Getting a car loan - good idea or not?

[Vort]

That's silly. You are deliberately misunderstanding what I said.

Really? Let's examine this conversation. I will summarize it; feel free to compare my summary with the comments in their entirety, which I quote at the end of this post. I'll even number them for your referencing convenience.

German_LDS (#1): My car broke. I can live without one, but it would be difficult. What should I do?

Saldrin (#2): Buy a cheap car and start saving to buy a better one.

Vort (#3): I agree with Saldrin. And used cars are a better value than new.

anatess (#4): No, not necessarily. In Germany, NEW cars might be cheaper than USED cars!

Vort (#5): Um...doubtful. Basic economics argues against this.

anatess (#6): This is GERMANY! Everything's DIFFERENT there! Germans are highly patriotic in commerce! They're likely to buy only German! And they make it hard to sell used cars!

Vort (#7): So you can't buy used German cars?

anatess (#8): The price of a used Beemer might be more than that of a new EU car! [Which, of course, argues against your claim of German commercial nationalism...but whatever.]

Vort (#9): This here site says you can get cars for cheap, even in Germany. Are you saying the German government sees to it that it's unprofitable to sell used cars for cheap?

anatess (#10): No no no! Germany doesn't allow car sales unless the cars meet a standard! You can't just sell anything in Germany! It's very, very, very different to sell things in Germany! I mean, of course it's possible to buy a used car for cheaper than a new car in Germany. Duh. But that's not what I'm saying! [btw, see #4. That is exactly what you were saying.]

Vort (#11): But wait a minute. Since cheap cars are indeed for sale in Germany, they must meet all the stringent requirements you mentioned. So there are cheap cars available to buy. Which was the advice given. So what exactly are you arguing against?

anatess (#12): You said that a used car is always a better value than a new car. But a used BMW might be less expensive than a new EU car, so you're wrong. See? [i said that a used car was almost always a better value than a new car. Which is true. Unless you're an idiot and allow yourself to pay far more for a used car than it's worth. But I assumed that much went without saying. Perhaps I should append all my statements with, "WARNING! If you do something immensely stupid, my obvious generalization might turn out to be FALSE!]

Vort (#13): No, I don't see. Your statement is incredible on its face. Do you have any evidence to back up your claim that a used car does not sell for less than its new counterpart?

anatess (your latest): Well, now you're just being silly.

This is not the first such conversation we've had, and they definitely make it a challenge to keep up the conversation with you.

I did not say ALL of them do! I said, the market in Germany is not the same as the USA. Fact.

You said that used cars are not necessarily a better value than new cars in Germany. Fact. But other than the obvious wiggle word of "necessarily", this is an absurd statement. As a general rule, of course a used car will generally be a better value than a new car. You get similar functionality for a much cheaper price. I do not believe there is anything in the German economy that would cause this natural-as-falling-off-a-log rule of basic economics to be violated. I have asked you to demonstrate your assertion. Can you do so?

Used Benz in the US is more expensive than brand new Corollas. Yet, there is a market for it.

Seriously, anatess? How on earth does this apply to the conversation -- that a good plan is to buy a cheap-o car and save up to buy a better one, and that, all other things being equal, used cars are pretty much always a better value than new cars?

Germany is different. The economics of used cars versus new cars is different. You can't just assume that just because the math works out in the US that it works out in Germany.

Of course I can. Math is not location-dependent. It works the same everywhere.

If you can provide any shred of reasonable evidence that used cars in Germany are a worse value proposition than new cars, please do so. Otherwise, what on earth is your point?

In case you care to see the threads referenced above, here they are.

Hi everybody,

as usual I would like to ask you for your advice on something.

My car broke down and it looks like I will need to get a new one. Maybe it can be repaired (transmission is gone) but chances are it's gone for good.

I don't have the money to by a new used car. If I had to buy one I would need to ask my bank for a small loan.

We're advised to get out of debt whenever possible. There are a few exceptions like home and student loans. Just recently our bishop read a letter from the First Presidency about business scams and it was mentioned again to remain (consumer) debt free whenever possible.

I'm living in a big city with a good public transport system. I don't need a car in order to get to work. I can ride the sub. However it's very difficult to do my weekly groceries without having a car. The next temple is two and a half hour drive away. Without a car I will have to ask ward members for a ride every time I want to go to the Lord's House.

