How to buy your first car from a dealer: Method Finance
This issue is not just a hypothetical We need to buy a car and that means we have to take a five-digit decision.
It's been almost two months since the car of Will has stolen and it's time to buy a replacement.
His last car, as you know, was a Honda Accord 16 years old, with 275,000 miles on this time, he decided to get something nicer.
I am thinking of buying a Japanese car well, between 5 to 7 years, with 50,000 to 90,000 miles on it, he said.
Hey, what a coincidence that s my dream car, too.
He established a budget of 10,000 for its car buying And obviously he planned to pay cash Because taking a car loan is stupid Right.
That's what I always assumed that three finance bloggers told me I'd be nuts to pay in cash.
You see, it all started one night while I was recording a segment for the podcast Stacking Benjamins Did I mention that I have a weekly podcast segment we are investing podcast on my iTunes 7 C do singing with me sports We are number seven we are number seven.
I am one of four in this podcast segment The group of us chatting one evening, and I mention that Will and I are planning on purchasing car beside Will in cash.
The question caught me off guard Why wouldn t we pay cash cars are supposed to be bought with money.
We are not plundering an emergency fund or retirement short change to make the purchase We have a lot of savings for home repairs, car repairs, the health savings accounts, travel, and quarterly tax We have cash reserves to all our rental properties our retirement accounts are maximized.
In addition to all this, we have a bit of money floating around We were scratching their heads trying to figure out what to do with it then the car of Will stole So why wouldn t we use a small part of that 10,000 to buy a replacement vehicle, age 7 in cash.
Here's why guys podcasting meet car loans are underway to April 2 percent You can take a loan to two percent and investment 10 000 species for better performance, they said.
I tried to imagine what it would look like first, I have a lump sum of 10,000 deposits into an investment account that I know I'd been really invest the money instead of wasting it.
I could invest the money in an index fund S P 500 Historically, these have a long-term annualized return of 7 to 9 percent that's significantly higher than two percent APR car loan without a fee.
In other words, I could borrow two percent, invest 7 to 9 percent, and the pocket diffusion.
You want to borrow money and put it in the stock market, he said, slowly, emphasizing the borrowing is the worst idea I've ever heard.
I'm talking about the general market index funds, no stock Facebook, I offered.
Okay, so that wasn t going to work, I brainstorm that night about how to optimize the rest of the money and returned it the next day with an alternative.
And if we have borrowed money for the car, and put 10,000 to pay the mortgage.
I thought this idea would get tuned He Loves Gossip pay the mortgage and our highest rate mortgage issued by the bank 5 to 25 percent is significantly higher than the interest on a car loan, it is also early in its amortization schedule, when massive repayments would be really move the needle, we can save a ton on interest payments Because Sá rental property, refinancing is not in the cards us to forgo tax savings, but the calculation still does not.
I do not believe in car loans, he said I do not believe in consumer debt, I think positive cash mortgage and even those that I want to aggressively repay.
He was touching on a controversial topic, I prefer shoveling money into retirement accounts and gain more rental properties prefers pay our mortgages He is the former pay-off-the-mortgage-or invest I take a dilemma Robert Kiyosaki for money; he favors the Dave Ramsey approach.
So do not charge think of as a car loan, I replied Think like refinancing your mortgage 10 000 in a lower interest rate.
He looked at me with suspicion any time a financial explanation is that complex, something's wrong.
Look, all I'm saying is who cares about the loan is secured I said at the end of the day, your total liabilities are X, and cumulative interest rate is Y percent who cares if a car or house secures these loans.
Car loans are offered at less than inflation, I added Think less than inflation.
We have a clear exit strategy, I continued it was not my last if the worst case scenario takes place, we have the money to repay the loan instantly Why not put this money to work, rather than parking it.
I just want to go to my grave knowing that I've never had a car loan, he said.
At that moment, I realized two things, financial nerds that we have strange death ambitions s bed that aspires to look back on life and say, I've never had a car loan Finance nerds, that's who.
Second, this issue was clearly a non-starter We were going to buy the car damn cash.
Ultimately, this is precisely what we did Will bought what I bought a car, and one to replace my 15 year old Camry, Honda Civic 5 years, Acura, 7 years old with 90,000 miles, we paid cash at once, and promised to keep them for at least a decade.
Your Turn You Invest vs. Pay cash showdown What you did sound in the comments.
I just paid the money and be done with it the numbers you talk that you might be playing the game to win and investment are simply not worth it to me You look at a difference of 100 to 400 per year in BENEFICIARIES it would paperwork and origination fees and several other things that would have probably eaten than profit, or at least reduced to next to nothing at the end of the day, it's nice to have your car fully paid for and not having to worry about making payments on time If you multiple the numbers of 10 or more it might be helpful to talk, but only if you have a proven system, not if you're just you think you could do something with it if you already in comeback somewhere else and you could easily do much more with the additional investment it is worth, but most likely not at the 10K mark.
KC It was the will of thought, as well as a quick fast-the-envelope calculation says we to save about 2500 on 5 years if we took a car loan and 2 percent used money to pay the mortgage subtract the loss of tax benefits, and save us nearly 1800 ballpark very rough on the 5-year period.
That s 30 per month, which is real money, of course, but it is worth the hassle costs, paperwork, the loan origination, credit check says he prefers simply earn 30 months extra than deal with this level of hassle and risk.
I said that 1800 is still real money if it makes 18 hours of hassle, we're earning an hourly rate of 100 hours.
One of the things that your boyfriend is the risk, including not only its 1800 You must adjust for risk.
1 You have the risk of making payments Ie if you get sick, a tenant doesn t pay the market downturn, etc. We have seen that the greatest buying opportunity in our lives on the property Those who had low debt and large cash piles were clean on real estate.
2 there is the risk that the market not decrease the Nasdaq declined in 2000 and didnt recover for 15 years If you take a car loan to reinvest, you ended up behind.
3 Opportunity cost seems to be property is your bread and butter, its a real asset class that average income investor can use the leverage I for one have personally found best to have as little debt as possible on the consumer This gave my wife and I the opportunity to put together several purchases of goods in a way that we could have done with a loan, it also gave us the opportunity to move immediately on a property when we come across a deal we purchased three properties in a little over two years all three offers us in 3-4 days Revealing these properties on Zillow 2 of MLS, FSBO 1 had we been messing with car loans etc, we would have missed on all three, our debt ratios were too high to qualify.
