Dave Ramsey Is Still A Giant Moron When It Comes To The Car Market (2024)
One of the big problems we have in the U.S. is looking to people with money and thinking that because they have money, they have all the answers. One of the worst examples of this is Dave Ramsey, self proclaimed financial…I don’t know. We’ve talked about how badhis advice is before. I guess some people didn’t get the memo as he’s still out here doling out questionable financial advice about cars. Take this recent episode:
A woman from Florida called into Ramsey’s show expressing concern over her husband’s recent car purchase. The husband — who makes $90,000 a year and is the sole income earner right now — wanted an SUV and went to purchase one for $32,000. He paid that SUV off and after an unspecified period of time, the dealer contacted him with an upgrade offer, saying he could trade in the SUV and get an EV. Apparently the offer was good enough for the husband to bite as he ended up buying a Kia EV6 in April 2022.
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A few things about this stand out. For one, the wife says she was under the impression that the upgrade offer was something that would be an equal trade, leading me to believe that the dealer got him on the trade which isn’t mentioned.
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Second, she says he purchased the EV6 for $72,000. EV6 pricing doesn’t reach that high, which also tells us that the dealer screwed him on the purchase and likely marked it up, especially given the timeframe that he purchased it in. Now the wife says they’re stuck paying $1,200 a month (not including insurance) on an EV that they still owe $62,000 on. She says that they’ve been trying to get rid of it, but that they’ve only been offered $40,000 for it, leaving them $20,000 upside down. She says the reality of the situation didn’t kick in until months later and the husband regrets the decision calling it “dumb.” This is when Ramsey’s cluelessness about the car market kicks in.
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Ramsey couldn’t accept that a car could depreciate that much in such a short timeframe. Except it can. The EV6 has the double whammy of being a Korean EV; that’s double depreciation. It’s why you can find EV6s just a year or two old with low miles going for just over $30,000 in a lot of places. Even with this fact, Ramsey wouldn’t accept this and has his co-host check the values of EV6s. He does this while remarking that either the husband is lying to justify keeping the EV6, he’s just not good at the car-buying thing or both. Ramsey then continued showing just how clueless he is with a wild suggestion.
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He suggested to the wife that they try and sell the EV6 for $50,000 which, lets stop and consider that for a moment. If dealers aren’t willing to give them more than $40,000, where exactly does Ramsey think a buyer will come from that will give them $10,000 over what’s presumably the market value on a vehicle from a segment that loses half its value in just three years? Oh, but Ramsey’s world-class financial advice gets better.
He then told the wife, to cover the hole of what they owe on the EV6, they should take out a loan for $10,000-$12,000 from a local bank or credit union to cover it. He also suggested that they borrow $10,000 to buy a $5,000 car and called it a “stupid tax.” Then use the husband’s income to pay that off and get rid of some of their $2,000 credit card debt. At the end of the segment, he tells them to attend his Financial Peace University and offers to pay for it.
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In no way should they listen to any of Ramsey’s advice. The reality of the situation is the husband just got got by the dealer. Given the timeframe, it sounds as if he was bit by the EV bug and the dealer talked him into getting a marked up EV6 when they were flying off the lots. And now that the EV luster has worn off and the market has cooled, they’re in a messed up financial situation. With how screwed up this situation is, their best bet is to either suck it up and pay it off when they can — which is possible because the husband makes good money — or take a loss and sell it private party and then use that money to pay down a good chunk of the loan and go from there with refinancing or rolling the remaining debt into a cheaper car. Whatever the end result is, they’re going to be in some mess for awhile and they should probably speak to an actual financial advisor, not someone who plays one on TV.
“Your cars, trucks, boats, motorcycles, and other vehicles should not have a total value that exceeds half your annual income. Why? You don't want too much of your wealth tied up in things that depreciate. And cars, trucks, and things with motors depreciate big time,” Ramsey posted on X.
According to Carfax, cars lose 20% of their value in the first year of ownership and retain just 40% of their original value after five years. “Your goal should be to buy the least expensive car. Period,” said Orman. “That should steer you to a used car rather than a new car.”
The average new car loan totals $40,366 with monthly payments of $738 at 7.18% interest. The average new car loan term is 68 months—that's more than five and a half years!
The top 10 car brands driven by millionaires, according to a Ramsey post on X (formerly Twitter) are:
Toyota. The average price for a Toyota went up to $38,198 in the automaker's second quarter of its 2024 fiscal year, according to Carsdirect, citing Cox Automotive data.
Financial experts answer this question by using a simple rule of thumb: Car buyers should spend no more than 10% of their take-home pay on a car loan payment and no more than 20% for total car expenses, which also includes things like gas, insurance, repairs and maintenance.
How much should I spend on a car if I make $60,000? If your gross salary is $60,000, your take-home monthly pay is probably around $3,750, assuming about 25% of your pay goes toward taxes and other expenses. Based on the 10-15% calculation, you should spend no more than $562.50 on a monthly car payment.
Based on these assumptions, the total annual cost of owning a $100,000 car would be $27,784 [1]. This means you would need to make $277,840 per year to comfortably afford the car. However, this calculation does not include taxes and registration fees.
20% down — be able to pay 20% or more of the total purchase price up front. 4-year loan — be able to pay off the balance in 48 months or fewer. 10% of your income — your total monthly auto costs (including insurance, gas, maintenance, and car payments) should be 10% or less of your monthly income.
The total value of all your vehicles shouldn't be more than half your annual income. Why? Well, you don't want too much of your wealth tied up in things that depreciate (or go down in value).
"Cars drop in value like a bag of rocks, losing 60% of their value in the first five years! This isn't a smart investment. You really should only consider buying new if you have plenty of money to burn." With this in mind, Ramsey urges potential car buyers to understand what dollar amount they are capable of spending.
His collection includes several high-end vehicles such as a Cadillac Escalade, Land Rover Range Rover, Mercedes-Benz S450, Ferrari Pininfarina Sergio, W Motors' Lykan HyperSport, Bugatti Veyron Mansory and Koenigsegg CCXR Trevita.
While Musk hasn't explicitly named a favorite, he frequently drives Tesla models, suggesting a personal preference for their performance and sustainability. He's also expressed admiration for the classic Jaguar E-Type and the iconic McLaren F1.
“Some [rich people] prioritize financial prudence and long-term wealth accumulation over ostentatious displays of wealth,” said Kilday. “Instead of spending money on expensive cars, wealthy individuals who choose to drive more modest vehicles [often] focus on building their investment portfolios.”
Car leases are fleeces he says. He's quite vocal in his opinion about car leasing, and that's expressed in a reply he gave to a question on how to get out of a car lease. Dave vehemently opposed this transportation style simply because of its capacity to increase transportation costs.
According to Ramsey, selling the vehicle is your best solution if you no longer want to owe more on your car than it is worth. "If you want to get out of an upside-down loan, you've got to sell the car," Ramsey said. "That's right -- it's time to amputate the Tahoe (or whatever car you're underwater on)."
The rule is this: The purchase price of a vehicle (taxes included), shouldn't exceed $1500 per year, when averaged over the number of years you own the vehicle. The rule applies regardless of vehicle type (car, truck, SUV), or whether it's new or used.
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