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Comment by jeffparsons | Hacker News Reader

> "financing for a car" ... "ding your credit score"

To my mind the mere fact that someone would borrow money at all to buy _a car_ is a huge red flag against their creditworthiness / financial responsibility.

But I keep reading online that people who otherwise seem pretty sensible do this as a matter of course. Is it possible that living in a city with functioning public transport has sheltered me to the point of naivety? That is to say, is having a car really so essential to holding down a job and accessing services in most of America (etc.) that taking out a loan to acquire a car becomes a necessary evil?

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> ... [to] borrow money to buy _a car_ is a huge red flag ...

Hi Jeff Just a polite reminder that a) there's nothing wrong with financing, it's essential to the buildup of the US and b) the average US citizen doesn't have the same income distribution that the average HN reader does.

The median price of a car in the us is $35K [1] and the median household income is $59k [2]; For most families in the US the car is absolutely essential for work, life (kids) and basic necessities of life. The median American has less than $5000 in a savings account. This is especially bad for marginalized minorities [3]. It's practically impossible for most Americans to walk in and buy a car with straight up cash, and even if they could, I would consider that unwise.

Back to debt: there's nothing wrong with debt, and some of the smartest richest people I know use debt carefully to manage cash flow.

[1] https://www.researchgate.net/profile/Till_Stowasser/publicat...

[2] https://en.wikipedia.org/wiki/Household_income_in_the_United...

[3] http://apps.urban.org/features/wealth-inequality-charts/img/...

Not to counter you, but why would a low-income household consider buying a new car? A properly maintained ten year old car these days is normally quite reliable and safe.

Key expression is "properly maintained". And there's no reasonable way to know.

https://en.wikipedia.org/wiki/The_Market_for_Lemons

Not a fool proof way, but when you buy, say, a $10 000 car, you should budget some thousands for repairs. Then if it breaks down soon after and it's too expensive to repair, your downside is $10 000, which is how much your $40 000 new car would depreciate in a very short time. If you don't have especially bad luck, this doesn't happen for every second hand car you own, but the depreciation is guaranteed to happen for every new car.

They would not. When I was a teen, my parents had a joint income of just about $100k (definitely not low-income). When I began working, I got their hand-me-down '97 Accord. Bought for $3000 in '04, the car lasted 8 years before we sold it for $1500.

Great value for money, and it had a relatively classic look that belied its price. That's the kind of car I intend to buy again in the future.

The Auto Loan industry is huge. I would be surprised if more that 20% of the population could pay 35000 cash. Most people less that 40 barely have a liquid cash of 50K. To pull out 35K and regrow that remaining 15K back to 50K would take a year for someone making 100K. Instead you could take a loan which typically go for 3% for good credit, and keep that 50K in a high interest bank account (2% or more) and pay essentially a few hundred dollars over four years to make sure you have cash available for a true emergency. Why risk that. Obviously you could argue that someone with only 50K liquid cash shouldn't buy a 35K but that is not how our economy works. A few hundred bucks so you aren't broke is not crazy. Additionally in most of the country a car is essential to live, especially in suburbs and small communities. Everyone could buy a 15K corolla but everyone wants the cooler thing

Being poor is reading HN commentary about auto finance. [0]

[0] https://whatever.scalzi.com/2005/09/03/being-poor/

> Most people less that 40 barely have a liquid cash of 50K.

If you're talking about the US, this is the greatest understatement I've seen in some time. I don't have a very good source handy, but for the median American under 40, try more like "$1,000".

> try more like "$1,000".

Wow.

Given your healthcare system and the potential costs of being ill combined with having such a low amount of savings / safety money. Losing your job could potentially terrifying in the US.

How do people live what that level of stress continunally?

I could lose my job tomorrow and live for 4-5 years on savings and I'm not comfortable with that amount and occasionally find myself worrying about my financial situation.

> How do people live what that level of stress continunally?

Financial literacy is low, and financing is available on everything. Just tell the person that they can buy something with no money down and you're halfway to making the sale.

>How do people live what that level of stress continunally?

