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Car loans and interest rates

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39 minutes ago, pawnman said:

Thank you, Dave Ramsey

Are you suggesting it's a good idea to spend money you don't have and incur even more debt on a depreciating asset vs buying a vehicle that you can afford without incurring any debt?  

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27 minutes ago, BashiChuni said:

i would strongly advise heloDude to not have a credit card

You think it's a bad idea to have a credit card and pay it off every month?  Why?

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54 minutes ago, raimius said:

With inflation and loan rates being potentially equal to each other, you aren't losing any buying power.  You'll probably do better putting the money in the market and taking the loan at ~3%. (The market is admittedly a gamble, but taking the historical averages into account, it's not a bad bet.)

We're not talking about buying a house.  Why would you borrow money to purchase a vehicle when a vehicle that costs just a few thousand dollars (or much less) will work?  I'm all for buying nice cars (i.e. toys), but not when you don't have the money.

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42 minutes ago, HeloDude said:

Are you suggesting it's a good idea to spend money you don't have and incur even more debt on a depreciating asset vs buying a vehicle that you can afford without incurring any debt?  

Yes.  If you have the kind of credit that allows you to borrow money cheaply, absolutely.  Because the vehicles I can afford in cash, vs the vehicles I can afford with a loan, are vastly different quality, and because I have a stable income source that isn't going to be subject to pay cuts or layoffs in the near future.

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4 hours ago, HeloDude said:

We're not talking about buying a house.  Why would you borrow money to purchase a vehicle when a vehicle that costs just a few thousand dollars (or much less) will work?  I'm all for buying nice cars (i.e. toys), but not when you don't have the money.

Removing $10K+ from investments incurs noticeable tax penalties.  I don't normally have that kind of cash on hand (cash is good for emergencies, but loses buying power over time), and interest rates (assuming excellent credit) are low enough that paying cash is likely to incur a 3-10% opportunity cost in lost investment gains (per year!).

This is not a case where I could not pay cash.  It's a case where a ~3% loan is likely to work in my interest.
If you invest moderately aggressively, your money compounds quickly.  An officer with limited expenses should be able to save enough to buy a house with cash, if they want to, within a decade.  Whether paying cash is in their best interest is something they need to examine...same with any other loan...

...AKA, invest your money rather than pay off your 0.5% cadet loan.  You make more money that way.
 

Edited by raimius
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1 hour ago, raimius said:

AKA, invest your money rather than pay off your 0.5% cadet loan.  You make more money that way.
 

Sound logic.  Unfortunately, this logic also requires self discipline on the investment side, which most people lack...no matter how good a game they talk.  HeloDude makes a great point, and it works for many people, myself included.  Maybe his advice is too conservative for some of the “experts” out there, but ole’ Dave Ramsey didn’t get rich selling books for no reason.

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Not at all.  
 
 

So I’m about to buy a new car for approximately 58k. I can pay cash, but I’m probably going to finance because I have an interest rate of 3% through USAA (and I’ll see what APR the dealer can get me, in previous new car purchases, they’ve usually been able to do .5% lower). My recent home loan is at 4%. Wouldn’t it make a shit ton more sense to finance the car and make a principal payment on the house instead? Also, financing a car gives you the option to buy GAP coverage, so if the car is a total loss, the balance of my 58k loan is paid off rather than insurance giving me a check for the replacement value of my now used car.


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54 minutes ago, ihtfp06 said:


So I’m about to buy a new car for approximately 58k. I can pay cash, but I’m probably going to finance because I have an interest rate of 3% through USAA (and I’ll see what APR the dealer can get me, in previous new car purchases, they’ve usually been able to do .5% lower). My recent home loan is at 4%. Wouldn’t it make a shit ton more sense to finance the car and make a principal payment on the house instead? Also, financing a car gives you the option to buy GAP coverage, so if the car is a total loss, the balance of my 58k loan is paid off rather than insurance giving me a check for the replacement value of my now used car.
 

