Renting a car is a better idea than owning it outright?
Leveraging (borrowing money to buy something, then using the cash to invest) is a good idea?

Both are valid in specific situations but I do not advise either for the majority of 350Z buyers.

 

Back in the day, when I "acquired" my '90 300ZX, I ran the numbers on every conceivable way to finance the deal. The BEST (i.e. least cost) way was to pay cash. A very close second (IF you trade the car at the end) was leasing; however, leasing quickly became the worst option IF you bought the car at the end of the lease.

I leased the car, but at the end, I couldn't find another car I liked better and ended up buying the Z. It was in perfect condition and I really enjoyed having it. Shortly after I bought it, I wrecked it.

To make matters worse, when I leased it, I paid the full sales tax on the purchase price. Then, when I bought it from the leasing company, I had to pay sales tax again on the "used" car.

In the end, I decided it was better to pay a little more each month and build equity in a car I want to keep. As your equity builds and your debt balance decreases, the interest component of your monthly payment decreases. This is not the case with a lease, where your monthly payment consists of a constant "rental" component and a constant "interest" component (i.e. the interest never decreases for the entire term of the lease).

I'm not saying that leasing is bad, it can be very appropriate, especially if you can "expense" it for business purposes. Nevertheless, you should think it through carefully.

Also, LowJ's investment strategy is very sound and worth exploring if you have the discipline to actually invest the money you save each month by leasing.

 

Three payments still left on my '05

 

Have you considered the flip side? Your talking about opening a $30k loan at an average interest rate of 5.50% over 5 years and opening an investment account that would yield you 4-5% of dividends?...doesnt add up. Your canceling out your return by paying interest to your finance company. Taking in consideration that you will be depositing $100-200 every month to that account since you would have a $570-$600 car payment, your net investment account in 5 years years would have a deposit of $14,000 with a $5000 open deposit. Thats only $2,663 of dividends paid in 60 months compared to $4,966 of interest paid for the car loan!

You just lost $2,303 over 60 months!

I think we all agree a car is not a sound investment....A car is meant to be driven and enjoyed. Its not a source of income! Just another cost in this wonderful world of life!

 

Yeah, it goes without saying that if the return on your investments doesn't exceed the interest you'd save then paying cash isn't a bad thing. However, if you're only getting 4% on your investments you need to fire your financial advisor.....there's no reason a return should be that low these days unless your'e going super-ultra conservative.

 

Well, I guess if you're more concerned with having "no payments" than having "more money" then I say "go for it" too.......and then see a financial expert so you can learn how to manage your debt/finances/savings effectively.

 

Most definitely it's a good idea. Do you think rich people pay cash for their houses and cars??? Of course not......they finance these things at very low rates and then keep their cash in investments where they earn money. When your cash can earn you more $$$ than it costs you to borrow the $$$ for your car/house/etc, you gain wealth. It's a similar principle as using your Visa to pay for everything and then paying it off each month.....you pay no interest for using Visa's money for 25 days meanwhile your own cash can sit in your savings or interest bearing checking account and earn you $$$ for those 25 days. It's pretty standard stuff.

 

i wish...i still got 3 more years to go...payments...

 

Only if your after-tax return will exceed the interest rate on the loan. Even at recent low rates (like the 4.25% I got on my 350z in May, 2003) the time horizon of ANY car loan is not long enough to make investing in the stock market sensible, for example. (No credible financial advisor will tell you that a three-year time horizon can yield reliable returns in the stock market)

-- Mark

 

Here's an article for you indicating a well diversified portfolio should yield 10% annually:

http://biz.yahoo.com/usat/060111/13331429.html

Personally, my investments over the past few years have seen as high as 7-8% return while my car notes have been financed at 4% and currently everything is leased at a payment around $150 less per month than if I bought and I put zero down. Suffice it to say I'm not losing any $$$$ on the deal....otherwise I'd pay cash for my cars.

 

it's practically a wash though...you pay taxes on your gains, so it would be like investing money in a checking account...the gains would be so minimal that you might as well pay cash...unless you invest in something pretty risky, you aren't going to see big enough gains to make it worth it (and it still wouldn't be worth it because of the risk involved)...buying a house with the extra cash would be a better idea than investing in securities or bonds

 

I see what youre saying now. So what about most people who finance their car because they dont have $30k in cash and thats their only choice? They're pretty much just screwed with paying interest, huh?

 

Right, that's over the last 79 YEARS. If your car note is for three to five years, it's a whole different story. Here's an article that presents the arguments for both sides for the near term (by which they mean ten to twenty years:

http://www.hussmanfunds.com/rsi/aimr2avs.htm

The point isn't whether you'll come out ahead in the long, long, long run, the question is whether you'll come out ahead over the term of your car loan, and how ready you feel to bet on the outcome of that (which can be extremely hard to predict.)

I'm sure we're boring all the regulars. You'll find both sides of all these discussions going on here:

http://www.fool.com/

-- Mark

 

If they could afford the payments on the car in the first place, they'd end up with a lot more money in their pocket in the long run by saving them and then buying the car a few years later.

There's a good reason the dealers only want to talk with you about monthly payment and not about bottom-line price when buying a car -- to keep your mind off of how much money all that interest will cost you!

-- Mark

 

man... after reading all the reply's... I still say heck, I own the m**her f**ker and am as happy as can be. This is the second car I've owned outright, the first being a 98 vette, traded that for a 02 vette (with payments) and decided to get the Z and pay it off in a reasonable amount of time. No interest to pay!! I like that! And getting back to basics, when I take out the trash and walk by my Z... it sure is nice to look at it and tell myself its mine!

I guess according to "Low J" feeling good will cost ya... I'll take it!