Canadians 'drowning in debt': 47% will borrow to cover costs, survey says

[Weitz]

Originally Posted by GoinAllTheWay

Ya, that's where taking the cost of the loan into consideration is important. OK, so my disconnect isn't as bad as I thought.

I do need a new car, and I could certainly pay for a brand new one in cash, just struck me as not doing it right I guess? Put down a healthy down payment, make sure the monthly payments fit into my budget and then invest a good chunk of the remaining money.

And I would almost certainly by used. 2 yrs old is perfect I think.

At times I feel like I have to much sitting in the bank doing nothing productive but the though of just dumping a majority of it into a new vehicle strikes me as bad use of resources.

Is it? If you find the vehicle that fits what you want take a look at the 2 year old models (likely a rental or lease return) and compare to the brand new. Your interest rate is going to be much higher on that 2 year old car, the savings you get are not going to be as much if you factor in the additional costs to borrow, and then the potential of an abused vehicle also needs to be factored it.

Now every situation is different but you have to look at everything.

[you&me]

Originally Posted by GGG

This might be the most privileged thing I have read. We were a family of 5 rather than 6 but I don’t think we knew what we were missing in a large home. In certainly wasn’t cramped.

But it really shows the change in mindset between what you believe you need and what you actually need overtime.

Please... don't give me this hollier-than-thou want vs. need argument.

It's not a stretch to say 6 people in 900sf would be unpleasant - especially if 4 of them are kids!

I don't see how it's really that "privileged" - it's just math... 6 people in 900sf means 150sf per person. Are you saying that if someone else posted that living in a 200sf micro apartment is a "nightmare", that would be "privileged" too? What about a family of 4 in 600sf?

You were a family of 5 in a 900sf home? Is that main floor + developed basement for 1,800 total sf? Or 900 total?

[chedder]

Originally Posted by undercoverbrother

Wait till your kids get older, they will take up more space.

And that's why, as dad, you need a decent garage. Heated, chairs and a tv. Best hideout you can find.

[Tyler]

Originally Posted by Weitz

Is it? If you find the vehicle that fits what you want take a look at the 2 year old models (likely a rental or lease return) and compare to the brand new. Your interest rate is going to be much higher on that 2 year old car, the savings you get are not going to be as much if you factor in the additional costs to borrow, and then the potential of an abused vehicle also needs to be factored it.

Now every situation is different but you have to look at everything.

This is us basically in a nutshell right now trying to determine if we want to buy a used rental or get something new with basically 0% finance rate (yes we know 0% means a higher sticker price)

[Dion]

Originally Posted by Scroopy Noopers

My biggest fear about the wealth inequality is I feel like every boomer I know has their retirement tied up in housing. They are all relying on being able to sell their primary residence (and in a lot of cases, their secondary residence) for a huge return. Well... who the hell is going to buy them?

I must be different from your boomer friends and boomers in general.

I grew up in a frugal household where money was always tight. Vacations were always trips to the mountains with a tent trailer. My first trip on a plane was a HS trip to England when I was in grade 12.

As kid if I wanted money for hockey tickets, movies etc, I had to do work for it in chores. I learned very quickly about the value of money and the cost of doing things.

My retirement was never based on housing. I put money away into an RRSP at age 20 and made regular contributions from there on. Also found someone who could manage my money and make the right investments. Luckily both of those worked out okay for me.

The big thing for me was I inherited my late fathers values on money. I'm tighter than bark on a tree when it comes to spending it and I always have to think things over when it comes to making any large purchases. I'm not an impulse buyer. I've always hated debt and any that I had was paid off as soon as possible.

It also helped that I had a good paying job with benefits and a small pension.

Right now i'm debt free and everything I own is paid for. I do my best to live within my means and that means not taking on any debt where and if possible. Credit cards are paid off every month and any trips I take are paid with cash. My life style is not extravagant.

I'm not a materialistic person who has to have the best of everything. I drive a 13 year old vehicle that still runs great. I can often be found in Value Village looking for a good quality, gently used golf shirts, pants and shorts That's not to say I don't mind paying for brand new clothing.

Add to the above, I have zero desire to keep up with my brother who has to have the best of everything and is always making payments on something, plus the headaches that go with it. He once said to me: "You don't own it, it owns you!" One day he'll figure it out.

[Weitz]

Originally Posted by Tyler

This is us basically in a nutshell right now trying to determine if we want to buy a used rental or get something new with basically 0% finance rate (yes we know 0% means a higher sticker price)

Not always. You can figure out what the dealer paid and what you should be paying relative to that.

Its a nice time right now to be buying. Some good deals to be had.

I actually might be picking up a new vehicle tonight or tomorrow as the incentives right now (including 0%) are really good.