4 It distorts the signal between Can anyone should afford a new car if you pay cash only, you make different purchasing decisions if you take loans for cars etc. Heck there is some risk to make bad decisions with loans on real estate.
I bet when you factor actually adjusted returns of the risks and distortions in buying patterns that the real yield on a car loan for the money can be reinvested, is negative.
It is unfortunate when emotion is allowed to overwhelm rationality Have you done the math to understand the loss you incurred to indulge in emotional need to buy the car with money he put it kind of value to its needs.
Rather, my Slug I know you are just making a quick blog comment, so I won t be too hard on you.
My job is one that involves critical decision making on a daily basis, I'm not trying to be a snob, but honestly, in pursuit of that kind of money just is not worth it to me when you factor in how whose mental energy that it would be to deal with, both for the set up and on an ongoing basis again, without wishing to sound like I'm too good to care about the money, I can easily win or lose that amount when I bidding on a new project and the more I fill my mind with worries, hassles and commitments, as useful as I become and the more likely I'll do a much Paula error didn t mention these biographical details in his post, it is more to the story that you may be considered.
Is what I am in your boat I belong to the duty free cash flow zero debt loans category I always have a car fund for this reason Investing is like gambling Nothing is guaranteed when a car paid which is a guaranteed return.
It is only paid because you paid money with new car loans at zero or 9 percent, cash payments are not always wise also having a low interest loan paid over an extended period makes wonders for a credit score.
Cash ainec Psychology outweighs the number Yes, I realize that if you have 2 of 5 APR loan you only need 1 April 74 CAGR in your investments to make a good deal less if you use as a mortgage swap, which is April 18 less than the historic market CAGR, even only in February 32 worse than the CAGR of 10 years.
Yet is 1 April 74 annual yield 10k you will wind up in 2604 65 well at the end of 5 years if you invest in the market and get the historical CAGR is all the dismay, it's going to cause in life Will the background image of the mind is expensive.
It's the same reason we buy our investment property in cash.
The principal behind the snowball debt of Dave Ramsey is to minimize the psychological number to have multiple debts, paying off debts in the order of the smallest balance to the largest balance, whatever the interest rates on debts This tactic, like most topics in personal finance, is controversial, but it has worked for many people also costs more money.
In this case, we're paying a higher interest rate on our mortgage for the benefit of having a lower monthly bill for a debt less than it reflects the fact that main snowball.
But it is the right choice Psychologically, it is high, it is doubtful Mathematically.
When you have 10,000 to throw around 1 5 goals, it is a decision values, not financial and makes quite sense that he went with the action that best reflects his values.
I had the same decision it a year ago, I bought a 2003 Mini Cooper a private seller to 10,000 after taxes, I put 2000 and financed the rest in cash on September 2 my Since I didn t yet enough savings to buy the car outright, I think I have the deal of the century, the low interest means the interest I pay every month is so low that I feel pain.
I also know that if at any time I can t stand by for a minute, I can sell the car Consumer Reports recommended that 20 in cash on a car cover used to tax and fee 10 and some depreciation you are unlikely to be upside down in this way.
At the same time, my mother who has enough money to buy everything she wants a new SUV 42000 It is frugal and is also 90 His philosophy right now is, well, I always wanted a new car and I can afford, so why the hell not I asked her why she didn t finance since the interest is so low, invest what it would have spent on it, and pocket the difference, and she said that she wanted to drive a car, I think the bank had technically buying a car is just an experience she wanted and disappeared.
Leslie Good for 90 years mom When I'm 90, I spent my money on anything I damn well please ESPECIALLY if I have a lot of money.
I had this same conversation with friends several times that go the Dave Ramsey road where they scratch and save for years to pay cash for a car My friends prefer to have the security and peace of mind of not having the debt; I'd come out ahead in the long run, I prepared my two vehicles May 2 interest and I put all the species available for rent as cash flow at a much higher rate seems like a given for me.
Hey, Nick, thank you for the comment I think we all want to come out ahead in the long run, but it's just a difference in how each of us think we will do it for me, I make a distinction between consumer debt, such as a car and debt investment in a rental house, I know all the arguments about if you buy x while you owe money on it, you really are financing with x there I just wanted to keep things simple, I would t be upset at someone who has chosen differently, but this kind of reward just wasn t will make a pretty big difference in my life with no hassle.
Having paid things served me well, I started my first real business by selling a shed for VW Jetta and I have absolutely no regrets of having paid cash for this car or have sold either.
Will, you are so good in your decision Less hassle equals more money in the end it keeps the mind clear The one thing no one raises the investment markets go up and sometimes they go to down If you invest in the market, you should always prepared to lose 50 percent, otherwise you have no business on the markets the average market return brings can not coincide with the period of the loan My opinion is not worth the peace hassle.
Howie I am pleased to see so many people raise the idea of keeping your mind clear tidy As I'm sure you know, I'm a big proponent of the idea that your mental bandwidth is limited, so you should viciously keep your mental energy and spend only on things that matter most Will found that the hassle of getting a car loan was not t is any potential down the road gains.
Your credit has a huge stake in this issue as well if you really have a good credit there is no reason not to fund If you have excellent credit, you can even buy a new Toyota now 0 for APR 5 years If you do not have to pay interest on the loan, why not step over and not shoveling all that money on people with good credit who use it wisely always end up paying less for many things and pay smaller time spans.
Uncle Casey We both have excellent credit, but none of us are a fan of brand new cars The money you lose to depreciation far, far exceeds the amount of interest you pay.
An all-new Camry LE starts at 22235, in the Toyota website An old 2010 Camry LE only 3 years old with only 36,000 miles on it sells for 15,000, according to Kelley Blue Book That means it loses 7000 amortization 3 years that's much, much more than you pay for interest.
The new vs. used argument is actually not as closed as if he were in the middle of the Atlantic and Northeastern United States on the used car market is very tight right now, due to a Hurricane Sandy flood combination damaging ton vehicle supply is falling and the recession stimulate demand for vehicles is asked frankly, the price difference between a new car and an old car is 1-3 years trivial for many models, I always assume I buy my next car used, but when I did research on the model I wanted Honda Fit just didn t make any sense to buy used.
