I have a 25 minute commute to and from work each day. During my commute, one of the thoughts that always crosses my mind is:
“Can these people really afford all of these luxury cars I see on the road?”
The more I think about it, the more I think that a lot of these people are probably trying to keep up with the Joneses and are in debt up to their eyeballs! Now, I am sure there are some people that drive around in these luxury cars that really can afford them because of a high salary. However, I just see way too many on the road to think that everybody can afford them. Let’s just use a hypothetical example.
Ex: Purchase Price of Car: $45,000
Loan Term: 60 months
Interest Rate: 4%
Down Payment: $4,500
In this example, the payment would be $745/month. In addition, insurance costs will be significant for a luxury car. A $745 car payment on top of a mortgage, utilities, and everyday living expenses seems crazy. I would be really interested to know what the repossession rate is on luxury cars. I tried to do some research and dig up that number, but I wasn’t able to come up with anything. If anyone does happen to find that statistic, I would be really interested to know.
Now, I will admit I made a stupid decision when I finished college. I bought a brand new $23k car right out of college. To make things worse, I financed the entire $23k over 36 months. That resulted in payments of about $650/month and hurt my balance sheet for a long time. I still regret my decision to do this because it definitely set me back. However, I was living with my parents and had no other expenses, so the $650 was a lot more manageable for me. Regardless, I made a stupid decision. The more I think about it, the more I think I just wanted to have the best car of my group of friends. I wish I could go back 4 years and smack 22 year old Dave right in the face for acting so stupid.
I guess it worked out for me that I learned my lesson while I was still young and didn’t have any other real obligations at the time. Unfortunately, there are a lot of people that aren’t so fortunate and make the mistake later in life that leads to repossession of cars, foreclose, and even bankruptcy.
Does anybody else ever think about this when they see luxury cars all over the place?
image credit: David Villarreal Fernández
I’m a financial coach so I’ve seen the reality of these cars in peoples’ budgets. It’s unbelievable what people do and how they spend so much money on cars.
I literally coached a person a few weeks ago that had $1800 in car expenses (gas included, but $1100 was car payments) and their mortgage was only $600. How does that even make sense?
I always say that a new car is the best way to turn a slow walk to the poorhouse into a quick drive. We spent about $45,000 on two cars over the last 6 years. They are paid for now, but I regret it every day.
I made the same mistake. I bought a brand new Ford Mustang while living at home. I don’t regret the decision as much as you, mainly because the car was awesome!
I would say that about 75% of people who own luxury cars shouldn’t have them. I worked with two guys who owned an Audi and an Infinity. They both had payments around $750 a month. The worst part was they were 5 and 6 year loans.
Oh lol man! You almost copied my reply I was about to post JK!
I leased a brand new mustang right out of college, with $5K down, $500/mo, $50/two days gas, and $2K at the end of the lease for minor damages etc.
It set me back for years financially, but I also don’t regret it because I got so much out of that car which helped me to grow as a person.
Its the basic weakness we have that can out us back. Advertiser take advantage of this weakness.
I would imagine a lot of the people driving those “fancy” cars can’t afford them. It always makes me cringe when I drive by the projects and see BMWs parked in the lots. I don’t know why people would spend so much of their money on something that decreases in value each year. On the flip side, a lot of people in NYC make “big” money. So by all means, if you’re a 25 year old self-made millionaire and have a paid off house and a big emergency fund, buy the fancy car.
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I drive an 11-year Jetta that is on its last leg. It’s not that I don’t appreciate nice cars, they just don’t make much sense to me. Paying $700+ a month for a car just completely baffles me; particularly since my first house did not cost that much.
Both my and my husband’s cars were used when we bought them. The fact that cars lose so much value as soon as they’re driven off the lot makes me not ever want to purchase a brand-new car. And a “luxury” car? What’s that? Even if we found ourselves millions of dollars richer, I wouldn’t want to buy a luxury car.
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So funny that I found your blog. I am asking myself the same question everyday while I commute for work. I keep telling my wife that if all these people can afford these $45000 cars why not us. She keeps telling me that it doesn’t make sense to pay that much and that most of them are probably living on credit… And i love her for keeping me from doing that mistake. No need to tell you who’s handling the finances…
I can’t even count the number of times as a bankruptcy lawyer that I see a mercedes, bmw, audi, huge new SUV etc pull into my parking lot for the first bankruptcy consultation. When i get to the client’s budget, they are 100% of the time living entirely on margin. As for me, I am driving a used SmartCar and pay 25 bucks for gas about 2 or 3 times a month. I park it anywhere I want, and typical meter cost in downtown Cleveland is 1-2 bucks! I literally get abused when I drive in the left hand lane, even at 75mph, because I sense that people are enraged by someone so obviously commuting so much cheaper than they are. Great blog and posts. Good insights by all!
Love your reply, it makes total sense to me and I chose to put that $700 + per month into savings, investments or towards my first house (I’m 22)
I drive a 2003 Toyota Camry Altise and I absolutely love it, seriously it’s the best car I have had in my life, it’s nice inside and out and I go everywhere in it! doesn’t cost me more than $60 bucks to fill the tank and that gives me nearly 500kms. I bought the car for $9k and paid for it outright in cash.
I am often looked at by girls and guys my age who dress in celebrity clothes with cars that are brand new and on payments. It used to get to me, but not anymore because I’m 22, have a nice enough car paid fully and over $30,000 in savings.
Image and being false, while acting better than everyone else, is one thing I HATE!
I needed to get this off my chest