[you&me]

Originally Posted by GoinAllTheWay

Ya, that's where taking the cost of the loan into consideration is important. OK, so my disconnect isn't as bad as I thought.

I do need a new car, and I could certainly pay for a brand new one in cash, just struck me as not doing it right I guess? Put down a healthy down payment, make sure the monthly payments fit into my budget and then invest a good chunk of the remaining money.

And I would almost certainly by used. 2 yrs old is perfect I think.

At times I feel like I have to much sitting in the bank doing nothing productive but the though of just dumping a majority of it into a new vehicle strikes me as bad use of resources.

It will take some additional research, but what you should really focus on when buying a new (or new to you) vehicle is total cost of ownership and the single biggest expense when it comes to TCO is depreciation, so you want to look for vehicles with strong residual values.

The reason why a lot of people focus on two year old used cars is it's a general sweet-spot for the second buyer's TCO... Most depreciation happens right away with a new car, so the depreciation curve has likely started to level off. The vehicle's been driven enough to iron out any service or mechanical issues, but still has some warranty coverage going forward.

[Rubicant]

Originally Posted by GGG

Ask them for receipts to take it back and put money in RESP. It’s awkward once but in my case it worked to cut down but not eliminate the amount of crap.

I really shouldn't complain - they are exceedingly generous. They pay for any activities (gymnastics, ski lessons etc) and offered to contribute to the kids' RESPs as well (we told them we already max those). Both our parents helped out with our educations (my wife's parents gave her a huge leg up by ensuring no education debt) so we feel we should take care of that for our kids, not them.

I'd even be fine with far fewer items of higher quality than the quantity of 'crap' they do now.

[DuffMan]

Originally Posted by Weitz

I used to be that way. But now I think I carry cash all month and it only gets used at a montly poker game I play in.

same, I only use cash for poker and golf betting.

[CliffFletcher]

Originally Posted by Rubicant

Car finance people know that most people only look at the monthly payment so they talk them into way too long a term to afford a car they shouldn't.

More than half of new car loans in Canada today are financed for seven years or longer. Less than 10 per cent of American car purchases are financed with long-term loans.

And a third of Canadians are still paying off the loan on the car they trade in when they finance their next car.

https://www.cbc.ca/news/business/deb...term-1.4863737

This really is a cultural sea change.

[Locke]

Originally Posted by Dion

I must be different from your boomer friends and boomers in general.

I grew up in a frugal household where money was always tight. Vacations were always trips to the mountains with a tent trailer. My first trip on a plane was a HS trip to England when I was in grade 12.

As kid if I wanted money for hockey tickets, movies etc, I had to do work for it in chores. I learned very quickly about the value of money and the cost of doing things.

My retirement was never based on housing. I put money away into an RRSP at age 20 and made regular contributions from there on. Also found someone who could manage my money and make the right investments. Luckily both of those worked out okay for me.

The big thing for me was I inherited my late fathers values on money. I'm tighter than bark on a tree when it comes to spending it and I always have to think things over when it comes to making any large purchases. I'm not an impulse buyer. I've always hated debt and any that I had was paid off as soon as possible.

It also helped that I had a good paying job with benefits and a small pension.

Right now i'm debt free and everything I own is paid for. I do my best to live within my means and that means not taking on any debt where and if possible. Credit cards are paid off every month and any trips I take are paid with cash. My life style is not extravagant.

I'm not a materialistic person who has to have the best of everything. I drive a 13 year old vehicle that still runs great. I can often be found in Value Village looking for a good quality, gently used golf shirts, pants and shorts That's not to say I don't mind paying for brand new clothing.

Add to the above, I have zero desire to keep up with my brother who has to have the best of everything and is always making payments on something, plus the headaches that go with it. He once said to me: "You don't own it, it owns you!" One day he'll figure it out.

Is your Brother Tyler Durden?

[Jason14h]

Originally Posted by CliffFletcher

More than half of new car loans in Canada today are financed for seven years or longer. Less than 10 per cent of American car loans are financed with long-term loans.

And a third of Canadians are still paying off the loan on the car they trade in when they finance their next car.

https://www.cbc.ca/news/business/deb...term-1.4863737

This really is a cultural sea change.

Who 'needs' to trade in a car after 7 years. I guess if you had 3 kids in that time?

[peter12]

Originally Posted by CliffFletcher

More than half of new car loans in Canada today are financed for seven years or longer. Less than 10 per cent of American car purchases are financed with long-term loans.

And a third of Canadians are still paying off the loan on the car they trade in when they finance their next car.

https://www.cbc.ca/news/business/deb...term-1.4863737

This really is a cultural sea change.

That is really wild. I can't even imagine the stress.