Note I do not consider models over 3 years as you did it because they did not have the safety features that I wanted, especially vehicle stability ASSIST, for which the Honda Fit was recently recalled just can t win a few times.
You really believe the offer is down on used cars in your area, I would bet that there are plenty of used cars for sale in your region Check Craigslist I'm sure you can find a good higher mileage vehicle for much less for a new car.
People underestimate the factor of peace regarding investment and relations Often it's not about the cost or the bottom line; it is whether or not you are satisfied with your life and can sleep at night In this case, I think the recognition and acknowledgment of the priority objective of a partner should be free of consumer debt and another monthly obligation was given priority over potentially earn an additional 500 or 10K invested, earning 5 after cost of auto loan arbitration is large and can be a powerful tool for building wealth, but if the funds invested don t work as expected a short-term investment looking at long-term historical results may not generate consistent monthly payments the loan must still be paid each month if there are other factors involved that is inconsistent income, other priorities they could do the greatest risk and much more important factor for peace and go live according to personal values and priorities.
I also just bought a new car with cash is a new car from a dealer The first time I ever bought a car with cash There were two reasons why I did first, I'll buy the vehicle on a three-year loan but it would have ended up costing me more about 2600 the only reason to get a loan would have been for that I would have more money in my bank of other uses I finally decided to pay cash to avoid the extra cost but especially for the peace of mind knowing that I won t owe money to anyone This peace of mind is worth a lot for me I won t owe me remember to pay a monthly payment and I know that nobody will be able to take the car away from me missing payments which fortunately never happened to me before.
Ah, the dilemma Well, not really, for that you have money on hand if you look at this decision in isolation if there is indeed something of your podcast comrades are not being given that the risk s course, if you look strictly accrued interest against interest earned, it is evident But while the position of Will could just be philosophical aversion to debt is probably because it is the risk debt is risky nature and should be quantified in some way to a truly comprehensive decision.
I thought with KC paperwork too much for the potential gain.
When I passed by decluttering 7 months after spending nearly two years in bed and lost most of my vision, I Shocked how to keep track of bandwidth minutiae took, I got rid of a lot of things I gave her away, although I needed money, I needed to get rid of things and think about things more than I regret and I am a healthier person for it, for me, this thing of car finance for greater performance place is the other extreme couponing as he wouldn t earned my peace of mind and to buy.
It really is a very good point A car loan payment is something you doesn t mind whether it's automated payments, it's always on your mind and some of your things cloud to manage.
I think Will is crazy, you take the low interest loan and pay more towards the higher loan interest that mathematics is right.
The other reason not to pay cash for a car because you may total the car and the insurance company may not pay as much as you paid, you can get a GAP insurance on a loan to cover this spread, but there is no insurance when you pay in cash.
Kevin Since cars are so 7 years and 5 years, they'll depreciate more slowly, so I'm not too concerned about the gap between an insurance payment against our cash expenditures There will be a franchise, of course, but otherwise the depreciation will be minimal.
What do you think the statistical chances are a total of a used car with a huge gap between value and pay more out of the car the car is, the less the difference is in the cost vs. value I can understanding have gap insurance on a new car if you fund but honestly, why would anyone buy a brand new car and pay 0 interest it may seem good, but if you buy a new car and finance over 5 years 0 you will be able to make more money in investments that the car will lose value in the same amount of time Just a thought.
I would have paid in cash and of course not to invest in the market with borrowed money, even in the index fund over just keep it simple and do not involve loans of banks, I am with her husband on the -this.
Hello Paula, fight Thoughtful I go with your idea get 2 car loan and pay the mortgage, many simple and cost effective, I think you will need to get out of a kind of fear of consumer debt Sometimes we must think long and somewhat different, I believe not harmful Anyway, Congrats for your new cars your fiery player Saurabh Chavda.
Nothing wrong with jumping debt psychological reasons to send monthly checks to multiple banks might be a little distracting your goal to pass Ted Turner in land ownership It can not be mathematically perfect, but it is not an Ender world you might shout Bloggers who donate not ready to not take advantage enough.
PK is a pretty impressive podcast, huh Maybe I should tagline this podcast encourages you to go further into debt.
That's some nice guy arguments, I think that the advice they told you that investing or put on something with higher interest, such as the mortgage are two great suggestions and if I where in your situation, I would invest the money first and then pay my car with a loan.
My wife and I took a loan for our last car 1 September so we felt happy with it, however, if we had the money on hand, we would have gladly paid the money for the car.
Interesting I keep seeing these two something advertised car loans, and remembering that there were 0 car loans, I think there are about 10 to 12 years old at the time one of my relatives received a loan for a car, she could easily have paid money for, saying its like getting free money is when I look in a bad car loan, if 0 never returns.
If a deer crossed in front of the TV in your living room, you will notice, no matter how carefully he tried to be a detected If you hunt for the deer in the woods wearing camouflage, it is more likely that you will see before you see unfortunately the saying goes when you enter the car dealership you are as vulnerable as the deer walking in front of your television the sad reality is that consumers never win really Dealerships have tactics from A to Z to ensure profits they want to make the sale of a vehicle 0 0 almost always means you'll pay a little more for the vehicle After the best deal on 2002 Dodge Ram I had a salesman told me that he could not give me 0 0 which was announced on all windshields, I had the choice between the price we have negotiated, or financing 0 0 in this case, I could not afford to pay counted ant to the price we have negotiated, so I except the 0 0, but there were about 1,900 price difference I say bang bang your best deal then with the money if they do not like this then walk out.
YEAH PAULA WILL It's impressive that Will has replaced his stolen car, and in the process you have decided to update too.
I'm with Will on this one; especially as I am currently not able to pay cash for the type of car I want Benz, so everyone can, I say, you more power as it is also difficult to have a car payment when you haven t had long, long time before I bought my 2002 Accord brand new note, I won t ever do that again; I hadn t had a car payment for over five years, and now that the Agreement has been paid in 2007, so I have not had a car payment in 6 years, and can not even understand.
I'm in the camp less bills to pay every month, the better for me, anyway.
End of the conversation, but I got to another with Will about it and early commentator line to spend our money on what we like Will love-ness without debt and love Paula report of-happiness on, right Here.