They have no other choice. Education is far too expensive to better yourself and train for a better career, everything is designed to suck every possible penny from those with less money than average, and if you don't work your ass off to pay what you can, you die on the street because we have no safety net. Being poor is a treadmill. If you were born poor and don't get absurdly lucky, you can look forward to being poor forever and passing that great experience onto your possible children.

Welcome to America, land of the free I guess

Most people under 40 have less than $500 liquid cash.

> Instead you could take a loan which typically go for 3% for good credit, and keep that 50K in a high interest bank account (2% or more) and pay essentially a few hundred dollars over four years to make sure you have cash available for a true emergency.

A 35K car loan at a net of 1.5% (3% - 2% + marginal tax rate on 2%) will cost over a thousand dollars over 4 years.

> is having a car really so essential to holding down a job and accessing services in most of America (etc.) that taking out a loan to acquire a car becomes a necessary evil?

US public transit is really bad outside of major urban areas. In the (medium-sized) city I live in, the only public transit is an unreliable bus service that only covers a few areas of the city with really limited routes. We don't really have taxis, either, and there's enough sprawl that you can't bike to places easily, so your options are to either use uber/lyft for everything and hope you can get a ride reliably, or buy your own car.

Median household income in the US is only around $60k/year [1], which makes it pretty difficult to afford a car without some form of loan. If you save up pretty far in advance, and buy a cheaper used car, it's probably doable, but most people don't want to do that (and if everyone tried to do that, used car prices would likely go up to almost the price of a new car anyway).

[1] https://fred.stlouisfed.org/series/MEHOINUSA672N/

What?! You are naive. Or trolling. Or both. Car loans are much lower than S&P compounded gains. Why would you want to pay everything down while you can put it elsewhere and earn?

If you’re objecting to having a car at all... yeah I’d say that’s naivety from only living in a city.

Otherwise I’d say that’s the short sighted financial sense.

I was borrowing at a rate that was barely costing my anything in finance charges and gaining the opportunities having that much cash open for investment or other expenses gives me.

I don’t see a reason to buy a car in cash if you can get a good enough rate...

It's naiveté, by the way.

It generally makes little to no sense to pay cash for a car. Auto financing is cheap, and so there is is significant opportunity cost if you don't invest the money instead into something that appreciates. Also, inflation.

I could have paid cash for my cars. I chose payments because the rate was literally less than the investments returns I get on that cash.

It’s all about opportunity cost. If you have better things to do with the cash then it makes sense to finance.

The fact that credit scoring cannot take this into account is another failure of credit scoring models.

It's not a failure. That's simply outside the scope of credit scoring models.

> That is to say, is having a car really so essential to holding down a job and accessing services in most of America (etc.) that taking out a loan to acquire a car becomes a necessary evil?

Yes, it is, and it really sucks that we in Amercia designed so many of our towns and even cities this way.

I just bought a car this week and got a loan because the lender gave me $3,000 for borrowing from them. I have to wait 45 days before I'm allowed to pay it off, but there's no penalty for doing so.

I have a 0% interest rate for 7 years on my other car. That's literally free money.

Typically it's not free money.

You chose to forgo getting/negotiating a greater discount on the purchase price.

There's no way the lender could do business otherwise.

If your investment vehicle can’t make up missing out on a couple of grand of “haggling” (highly dependent on a myriad of factors by the way) then you need to seek out better ones.

The average new car is around 35k. 35k with 7 years of returns even with extremely conservative investments should very handily make up for any lost bargaining power at purchase.

My 7-year 0% loan is on my Tesla. You can't negotiate the price of a new Tesla.

You either don't live in the US, or have never lived outside an east coast urban center.

And as others have mentioned, if financing can be done for less than the value of the money in your pocket, it's better to finance!

> Is it possible that living in a city with functioning public transport has sheltered me to the point of naivety?

Yeah, I think so. Financing is pretty much standard in America when you make the decision to buy a new vehicle (and many times, when buying a used vehicle).

The median amount American citizens have in savings is just over $5k:

https://smartasset.com/checking-account/savings-account-aver...

Not awesome.

"Is it possible that living in a city with functioning public transport has sheltered me to the point of naivety"

Apparently yes.

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