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Message
re: Buying a Vehicle Outright
Posted on 1/26/20 at 12:18 am to Drizzt
Posted on 1/26/20 at 12:18 am to Drizzt
quote:
Because if you have to finance a depreciating asset for 5 years you should buy something cheaper?
Financing something doesn’t change how fast it depreciates. A vehicles value is irrelevant to the method of payment. If a lender offered 0% interest for 100 years, would you take advantage of that offer?
quote:
I just bought a new car and financed 3 years. I make double the payment so it will be paid off much sooner but have flexibility to pay less if I had a drop in income or emergency situation. You don’t think that’s a good idea?
It depends on your interest rate. If it’s lower than what you could achieve with an investment, then paying extra doesn’t make wise financial sense.
1
Posted on 1/26/20 at 2:11 am to DVinBR
quote:
First time vehicle purchase (I'm 26 and the vehicle my parents got me when I was 16 is still going has some issues that I'm pretty much done with it). I'm going to buy the vehicle outright, what percentage would you say of yearly income should be the max I should spend? For most cases, at least for down payments, a minimum of ~25%. Should I use this similar 25% rule for buying outright? 25% of pre-tax income maximum purchase?
I would not consider income per se.
What are you willing and able to save is far more important IMHO.
Posted on 1/26/20 at 9:05 am to Drizzt
quote:
I just bought a new car and financed 3 years. I make double the payment so it will be paid off much sooner but have flexibility to pay less if I had a drop in income or emergency situation. You don’t think that’s a good idea?
No.
Posted on 1/26/20 at 10:01 pm to iAmBatman
No one was doing 0% interest 6 months ago when I bought a car but the rates were very low. The argument that you should not get out of debt faster if you can “invest” for more never actually works out long term due to human behavior. That logic invariably leads to you over leveraging and getting caught in a cash crunch when the unexpected invariably occurs. A little debt you can pay off quickly works. A lot of debt you can’t pay off because you aren’t liquid is a recipe for disaster. I just paid for a $380,000 house in two years though. What do I know.
Posted on 1/27/20 at 12:03 pm to Drizzt
quote:
No one was doing 0% interest 6 months ago when I bought a car but the rates were very low. The argument that you should not get out of debt faster if you can “invest” for more never actually works out long term due to human behavior. That logic invariably leads to you over leveraging and getting caught in a cash crunch when the unexpected invariably occurs. A little debt you can pay off quickly works. A lot of debt you can’t pay off because you aren’t liquid is a recipe for disaster. I just paid for a $380,000 house in two years though. What do I know.
If you're paying down low interest debt at the expense of investment growth just so you can feel good about being debt free, then I would say that isn't very wise.
Posted on 1/27/20 at 3:52 pm to Drizzt
quote:
That logic invariably leads to you over leveraging and getting caught in a cash crunch when the unexpected invariably occurs.
Yeah but if you pay off debt quickly you'd still be in a cash crunch. Instead of putting that cash into some other investment, you've put it into a physical asset (house/car).
Posted on 1/27/20 at 8:08 pm to LSUJuice
quote:
Yeah but if you pay off debt quickly you'd still be in a cash crunch. Instead of putting that cash into some other investment, you've put it into a physical asset (house/car).
Yes but in one situation you still have a place to sleep and something to drive, in the other one...
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