But it is also a question of how we need so we have additional needs a few percent, we could by ten o'clock invest a bit complex, it is worth the risk Can we afford to out on the losing side of this investment so when the market is down on the day we call the agreement.
Ultimately, it is almost a religious choice, as Apple OS against Windows The woman that I love rather expensive one and not the other, so why spend time on earth trying to change it and I have much more important things to do.
And Paula and Will, thank you for being so honest and open again.
Bob almost a religious choice, as Apple OS compared to Windows which is hilarious.
Happy to be honest and open, I hope this helps people think more about finances, career and life.
Haha Grande after our intention to save money and buy a new car in cash next year and is just 2 offers for new or used cars as well because where I am, new cars 0- 2 financing deals, but the most used I bELIEVE 3 or 4 So 3 additional returns of cars you get is really not worth losing sleep over the other thing to consider is that you have many more bargaining power with money I bought my last car in cash, and recorded about 3500 on a 15000 buy, because I was able to pay the dealer from the start and that Sá much better than the 3 back Sorry but I'm not with will on this one.
CASH We also bought a car to keep out of our winter home a 2010 Honda Civic with only twelve thousand miles on it 14.600 taxes, etc. We have always paid cash for our cars we buy and lead them forever My last was a 2004 manual Honda Accord that I absolutely freaking loved was 15, he gave a friend who really needs a car, and it is still being had about 148K miles on it when I gave it bought a 2009 Camry for money that I absolutely love that I'll drive into the ground we hate having to pay the monthly payment so the alleviates having to make the monthly payment just maybe a mental thing, but we have no debt and just want to have no for the rest of our lives.
We were actually in a situation where we bought our last car in which our union has offered a lower rate to finance they proposed in their own term actions aka CD so we could have taken advantage of this money without risk with the same bank at the time, online savings rates were quite high, so we put in an online savings until the rate fell below the loan rate, then we paid balance.
If we were offered a lower interest rate on a car that our mortgage rate, I definitely put that money to pay the mortgage and the car slowly, we haven t peace in this situation.
P s Re the hassle factor with our union, it was maybe an hour total work, and automatic payments We were surprised how easy it was if it had been more complicated than we d definitely need to run the figures on how much we would save for example, I have moved my n annual savings for the summer without pay for long-term action because it is not worth the difference 80 for me to deal with it, even in the lack of liquidity loss Back when rates were higher and we were poor, it was totally worth it.
I would have gone your way too, but I do not know if it would lower your access to other funds, namely a mortgage for the property, I took a cash advance on a credit card 0 when investing and reduced my other options for cheap funding.
I'm all for maximizing return, and I'm ok with a profitable debt Our cars were purchased with 0 for 72 months and 1 September for 60 months I put as little as possible their impact on your debt to income ratio for future loans, but once you are in the 12 months to repay the banks rely don t payments anyway in the debt service our loan 72 months will be in 12 months when we are ready to buy our property.
Thank you to mention your podcast I will add to my playlist.
My two favorite pastimes are property investment and poker emotional decisions are not welcome in both that being said, what is important is that you guys here examined all options and make your decision based on what works for you.
I came across this blog recently and I must say I love it so much that I will share with my FB I am trying to teach my young nieces and nephews how to manage money investing respect Excellent work here .
So funny Will is Connie my wife and I with you AffordAnything When Katrina hit, I hit the road with my driver Adjuster and came back with an additional 100k I wanted to invest our session was only April 85 Connie wanted to be free of Connie debt he won a few weeks ago, we discovered tha I needed wanted a Lexus RX350 2007ish to replace my Lexus ES350 2007 to the end of this conversation, Connie had me excited about our joint commitment to driving the wheels off his 2004 Honda Accord before buying another vehicle at the end of the day, I'm just happy to have my Harley Fatboy MunchMac in Houston, Texas.
Jim Wait a second you have spotted an opportunity to earn 100,000 quickly after a hurricane Okay, I think the S true story that I will be in touch for details I love sharing stories on this blog about who have identified opportunities, pounced on them, and walked away with 6-digit rewards.
I would have taken the car loan as well but it is only 10k, so in the big picture of your financial independence, it is not going to make a huge difference in both cases If you do this every month leaving money on the table that is another thing it is a small price to pay for peace of your boyfriend's mind, and it's not like it's stupid to pay cash for a car.
I was in the balance in the money camp, but that's because I was mental time-constraint with career children next year or two, I hope to retire early and this time, I can clearly see myself doing the low interest option.
Kay There are certainly something to be said for taking a simpler way when already pushed the power of your mind time to the edge of cash, or take a low interest loan and investment might be to both good options depending on what happens in your life.
Ha Check this out is what is happening on your site when I go on vacation to teach me'll take a few weeks off, huh.
I'll admit that I cared about the podcast how it ended, I just know that decisions work better when we discuss fully all results Viewing this discussion, I think we all learned a ton just the Diversify of impressive views.
Jason number has not really 2500 ISN difference, however, if you are using this money for long-term retirement, we can use the Rule of 72 to find our way easily to 80k If you aren t he Sá hassle free short term without any real value.
Joe Yes, it will teach you to never go again on holiday Haha.
Hmmm okay, the Rule of 72, we assume an annualized return of 8 percent in the long term In 9 years, the money doubles to 20 000 in 18 years, we have 40 000 in 36 years we have 80,000.
Inflation eats 3 percent, so we're really talking about 50 000 in purchasing power this is still a decent chunk of change Ahem, Will, see my point borrow money and invest in index funds ahem.
Is still think the idea of investing in the stock market with money borrowed is much too high risk, it's not moving on this idea Paying off the mortgage is the closest thing he'll entertain .
If so, go out and get a loan from these reserves and invest everything in a S P. funds
If the answer is no, its too risky, that isnt essentially the same from its your risk meter kicked in.
I have a friend who talks about how he regrets pay his mortgage, he said that if he had invested that money instead, he could gain more on the market so I challenged him Why do not you take out a loan mortgage and invest the money and he balked at the idea.
You are right Crop is a great way to assess your risk meter.
great discussions here, I'm with Will on this one, except I buy older cars as 10-12 years so they don t depreciate at all, but when I have a little more money, I am quite go the way of Will It is a safety thing, and a thing of ownership But for me, I won t spend more likely for a 6000 car, so unlike ISN invested all your lot , and did not compare with the peace of mind.
