rear ended a 2022 Camry in heavy traffic on the freeway. When I recently inquired about the payout which resulted in a $1000/year rate increase to our insurance, I was told that the Camry had been totaled by Capo Gecko and a $23,000 check issued to the driver to pay off his finance company.
Channeling my dad –there’s no such thing as good debt. There’s only debt.
Best advice I’ve ever received. And have passed it down to my sons & grandkids.
Agree. My consistent advice to the youngins is to save & pay cash. Don’t buy crap you don’t need. Don’t borrow money.
Banks will gladly keep you in hock for the rest of your life. When you owe, you are easily controlled.
I could easily decline the jab because I don’t owe anybody anything and can find another job if I had to.
Hi Dan. I agree, the debtor is a slave to the lender, sadly most people fail to grasp what this entails. Hopefully more people will realize this before it’s too late.