Excuse my ignorance... Loans for cars prior to 2000

[Ben Carufel]

That sounds more like rationalization than logic. Getting 10.5% interest from the bank is better than 4.5%.

Uhm, you don't understand the logic.

If you have $10,000 in an account making 10.5% and you take that money out to buy a car, you are now making 0% interest on that money.

If you take a $10,000 loan from the bank at 6% interest and use that to buy the car, you are still making 10.5% interest on the money in the account, but 6% of it is being "offset" by the interest on the car loan.

Similarly, if you have $10,000 cash making NO interest, and are buying a car for $10,000, it would be better to put the money into an investment making 10.5% and then borrow the money for the car at 6%. You're making 4.5% interest on that $10,000, even after factoring in the 6% APY the car is costing you. Thus, you are making $450 per year simply by borrowing money from the bank instead of using your own money to buy the car.

It's simple math, and I'm a college dropout.

[Turf1600]

Financing is stupid. Bottom line. If you can't afford it, don't buy it. If you can afford it, don't finance it. Easy. Lets not forget the price of liability insurance vs full coverage.

[Turf1600]

Uhm, you don't understand the logic.

If you have $10,000 in an account making 10.5% and you take that money out to buy a car, you are now making 0% interest on that money.

If you take a $10,000 loan from the bank at 6% interest and use that to buy the car, you are still making 10.5% interest on the money in the account, but 6% of it is being "offset" by the interest on the car loan.

Similarly, if you have $10,000 cash making NO interest, and are buying a car for $10,000, it would be better to put the money into an investment making 10.5% and then borrow the money for the car at 6%. You're making 4.5% interest on that $10,000, even after factoring in the 6% APY the car is costing you. Thus, you are making $450 per year simply by borrowing money from the bank instead of using your own money to buy the car.

It's simple math.

The flip side is you're financing a depreciating asset. Want to make your money work for you? Buy a reliable 3-4000 dollar car.

[Turf1600]

Uhm, you don't understand the logic.

If you have $10,000 in an account making 10.5% and you take that money out to buy a car, you are now making 0% interest on that money.

If you take a $10,000 loan from the bank at 6% interest and use that to buy the car, you are still making 10.5% interest on the money in the account, but 6% of it is being "offset" by the interest on the car loan.

Similarly, if you have $10,000 cash making NO interest, and are buying a car for $10,000, it would be better to put the money into an investment making 10.5% and then borrow the money for the car at 6%. You're making 4.5% interest on that $10,000, even after factoring in the 6% APY the car is costing you. Thus, you are making $450 per year simply by borrowing money from the bank instead of using your own money to buy the car.

It's simple math, and I'm a college dropout.

Also note that in your scenario you're barely beating inflation.

[Ben Carufel]

Financing is stupid. Bottom line. If you can't afford it, don't buy it. If you can afford it, don't finance it. Easy.

Sorry to break your rose-colored glasses, but while that was OK in the 50's, in the world of modern economics and modern standards of living, borrowing money is simply the way of life. The smart ones are those who make the money they have produce more than the cost of the money they borrow.

Lets not forget the price of liability insurance vs full coverage.

You'd have to be stupid to only have liability insurance on a car that is worth more than a few thousand dollars.

[Turf1600]

Sorry to break your rose-colored glasses, but while that was OK in the 50's, in the world of modern economics and modern standards of living, borrowing money is simply the way of life. The smart ones are those who make the money they have produce more than the cost of the money they borrow.



You'd have to be stupid to only have liability insurance on a car that is worth more than a few thousand dollars.

I suggest you read the millionaire next door. no matter how you spin it, you now have monthly payments and MAX you're netting 1.5 percent all the while investing in a depreciating asset. Period. Debt is not a way of life and it never will be - not for me anyways.

[Ben Carufel]

Want to make your money work for you? Buy a reliable 3-4000 dollar car.

