George Kamel - The New (Horrible) Way To Buy A New Car

Starting point is 00:00:05 What's up, guys, George Camel here. Today, we're talking about a new trend that will lower your monthly car payments and help you get a nicer car that you can really afford. Oh, I am so stoked. In fact, car dealerships across America will jump at the chance to help you take advantage of this deal. That's right, I'm talking about the 96-month auto loan, or as I like to refer to it, the dumbest way to buy a car of all time. While it may seem like an attractive solution, trust me,

Starting point is 00:00:34 This is a financial pothole filled with rusty nails, banana peels, and brownish road juice. In fact, I'm pretty sure that Shakespeare's famous quote, All That Glitters is Not Gold, was referring to the 96-month car loan, and not, as I suspected, a throwback to Smash Mouth's 1999 hit single, All-Star. Thanks. Hey now, before we talk about why 96-month auto loans are so toxic, I want to read you something that came across recently. So good. Check this out.

Starting point is 00:01:04 To like or not to like? That's the question. Is it nobler to a number? and doork algorithmic indifference, or take action with a simple click and subscribe. To like, to subscribe, that is the key. Man, old Billy was light years ahead of his time. Can we all just agree that calling it a 96-month auto loan is kind of excessive?

Starting point is 00:01:25 I mean, we're not talking about infants here. If you referred to a kid as a 96-month-old, you'd be talking about a second grader in a Pokemon T who just mastered fractions. Let's call it what it is, an eight-year car loan, all right? Here's a rundown of how these things work. When you use a 96-month loan to finance your new Chartreuse Chevy Bolt, you're essentially signing a fancy IOU in the form of monthly payments for the next eight years.

Starting point is 00:01:49 And in exchange, you get to drive that lady killer straight off the lot. And I can see why these can be tempting. The loan, not the Chevy. I'll never understand that Chartreuse Chevy Bolt. Especially if all you're focusing on is the monthly payment. Because a 96-month car loan will lower that payment since the loan is spread out over a longer period of time. But guess what you'd be neglecting to pay attention?

Starting point is 00:02:08 to here. Interest. Because you'll also be paying interest on that loan over a longer period of time, likely at a higher interest rate, which means you're going to pay way more than the car is actually worth in the long run. So if an eight-year auto loan is the worst way to buy a car outside of leasing one, more on that later, is it better to stick with the more common five-year loan? Heck no. Not in a thousand years. And I thought we've covered this. Regardless of the term of the loan, why would you want to commit to paying interest on a depreciating asset, or on anything for that matter? So let's take that Chevy Bolt, for example, and say you purchased it for $30,000 using a 96-month loan with a 9% interest rate. Here are the numbers showing you just how much you're getting screwed. So with a 48-month

Starting point is 00:02:48 loan, that's four years, your monthly payment would be about $750. The interest paid would be just under $6,000, and the total amount paid for that $30,000 car would be almost $36,000 after interest. With a 72-month term, you'd pay $540 a month every single month for 72 months. The total total interest paid would be almost $9,000, bringing your grand total to almost $39,000 for a $30,000 car. Now, the 96-month loan brings your payment down to $439 a month. But you pay over $12,000 in interest, bringing your total to $42,000 for a $30,000 car. That's no longer worth $30,000 after eight years. No, no, no, no, no, wait, wait, wait, wait, wait.

Starting point is 00:03:37 So clearly, the longer the term, the more you're paying an interest. And frankly, that's money that could be better spent almost anywhere else, like investing, paying off your home early, or building an at-home three-person sauna. Why three-person? That's none of your business. Any of those options would be better than giving away thousands of dollars and getting nothing in exchange for it. So in this scenario, you end up paying $42,000, for a car you bought for $30,000.

Starting point is 00:04:02 That after eight years is worth more like $10,000. Or in some regions, a trade for five goats and an unopened bottle of Armani code for that little Chevy bolt. And that's because your precious car is what's known as a depreciating asset. That's the difference between how much your car is worth when you bought it versus what it's worth when you sell it. That's depreciation. You see, much like how your signed Yeezys have gone down in value, car values also go down in value over time. And the longer you drive the car, the more it will drop. So while you're locked into the worst eight years of your financial life, your car's value is plummeting way faster.

Starting point is 00:04:35 than your loan balance, and that means you could end up owing more on your car than it's even worth, which is what's called being upside down on your car loan. And if none of this is speaking to you, check out this interview that car dealership guy on Twitter did with the president of Chrysler Capital about these 96-month auto loans. I think it's a short-term solution where you can bring a payment down, but longer term, it's going to create challenges for the consumer. If they can't otherwise afford the car, extending that term to me is just kind of prolonging the inevitable potentially putting them into a negative equity position down the road. Where we do offer the extended terms, it's typically going to be a prime customer.

Starting point is 00:05:12 We want to make sure that the customer can afford the car. So it's very important for us and the customer to assess the affordability up front. I think 96-month terms may be a solution for a customer that can otherwise afford the car. And by choice wants to, you know, maybe reduce a cash flow impact, but I don't think it's the solution. We're going to put customers into cars they can't afford and just spread it over a longer term. I don't think it's for us or the customer. Okay.

Starting point is 00:05:37 So there it is straight from Betty's mouth. And shout out to car dealership guy on X slash Twitter. He's a great follow. So here's the recap. She's basically saying, if you're well off, you can do this. But think about this. How many of the people who do this can really afford it? Because when she says afford the car, she's saying afford the payment.

Starting point is 00:05:55 Because people who can afford the car can just buy the car outright. Adoy. The only way I recommend buying a car is with cash. or debit card or cashier's check, or Goats and Cologne if the dealership accepts that as legal tender. I heard that's accepted in some remote parts of Arkansas, even encouraged. Now, sure, paying in cash might require a bit more patience and discipline and delayed gratification, but in the end, your financial future will thank you.

Starting point is 00:06:23 That's what it takes to build wealth. You can't let lenders take your money every single month and expect to build any wealth. I mean, you're going to own the car outright from day one when you pay with cash. You'll pay zero dollars in interest, and you'll be in complete control of your new set of wheels and where your money goes. Now, I wish it weren't so, but the 96-month car loan isn't the only auto-related financial trap people are falling for. There's one that is even worse somehow, and I'll get to it as soon as we give some love to today's sponsor. This episode is sponsored by BetterHelp.

Starting point is 00:06:49 Listen, I love a good relationship, and the only thing I love more is a great relationship. But great relationships, that takes work, it takes effort, there's challenges, and one of the best ways to approach that is with therapy. And that's why I love BetterHelp. It's online, it's flexible, you answer a few short questions, and you're matched with a licensed therapist. And you can switch therapists at any time for no cost. So get started today by going to BetterHelp.com slash George to get 10% off your first month. Let's get to work. All right, remember earlier when I mentioned car leasing?

Starting point is 00:07:17 That really is the dumbest money move you can make when it comes to your car. And that's why I made a whole video on that, and you can check it out with the link in the description below. And if you want a deeper dive into what we talked about today, I've got a whole chapter on car loans in my new book called Breaking Free from Broke. I even cover the exact steps to use to save up and buy a car with cash the right way. I'll drop a link to the book in the description below if you want to grab a copy. As always, thanks for watching, and make sure to share this video with the Shakespeare buffs in your life.

Starting point is 00:07:43 This might be the crossover they need to usher them into the modern era and help them avoid the danger of carlooms. Win-win. All right, that's it for today. We'll see you guys next time.

George Kamel - The New (Horrible) Way To Buy A New Car

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