In short: I would survive without a car but things would get very complicated.

So what would you do in such a situation or what have you done in the past in a similar situation? Would it be wrong or against the recommendation of prophets and apostles to get a loan in order to buy a new used car?

I know I will have to decide for myself. But I value your input because it often let me see things from a different perspective.

buy a cheap "beater" car, then start socking money away for a new vehicle. a car loan is a bad idea

Used cars are almost always a far better value than new cars. I agree with Saldrin, buy an old beater and start saving until you can afford a good used vehicle. (So I agree with Saldrin except for the "new" part, I guess.)

Not necessarily true in Germany.

The opening of the EU also opened trade across EU countries. You may be able to purchase new EU cars for cheaper than used cars...

Basic economics seems to make this highly unlikely. If used cars cost more than new cars, no one buys any used cars. Demand plummets, so prices follow. Inevitably, used cars will sell for less than new cars. Or so it would seem to me.

Germany, Vort. Germany. Germans are very patriotic in commerce. "Buy German" is a cultural norm. And in addition to this, there are giant contracts you have to go through to sell a used car, German or otherwise, which increases the demand for new cars dropping their prices. But then too, there are dealerships that let their employees drive new German cars for a year so they can sell it used (not sure why - just something I learned from my workmates). It's a different world out there. And if you're not too picky about it being an Audi, Benz, BMW, or VW, new versus used car is not so much about the difference in price anymore. And neither one of us know it enough to be able to offer a good applicable suggestion.

There are no used BMWs, Mercedes, Opals, or VWs?

The price of a used BMW can be more than a brand new EU import. Quality still good, it's just not German. Remember, you can't just buy a used "beater car" in Germany regardless of whether it's a German or EU import car. There are lots of rules and regulations on car condition to be able to sell it used.

In any case, all I'm saying is - what is cost-effective and practical in America may not be applicable in Germany.

I don't understand where you're getting this from. According to this site, you can get a used car in Germany for less than 500 euros. Are you saying that Germany legally prohibits people from selling used cars for cheap?

In any case, I would expect principles of provident living to apply anywhere, even if the specifics differ.

No... Germany legally prohibits people from selling cars that don't pass certain criteria of condition. You can sell it for 1 EU if you want. Of course you can find used cars for cheaper than new ones. How much you're going to spend to maintain the car is another subject. But fact remains, in Germany, commerce is different so much so that the American reasons for buying used does not always apply. So yes, provident living as it applies to Germany is the main point of discussion, not necessarily the details of how it is accomplished.

I work for a German company so I get my info from "breakroom" talk. Quite a bit of Americans transferred to German sites and vice versa.

But it must meet the conditions the German government sets, since you just now said Germany legally prohibits sales that don't meet those conditions. Therefore, you can indeed get a functional car for cheap -- which was the advice. So what's wrong with the advice?

I was responding to this:

It may not be true in Germany that used cars are "almost always a far better value" than new cars. Because a good used vehicle in Germany may be more expensive than a good new EU import in Germany.

Make sense?

No, it's absurd. If a used car in Germany costs more than a new car, then there is no market for used cars. Used cars do not exist. If used cars do exist in Germany, then it is axiomatic that they sell for substantially less than new cars.

Do you have any evidence at all to back up your incredible claim that a used car in Germany costs more than a similar new car?

Edited April 30, 2013 by Vort

[mrmarklin]

I'm in business, and I have a moral aversion to ever paying cash for any depreciable item. So I have no problem with vehicle debt. For most of us a vehicle is a necesity.

I too live near a big city where many people don't own cars. There are services for very short term rentals for when a vehicle is necessary to travel out of town. Check into it. I see these vehicle all over. It's a lot cheaper than actually owning a car when all is said and done. If I didn't have to own a car, I wouldn't.

[mrmarklin]

Not necessarily true in Germany.

The opening of the EU also opened trade across EU countries. You may be able to purchase new EU cars for cheaper than used cars...

You have obviously never been to Europe. All my German and other European friends would like to know the source of your information!!!!!

Of course a used Benz could cost more than a new Toyota. Does here in the US too.