I take a car loan and use the money to pay the mortgage this option, the rates are set and I could be sure I'm paying less interest this way.
Maybe I'm biased against the stock market The thing is, the historical rate of return is just that something happened in the past and may or may not happen.
But I can also see how having two fewer loans to worry about making the kind of value that's unquantifiable I know I hate having to keep track of due dates.
I love how you both these financial nerds your words, not mine your arguments even reflect one of the most common in the PF circles.
In my humble opinion, anyone who suggests taking put money borrowed in the index fund in the stock market or otherwise has no credibility unless you are Bill Clinton and is white and the water gushing financial fancy sale advice to without knowing what these so called market experts guarantee that I'll even earn the market rate over the term of 2-5 years car loan without the guarantee, it is just every fantasy and wish.
Case focuses on market timing and the payments I have 2 friends one makes an incredible amount of the tech bubble in 1990 and cashed at the right time, other items made of paper profits and lost everything including principal when he was too long and it disintegrated can experts ensure that even the principal will be there in the final term which also doesn t include transaction costs, taxes, commissions, medium etc. of the gift market t mean anything on a short term 2-5 years You have the right decision.
Bob2 Nobody said anything to invest money for only 2-5 years, the life of the car loan if money was in an index fund, it would be held for 30 years, it would be just get a good starting 5 years, that's all.
I know a guy who was in a similar situation Its Agreement had many miles on it like the one you're referring to.
We always bought our vehicles with money It worked for us, but with all the major decisions, there are ups and downs -Joy Good luck to you.
We continue our cars but we didn fund children, that can be a game changer for car buying.
I absolutely would not pay money to drive people believe that debt is a bad thing, but the debt can be a good thing if properly leveraged If you can get a loan with low APR is the money you can put to work for you, not an institution.
Also, having a car loan also positively improves your credit in an average credit card can do so if you have a loan that you can make more money, you can improve your credit, and you get rates lower interest on other things like mortgages, credit cards and other loans addition, employers often take credit records.
I disagree with you very I pay cash for my car and my credit scores are all above 800 My FICO scores are over 800, although I'm not a car payment, but many cards credit I always pays off at the end of each month do I pay a credit card interest ever.
I'm a little surprised you buy cars with such high mileage Won t they cost you a lot of time, money, and aggravation if they start to fall much Don t get me wrong, I still buy cars of Occasionally, but I usually won t go over 50,000 miles because every time I let a car go 100,000 miles, they begin to cost me a lot in repairs I mean, there are so parts in a car and that all older, they begin to use I tried to pay the money for cars because I hate car payments, but the argument is logical on interest rates.
How much money did you lose in trading in your car when you press 50,000 miles Moreover, how much money you lose less value when you buy your car next to the car is the worst investment of money I understand if you have a car that costs you left and right, but as long as you buy a good car Honda Toyota tried and reliable evidence, I think you're just wasting your money to buy cars each once you hit 50K miles if you buy your used car, how many miles are on them when you buy My last car was a Honda Civic LX 1998 215,000 miles I would never sell this car.
When my wife and I had unplanned twins to make us a family of 5 two years ago, we had to shop for a larger vehicle to replace its small sedan Initially we shopped for 2-3 years SUV, but quickly found that news was just great more 0 funding we intended to pay cash, but we took up the 33k and put a down payment on a set of five family houses turnkey I paid 139k for the package, set around 30k down 20 more closing costs raw houses mo 3600, with a net of about 1000 mb It is ammoritization 10 years 5 65, 800 towards mo maturity the car payment is about 600 MB, so obviously the net cash flow is more than the payment at the end of 60 months, not only the tenants have paid about 50k of the mortgage, they bought the vehicle for us and 33k we provided additional 24k in cash flow with all that said, I despise car payment, but my wife, who is much more patient, rational emphasizes how beneficial e is will be only three years when the car is paid not to mention 8 years old when the car and houses are paid.
Geoff Wow, that is the best car finance story I have ever heard and a set of 5 turnkey houses for 140k sounds like an amazing deal Which part of the country is that many in.
Paula, Sorry for the slow response I am located in St. Louis and the houses are lower end, but not areas strictly war tenant selection is huge, and have to keep rents affordable for the level of income of the area There many 2 and 3 bed houses in these neighborhoods for the 28k- 40k prices are rising slowly for these types of rentals as we seem to have a lot of investors on the city in the last 12-24 months, we have at least one, maybe two large hedge funds in the purchase of the city everything I listened to all of your podcast and I just want to say congratulations for your success now and also continues, I love you website, go I ' really appreciate seeing drive and determination of the people.
Geoff St. Louis much like Atlanta, we have good 2-3 bedroom rental in low-end, but not terrible neighborhoods, but we're also seeing a ton of out of town investors, especially hedge funds, swallow the inventory.
Thank you for the compliment I'm glad you like the blog.
While I understand the will of the desire to avoid a car loan that I hate as I can see an approach like this, it makes more sense to me than an index fund looking at this several months after the Article was published in 2013 proved to be an excellent year on the market, we do not charge does tend to years like that very often now, if the market had tanked recently, I give serious consideration the stock index funds.
Cameron Yes, even if hindsight is always 20 20 We can predict the future t The stock market could skyrocket or reservoir in the coming year, we can make projections, a word to guess, but we can never know the future.
I think its safe to say that over the very long term, say 10 years, markets will increase by 7 to 9 percent on a long-term average annualized Based on historical trends over the past century, but any period of 6 months is too short, too volatile to make an accurate prediction.
money to pay for a good trivial as a car 10,000 is the right answer and here's why.
1 While 2 come on APR loans are technically available they are available for new cars, and only if you have an impeccable credit score and often if you give discount for used cars, they are much more difficult get especially anything older than 5 years.
2 The interest savings which would actually be more than 2 because of composition is a GUARANTEED economy as a link supported by the government when you compare a speculative investment, such as stocks, you are comparing apples and oranges.
3 The stock market is not going to remember 2008 low So if you borrowed money to buy the car, then invested 10,000 in stocks, there is a chance that three years later, when the loan is paid off, your 10 000 is worth less, and you just behind it is a small scale, what the owners have done in the 2000s borrowed money to buy a house, which has value, and invested their money in stocks they ended up broken.
