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I prefer to have my money working for me and my family, not some bank or finance company, so I avoid car payments at all costs.
This is a conflicting sentence. If you can get 0% or close to it financing, why would you sink a bunch of cash into a car when you can parse out the payments and make that big chunk of cash give you a better return?
If paying $20-30k cash would deplete your reserves then you cannot afford a $20-30k car! Buy something for $5k.
This was not the point.
It is a good idea to keep from 6 month to 1 year worth of take home pay in an emergency fund. It's probably not a good idea to keep that money in stocks, if you get laid off in a middle of a bad crisis like so many did you'd get severely hit selling these stocks to get to your money, and will see your emergency fund evaporating even before you start use it. So, it makes sense to keep this money in a bank savings or CD account.
With current laughable bank savings and CD rates, you probably don't want to keep any more money than what you need in that rainy day fund. And for many if not most families, $20-30k would make a nice chunk of that money. So why deplete that cash reserve when the interest to finance the new car is so low ?
Selling stocks to buy a car doesn't make much sense either, at the current low car financing levels. You'd make more money investing it.
Now when the car financing gets more expensive, like 5-6%, then it may make sense to pay for it outright. Now, IMHO, it doesn't. Just my $0.2
(I am assuming we're talking about reasonable adults who buy a car they can afford; a lot of time financing is the only option for someone who spends more than they should).
It is a good idea to keep from 6 month to 1 year worth of take home pay in an emergency fund. It's probably not a good idea to keep that money in stocks, if you get laid off in a middle of a bad crisis like so many did you'd get severely hit selling these stocks to get to your money, and will see your emergency fund evaporating even before you start use it. So, it makes sense to keep this money in a bank savings or CD account.
With current laughable bank savings and CD rates, you probably don't want to keep any more money than what you need in that rainy day fund. And for many if not most families, $20-30k would make a nice chunk of that money. So why deplete that cash reserve when the interest to finance the new car is so low ?
Selling stocks to buy a car doesn't make much sense either, at the current low car financing levels. You'd make more money investing it.
It depends on market performance while you have the loan, especially in the early years of the loan. There is a considerable amount of sequence-of-returns risk, whether you have a 36, 48, 60, or 72 month loan.
If the stock market crashes just after you buy the car, you will potentially end up worse than if you had sold the stock and paid cash for the car.
The only way to guarantee you'll be better off with the loan is if the rate is SO low (<1.25% or so) that you can beat it using an FDIC-insured CD ladder that pays out enough to keep up with the payments.
Stocks are a long-term wealth building tool, not a short-term arbitrage game necessarily.
Furthermore, if the car buyer would have otherwise had a high insurance deductible such as $2500 but financing requires a lower deductible, this adds another cost, so the effective interest rate of the loan is higher than the nominal value.
Quote:
Originally Posted by Ummagumma
Now when the car financing gets more expensive, like 5-6%, then it may make sense to pay for it outright. Now, IMHO, it doesn't. Just my $0.2
(I am assuming we're talking about reasonable adults who buy a car they can afford; a lot of time financing is the only option for someone who spends more than they should).
"Afford" is a somewhat loosely used term in many cases. It also depends on overall financial picture and habits, as well as how long the buyer will keep the car.
Its always an interesting conversation. I think those of us who have been talking about it since I jumped in this morning could pay cash for the cars if they wanted to or have money somewhere they could use if they lose their job.
One thing that's been left out of the conversation is there is a certain level of psychological "satisfaction" knowing that if things go bad, the car is paid for and that is one check that doesnt have to be written or withdrawl made to cover the cost.
Many people with $500 payments don't have a substantial emergency fund, or retirement and probably more debt on top of that. So when things go south, it goes real bad real quick.
I will be in the market for a car soon, and already have the cash saved to pay in full. The makes and models I am looking at don't have zero interest or lower than what I get out of my money market fund. So even if it is only a few hundred dollars, I prefer to pay up front and put the money I would be paying for a payment into mutual funds until I start saving for another car.
Another thing is I tend to drive my cars into the ground. I have one car that is 18 years old with over 200,000 miles on it. It was bought used, at 1 year old with 15K miles. my other vehicle is a 8 year old 4Runner with 95k on it purchased new.
