MA4

I needed a car anyway...Instead of buying a car that was $18 I bought a Z for $30k. The Z will probably last me longer and hold a better resale value. Also, I enjoy owning it and have more pride than if I were to have bought a 'more practical' car. I have to have a reliable car, whats the difference if I pay $550 vs $300 a month if I own(mortgaging) my house and my take-home is $3700 a month?? I save that much in gas and repairs vs. an SUV, (which would cost $30k new anyhow)

edoan

Mine's paid off. It hurts that my drive-out was $30k, and I can get $21k for a trade today. Maybe.

This just proves how fast these things depreciate. To me, there's no point in holding on to liquid assets (even if they're in an investment vehicle making 4%/yr, which is still risky) when you've got an outstanding debt. I think the only time making payments on a car makes sense is when you've got a 0% financing deal; that way, you're guaranteed to come out ahead thanks to inflation and the time-value of money.

Plus, no sense in trying to live above your means. I want a Porsche 911, C6 Vette, or turbocharged 350Z as badly as the next guy, but that car isn't going to bring me any happiness if my job gets outsourced to India and I have to take a lower paying one.

King Tut

iTrader: (1)

Paid cash. Planning on financing a 2005 Nissan Frontier now though.

myblueheaven

Paid cash when I bought it. While it was a bit of a financial stretch, I wanted to avoid a car payment.

drift350

bingo.

this is why i only play with cash. i receive a pension, invest my money, and would prefer my portfolio avg stay around 23% yield instead of losing a few percentage points to a credit union.

if i have the cash, why would i pay someone to borrow their money? instead, the car payment i would have made now goes to me each month, if there's no other way to think of it.

as for home equity loans, the interest rate traditionally tends to be as good or better than the best available new car loans. if i were to borrow, why would i pay my credit union 4.24% if i can pay only 3.49% on a home equity loan? if you have an ounce of common sense, 3.49% on a 30 year will bring about payments so low, you can power-pay the principle and own the car faster than someone doing 5 years on 4.24%.

sounds like a few people on here aren't wholly familiar with equity lines of cedit.

FairladyZ

I get what you are saying but if you are borrowing from your home than I doubt they are going to power-pay their principle. Those guys are trying to keep the payments as low as possible and still be able to have this car.

Also those guys problably dont have the credit to have the low home interest rate as you posted. The banks are saying hell yeah lets this guy borrow more because they get more money. They want you to be in debt.

If they were to "power-pay" their princlple as you say then why not finance the car normally and "power-pay". Its the same thing as you stated but the interest is of $30,000 as oppose to paying the interest of a home of lets say 150,000+30,000 =180,000.

4% of 30,000 is $1200
4% of 180,000 is $7200

That is assuming loan rates. The cheapest now for a home/auto loan is 4.45%. That is also assuming 60 month home equity loan. The longer you drag it out the more the interest rate is. On a home equity loan.

Netko350Z

iTrader: (8)

but you can clam the intrest on your taxes!!

auto loan is no no!!

Bertg

3 more years to go!!

hypeiv

iTrader: (2)

edoan,

I guess if you finance your house you "living above your means" since you can't afford to buy it out right.

hypeiv

iTrader: (2)

slow day at work so I just ran some numbers in excel. Lets say you have $30k in an investment making 10% a year. You want to buy a car that is $30k and the dealer is offering you 5% interest. You can afford to make the $566.14 payment (calculated as interest compounded monthly to make it easier for me).

You have two options.

1) wipe out your investments to pay for the car and hope your dilegent enough to remember to invest an extra 566 a month for the next 5 years.

2) keep your money in savings and just finance the car.

case 1)

you pay the car off out right and invest 566.14 every month at 10%. you avoid $4k in intrest charges and at the end of the 5 years you have $43,840.22 saved up and a paid off car

case 2)

you foolishly finance the car and give the greedy banks intrest money but keep your money saved. At then end of 5 years your account that started with 30k now has $48,315 (10% a year calculated annually not monthly) and you have a paid off car...

wow wait you have almost $4500 more at the end of 4 years...

hypeiv

iTrader: (2)

umm... maybe so you can keep your money invested at 23% while some sucker lends you his money at 5%?

kcobean

iTrader: (2)

Yes, but in scenario #2, you forgot to deduct the interest paid on the car that you didn't pay in scenario #1. Do that and your scenarios come out almost identical.

hypeiv

iTrader: (2)

You don't need to subtract that interest paid on the car. That is already taken into account in your monthly payment of 566.14, if i didn't take interest the monthly would have been 30k / 60 = $500. So I would be paying intrest twice if i subtracted $4000 of what my bank acount has at the end of the scenario.