4 Chances are, you will not put 10,000 in anything these opportunity cost arguments are made by the car salesmen all the time but the result is, the buyer usually doesn t have any money so they borrow money and DON T put anything in savings investment strategy vaunted 5 delta has therefore never a chance to take effect.
5 pay cash for a car force you to make difficult choices when borrowing money, everything is in monthly terms Go to a car website and see a set of options is presented as 3000 only 25 credit -bail months, so of course it is easier to spend more on a car, and not be concerned with the bottom line When you pay CASH, your priorities change rapidly, and suddenly the roof seating surfaces opening panoramic leather trimmed and don t seem important.
No debt is how to be t you can borrow your way to wealth, as you can spend your way to wealth t and you can deduct your t path to riches either.
Unfortunately, most Americans try all three and ask why they are broke.
Robert points excellent happy to see a player to contribute to the discussion.
1 You can often get better financing conditions of credit unions, rather than concessions We have awesome credit, and our local credit union has less than 2 percent on a car loan 2 It is true that you are comparing apples oranges regarding the risk and volatility you're still compare performance based on performance, but you're comparing them to different levels of risk that's the main reason we decided to pay cash 3 we are not short-term investments 3 years, we invest long-term 30 4 If you are a regular reader of AA, you know that I would invest 10,000 After all, I invested 100 percent of my income to the 2012 and dedicated community would do the same AA AA readers act on the principles they learn on this site; the reason I get dozens of emails from readers who tell me their success stories, however, the masses non-AA readers might be sloppy and choose wasting money on champagne and caviar; that's why they can never escape the 9-to-5 5 AA readers know they shouldn t rent a car.
Again, the points reflected impressive You certainly can t deduct your way to wealth, although you can invest your way to wealth.
I have not had a car payment since I paid my 1988 Toyota Camry- the only brand new car I ever bought, in l992 Not having a car payment is supreme and once you have been paying Free car for a long time, you do not want to return the payments It shocks me when I hear how my friends pay each month for their new car, however, I had a bad experience with payment in cash and that is with my current car.
Don t make this mistake as if I do not pay DID money for a used car without having a significant amount of savings available if the car needs major repairs Unfortunately, the last car of the mine was a little lemon Shortly after I bought it, the engine went out and I had to take the terrible decision whether to put a new engine or let it go I put in the engine but had other major repair expenses, I did not have substantial savings and thus spent most of a summer without the use of my car and had to cancel a planned camping trip with my kids, I guess because it was a Toyota, as my other 4 cars that had no problems, it would be reliable false If I thought more or read Dave Ramsey's total money Makeover book, or read your blog at that time, maybe I ' would have bought a cheaper car afi n to keep at least 2,000 savings available for potential repair costs.
This is a great moment, Nora I often recommend that people start a savings account that's earmarked for future car repairs Put a quantity 20 or 50 or whatever you can afford this account every month then when you need a car repair, you can take this account.
I also advise owners to start a separate savings account that's specifically for future home repairs, for the same purpose Generally, they should put 1 percent of their original price in the account each year if they live in a house of 200,000, for example, they should make 2000 a year, or 166 per month in this account.
A real cheapskate would just have to buy a car 3000 and 7000 kept spending on insurance and gas.
I do not know if anyone made these points, but here I am going with Will on this one I actually am trying to buy a former law Honda 2 years now, and I was fortunate be able to pay cash for it Here are the benefits that I see them.
1 no initiation fees or loan paperwork 2 no need to put a very low deductible insurance on the car In fact, if I choose I could take out liability insurance i won t, but I took a higher deductible, saving 280 3 every year I have money invested in the market, both money and my IRA and 401k have some money tied up in an asset, even a depreciating asset, is not a bad thing 4 I could buy the car below market value because the seller didn t have to fear that I would be refused credit Cash makes everything easier for everyone, and psychologically, it is just more attractive 5 im determined to keep down my fixed costs, so that if at any time I want to quit my job, or my work leaves me, what I have to maintain my standard of living could be taken into load on very little money It gives me beaucou p freedom If I invested money in place, I may have to leave the market when it is low or in a year when the income will be taxed at an unfavorable rate.
Most of all, however, the cash payment made me very careful to buy a car that I can easily afford it more difficult to recover a sum of money to agree to pay this piece over several years in debtors species has a very positive impact on my behavior as a consumer IEI consume much less than me when I thought that credit was the way to go.
These are excellent points, Mary especially point 5 The main reason I avoided consumer debt is because I love freedom and not have other bills that the grocery store gives you a lot of freedom.
You are also right about how the cash payment holds your budget for things that you can afford Will has already noted that the debt allows you to do stupid more, spacing payments on something that you should have bought in the first place, because you didn t have the money at the time.
Now we paid cash for two cars, I have to admit I'm pretty happy bullshit that we don t have a car payment theoretical savings interest rates darning.
Thank you I love doing the most stupid nugget, by the way I bought the car as planned and feel really great to have chosen a car that perfectly meets my needs, and represents zero stress because it doesn t interfere with my goal to return to more meaningful work paid much less.
Now I will read more of your blog, I really like the look of.
For me, one of the biggest advantages of buying an old car for money is that you aren t required by the lender to take out comprehensive insurance and collision that can save alone 400- 600 course, there is the risk that you will ruin your car.
But you are a strong saver You had enough savings to buy the car and repairs should have enough coverage, you can reduce your risk by obtaining collision insurance with a higher deductible.
Great question after very intimate with a different twist, I'm 23 years young, and my fiancee and I to get her a used car to replace his old car We are looking into the 6-10k range and easy money separate pool for emergency funds, both have 401ks etc. I fan my option to pay cash, I'm a big enemy of debt none of us have college debt She heard that to build the credit history for a mortgage in the future, we need to take a car loan we both had credit cards, payments never missed, but none of us have ever had a loan in our thoughts name.
Spencer That's a good question that I answered here in this post.
I realize that I am not drag up an old post, but it caught my attention, we are in a similar boat Repaying the car or invest 10k We can do better by investing the money, but decided to repay the car we are pushing retired 40 and the car is a payment of 300 MB needs to be done her a cash flow problem we want to minimize our expenses so we need cash flow less positive for living 300 reduction warranty and permanent investment performance are not should we invest our money and sour statements for a bit, 300 car payment is still required.
Paula, thank you for allowing people to watch all sides of the debate on investment in debt.
