Car loan question

[Mtowncyclone13]

let's say you took that 16k and put it in VFIFX (Target Retirement 2050) fund from Vanguard.

Over the past 5 years it's returned 7.26%. If I put in 16k now at the end of 5 years it would be 22,714, not including taxes or dividends. That's a gain of $6,714 in the same time I paid $1,246 in interest for a total return of $5,468 over the five years.

You can either do that or pay for the car up front in full and not capture those gains.

if you look at it that way there is one clear choice and you are arguing against it.

 

[capitalcityguy]

That's a nice idea, but 100% false. Debt has been a major tool for lifestyle advancement since the early colonization of North America. It's the only way those early English settlers increased the size of their estates once things became officially English.

Whoa…if you think historically the American public as a whole is leveraged anywhere near where we are today, you have a completely different set of history books. Both the private and the public sector are much more leveraged today than at any time in our history. Maybe you have some insight on a small slice of time with the Early English Settlers…more power to you. Just not sure how relevant of a benchmark such a very, specific example is to the modern family.

Dad: “Son, I recommend you never take out a consumer loan or car loan. You’ll be much better off financially in the long run if you save for items, rather than finance them.â€￾

Son: “But our ancestors in Jamestown frequented many a Ye Ole Pay Day Loan Shoppe…â€￾

 

[Mtowncyclone13]

Whoa…if you think historically the American public as a whole is leveraged anywhere near where we are today, you have a completely different set of history books. Both the private and the public sector are much more leveraged today than at any time in our history. Maybe you have some insight on a small slice of time with the Early English Settlers…more power to you. Just not sure how relevant of a benchmark such a very, specific example is to the modern family.

Dad: “Son, I recommend you never take out a consumer loan or car loan. You’ll be much better off financially in the long run if you save for items, rather than finance them.”

Son: “But our ancestors in Jamestown frequented many a Ye Ole Pay Day Loan Shoppe…”

Pawn Broker: "i've got a buddy who is an expert in the field of gunsmithing."

 

[CycloneErik]

Whoa…if you think historically the American public as a whole is leveraged anywhere near where we are today, you have a completely different set of history books. Both the private and the public sector are much more leveraged today than at any time in our history. Maybe you have some insight on a small slice of time with the Early English Settlers…more power to you. Just not sure how relevant of a benchmark such a very, specific example is to the modern family.

Dad: “Son, I recommend you never take out a consumer loan or car loan. You’ll be much better off financially in the long run if you save for items, rather than finance them.”

Son: “But our ancestors in Jamestown frequented many a Ye Ole Pay Day Loan Shoppe…”

I do actually study history without the bias of consumer advocates telling me what to think. That helps.

 

[DeereClone]

it's absolutely not key to getting wealthy at all. i don't know where anyone said wealthy people take out car loans.

Let's be hypothetical. Let's say my total net worth is $150,000. My mortgage is $125,000. I could pay off my mortgage with all my cash but that would leave me with $25,000. While that might be nice I think most people would rather see the $150,000 grow in the market and use for living expenses than have a debt-free house but not much cash on hand.

That's the same with certain car loans if people are honest with themselves and their abilities and intentions.

Financing a home and car are totally different scenarios, IMO.

 

[Clark]

Financing a home and car are totally different scenarios, IMO.

unless you buy a home where the second you take ownership of that home it loses 30% of it's value, yeah it's not a great comparison

 

[Clark]

I do actually study history without the bias of consumer advocates telling me what to think. That helps.

here's my reaction when someone challenges a remark you remade about history:

 

[CycloneErik]

here's my reaction when someone challenges a remark you remade about history:

If you don't mind sharing, I like popcorn. I'm definitely not paying interest on popcorn, though.

 

[ArgentCy]

let's say you took that 16k and put it in VFIFX (Target Retirement 2050) fund from Vanguard.

Over the past 5 years it's returned 7.26%. If I put in 16k now at the end of 5 years it would be 22,714, not including taxes or dividends. That's a gain of $6,714 in the same time I paid $1,246 in interest for a total return of $5,468 over the five years.

You can either do that or pay for the car up front in full and not capture those gains.

if you look at it that way there is one clear choice and you are arguing against it.

Still too simplistic. You'd have to do a cash flow analysis as the person who pays cash can then go and invest what you are paying in car payments every month. Plus they most likely had that cash invested previously so you are ignoring that return. Then on the investment side just assuming a long term average and projecting that number every year can lead to disastrous results. It's not like you can go out and buy a 5 year CD at 6% interest right now.

