Car loan question

[cycloneworld]

This is just wrong. Objectively. It can be a smart financial move to borrow money. Debt aversion is not always a good thing.

When someone says "always" or "never", they are almost always wrong. In some cases, it can be better to finance something rather than pay 100% cash up front. A car payment can be one of those things if you are smart enough with your money and you get a good rate.

This is right on. For some people that can't save money and need to spend it, buying a car on credit might be a bad idea. But for me, for example, I invest in real estate (rentals). If I was going to buy a $40,000 truck, I could buy a $200,000 rental property with that cash that could net me $200-$400 per month in cash flow. Plus mortgage paydown, plus depreciation, etc.

So why wouldn't I finance something at 1.99% in that scenario?

 

[wxman1]

Could it be possible that both ways can work for different people? We are created differently and are at different stages in life. I think we are all on the same page that this is all with the caveat that you are not racking up tons of debt and financing every little thing.

 

[00clone]

Could it be possible that both ways can work for different people? We are created differently and are at different stages in life. I think we are all on the same page that this is all with the caveat that you are not racking up tons of debt and financing every little thing.

No, there can only be one. I will now finish you. Or perhaps finnish you, if you're Scandinavian.

 

[clonetone]

Could it be possible that both ways can work for different people? We are created differently and are at different stages in life. I think we are all on the same page that this is all with the caveat that you are not racking up tons of debt and financing every little thing.

Yes, this is true and a good post. People should keep this in mind.

It is posts like these that are mistaken, because they don't allow for that nuance:

If possible, it is always better to pay for something up front than to finance it.

Mr Money Mustache would be a great example. Retired by the time he was 30. Yes 30. His take on car loans:

Rule #1: You NEVER, EVER borrow money to buy a car.

 

[Cydewayz]

Dang CF....this thread was in my head when i was "off line" the last few days. I recently bought/sold a vehicle and paid cash.....BUT, I also researched and chose to buy a car that isn't full of bells and whistles.....but got me thinking....there is not "right" answer with money choices...it usually is what is right for you and your situation.

For example, based on my family situation as a kid and my college/grad school years, I made a goal that money wouldn't be a stress in my life....so, I typically have money on the ready for emergencies so if a furnace goes out or anything else, I cut a check and move on and don't have to scramble to figure out things. Yes, I do invest..but I also feel I live a lifestyle that is nice, but also well below my means.

EVERYONE has their "thing" which someone else could judge based on values. My wife and I have a COMBINED cell phone bill of $25 a month using a wifi/cell hybrid style plan (as we both are in wireless all the time)...but we decided to do that as we didn't NEED data, etc. I could easily afford a plan that gave us all the bells/whistles of a cell phone, but we don't NEED it. (and I do, by the way, invest the "extra" i would be spending on a phone that I was paying in the past).

I'd say the same goes with cars.....dining out....you name it. All of us have areas we could look at differently...but this thread is about vehicles.

 

[capitalcityguy]

There is a lot of “don’t judge me†or “never speak in absolutes†comments on this thread. I find this rich. (no pun intended)

Let’s make a deal. As soon as the US population has an excess saving’s problem vs what we have now, a consumer debt problem, we can start to worry about being more sensitive about word usage. Fair enough?

In the meantime, A MAJORITY of people are making awful financial decisions and because of that, we’re probably going to be paying for their kids’ college education, their retirement, their medical bills, etc. etc. etc. while in the meantime getting brow beaten over the head for “not paying our fair share of taxesâ€.

People need more straightforward advice when it comes to consumer debt, not less. Don’t worry, the marketers and the creditors will provide plenty of noise on how easy it is to finance, how low monthly payment can me, how debt makes sense, etc. etc. It is almost laughable that anyone would waste any keystrokes promoting the value in debt for certain situations. News Bulletin: The world is already telling us that…everyday!! What value does it add here by repeating what is said every day in the media, marketing, etc… The contrarian viewpoint might actually help keep some people from going bankrupt or at the very least, have some money to help send their kids to college while creating a healthy nest egg for retirement.

 

[Mtowncyclone13]

Why do the people saying not to do it assume everyone who does it a terrible saver?

I financed a car with a 16k loan. I chose the 5 year plan instead of the 3/4 year plan because it allows me to continue to max out my Roth IRAs, contribute to 401k at work, save into my rainy fund, and live the same life as before the loan. Am I dumb? how do you know people's situation other than "most people do X" or "most people do Y". you don't know person asking the question so don't speak in absolutes.

 

[jkclone]

Why do the people saying not to do it assume everyone who does it a terrible saver?

I financed a car with a 16k loan. I chose the 5 year plan instead of the 3/4 year plan because it allows me to continue to max out my Roth IRAs, contribute to 401k at work, save into my rainy fund, and live the same life as before the loan. Am I dumb? how do you know people's situation other than "most people do X" or "most people do Y". you don't know person asking the question so don't speak in absolutes.

I think a lot of it is that 99% of people can't or don't do what you do. I agree if you can do it and make more than you are paying in interest then that makes sense. The problem is very few people can do that. Even businesses aren't disciplined to do that a lot of the time.

It comes down to who is taking the advice. I would guess most of the people here that give advice are smart enough to do these things. That doesn't mean that it is good advice for most people. To many times people who don't know what they're doing ask for advice and are given the way that in theory makes the most money. The problem is they don't have the skills or knowledge to follow through and therefore spend more money than they should.

If someone asks should I borrow money for a car generally the advice should be no unless you know they can or you help them take advantage of those opportunities.

 

[dmclone]

Why do the people saying not to do it assume everyone who does it a terrible saver?