It depends on the value of your home vs. the mortgage amount, term of the loan, and principal remaining. If the 3% interest loan on the $58,000 car plus the rate of depreciation during the duration of the loan exceeds the difference in value of the home minus the remaining term of the mortgage times your monthly payment, you may want to use the principal payment to install an inground swimming pool to increase the value of the home instead. Otherwise, use it as a down payment to invest in a Caribbean sailboat in as large as your credit will allow. Purchase full insurance coverage on everything, just in case. Also, use coupons.

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3 hours ago, ihtfp06 said:


So I’m about to buy a new car for approximately 58k. I can pay cash, but I’m probably going to finance because I have an interest rate of 3% through USAA (and I’ll see what APR the dealer can get me, in previous new car purchases, they’ve usually been able to do .5% lower). My recent home loan is at 4%. Wouldn’t it make a shit ton more sense to finance the car and make a principal payment on the house instead? Also, financing a car gives you the option to buy GAP coverage, so if the car is a total loss, the balance of my 58k loan is paid off rather than insurance giving me a check for the replacement value of my now used car.


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Why would you buy a new car for $58K if you don't have the cash and your investments/savings aren't in solid position?

This is what you guys are missing: An expensive car (i.e. one that you cannot afford to pay cash) is a luxury item, and one that will begin to lose its value relatively quickly.  Why are people purchasing luxury items on credit, incurring additional debt with interest payments, instead of saving/investing the money, paying down your house, etc?  And we wonder why so many American (2/3 plus) do not have more than a few months income in savings.

Live within your means, make smart/mature decisions, and make your money work for you. 

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38 minutes ago, HeloDude said:

Live within your means, make smart/mature decisions, and make your money work for you. 

Exactly. Which is why it makes no damn sense to pay cash for something when I can take a 1.49% loan on a car and pay down a mortgage quicker or put that cash to work in a different investment vehicle. 

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Have an emergency fund in savings that you're comfortable with, have your 15-20% or whatever you contribute to TSP/401k automatically come out of your check, and have healthcare and insurance.

Take your net income after savings/investing, subtract your bills and basic needs to live the way you like, then spend what's left over how ever you want.

I am a fan of borrowing money if it's cheap while leaving my money in the market. It's all a balance of living life while you're young and able and still having a solid retirement plan for when that time comes.

Edit: my mindset on borrowing money for cars and what not might change if I didnt have the financial security of getting a paycheck every 2 weeks for as long as I decide in the military.

Edited by Kenny Powers
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41 minutes ago, HeloDude said:

Why would you buy a new car for $58K if you don't have the cash and your investments/savings aren't in solid position?

This is what you guys are missing: An expensive car (i.e. one that you cannot afford to pay cash) is a luxury item, and one that will begin to lose its value relatively quickly.  Why are people purchasing luxury items on credit, incurring additional debt with interest payments, instead of saving/investing the money, paying down your house, etc?  And we wonder why so many American (2/3 plus) do not have more than a few months income in savings.

Live within your means, make smart/mature decisions, and make your money work for you. 

LoL, I'm a Nazi when it comes to this stuff. The last interest payment I made on anything was in 1978 when I was 21 years old (that was my last car payment, which I paid off in full). This includes paying no interest on a credit card (I only have one credit card), cars/motorcycles, boats, homes (2ea), etc, etc. There's a certain comforting feeling that comes with not owing $$$$$ (crap) to anyone/any bank/business/etc. Also, I've have never personally seen my credit score or needed one for anything that I can think of. 

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4 minutes ago, waveshaper said:

LoL, I'm a Nazi when it comes to this stuff. The last interest payment I made on anything was in 1978 when I was 21 years old (that was my last car payment, which I paid off in full). This includes paying no interest on a credit card (I only have one credit card), cars/motorcycles, boats, homes (2ea), etc, etc. There's a certain comforting feeling that comes with not owing $$$$$ (crap) to anyone/any bank/business/etc. Also, I've have never personally seen my credit score or needed one for anything that I can think of. 

That's a good point. People do what's comfortable for them, the "good feeling of not owing anyone anything", which is totally valid for the group of people who like that. 