Just pay the car in cash and be done with what I hate having payments.
Now I'm going through the dilemma of paying my mortgage vs go the normal route.
Hi, I just came across this interesting discussion unfortunately, I was late, I did not see anyone setting up an existing HELOC Is one to take you down a 4 HELOC even if you had the money Thank you.
I_witness Great question Answer Absolutely not Do not borrow against your home to buy a car, pay off your credit cards, or do anything else if you secure your car note against your home, you may lose your home a penalty which is much worse than getting your car repossessed.
Spend as much as you can realize I n the point in the discussion see it is quite simple; if you have money then don t store it for the welfare of your bank if you do not then your back how to be rich when you are not I prefer to be a risk taker, maybe an idiot, but I will not ever regret or complain.
One aspect that always seems to be omitted from this discussion is the cost of insurance When using traditional financing to buy a car, full insurance coverage is necessary If paying cash for a car, can be used to minimum insurance of the State the cost difference between the two is very important, and easily outweighs any interest rate differential.
Otherwise, one could use a balance transfer offers 0 of a credit card and maintain minimum insurance status This would produce the lowest overall cost, unless an interest-free loan without fees is available elsewhere Although course, the best option would be to use 10,000 to buy one or more other rental properties.
Debt is like a slave collar long as you are accountable to someone, they hold a certain amount of influence and control over your life if you have the money to buy it outright, you should if you do not have the money to buy outright, save up.
We stumbled across this looking for new ways to leverage to work one is obvious, a loan on the car, we did exactly what Girlfriend 8 highest rate of student loans to purchase a box of car is essentially 1 August 10000 car loan I do not understand how you can not fit in your headspace It automatically comes out every month and you pay the money saved in higher interest loans or a good index fund Either way, you're making make money on 3 neurons.
You pay in cash Playing with interest rate doesn t account for risk and harassment have a payment to manage.
Yes, I know you have the money to pay something goes wrong idea that money could be better used in the market or reduce your mortgage debt doesn t take because if you really wanted to use the money that way, you would have already done.
When you take a car loan, you've already spent the money It's just a matter of whether you pay only 10,000 for the car or closer to 11,000 once you factor in interest.
I'll pay with cash Pay cash and if in doubt, pay cash.
Ron if you really want to use the money that way, you would have already done an excellent point s.
This was a great article and comments that followed were equally insightful.
I am a supporter of the ideology minimize your mental clutter, and I'm constantly simplify my lifestyle and investments so the decision of Will regarding buying a car in cash resonates well with me.
Now I know this is slightly off topic, but what are your thoughts on the realization of this philosophy to minimize your investments and admin.
I stay in South Africa, and one can earn about 15 by investing in funds tracking the index is a conservative estimate, that my statements have been around 20 to 25 in recent years.
Our return on property is between 5 and 9 depending on where INVESTS so let's go with 7, and capital appreciation is about the same inflation is around 6 and our preferential rates interest is approximately 9 most mortgages are sitting and around the 9 mark perhaps a little less based on the strength of a credit profile.
With all this in mind, I found that when you take a long view, investing in equity is much better both from the standpoint of maximizing returns while minimizing mental clutter by eliminating all administrative costs associated with the purchase, rental, and maintenance of properties.
I do not know if you guys with the good in your life every day, but I for one don t, and therefore having to manage a rental property portfolio seems to me both time and stressful especially given the risk of bad tenants or property damage.
I understand the power of leverage, and wisdom in minimum cash bombing for a deposit on a mortgage while having a rental income service tenant reimbursements of general obligations, but when comparing the long yields term with that of equity, is the admin and headaches worth it.
Keep the great blog by the way I just found out, but I think I'll be regularly turned.
Ok, here's what we've done in the past my wife and I have owned a lot of new and used cars We always weigh the options when the decision We recently purchased a new CUV and found new and one year models had significantly better fuel economy and safety features than older models and prices weren t very different journey My wife is 60 miles per day, so a reliable, because security is a must the car we sold not traded to make room for this one was a 9-year-old Honda Accord with 160K miles on it was still a great car the day we sold, but she needed an automatic transmission we have two other cars I spend with 140K miles each on them my commute is 40 miles per day.
In 2001, I bought a new truck that we still have at the time, the trucks held their value incredibly well and you could save money to buy a used, I also drove 30K miles per year for work when the truck was offered on 36 month 0 loan we took the loan and paid our mortgage on the house with the money we had saved for the purchase and sale proceeds do not trade our old car we essentially refinanced our mortgage 0 6.
Between 2001 and 2013 we bought two cars, the first low-interest loans and pay the loan a few months, we still have one of the cars purchased in 2004 In 2013, when we bought our most car recently, we were offered a loan 36 months September 1 Because we intended to buy a house within a year, we took the loan.
We bought a house in March and used the money we used to buy our car to put on home mortgage is 3 We saved one actually taking the car loan, we can usually itemize our t federal taxes mortgage interest deductions don t play a role here, too, we kept our old house making it our second lease rent is more than enough to pay the mortgage for 10 years 3 on our new house.
In case you were wondering, we max our retirement accounts and have an emergency fund we complete on the new car and the responsibility of former We expect to drive them until they fall We kept also Honda, but my wife insisted something had to go.
Oh Lord, how many times my boyfriend and I have this debate, I thought we were strange because we have all-round meltdown arguments about whether the new cars and car loans are the devil, or reasonable, since you are a more reliable vehicle.
The only difference is, my main argument is that we pour a lot of money each month in our three old junkers, why not pay a small monthly payment on something reliable You have just opened a new point of view everything to me great post.
It depends on whether or not you are willing to take risks with your money to pay cash for a used car is risky, but pay for a used car with borrowed money could be I'm not sure even more risky than I would do in this situation, but I know I would be reluctant to buy a used car with money he would eventually probably need a lot of repairs on the road.
money to pay for a used car is no more risky than taking a loan Regardless of what happens, the loan must be repaid risk is the same.
It is actually a benefit to pay cash for a vehicle used if funding is not attractive According to the credit score of a person, the interest can be costly.
Many times a new vehicle bought at subsidized financing OEM, say zero or 9 percent, may cause a lower payment for a used car and of course, new means fewer repairs and often no maintenance for some years.
