re: Article: "Record number of car buyers 'upside down' on trade-ins"

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So get 0-3% financing on a used vehicle instead.

Whether you should pay cash or not is pretty simple - if they'll finance it for 6 years at 2%, the only question you should ask yourself is whether you'd take a 2% return on your money for the next 6 years. If the answer is no, then finance it.

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finally somebody that understands money and investing.

Just lease

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ok oh wise one please explain how laying down 10k cash is smarter than borrowing 10k @2% and investing the 10k in cash you were going to use and make 6%? please do

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Because literally nobody does this.

That's why. If you're the unicorn, then the advice doesn't apply to you. You can defy gravity, too.

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yea I believe i can build wealth buying cars

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Bottom line is you and most others that say pay cash are wrong for those that can borrow at crazy low rates and understand how to invest wisely.

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I cannot lose money on interest I don't pay on money I don't borrow. Min/maxers are free to disagree all day - in theory. In practice, I win on day 1 every single time.

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just like its not smart to pay off a house if you are locked into some of the crazy low rates they are offering now a days.

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This is a lit bit different - I would agree with the min/maxers on this one - EXCEPT - min/maxers tend to value housing at $0 - you have to have somewhere to live.

I will say this - if you're going to live above your means, it's better to be house rich/cash poor than to be car rich/cash poor. At least at some point, you might get your money back on the house. You never, ever will on the car.

Never, ever - no matter how hard you try to justify it.

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I do this

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I do have a current lease

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Funny actually, I bought a 2015 Toyota Tundra last November. With my trade in I would have needed an extra $10k to purchase. I decided to finance at 3% and put the $10k into 3 upstream oil companies. Today my $10k looks like $18k less than a year later.

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How much is your payment and what is your term?

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230 per month for 5 years. Paying it off in 2 years though. Should end up being a little less than $1000 in interest i figured.

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The problem with the analysis is that it isn't just interest.

You're still paying it off. You're still eating the depreciation. You made money off the $10k you didn't pay in cash.

BUT, at the end of the day, the financing - in almost every case, facilitates buying more car than one can afford AND builds a car note, into your budget, and locks that in for most folks forever. They "miss" that car payment. So, we literally spend millions of dollars (or, it costs us millions of dollars, in opportunity costs, depreciation, interest, transaction, fees, etc.) over 50 or 60 years to end up with a fully depreciated hunk of metal.

That's the problem. And, there is another paradox - the poorer you are, the more sense it makes to finance, assuming you buy an appropriate amount of car. And that amount is going to shock you when you consider how expensive cars are now - give or take about 25% of your annual salary - THAT'S your 'no more than' number when buying a car.

If folks followed that rule, financing wouldn't be the fatal poison that it is. Gross $100k? Buy a $25k car. Those folks don't go to the poor house/Ch. 7.

Gross $70k and buy a $50k truck? I DGAF what your interest rate, that truck is literally going to drive you to bankruptcy court.

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Gross $70k and buy a $50k truck? I DGAF what your interest rate, that truck is literally going to drive you to bankruptcy court.

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That's just not true at all.

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If you're going to pay cash for a car out of funds you have in a savings account, be my guest. If the money was earning 5-6% annually in some other asset, it is another story entirely.

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So, you get a car payment. I get clear title to the vehicle. Now, if I buy the assets back that I exchanged for the vehicle (that's what y'all say y'all are doing "investing" the purchase price) then I'm in the same boat at the end of the term, and I get dollar cost averaging on the way.

If I hit financial hardship and cannot afford to buy the assets back, I'm still okay, driving, etc. You hit a financial hardship, you're having to renegotiate, sell other stuff, what have you to make ends meet.

Hell, I can sell if it I overbought, yes take a deprecation and transaction hit, but buy something cheaper and still make it to work. You've got a lot more dancing to do.

Bottom line, if you can pay cash for the vehicle, you ought to. Why? Because that's common sense. If you don't want to drop that much cash at one time on a vehicle, because you can "make more money" with it elsewhere, then you're overbuying on the car.

That's my opinion, of course, but I'm closer to right than folks who think they can build wealth by setting money on fire buying $50k cars. That's the opposite of building wealth.

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Bottom line, if you can pay cash for the vehicle, you ought to. Why? Because that's common sense. If you don't want to drop that much cash at one time on a vehicle, because you can "make more money" with it elsewhere, then you're overbuying on the car.

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you are doing this as one decision, as opposed to two.

its

1) can I afford this car? And I agree with you, you should only buy a car that you have cash to pay for
2) should I finance this car? This is determined by incentives and rates.

I got $1000 in cash for financing my last car purchase. I offered to pay cash outright but if I financed, I got $1000 in cash. I financed, and waited three months (min required by contract) and paid off the car.