Depreciation isn't a real cash out the door expense
Four Reasons Why You Should Never, Ever Finance A New Car
- Thread starter Ricky Church
- Start date
The Realist Perspective
Superstar
It's not a car salesman point of view...it's a finances point of view. You can choose to live in an apartment for god knows how long or you can eat the interest, pay the fine, to have your house NOW, instead of later...it's a trade off. We're not even speaking about luxury vehicles. We're talking about any purchase you can't make now because you don't have the cash on hand to do so.
BlvdBrawler
Superstar
This is generally a good rule, but I think what @The Realist Perspective meant was that interest rates right now are actually lower than inflation. So getting a loan is actually a better deal than paying cash, especially if you can invest that money at a rate greater than inflation (which, right now is almost impossible not to do).
Unless the interest rate is 0%, then getting a loan is not better than paying cash. 0% financing is always on new cars, never used cars.
BlvdBrawler
Superstar
So then, you should have answered this question...
...with "no".
No shade, but the way you answered it "I understand the concept of time and money" isn't the same thing as time value of money.
Time value of money is the central concept in the world of finance and investing, just like how supply and demand is the central concept of economics. Give this article a read.
http://www.investopedia.com/articles/03/082703.asp
Last edited:
Okay. That investopedia article is GOOD. I said good. This is what you don't get. Whether you finance or buy outright, that car is going to depreciate the same.So then, you should have answered this question...
...with "no".
No shade, but the way you answered it "I understand the concept of time and money" isn't the same thing as time value of money.
Time value of money is the central concept in the world of finance and investing, just like how supply and demand is the central concept of economics. Give this article a read.
http://www.investopedia.com/articles/03/082703.asp
The OP had bullet point #4, a car is a horrible investment.
I'm saying you are better off paying for $10,000 for a car outright because you end up paying $0 in interest. I will lose money on that car through depreciation in four years. The value of that car might be $6,000 after four years. That's an example. I lose $4,000.
If you finance a car over four years, you will pay $10,000 plus interest. As an example, if you got a loan at 3% and your loan was for 48 months, you would pay a total of $13,958.88. So after four years, it is also going to be worth $6,000. That means you lose $4,000 plus $3,958.88. That's a total of $7,958.88. If you have $10,000 up front, and you pay out $290 in the first month. You have $9,710 to invest in the next four years to make more than $7,958.88 in order to break even. You have to be very lucky at stocks to make that much in four years. More likely than not, you won't break even after four years.
philmonroe
Superstar
You must be broke investing that's not a lot of money to make in 4 years at all. I mean everything you talked about in this thread while solid seems like you on the path to living a mediocre existence. Hope you enjoy all that saving and sacrificing of enjoyment at the end.
So that's why I'm saying buying new and paying interest is not more beneficial than buying a car outright without a loan.
philmonroe
Superstar
Well in your situation yes but something we all have to realize at times is your/my situation on any situation isn't universal. Just as many people disagree as agree with you so its a you do you and vice versa.
BlvdBrawler
Superstar
Breh...
You gotta check that math again. $10k at 3% for 4 years is only like $624 in interest over the life of the loan.
Plus since the depreciation is a factor whether you finance or buy outright, it's a wash.
So really, you only have to earn $624 over that 4 years in order to break even. That's about 2.1% ROI. For reference, I've got accounts at 32%, 18%, 6%, and one that I don't wanna talk about (
).And this doesn't even account for the fact that the monthly payments would be made with money that has lost value due to inflation. Or the fact that my current auto loan rate is actually 1.95% instead of 3%.
Having said that, if buying cash works for you, then continue to do so. Having debt, even good debt, is a bad feeling, but I just prefer buying stuff with other people's money while earning a return on my own.
LordTaskForce
All Star
If the interest rate is 1.9% (penfed) then a loan is better than paying cash in some scenarios.
A lot of this depends on the car you buy obviously and how much you drive it. But lets say for example I want to buy a $100k Nissan GTR. Hypothetically, I have the cash to purchase the car outright but I can make more than 1.9% the bank is offering on their loan over 5 years. I'd rather use the banks money, than mine in that scenario.
But back to the OP, most cars depreciate. You should always buy a car with depreciation in mind, however if you have the money it doesn't matter.
Trojan 24
Veteran
Bought a 2011 Challenger R/T for 30,000 after financing. Dealer offered 24,500 for trade in if I wanted to get a 2015. Probably not going to do it. But I'm pretty happy with my "Investment". Essentially I would have drove a new car for 3 years for about 6500. Not bad 
.
Point being, if you get a good deal and buy a car with a good resale value, fiancing isn't so bad
. Point being, if you get a good deal and buy a car with a good resale value, fiancing isn't so bad
Trojan 24
Veteran
Also I always hate talking about cars as an Investment. For most it's a tool, and for some it's a hobby. 
If any Dodge dealer has a new 2014 Challenger left on the lot on Jan. 2015, you could haggle them down to 24,000 without a trade. Think about that and tell me you think it's a good investment.
Trade-ins are not your friend.
Trojan 24
Veteran
If any Dodge dealer has a new 2014 Challenger left on the lot on Jan. 2015, you could haggle them down to 24,000 without a trade. Think about that and tell me you think it's a good investment.
1. I said I wasn't going to trade it in, obviously I would still get the short end of the stick
2. I guess you didn't see my post right above yours stating I don't see Cars as an investment
3.I doubt you're not getting a new R/T for 24,000 even with the redesign.