I'm having a similar dilemma We can pay cash for a 2012 Honda Civic for my wife or funding through our board for 79 interests We also it counts reward checks that wins 3 interest if we penchions towards funding and keeping the money earning interest on the account.
That being said, we hate loan debt is a 3 15-year mortgage, so I can understand that peace of mind that comes from paying cash.
I went through the same question that I decided to borrow 10k May 1 for five years, I kept my 10k in the bank as my real rainy day fund since I have other obligations that force me to spend money unpredictably.
Pay 1 5 is now much better than paying 10 later, I look at this interest as insurance and peace of mind.
The usual answer, it depends I know you hate that 1 Cash Pay no decrease your FICO score you have more debt 2 No comprehensive insurance premiums on your part even with fees of paperwork doc when buying 3 when dealer asks, how will you pay for this car, the price you can negotiate will always be less saying, tell them cash, Finance, and your purchase price will rise Even if you say, I am not merchant Dealers course assume Finance pay insurance premiums for cars financed assuming you have defaults, bankruptcy, car is stolen or destroyed, they are paid.
Finance used car lot for the work of your car insurance rates will be higher and only if you can deduct car expenses if you itemize your taxes that you work for someone If you own your own business, you deduct the cost of your car sound financial income 2 break you need money to put into the game to match your employer's 401K 401K free money for you and do not pay income tax on this money builds deferred tax: certain investment income after tax fight the financial cost 2 and the higher price you pay for the car.
Conclusion If nothing in the Finance section applies to you, cash Although choose to have no comprehensive insurance, the car is stolen or destroyed, you can finance your next car if money is tight.
Size doesn t meet all If I have an emergency fund set aside and have a mortgage, I would get a car loan and pay the mortgage I have done in the past now, I do not have loan, emergency cash and no debt However, it took me a long time to get frugal e be patient.
Ha This is a wonderful story car loans to pay back some very interesting thoughts mortgage car loans to repay student loans as an interesting thought Thanks for reading.
Because I pay cash for everything, my house is paid for, my cars are paid and we pay our credit cards each month pay no interest here is my delima now I havec more than $ 200,000 put into our savings account making 5 interest I am at a loss what to do with this SO, my question that I saved and saved and saved and no debt, but I know I'm supposed to do something with that money and more let located just make a half percent interest any advice would be that I am 60 and my wife is 52 if it helps you help us.
Gary personally if I in your shoes, I d put that money in low-fee, index fund broader market with a low-cost brokerage firm like Vanguard or Schwab You seem pretty fiscally conservative, so I'd go with the thumb rule Of- your age in bonds, with the remaining stocks in other words, create an allowance of 60 bonds and 40 the allocation of shares, and put these in just three total funds in the bond market, total stock market and total international market index funds by choosing low-cost, you avoid unnecessary costs as expenses of funds, high expense ratios, etc. This article may help.
Logic and more financially sound solution does not pay money for cars However, if you are someone who is a rat going concern wouldn t you pay someone 30 a month if it meant not having stress said that I would pay much more than if I could afford it do not have the added stress; when you are stressed, you aren t you and you feel trapped, and feel free is a crucial factor to be happy for me at least at first I was puzzled by the apparent disregard of will to all logic bc I am rational person as Spock over all cases of reading some of the comments, however, shed light he seems to have finally understood the financial advantage and made a conscious decision to pay to feel less stressed rather than the impression that the article seems to give it some have tunnel vision, I can definitely get on board with this, bc when something does cause me stress, I'm not the same person and I would be happy to pay 30 to return to my state content Spock fashion After all, the whole point of having money is to alleviate stress for 99 of us so if more money is instead causing more stress, it is not really serve its purpose of cost-benefit analysis is dependent ultimately on the benefit and the cost to the individual not to his bank account.
Jes I completely agree more time elapsed between the time we bought these cars and now, I can not understand why pay for 30 months, so to speak, lack of stress and mental disorder Sometimes it's just good to know that an item is paid in cash and you no longer need to think over it; it is an article doesn t occupy the space at the back of your mind.
As one commentator said earlier if we were talking about numbers that were 10 times more of a purchase of 100,000 instead of 10,000 then maybe the extra effort and complexity would be worth but at this level it is certainly an argument to make the payment in cash for the sake of preserving peace of mind.
PSI should clarify that objection Will was philosophical By cons, I have not a philosophical objection to a car loan, but from a pragmatic point of view, I see the logic of the stress-avoidance and mental congestion avoidance in other words, even if it could be financially logical to take the loan, it's an emotional sense, pragmatic or emotional, as well.
I wish I had my own car without worries concerning mortgages and other payments So why deal with all the hassle if you have money in hand that is if you have money in hand Currently, I do not have the money to buy my own car so I settle on auto loans.
Forgive me if someone has already said what I have not read all the reviews I think the answer to this question depends on each individual My mentor gave me a process in which we will pay the money to our cars instead of taking a loan for me, working for my wife, not so much, but I do not think either way is right or wrong.
Here's my thought curled If I know nothing about investing, option 1 purchase with Cash's better for me if I choose option 2, which will probably happen is that I will get a car loan, then spend my money on something else, then option 2 in my opinion, only works if you are committed to keep the money until the loan is repaid this will protect you from the unexpected.
My dilemma is that I prefer option 2, but as my mentor pointed out, I should be clear of all debts except a mortgage before you start investing outside of my 401K .
So I think both options are good, but you must apply to your own situation and you must make sure that if you take the loan option, you can cover the worst case, without going bankrupt.
I financed my last car and I felt like that was a big mistake that I've never hated having a worse payment for that car I paid early, and I will pay money for my next car, I think not having debt is a huge stress reliever and it is really worth if saving and paying cash for vehicles.
I just swapped used Mazda I bought for money 3 years ago for a city and country that I financed used I thought I would keep the Mazda for a very long time when I bought it, but just didn t meet my needs, I stressed about paying cash for it and sell it so early, but I did a little math and it seems if I had the time I financed the bought with the loan rates offered, I think I would have come to pay the same and so the lack of payments and hassle the dealer is very nice.
TCI think I'll keep it for a few years to go camping in the country, then sell it to me, it seems just an interest rate of 7 February I will have invested less in two years when I sell with many miles on it.
If you pay cash for a car, money, the 2004 Honda Accord, almost religious choice, Apple against Windows.