The first question's answer is, "it depends". If you're "well-qualified", you can get a rate that most people would consider pretty reasonable, particularly in the new car market. If you're not well-qualified, well, a high interest rate and a long term (think 5-7 years) are waiting for you.

Second question's answer: No. They're not. 40 years ago the powers-that-be in the American financial system decided it'd be a great thing for their balance sheets if everything was turned into a purchase on credit, and for purchases that were already on credit (homes, cars, business capital, student loans) to draw even more in the way of fees. Meanwhile, everything's become more expensive (as it can be on credit) and wages have remained stagnant.

In the off chance that they are able to save for retirement, tax law makes it something you don't want to draw from until you're retirement age. If you have a 401k, for example, and withdrew from it to purchase a car, you're going to be expected to pay the tax on the money you put into it immediately.

"People aren't saving enough for retirement" has been the case forever. It's human nature to prioritize urgency over importance, and when it's most impactful to save for retirement (your early 20s) you're making the least and it's really hard to justify maxing out that 401(k) and Roth IRA as a new grad in an expensive city, or in a non-HCOL area making comparatively less. Not a lot of 20-somethings want to drop a third of their gross into a retirement fund especially if they have high earnings potential as most people reading these comments do.

It's a huge stretch to pin that on the proliferation of credit.

> In the off chance that they are able to save for retirement, tax law makes it something you don't want to draw from until you're retirement age. If you have a 401k, for example, and withdrew from it to purchase a car, you're going to be expected to pay the tax on the money you put into it immediately.

Uh... good? 401(k)s are tax-advantaged to encourage using them for what they're for. And if you really, really need the money, a 10% penalty on top of the taxes you legitimately owe on that pre-tax money is nothing. The real hit comes from losing all the future gains and the inability to "replace" that money the way you can with some other tax-advantaged instruments.

> "People aren't saving enough for retirement" has been the case forever. It's human nature to prioritize urgency over importance, and when it's most impactful to save for retirement (your early 20s) you're making the least and it's really hard to justify maxing out that 401(k) and Roth IRA as a new grad in an expensive city, or in a non-HCOL area making comparatively less. Not a lot of 20-somethings want to drop a third of their gross into a retirement fund especially if they have high earnings potential as most people reading these comments do.

It's a huge stretch to pin that on the proliferation of credit.

Most people reading these comments aren't the average person. We live in a privileged bubble where we have the income that generates the possibility of being able to own property.

There are far more people living paycheck-to-paycheck with the "assistance" of a credit card than we would like to admit.[0] If there weren't, the Fed wouldn't have injected so much money into the economy during the pandemic. They did so because the average person doesn't have the savings to not work for a month, and because the US federal government doesn't have the savings to give out the money as funded by tax revenues.

[0]https://www.bankrate.com/finance/credit-cards/living-paychec...

In the US, retirement savings can be tax advantaged, so you'd need to take a look at that and compare the penalties to the interest.

Rates depend heavily on credit score and incentives. It's not uncommon to find cars available with financing for less than "market" rate financing.

For example, Toyota is currently financing Tundra's at 2.25% - which is well below market rate (~5%)

> If they do, wouldn't it be better to take the money to buy the car from your savings and avoid paying interest?

Despite being able to purchase our vehicles with cash, we tend to prefer financing for a few reasons.

* It keeps our working cash liquid. Vehicles are just about the easiest thing to finance, so we can put that liquid cash to work elsewhere without having to pull from less-liquid sources.

* We can get similar or better returns if we invest the financed cash elsewhere. For example, CDs are currently offering ~5% to 5.5% return. Combine that with a financing deal, and it's basically just "free" cash for financing vs buying outright.

> Are people not saving for their retirement?

Your retirement savings in the US has no fallback, except social security. So taking money out of it to buy a quickly depreciating liability like a car would be a really bad plan as most financial advisers would say. It feels tempting, and on paper you may even be a millionaire who happens to feel broke all the time, but like everything in life it simply depends.

> wouldn't it be better to take the money to buy the car from your savings and avoid paying interest?

We bought our car a few weeks before rates were raised. The interest on our car is 4%, the interest on our savings is now 5.5%. So it worked in our favour to finance when rates were extremely low.

They've actually been comparable to mortgage rates. My car and house purchased in 2020 are both 2.75, now houses and cars are more in the 7 range depending on your credit.

Houses are high 7’s now and could easily go higher. Crazy time

It's only "crazy" if your context is an aberrant period of time when borrowing huge sums of money was basically free. Plenty of people alive today bought homes at 8, 10, 12, 15% interest rates.

I think that's more normal. When my parents bought I think they said it was 13 in the late 80s. We've just been spoiled by ZIRP

The economy got addicted to cheap money. 7% is historically pretty reasonable. The problem for houses is that we didn't build any after the 2008 crisis and the baby boomers have enacted a lot of policies for themselves that cut their property taxes at the expense of young people who want to buy their first home.

if you take the money out of your 401K before you are 59.5 years, you will get a 10% penalty in addition to the amount being taxed... tax alone could easily be 25%

Good? It's tax-advantaged for a reason. As a taxpayer I want people paying for their own retirement. I don't want social spending to explode because people don't save enough. The penalty (which is not nearly high enough IMO) is there to dissuade people from using it as a piggy bank then mortgaging their future and the social spending of their neighbors because they want to buy a new Tahoe or put an addition on their fully-mortgaged house.

A quick check at my local credit union shows APRs between 6-7.5% for people with “excellent” credit.

Compared to when I bought my recent car, rates were hovering between 1-2% (2015-2017).

A large majority of Baby boomers in US reportedly do not have savings for retirement [1]. A large portion of the US living paycheck to paycheck. And many of those people do not have the savings to cover more than a $400 emergency. [2]

most people won’t have the liquidity to pay out of pocket. Thus why they reach for loan products. Either that or they forgo medical expenses or forgo other expenses.

[1] https://thehill.com/business/personal-finance/3991136-nearly...

[2] https://time.com/personal-finance/article/average-american-s...