Same for the guy who borrows $60k for a car @ 3% while leaving $60k in his investments averaging returns higher than that.

I think the borrow vs not borrow mentality was a much different arguement 30 years ago when interest rates were much higher. But when I'm looking for a new car and the dealer is offering incentives plus 0.9% interest, that's difficult to argue. I spend more on alcohol every month than that 0.9% interest would cost me

 

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41 minutes ago, Standby said:

Exactly. Which is why it makes no damn sense to pay cash for something when I can take a 1.49% loan on a car and pay down a mortgage quicker or put that cash to work in a different investment vehicle. 

If you already have the appropriate cash reserves set aside, have enough cash flow each month to comfortably pay off the debt (in good markets and bad), AND you can put that money into an investment vehicle that will very very likely appreciate at a higher rate than 1.49%, then sure, go for it. 

Debt is just a tool. You can choose to use it, you can choose not to use it. There’s nothing inherently wrong with it by any means  

I handle my money similar to @waveshaper in that 99% of the time I’m going in with cash....but with enough cashflow and savings, I’m more than happy to take on some cheap* debt if it’ll bring future cash flow  

 

Edited by PilotCandidate
Clarity

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Ally bank savings rate is now 1.9%. We got a car with a 0.9% loan when we had the cash on hand in the Ally account at 1.0%. Sure we aren’t making money versus inflation...but since we bought a year old model for a 20% discount...we feel pretty good about our situation.

Our plan was to get the dealer to jack up the interest rate and lower the car price further (so we could pay it off before any interest was charged) but they didn’t do that.


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1 hour ago, Kenny Powers said:

I think the borrow vs not borrow mentality was a much different arguement 30 years ago when interest rates were much higher. But when I'm looking for a new car and the dealer is offering incentives plus 0.9% interest, that's difficult to argue. I spend more on alcohol every month than that 0.9% interest would cost me

 

It was definitely much different back then. My first investment was in 1980 and it was in a 5 year CD at 15% APY (in the 1980's CD APY's were as high as 17%). The down side was mortgage rates/car loans/etc were as high as 18.5% during the 1980's (in 1981 the average rate was 17% and as high as 18.5%).

Edited by waveshaper
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5 hours ago, ihtfp06 said:


So I’m about to buy a new car for approximately 58k. I can pay cash, but I’m probably going to finance because I have an interest rate of 3% through USAA (and I’ll see what APR the dealer can get me, in previous new car purchases, they’ve usually been able to do .5% lower). My recent home loan is at 4%. Wouldn’t it make a shit ton more sense to finance the car and make a principal payment on the house instead? Also, financing a car gives you the option to buy GAP coverage, so if the car is a total loss, the balance of my 58k loan is paid off rather than insurance giving me a check for the replacement value of my now used car.


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Then do it and pay it off in 2 years or less.  Just make sure the loan let's you end it early.

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1 hour ago, Champ Kind said:

I’ve never understood military members’ infatuation with buying brand new and expensive vehicles on the basis of having a consistent paycheck.

You say that as if only people in the military buy new things because they have steady income. 

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13 hours ago, HeloDude said:

 Why would you borrow money to purchase a vehicle when a vehicle that costs just a few thousand dollars (or much less) will work? 

Please identify these vehicles that "cost just a few thousand dollars (or much less)," and also have the safety and reliability of a new car?

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It's comical that anyone would try to assert their financial savvy while simultaneously arguing to buy a $58k vehicle.  All the arguments above become moot when compared to a $12k-14k vehicle that is about 4 years old and has around 40k miles on it.  What you could do with that extra $44k (!!!) is the real question.  Bubububut, reliability!  First, 4 year old vehicles with low miles do not lack reliability.  Second, even if they did, how many engines/transmissions/exhausts would you have to go through to burn up $44k?  Way more than you ever will.  Worried about being stuck on the side of the road once or twice during the life of the vehicle?  Don't be a baby; it's still not worth $44k.

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2 hours ago, Blue said:

Please identify these vehicles that "cost just a few thousand dollars (or much less)," and also have the safety and reliability of a new car?

Hondas.

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