 

[dmclone]

let's say you took that 16k and put it in VFIFX (Target Retirement 2050) fund from Vanguard.

Over the past 5 years it's returned 7.26%. If I put in 16k now at the end of 5 years it would be 22,714, not including taxes or dividends. That's a gain of $6,714 in the same time I paid $1,246 in interest for a total return of $5,468 over the five years.

You can either do that or pay for the car up front in full and not capture those gains.

if you look at it that way there is one clear choice and you are arguing against it.

You're correct but you're making some assumptions. I can guarantee that you will pay interest on your car loan. You cannot guarantee a market return on VFIFX. If you would have done this in 2007 it would have taken you 6 years to break even. Not saying you're not right in that on average you will be correct but timing is important and unknown.

 

[Mtowncyclone13]

Still too simplistic. You'd have to do a cash flow analysis as the person who pays cash can then go and invest what you are paying in investments every month. Then on the investment side just assuming a long term average and projecting that number every year can lead to disastrous results. It's not like you can go out and but a 5 year CD at 6% interest right now.

this thread has basically boiled down to this:

car loans are not ideal. everyone agrees with this.

however...

if you need a car and can get a good interest rate on an affordable car it may not be a bad idea if you are disciplined with the rest of your financial life.

everyone's situation is different and assuming everyone is the same doesn't help the situation.

 

[Ms3r4ISU]

That's a nice idea, but 100% false. Debt has been a major tool for lifestyle advancement since the early colonization of North America. It's the only way those early English settlers increased the size of their estates once things became officially English.

I thought that was due to so much free labor -- lots of kids and such.

 

[Ms3r4ISU]

You're correct but you're making some assumptions. I can guarantee that you will pay interest on your car loan. You cannot guarantee a market return on VFIFX. If you would have done this in 2007 it would have taken you 6 years to break even. Not saying you're not right in that on average you will be correct but timing is important and unknown.

For the most part, I can agree with you. However, my vehicle loan is 0%, so I think I'm paying no interest.

 

[Cyclonefan710]

How in gods name can you read even one of mtowns responses and say it the type of thinking that gets people into a financial hole? Seems to me he has a pretty good grasp on what he is doing. All you have offered to this discussion is trying to make yourself look like some financial genius while providing zero specifics on what you actually do with your money.

Borrowing money to "free-up" money is just silly. Pay cash and invest or put in savings the car payment you would have had on a monthly basis.

 

[Clark]

this thread has basically boiled down to this:

car loans are not ideal. everyone agrees with this.

however...

if you need a car and can get a good interest rate on an affordable car it may not be a bad idea if you are disciplined with the rest of your financial life.

everyone's situation is different and assuming everyone is the same doesn't help the situation.

almost every answer to a financial question starts with "it depends"

 

[Mtowncyclone13]

Borrowing money to "free-up" money is just silly. Pay cash and invest or put in savings the car payment you would have had on a monthly basis.

do/did you have schools loans?

did you work during school at all?

if so, did every penny you made go into that loan? if not your loan "freed-up" your everyday spending money.

 

[cmjh10]

So did cmjh buy a car yet?

Apparently since I dont have the cash to pay for it up front, I shouldnt. The first few replies were helpful, after that, should have not read.

 

[Clark]

For the most part, I can agree with you. However, my vehicle loan is 0%, so I think I'm paying no interest.

eh, depends on how much you paid right? That interest could have already been imputed into the purchase price, in which case you paid interest, just upfront.

For me it's less about loan vs cash and more about how much value your vehicle has 10 minutes after you drive it off the lot vs how much you paid for it (or borrowed)

 

[Ms3r4ISU]

eh, depends on how much you paid right? That interest could have already been imputed into the purchase price, in which case you paid interest, just upfront.

For me it's less about loan vs cash and more about how much value your vehicle has 10 minutes after you drive it off the lot vs how much you paid for it (or borrowed)

Well, the price was going to be the same whether I paid for it outright or did the loan route. I suppose they could have been lying to me.

 

[AgronAlum]

Apparently since I dont have the cash to pay for it up front, I shouldnt. The first few replies were helpful, after that, should have not read.

Back on topic. I've been with Veridian CU (John Deere) for the last 15 -20 years or so and I always recommend them to anybody looking to finance or just open an account. They are great to work with and great rates with no extra BS.

Plus the HyVee in store branches are open all day Sat and half days on Sunday's. Their phones are open long hours 7 days a week as well.