And finally, this comes from the perspective of a person who was $30k in debt with no savings 25 years ago. I vowed to never go in debt again other than a mortgage.
Its always an interesting conversation. I think those of us who have been talking about it since I jumped in this morning could pay cash for the cars if they wanted to or have money somewhere they could use if they lose their job.
One thing that's been left out of the conversation is there is a certain level of psychological "satisfaction" knowing that if things go bad, the car is paid for and that is one check that doesnt have to be written or withdrawl made to cover the cost.
Many people with $500 payments don't have a substantial emergency fund, or retirement and probably more debt on top of that. So when things go south, it goes real bad real quick.
I will be in the market for a car soon, and already have the cash saved to pay in full. The makes and models I am looking at don't have zero interest or lower than what I get out of my money market fund. So even if it is only a few hundred dollars, I prefer to pay up front and put the money I would be paying for a payment into mutual funds until I start saving for another car.
Another thing is I tend to drive my cars into the ground. I have one car that is 18 years old with over 200,000 miles on it. It was bought used, at 1 year old with 15K miles. my other vehicle is a 8 year old 4Runner with 95k on it purchased new.
And finally, this comes from the perspective of a person who was $30k in debt with no savings 25 years ago. I vowed to never go in debt again other than a mortgage.
A simple logic...
Debt and no savings - terrible
0 debt and 0 savings - better
Debt and savings - even better. Yes, it's better to have money reserves even if this means you have some reasonable debts (some and reasonable are the key words) than to be debt free yet have no cash. Zero debt will not pay your bills if you hit a rough spot. Money in the bank will.
No debt and savings - you're golden
A family of two making $100k / year and taking home probably $72k or so needs at least $40k in cash reserves for a rainy day. And ideally, 2x as much. It would be foolish for them to spend $25k on a car without building up these cash reserves first. This was my main point.
Location: San Ramon, Seattle, Anchorage, Reykjavik
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Quote:
Originally Posted by dbbd
Its always an interesting conversation. I think those of us who have been talking about it since I jumped in this morning could pay cash for the cars if they wanted to or have money somewhere they could use if they lose their job.
One thing that's been left out of the conversation is there is a certain level of psychological "satisfaction" knowing that if things go bad, the car is paid for and that is one check that doesnt have to be written or withdrawl made to cover the cost.
Many people with $500 payments don't have a substantial emergency fund, or retirement and probably more debt on top of that. So when things go south, it goes real bad real quick.
I will be in the market for a car soon, and already have the cash saved to pay in full. The makes and models I am looking at don't have zero interest or lower than what I get out of my money market fund. So even if it is only a few hundred dollars, I prefer to pay up front and put the money I would be paying for a payment into mutual funds until I start saving for another car.
Another thing is I tend to drive my cars into the ground. I have one car that is 18 years old with over 200,000 miles on it. It was bought used, at 1 year old with 15K miles. my other vehicle is a 8 year old 4Runner with 95k on it purchased new.
And finally, this comes from the perspective of a person who was $30k in debt with no savings 25 years ago. I vowed to never go in debt again other than a mortgage.
It's indeed an interesting conversation. I can more than 'afford' any car payment or cash deal on any car. However, when that money is coming right out of your pocket, in cash, you tend to think more about what you need rather than what you want. My last car was a 1998 Toyota Land Cruiser that I bought new and drove for 331k miles. I sold it and bought a used Lexus LX570 for cash. I 'needed' the new model Subaru Outback but they were coming out 9 months from when I needed a new vehicle. At the time gas was high and nobody wanted a 12pmg SUV so I was able to talk $12k off the used LX's price. Great truck. However, gas prices being what they are now everyone wants SUVs now so I sold my LX back to the dealer for $1k less, all in, than I paid for it. It cost me $1k to drive almost 25k miles in a year in a luxury truck. Took my cash and bought what I wanted in the first place - the latest Subaru Outback. Now I'm good to go.
1 grand car payment is obsered. My lease for a 2014 Imperza is 240 a month. Even a basic civic I figured out was going to cost about $375 a month.
What the hell is obsered?
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