re: People who think they are smart because they pay cash for their cars

Link one.

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Interesting, diving deeper into the same situation above.

30k @ 0% for 60 months = 500 dollar note

Investment Way: 30k @ 3% return = 32,354

Cost of 36 payments = 18000

Average depreciation of a car 3 years old = 46%

Value of vehicle after 3 years: 30k x 46% = 13,800

Cost of Loan to pay off @ 3 years = 12000

ROI - Payment to yourself - Payment to the bank = 32,354 - 30k = 2,354

Your gain + value of car = 2.354k + 13.8k = 16.154k

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Paying car straight cash homie.

No ROI, Same 46% depreciation.

30k x 46% = 13.8k



Summary: Looks like I came out ahead

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My problem with this is two fold,

1)That youre essentially doubling the loss of your cash flow to gain a little equity. You may have noticed that the $30k loan has a payment of $873/month. To cover that loss and to cover depreciation while accou ting for salvage value in terms of principal, you're arguing that one should invest an equivalent amount over a three year period, while making payments on the car. In other words, you need to make sure your investment can cover that 46% loss of the vehicle (my numbers came out to a required payment of $450/month at 3% for 3 years to break even). Accounting for both payments (873+450=1323), is paying $1323/month to end up $3k ahead after 3 years a good idea?

In simple math terms, youre hoping that the salvage value plus the stock market can beat depreciation.

Which leads me to

2)Financial security. I would pay a small premium to ensure financial security than enhance my risk and get a better financial position. Its just prudent financial planning IMHO.

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Somewhere in the neighborhood of 10% of new car buyers pay cash, everyone else finances, but 50% of OT posters pay cash. Yeah right

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Most vehicle purchase aren't on new vehicles. Further, some people finance at the point of sale to get additional rebates, then immediately pay off.

Don't get me wrong, as a society we are a bunch of moronic debtors, but that 10% isn't the whole story.

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assets that produce no income

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your car produces lots of income compared to jobs most people are a bike ride or walking distance from

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Ramsey has more disciples than Jesus.

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13?

It is really a moot point, given the extremely low saving rate, and net worth for most Americans, it is highly unlikely that most of the people financing cars have the money to pay cash.

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If you finance and invest $200 a month, and keep a nest egg earning interest vs. pay cash and invest same$200 plus the payment, how much can we be talking about over 60 months? It can't be more than hamburger money.

And by paying cash and investing the "payment" I will have more of an egg every time I buy a car, so over time it seems the value of paying cash would result in more money in my account.

I don't think it really matters in the long haul at all. It is a matter of personal preference. I prefer not to have a payment so always buy cash.

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It is obvious you don't understand the concept of compounding interest or time value of money.

Money that you have in your hand today is worth a lot more than money you will have in the future.

When you hand over a big chunk of cash to a car maker, you just lost the ability to earn interest for yourself on that pile of cash. Instead someone else gets the benefit of investing it and making money off of it at your expense.

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Many people do that. I don't. My vehicle isn't even payed off. I just asked if that was factored into his statement because, as I said, and you can read in this thread, many people do drop to liability whether you think it's prudent or not. And honestly, if they do total the vehicle out than they're basically just back to making payments again. Not usually a catastrophic event.

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A good rule of thumb is that once a car is worth less than what a full year's premiums for full coverage would cost, drop down to liability only. I mean no sense paying say $1500 a year for full coverage insurance on a car that is worth even $1500 a year. Worst case scenario you're breaking even.

What is the future value of 25K earning at 8% with a $200 monthly addition over 60 months?

What is the future value of 0 with a $660 monthly addition over 60 months earning the same 8%?

I'll save you some time.... it isn't enough to argue over, especially when items like depreciation, interest, tax implications, etc have to be weighed.

No one is getting rich financing a new car over buying cash or vice versa. You might make come out a thousand or two ahead playing the interest spread.

But buying a used or even new Corolla and driving until the wheels fall off, vs. buying a loaded full sized truck or a luxury car, and trading it in every 3-5 years—that will add up significantly over a lifetime.