Edited May 1, 2013 by mrmarklin

[ElectofGod]

The used market in the USA has almost gotten to the point where its cheaper to buy New as well. I was just looking at some vehicles and used ones go for like 2k less than a new car with 40k miles on the car. That is not a good value. You can always find a deal somewhere but recently used cars are a lot harder to come by.

I say do you have food storage ?

That is where I would spend money first hehe. But thats easy for me to say I already have a car. Or renting as the person earlier said.

It may not be the best time to get into debt but if you don't have a choice than do it. Pray once you make a decision.

[MarginOfError]

Some tips from when I was car shopping last year:

Talk to your mechanic. Ask him what brands and models he thinks are good values. I was looking into buying a used Hyundai last year. When I talked to my mechanic, she told me never to buy a used Hyundai unless it was certified and put under warranty by a dealer. His experience had been that the engineering was good, but when you got a lemon, it was awful. And so the only people he ever saw trying to offload Hyundais were people who were having too many problems with them. I never would have known that without talking to an experienced mechanic. (keep in mind, a certified used vehicle is going to be more expensive)

Consider the cost of maintenance over the cost of a car payment. If you buy a car with 120,000 miles on it, you are likely facing a lot of maintenance work. If you pay more for a care with 60,000 miles on it, you could get a few years under your belt before you pay for the major repairs. One way or the other, you're going to pay.

Split the difference with your dilemma. Assume that you're going to have a car payment, start putting the money for that payment aside now, and then don't buy a car for 6 months. By making yourself suffer for six months, you'll have the benefits of sacrifice and learning innovative ways to get by. You'll also find that you have a nice little down payment to make on whatever vehicle you buy that will probably lower your monthly payment a fair amount. You get the best of both worlds, and it's a lot easier to press through the hard part when you have already determined how long it should last.

[Finrock]

Good Afternoon German_LDS! I'm sorry you are having care problems but I hope you are well otherwise! :)

Hi everybody,

as usual I would like to ask you for your advice on something.

My car broke down and it looks like I will need to get a new one. Maybe it can be repaired (transmission is gone) but chances are it's gone for good.

Just a thought but depending on your vehicle, buying and installing a new transmission may not be as bad as you think. In some cases you can pick up a refurbished or used transmission for $300 - $1000. And installation often runs between $400 - $800. Of course these prices are rough and will vary widely.

But, if you can get the transmission replaced for around $1800, that may be a better option than buying another car. You may even save more money if you are able to do the labor yourself or have a friend help.

Regards,

Finrock

[MorningStar]

You could have your groceries delivered. :)

[German_LDS]

Hi everybody,

first of all: Thank you so much for all of your valuable input!!!!

I have thought and prayed about this issue and have finally made a decision.

Today I bought a used 2006 Volkswagen Rabbit Mk5 (also known as Golf V). It has been driven around 60,000 miles. But that's not much for a good car.

My new car is a compact car and not a sedan type car like my old Mazda 6 used to be. After doing all the finances I would have been able to afford it using all of my savings. But that would have left me with no emergency fund money left.

So it was not an easy decision for me to make. But I decided to use a bank loan. The car will cost me about $11,100 - which is a good price considering the market price of similar cars (cars in Germany tend to be at least twice as expensive as cars in the U.S.).

I regularly get some extra money from my second job and will be able to make additional payments to that loan which will reduce the amount of money I owe to the bank quickly. I can afford the monthly payments and will also be able to make additional payments and I will still keep my emergency funds.

So all things considered I think this will be the best way for me to go. I hope it is at least.

Good thing is interest rates for car loans are extremely low right now (below 5 % annually).

I found a good transmission mechanic but he is still trying to find out whether or not he will be able to help with the Mazda transmission. Even if he will be able to help it's going to cost me at least $4,000-$4,500 (remember: I live in Germany, things are priced differently here).

Granted $4k are still considerably less than $11,000. But chances are that the engine of my Mazda still has some more damage from the overheating - at least it looks like it has - which is probably going to cost me again some 4 or 5 grands.

With the used Volkswagen I bought today I'll get a one year guarantee that can be extended to even two years. It will cover all major repairs. So that should protect me from expensive repairs for the next two years.