Now you're talking sense. A cheap, reliable vehicle is the only practical way to come out ahead on a vehicle. Any sort of equation with interest rates and mitigating the effect of a certain APY from the bank is just making the loss smaller.

In a perfect world we'd all save every penny that wasn't vital to our survival and invest it in high-yield accounts.

[Ben Carufel]

I suggest you read the millionaire next door.

I have. I've also read Rich Dad, Poor Dad, as well as The Richest Man In Babylon, How To Think & Grow Rich, etc.

[Turf1600]

I have. I've also read Rich Dad, Poor Dad, as well as The Richest Man In Babylon, How To Think & Grow Rich, etc.

And you still believe in debt? Have you read any of dave ramsey? rich dad poor dad turned me into an asshole...

[Ben Carufel]

And you still believe in debt? Have you read any of dave ramsey? rich dad poor dad turned me into an asshole...

I haven't...although one of my mentors mentioned Dave Ramsey sometime in the last few months.

I do believe in debt to an extent. Let's face it...we're all "car guys and girls" on this site. Cars are a passion and a hobby. Sometimes we want a car that we don't have the cash for, and taking out a loan isn't the worst thing in the world. It's simply debt management.

Everyone has something they spend money on. It might be fine dining, it might be world traveling. Who is to say that the guy that spends $250/month on a car loan is doing a worse job at managing his finances than the guy that goes on a trip to another part of the world two times a year at $2,000 per trip? Both are spending several thousand dollars on a hobby -- one is never going to have anything to show for his investment at the end of the year (besides of course memories and other mental benefits of taking a vacation), one is going to have a piece of metal with four tires which, at the end of the day, is still going to be worth something, even if it depreciates...

So yes, debt is a bad thing. Managed debt is part of life though, I think.

One thing I like to remember to reign myself in when I start to get all gung-ho about saving money and investing is that you can't take a dime of your money with you when you die, and we do dangerous things all day every day (crossing the street, driving a car, flying in an airplane, etc). You have to enjoy some of your money while you're alive and young and vital...being old and rich and decrepit does not sound pleasant.

[Turf1600]

I'm no penny pincher - i enjoy myself quite a bit. But the only thing I will borrow on is a home. In my case - including tax advantages - its about as much as an apartment to live in a house in texas. Debt to me is a wolf in sheeps cloting. When I want something I save for it. Credit cards are a lazy mans way of getting what he wants.

[Ben Carufel]

I'm no penny pincher - i enjoy myself quite a bit. But the only thing I will borrow on is a home. In my case - including tax advantages - its about as much as an apartment to live in a house in texas. Debt to me is a wolf in sheeps cloting. When I want something I save for it. Credit cards are a lazy mans way of getting what he wants.

We're not talking credit cards at 12% - 24% interest. We're talking car loans at 6%. There's a big difference between having credit card debt (I have none, both of my cards are paid off every month and I get airmiles, free warranties, and other rewards for paying with them instead of cash) and having a car loan (I have one, with over $30,000 in balance).

That said, you sound like a model financial citizen. If you're happy with the way you conduct your finances, more power to you. While I would agree immediately that many people have a problem with getting into trouble with credit card spending, that does not make the credit card (or the mere concept of debt, for that matter) necessarily evil.

[Jean]

I have. I've also read Rich Dad, Poor Dad, as well as The Richest Man In Babylon, How To Think & Grow Rich, etc.

Good reads ? My younger brother has all of those on his bookshelf....

[Ben Carufel]

Good reads ? My younger brother has all of those on his bookshelf....

They're not Tom Clancy novels, but they should be required reading for all young people. In most cases, having information available to you cannot in any way be a bad thing, it can only be a good thing. So yes, they are good reads and they should be read, because the information you can take away from them might be invaluable in shaping your financial future.

[browntown]

I'll give you the gyst of the babylon book. Pay yourself first. Save 10-15% or better of everything you take in and let that money grow.