I financed a car with a 16k loan. I chose the 5 year plan instead of the 3/4 year plan because it allows me to continue to max out my Roth IRAs, contribute to 401k at work, save into my rainy fund, and live the same life as before the loan. Am I dumb? how do you know people's situation other than "most people do X" or "most people do Y". you don't know person asking the question so don't speak in absolutes.

The people who say this have probably looked at stats that show the average American is a financial mess.

 

[Cyclonefan710]

Why do the people saying not to do it assume everyone who does it a terrible saver?I financed a car with a 16k loan. I chose the 5 year plan instead of the 3/4 year plan because it allows me to continue to max out my Roth IRAs, contribute to 401k at work, save into my rainy fund, and live the same life as before the loan. Am I dumb? how do you know people's situation other than "most people do X" or "most people do Y". you don't know person asking the question so don't speak in absolutes.

No the problem is there are a lot of people that are financially dumb who stretch themselves out really thin by tying up most of there monthly cash flow. Then when they hit adversity their finances crumble like a house of cards.

I think there is something freeing about receiving a paycheck not having to put any of it towards debt. You can invest every dime of it if you want. If you put at least 15%-20%% towards retirement and pay cash for everything aside from maybe your first couple houses you are going to be sitting pretty come retirement.

 

[cydline2cydline]

Good thing the OP didn't ask about leasing a vehicle... :spinny:

 

[chuckd4735]

No the problem is there are a lot of people that are financially dumb who stretch themselves out really thin by tying up most of there monthly cash flow. Then when they hit adversity their finances crumble like a house of cards.

I think there is something freeing about receiving a paycheck not having to put any of it towards debt. You can invest every dime of it if you want. If you put at least 15%-20%% towards retirement and pay cash for everything aside from maybe your first couple houses you are going to be sitting pretty come retirement.

Cool! You find it freeing to not have any debt, I find it freeing to be able to purchase things I like and incur some minor debt, that doesn't mean I am financially dumb. I could understand if you were lecturing people about incurring a boat load of credit card debt, but we are talking about a freaking car loan.

 

[DurangoCy]

Why do the people saying not to do it assume everyone who does it a terrible saver?

I financed a car with a 16k loan. I chose the 5 year plan instead of the 3/4 year plan because it allows me to continue to max out my Roth IRAs, contribute to 401k at work, save into my rainy fund, and live the same life as before the loan. Am I dumb? how do you know people's situation other than "most people do X" or "most people do Y". you don't know person asking the question so don't speak in absolutes.

If you paid cash, would you have bought a 16k+ car? If you didn't buy a 16k car, what would you have spent that money on? Instead of your same life, would you be living a better life? I think those are the questions that people who pay cash for everything have to ask themselves and then answer before they purchase big ticket items.

If you answer those questions and wouldn't have changed anything about the purchase of the car and your lifestyle by financing vs. paying cash, you're ahead of 90% of Americans.

 

[jsb]

I would be willing to bet my retirement savings that most people commenting aren't nearly as financially sound as they claim to be on here.

 

[ArgentCy]

This is a complicated problem but is often easy to out think yourself. Anytime you would borrow money to invest and try to make the spread what you are really doing is leveraging your balance sheet. If you are diligent, have done your homework and are conservative it can work well. But, almost everyone who tries to use leverage, especially those who are knew to the area it is almost guaranteed to blow up on you and sometimes in short order. If you understand the risks of the investments, after all they may go down for the 3-4 years of a car loan, it could be a good move. The odds are just not in your favor.

 

[00clone]

I would be willing to bet my retirement savings that most people commenting aren't nearly as financially sound as they claim to be on here.

Run along, peasant...us rich people are talking

 

[DeereClone]

Cool! You find it freeing to not have any debt, I find it freeing to be able to purchase things I like and incur some minor debt, that doesn't mean I am financially dumb. I could understand if you were lecturing people about incurring a boat load of credit card debt, but we are talking about a freaking car loan.

This is a prime example of what the no debt crowd is trying to steer people away from. According to this post, you aren't investing the difference and making a spread, you are buying things that you can't pay for outright because you want them. I am not saying you are a bad person or that this is dumb, just using your post as an example of someone using credit to obtain a higher lifestyle than they could have otherwise afforded.

 

[capitalcityguy]

If you paid cash, would you have bought a 16k+ car? If you didn't buy a 16k car, what would you have spent that money on? Instead of your same life, would you be living a better life? I think those are the questions that people who pay cash for everything have to ask themselves and then answer before they purchase big ticket items.

If you answer those questions and wouldn't have changed anything about the purchase of the car and your lifestyle by financing vs. paying cash, you're ahead of 90% of Americans.

Boom!

That is it. Generally speaking, human nature will you lead you to buy more car if you finance it, vs having to save up and pay cash. That is an argument against financing that goes beyond the paying interest discussion

Writing a check and watching your bank account balance take a hit like that is not fun. It pretty much takes the joy out of car buying and yes, that is a large part of the point.

 

[chuckd4735]

This is a prime example of what the no debt crowd is trying to steer people away from. According to this post, you aren't investing the difference and making a spread, you are buying things that you can't pay for outright because you want them. I am not saying you are a bad person or that this is dumb, just using your post as an example of someone using credit to obtain a higher lifestyle than they could have otherwise afforded.

Is not everyone who finances a car, house and education doing just this?

 

[Mtowncyclone13]

I would be willing to bet my retirement savings that most people commenting aren't nearly as financially sound as they claim to be on here.

and how is this proved/not proved? Do we all compare the size of our bank accounts? Income? Define sound?

are we measuring life by numbers in our accounts?