I would have been able to get a much higher loan. But that's certainly not what I wanted. I went for a smaller car although I liked my Mazda 6 so much. And a Volkswagen Rabbit is smaller than a Mazda 6 - that's for sure. I hope for the Volkswagen to last longer. I still believe in the good quality of German made cars. Well, we'll see hot that will work out. :)

So I don't feel really good about this car loan. I will do everything I can to pay it off ASAP. I'm confident that I'll be able to pay it off much faster than planned. I'm a convert. And I still remember how a few years ago I never would have thought about taking out a loan. It was the usual thing to to do if I hadn't had the money I wanted at hand. I was always able to pay back all loans without problems and much faster than planned. But that is not the important point. Part of me is glad that this time I spent so much time in thinking everything through and especially that I still feel that taking out a loan is the least desirable option.

BTW: There was an argument about prices of used cars in Germany. Used cars are of course less expensive than new cars (except for historic cars that you can't by new anymore). And you can sell your used car in Germany without any hassle. If the buyer wants to drive that car, he needs to get a license plate of course. And he will only get one if the car passes a safety test. This safety test is something every car in Germany hast to go through every other year. My old Mazda passed that safety test just in January of this year. If I sell the Mazda next week the buyer won't need to have it tested again. The next test - even if I sell it next week - is due 2015.

Obviously my Mazda won't go far anymore. In this case there are a lot of people who do some export business and will buy your old junk car for a few hundred bucks and sell it to African countries. In those countries even your junk car is still of some use. In my case my Volkswagen dealer showed some interest in buying the Mazda from me. I don't expect him to pay me more than a few hundred bucks anyway. But that's still better than nothing.

There are some regulations if someone sells cars commercially - like any car dealer does. In this case the seller have to offer a one year guarantee by federal law. This is exactly what the Volkswagen dealer does for the Rabbit I bought. Since that guarantee is somewhat limited by law, most dealers will offer you an extended or care-free guarantee for about a hundred bucks. But basically it's not really any problem to sell your used car, especially not if you sell it as a private person and not as a dealer. Privately sold cars are not required to come with a guarantee - it's "sold as seen".

So thanks again everybody for your input!

[skalenfehl]

I lived in Germany for two years and never needed a car. I rode my bike, walked, used U-bahn, S-Bahn, train, und so weiter. I traveled from place to place, town to town, field through field, city to city and across the country by train. Do you REALLY need a car?

[pam]

I lived in Germany for two years and never needed a car. I rode my bike, walked, used U-bahn, S-Bahn, train, und so weiter. I traveled from place to place, town to town, field through field, city to city and across the country by train. Do you REALLY need a car?

You were a missionary though and may not have had access to a car so you learned to do without.

[skalenfehl]

And I did it every day wearing a suit in the Summer and included an overcoat in the rain and Winter.

[German_LDS]

Do you REALLY need a car?

As I mentioned before I live in a large city (1 million people living here including the suburbs).

The public transport system is very good but it often takes you a lot of time to get from A to B.

Yes, you're absolutely right, I can survive without a car. I wouldn't starve, I wouldn't die. So of course it's not a question that will define life or death. But that's true for many things. You will survive without a home. Homeless people survive too, so would I. So would it be right to get a mortgage?

I'm not judging here. I'm not telling anybody that the decision I made to take out a small loan to get a used car was the absolutely right thing to do and everybody should do the same. No, certainly not. As I wrote I could have made it without that loan but had to use all of my emergency money.

So yes, I weighted things, what would be better, what be worse... I hope and pray I did the right thing in my situation. If not, I hope and pray our Father will forgive me and help me through. I will do everything possible to pay that loan back early.

In about a week I will get a check about a few thousand bucks from my second job and I will use all of that money (minus tithing of course) to make an extra payment to the loan. That will reduce the amount owned to the bank by about one third.

So all things considered I hope I do the right thing. But anyway, thank you for your thoughts and input. I appreciate it.

[skalenfehl]

I'm being a little humorous so I apologize for sounding blunt. I also lived in Munich for several months and I LOVED it. It does take longer to get around places, too, without a car. It sounds to me like you made a good choice. I can see that you are frugal and live providently. Alles gute.

Mit voller liebe, mein freund!

Edited May 5, 2013 by skalenfehl

[German_LDS]

Danke! :)

[Still_Small_Voice]

Dave Ramsey's advice is to not incur more than two years worth of debt for a car. I think that is good advice. Automobiles to not appreciate in value. They are just money pits.