At the end of scenario #2 you have $4500 more than #1 and and at the end of both you still have a car that is paid for.

Compound Interest... holla

drift350 - if i run the scenario's with 23% instead of 10% you would have more than $20k after 5 years if you financed the car vs buying it and pulling $30k out of your investments earning 23%.

drift350

in the end i lose 5%, which is about $3300 on a $30k loan for 5 years.

or i can buy a $30k car for $30k and recoup the losses in interest within a year at 20% avg yield from my portfolio.

if i lose 5% to a bank, then i only yield an 18% avg over 5 years instead of 23%, technically. i also own the title and can dump the car whenever i feel like it if i see something else i want instead. but by using your numbers, instea dof yielding $20k over one year, i technically yield $23k by simply not paying a bank. as my portfolio changes from month to month, and the market changing minute by minute, my percentage yields can and do change often, therefore making what i do even more valid as i have the cash to do it rather than borrow only to donate money to a bank.

now if i were offered 0%, this would obviously be a different story.


your math is slightly skewed in your favor.

hypeiv

iTrader: (2)

If your average annual rate of return is over 5% its wiser to keep the bulk of your money in the investment making more than the cost of borrowing it. You are correct that buying outright helps prevent the gap problem you may have if you sell the car in the first year but that can easily be fixed with a well calculated down payment which would basicly be paying for the gap early... even if you paid for the entire car at once it will go down in value at the same rate so you really can't avoid that problem anyway you do it.

If you call the financial advisor that manages the 23% portfolo and ask if its better to sell off 30k in assets or finance at 5% i am sure he would agree with me. If i was willing to give you 30k at 5% you could put it in your portfolio and make 23% off of it and then pay me back my 30k at the end of the 5 years and you would have made alot more than the 5% i charged you. It works the same way with the car.

hypeiv

iTrader: (2)

think of it this way... if you have $30k in cash and an account earning 23% a year thats .01916667 a month. 0.1916667 * 30k is = 575... which is more than your 5 year monthly payment on a 30k car. So if you can get 23% average over a 5 years and keep that money in the account you can get a Z for "free" if you finance it. (ignoring TVM and if you care about TVM you know $30k today is worth more than $30k 5 years from now and would never not want to finance a car - i claim its free b/c your account will still have the $30k in it after 5 years you just used the interest to make your payments)

If you paid cash you would have $0 of the $30k after 5 years but if you could really earn 23% you would have a little more than 30k at the end of 5 years and a Z paid off.

kcobean

iTrader: (2)

Well, if 566.14 is your monthly amount, then you need to consider that the car isn't really costing you 30K, it's costing you 30K + $3968.40 in interest, so that extra money you've made by investing was eaten up (except for about $500) by interest vs paying 30K cash for the car.

hypeiv

iTrader: (2)

I will use that account analogy again.. If i had $30k in cash and i put in an account earning 10% interest and i pulled 566.14 from it every month at the end of 5 years that account would have $5,519.04. If instead of putting that $30k in the bank i bought a car I would have $0 at the end of 5 years. Again financing wins.

As long as you can save money at a higher rate than the interest rate of the finance then you will come out ahead.

Edit: the reason its a little more than my original case 2 is b/c the interest is calculated monthly instead of yearly. but the point is the same.

hypeiv

iTrader: (2)

The money made wasn't eaten up. In the cases I described I only talked about what you had at the end of 5 years and if you financed it you had $4500 more. If you want to add $3968.40 you need to take the monthly payments down to $500 b/c i just took that $3968.40 and spread it out over all the months.

$3968.40 / 60 = 66.14