What's up with the cars?

Roger Schlesinger
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Posted: Oct 07, 2006 12:44 PM

Before I begin this column I must admit that I was born without the car "gene". That is the one that makes people feel they must show their status, personality, worthiness, sexuality, snobbishness, political correctness, extraordinary mechanical ability or life style by the car they choose. I, on the other hand, believe a car is for transportation.

When I told my wife what I was going to write about and that I was born without the gene she readily informed me, as if I didn't know, they she was born with it. One noted talk show host said to me after leaving the restaurant and seeing my car in the parking lot, why was I driving that?

I believe not only in an ordinary, functional car, but one that runs on the lowest octane so I can spend less at the pump. Needless to say we have the other kind as well and if I wish to ride in “said car” belonging to my spouse, a professional with her own business, I must refrain from my lack of car gene comments. I will give her points on having a much faster car.

So why all the drivel about cars? People know way too much about their cars and way too little about their homes and mortgages. How do I know? Every time I have a speaking engagement, I first do a survey about cars and car financing. Nearly everyone has all the answers including how many months left on their loan.

When it comes to their house, though, no one has any idea of how many years, let alone months, they have left on their mortgage. They also do not know their monthly payment. Some, albeit very few, know their interest rate and the type of loan they have. It is certainly easy to see that why people have more problems related to their home loan than to their automotive financing.

The last statement is really only partially correct, even though I wrote it. While the overwhelming majority of people get the automotive financing correct, the problem is that it doesn't fit within their financial plan, (even if they don't have one). Automotive financing is hazardous to one’s cash flow. Typical payments are anywhere from $300 to $1000 dollars or more a month which few people can really afford and make progress on the road to financial freedom.

And furthermore, they are overpaying. In most cases if you combine the car payment with the home mortgage both do better. Taking a 30 year fixed and a car payment and combining them into one loan generally can save you money on a monthly basis and cut your amortization to a 15 or 20 year loan. The important thing to know is assuming the car gets paid off first, which is usually done from a few months to a year or more, (which is earlier than staying in their current loans) they will also benefit by cutting the amount of years on their mortgage at least 5 to over 10 depending on which loan they choose.

Interest on automobile financing is generally not tax deductible, while interest paid through a mortgage usually is tax deductible (There are some limits to the size of the loan and also some rules regarding how much cash can be taken out of the property).

This helps to insure that mortgage interest is going to be less than automotive financing interest. The biggest problem with automotive financing as compared to mortgage financing relates to the fact that automobiles as a whole are depreciating assets while houses are appreciating assets. With mortgage financing the time that you spend paying on non-producing assets is less. (See earlier paragraph) The more efficient you are with your cash flow, the better chance you have in accumulating the assets you will need for the rest of your life.

In the end it is your decision as to what you want and need in your life. If you don't give in to your "car gene" in latter life, you might realize you didn't need it or really even wanted it. If you do still want it once your have gotten a little "longer in the tooth" and have become empty nester's, then you might be in a better position to have what you want: a sleek convertible or a 4 door truck with power to pull half the state of Wyoming.

Decisions aren't easy, and generally do not result in a right or wrong answer. They always though, have consequences. And that is what YOU have to live with.