[Sliver]

Originally Posted by Weitz

Is it? If you find the vehicle that fits what you want take a look at the 2 year old models (likely a rental or lease return) and compare to the brand new. Your interest rate is going to be much higher on that 2 year old car, the savings you get are not going to be as much if you factor in the additional costs to borrow, and then the potential of an abused vehicle also needs to be factored it.

Now every situation is different but you have to look at everything.

Remove interest rates entirely from the equation by paying with cash and you're saving right there. Buy used in a private sale and you're not paying for staff, dealership overhead or GST. Two years old has already taken a pounding on depreciation. Have a mechanical inspection done and check the VIN for accidents and you'll have peace of mind, not to mention a two-year old car is still going to have factory warranty.

There is no circumstance where a new car from a dealership is a better financial decision than a used private sale. Plus, you get a way better car than what you can afford new.

[Dion]

Originally Posted by Locke

Is your Brother Tyler Durden?

That would be an accurate description of my brother. He's got more toys than Carter has liver pills and for what??? Look up materialism in the dictionary and you'll probably see his picture beside the definition. It's insanity!

[Weitz]

Originally Posted by Sliver

Remove interest rates entirely from the equation by paying with cash and you're saving right there. Buy used in a private sale and you're not paying for staff, dealership overhead or GST. Two years old has already taken a pounding on depreciation. Have a mechanical inspection done and check the VIN for accidents and you'll have peace of mind, not to mention a two-year old car is still going to have factory warranty.

There is no circumstance where a new car from a dealership is a better financial decision than a used private sale. Plus, you get a way better car than what you can afford new.

While all true. It really depends on what it is you are buying and what you can do with all that money instead of dumping it into a depreciating asset.

As a poster earlier stated "Rich people use other people's capital to finance depreciating assets."

[Rubicant]

Originally Posted by CliffFletcher

More than half of new car loans in Canada today are financed for seven years or longer. Less than 10 per cent of American car purchases are financed with long-term loans.

And a third of Canadians are still paying off the loan on the car they trade in when they finance their next car.

https://www.cbc.ca/news/business/deb...term-1.4863737

This really is a cultural sea change.

The dealerships are increasingly aggressive at trying to get people to purchase new cars too early as well.

I always get phone calls from Honda to sell my 2017 CRV and purchase a brand new car. They try to suggest that they really want my particular car for their used car department and will give top dollar on a trade in, as well as a great bargain on the new one to maintain my current monthly payment (for much longer than the original term of the loan of course).

Of course it's a terrible idea, if I really wanted to turn my cars over every 3 years (I don't) I would just lease them instead of constantly financing a new one, eating the depreciation in the process.

I bet it works on A LOT of people though who always want the latest and greatest, and only look at the monthly payment.

[peter12]

Originally Posted by Rubicant

The dealerships are increasingly aggressive at trying to get people to purchase new cars too early as well.

I always get phone calls from Honda to sell my 2017 CRV and purchase a brand new car. They try to suggest that they really want my particular car for their used car department and will give top dollar on a trade in, as well as a great bargain on the new one to maintain my current monthly payment (for much longer than the original term of the loan of course).

Of course it's a terrible idea, if I really wanted to turn my cars over every 3 years (I don't) I would just lease them instead of constantly financing a new one, eating the depreciation in the process.

I bet it works on A LOT of people though who always want the latest and greatest, and only look at the monthly payment.

The dealership model only works if there is persistent turnover of new vehicles.

This episode of EconTalk from about 11 years ago gives some great background.

https://www.econtalk.org/cole-on-the...-for-new-cars/

[Shazam]

Originally Posted by CliffFletcher

More than half of new car loans in Canada today are financed for seven years or longer. Less than 10 per cent of American car purchases are financed with long-term loans.

And a third of Canadians are still paying off the loan on the car they trade in when they finance their next car.

https://www.cbc.ca/news/business/deb...term-1.4863737

This really is a cultural sea change.

I'm sure I'm the outlier, but last car I bought I financed for 7 years, zero % interest and negotiated the price down quite a bit as well.

I realize most people can't negotiate all all though.

[Azure]

There are arguments both ways.

If you don't put on a ton of miles, why not finance for 2-3 years, but put on a big down payment so your monthly costs are less? Then after 3 years it is paid off and your cash flow is improved.

But the other argument is why tie up so much money into something that is worthless after a few years, so lease instead. That way you can avoid the depreciation hit, service related problems, etc, etc. Of course you are also stuck paying monthly lease payments for the rest of your life.

Really depends where you are at with your life. To me cash flow is king and should matter quite a bit with how you setup your budget and what you buy or invest in. Balance that with a true cost outlook and you should know exactly where you are at.

A lot of people simply don't know how to properly manage cash flow. Just because you CAN make the monthly payments on a $80k SUV, doesn't mean it is a wise decision.

That is why the budget is important as you can structure your entire cash flow.