Cash or Loan?

[kparker158]

If you have 40k cash and owe 40k on a truck you’re still cancelling out the cash.

[TeamAmerica]

P.T. Barnum was right. Add $2500 to the price of a vehicle and "give" people a 0% loan to buy it. Then listen to them crow about their 0% loan.

I can't for the life of me figure out why this isn't false advertising. I know some people are pretty dense - i feel a bit sorry for them.

[westtexducks]

That's great. If there is no risk involved. Otherwise you also have to assume you could lose money as well. So where are you getting the 5% return with no risk? inquiring minds want to know.

I have made 9.2% year to date on stock market in 401k, made 11.3% over a 3 year term on it. Now sure a 401K may not be apples to apples comparison but there is money to be made out there, and yes there is some risk but anytime you want to make money there is an inherent risk. Now sure you have to measure your risk tolerance and what you are willing to take, and yes not everybody's situation is the same but I don't think a lot of people living the whole debt free thing realize how much money they had an opportunity to make with a little bit of risk involved.

[CaptainDave]

Just bought a new Equinox and I financed the minimum with GM. Why? I got an additional $1095 off the drive-out price. I'll write a check to them when the first payment is due and call it a win as a month or so at 6% on $10k won't begin to add up to the $1095 price reduction.

This is exactly what I was referring to in my earlier post. If an incentive to use a preferred lender is offered and taken off your negotiated drive out price, no question financing a portion is a better deal than straight up cash. Just pay the loan off on your first payment. All you are going to do is incur is a minimal amount of interest; i.e. one months' worth. Typically, an incentive is provided as the interest rate from the preferred lender isn't as good as from other sources. If you are paying the loan off rather quickly, it doesn't matter as the incurred interest isn't even close to the incentive offered.

There's just many ways to skin a cat. Time value of money can be looked at from many angles. To me, people that believe cash out price is always the best deal are just as blind as the people that believe 0% financing is free. A honest finance person at the dealership will explain the pros and cons of all options and it's up to you to pick the one that fits your finances best.

[westtexducks]

Can you run the scenario where the guy loses his job at the end of Year 1? What does he do then?

Also, did I miss where you adjusted for the IRS's cut of those stock market gains?

What does he do at the end of year 1 when he loses his job and his 40k nest egg is gone because he spent it on a truck? Loan against it and back at square one. Lots of what ifs, and money is out there to be made if your willing to take the risk not saying it is for everyone but just pointing out that paying cash is not always the right thing for everyone either. And IRS cut of those gains is what 15% out of $3175 so $475 bucks? Still come out 2.7k ahead.

[M16]

I have made 9.2% year to date on stock market in 401k, made 11.3% over a 3 year term on it. Now sure a 401K may not be apples to apples comparison but there is money to be made out there, and yes there is some risk but anytime you want to make money there is an inherent risk. Now sure you have to measure your risk tolerance and what you are willing to take, and yes not everybody's situation is the same but I don't think a lot of people living the whole debt free thing realize how much money they had an opportunity to make with a little bit of risk involved.

You could have lost the same amount as well. But I do agree with the rest of your statement when it comes to risk tolerance. And I'm certainly not against borrowing money to make money.

[kyle1974]

One of the reasons new vehicles cost what they cost is because of the prolific nature of loans. Can’t afford it? That’s cool. We can set you up with 72 easy payments.


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[bbqfan5909]

Dont Forget the rising prices on trucks, 5 years ago trucks were cheaper.

[ReydonPete]

I have made 9.2% year to date on stock market in 401k, made 11.3% over a 3 year term on it. Now sure a 401K may not be apples to apples comparison but there is money to be made out there, and yes there is some risk but anytime you want to make money there is an inherent risk. Now sure you have to measure your risk tolerance and what you are willing to take, and yes not everybody's situation is the same but I don't think a lot of people living the whole debt free thing realize how much money they had an opportunity to make with a little bit of risk involved.

Have you considered that those living debt free, may be buying their vehicles with a small amount of cash that has been made from some of the good investments that these individuals made in past. Such as investments that make a yearly income for them well into the future
Some May be in financial better shape than your thinking they are.
Perhaps their previous risk and success in business is what allows some to live the debt free thing as you say.

[Kevin]

So just for giggles some quick numbers on a 40k truck and a 38.5k cash payment. This will be assuming a 0% interest rate loan and a 5% rate of return on an investment over a 3 year period. So if you are getting 5% on a 36k investment assuming you put 4k down on the truck you are looking at $5674.50 return over the 3 year term interest compounded annually. Subtract out the $2500 difference from paying cash and your still $3174.50 in the black that you miss out on by paying cash for your truck. And that is assuming a modest 5% gain and compounded annually so if it compounds more frequently you stand to make more money.

Now do the same math assuming you carry the term out over a 5 year term and you stand to gain $7446.14 if you take the 0% interest loan and invest the 36k at 5% gain/year.

The fact you don’t mention taxes at all in that scenario tells me you don’t know what you are talking about from a practical sense. Not saying you are stupid or anything, just that you don’t really factor in all of the variables.

Bottom line is this... a VAST majority of people decide its better to get a low/zero interest loan because they are going to hypothetically “invest” the nest egg and make a ton of extra money. The reality is it very rarely happens.

I haven’t had a car loan in 8 years besides floating a loan for a few months so we could pay cash for my wife’s slightly used vehicle. Paid off my 140 AC in 6 years also, so no loan there either. Also invest a lot and will leverage when needed, but I have peace in my soul for not owing a bunch of money... now that’s freaking priceless.

When asking for investment advice, know your source, evaluate for yourself, and then move forward.

[Buck Shot]

I personally think it’s stupid to pay cash for a vehicle IF you have good credit and can get a respectable interest rate. Save the cash and let it make you money somewhere else.

This

[Atfulldraw]

The good news is that new car will soon be worth what the one you can actually afford is worth.

[Peta-hata]

To each his own. It’s a nice feeling not haveing to make a payment though. I say haggle the heck out of em as low as they’ll go and buy it outright.

[cva34]

loan or no loan

I have a 0% apr on my car and cash in the bank. Nothing wrong with financing at a good rate and keeping your cash squirreled away. On the other hand, if you can get away with buying a cheaper cash car that fits your needs, nothing wrong with that either.

gota agree..With all the low interest rates around ....and the Pitifull interest rate on savings...I've done a couple 0% loans and been happy outcome just be sure if early pay off no penalty..so you still have that option..

[8mpg]

Can you run the scenario where the guy loses his job at the end of Year 1? What does he do then?

Also, did I miss where you adjusted for the IRS's cut of those stock market gains?

In your scenario where the guy loses his job at year one...what would he be better off with... $35k in cash and $750 truck payment or a paid off truck and broke?