effenheimer_IHB
New member
Some makes offer special finance rates on their certified pre-owned product.
Amount of unpaid credit card bills is rising
- Thread starter trrenter_IHB
- Start date
NEW -> Contingent Buyer Assistance Program
Roo, some people here have mentioned getting low (or no) interest rate loans on new cars. The problem with doing so is that the arbitrage of being able to earn money on a high interest CD is more than offset from the depreciation that a new car suffers.
Even if a dealer had a low (or no) interest loan on a used car, you still pay more for that car from a dealer than you would from an individual selling approximately the same car in the same condition.
There is no such thing as a free lunch. Dealers and manufacturers are able to offer you the appearance of arbitrage on interest rates because they make it up elsewhere. If they didn't, they couldn't stay in business.
Even if a dealer had a low (or no) interest loan on a used car, you still pay more for that car from a dealer than you would from an individual selling approximately the same car in the same condition.
There is no such thing as a free lunch. Dealers and manufacturers are able to offer you the appearance of arbitrage on interest rates because they make it up elsewhere. If they didn't, they couldn't stay in business.
Gohabsgo_IHB
New member
Buying a car is not an investment. I understand that. When you go to a restaurant, you eat for $100-$150 and after 2 hours it's done, you lost your money. Does that mean you shouldn't go to the restaurant? Of course not. As long as you can afford it, it's ok to eat at the restaurant. The same principle applies to a car.
Don't buy a car more expensive than what you can afford. But if you have the money and you want a nice car and you are willing to spend/lose $5,000 a year on it, then go for it. As long as you understand what you are getting into.
Now about financing vs buying cash. Let's say you have $50,000 sitting around in a 5% CD and you buy a $50,000 car. What's your best move? Seems like paying cash is good if your APR is more than 5%. Let's do an example: if you finance at 7%, your payments would be $985/month for 60 months vs your CD making $941/month. That a loss of $44/month which adds up to $2,639 after 60 month. That's not too much, at least not enough to heavely impact my decision, because there are a ton of other places I could save $44/month.
What if you have your $50,000 in stocks? At 8% you would be better off financing and making $22 more every month. At 10% that's a $67 difference and at 12% it's $112. The more I think about it, I don't see the pros of paying cash for a car.
To me, it looks like you are not looking at this as two separate decision: 1-Should I buy a car and 2-How should I pay for it.
The first decision is where you decide if you want to spend $XX,XXX on something that will loses value. Maybe it isn't worth it for some people, but apparently it is worth it for a lot of people. Maybe for the wrong reasons (show off, apparence of being rich) and they go overeboard with their decision and buy too expensive car or take HELOC to pay for it...I agree that there's a problem in these cases. But for some people, you can afford it, you buy the car you want at the price you can afford and you have a nice ride for the years to come. I've read a few places that 8% of your gross monthly income is a good target for your monthly car payment. Of course, if you have more than 28% in monthly house payments, then this relationship doesn't hold anymore.
Don't get me wrong, I'm not trying to convince myself I make a good decision, I'm just trying to defend my point objectively.
Don't buy a car more expensive than what you can afford. But if you have the money and you want a nice car and you are willing to spend/lose $5,000 a year on it, then go for it. As long as you understand what you are getting into.
Now about financing vs buying cash. Let's say you have $50,000 sitting around in a 5% CD and you buy a $50,000 car. What's your best move? Seems like paying cash is good if your APR is more than 5%. Let's do an example: if you finance at 7%, your payments would be $985/month for 60 months vs your CD making $941/month. That a loss of $44/month which adds up to $2,639 after 60 month. That's not too much, at least not enough to heavely impact my decision, because there are a ton of other places I could save $44/month.
What if you have your $50,000 in stocks? At 8% you would be better off financing and making $22 more every month. At 10% that's a $67 difference and at 12% it's $112. The more I think about it, I don't see the pros of paying cash for a car.
To me, it looks like you are not looking at this as two separate decision: 1-Should I buy a car and 2-How should I pay for it.
The first decision is where you decide if you want to spend $XX,XXX on something that will loses value. Maybe it isn't worth it for some people, but apparently it is worth it for a lot of people. Maybe for the wrong reasons (show off, apparence of being rich) and they go overeboard with their decision and buy too expensive car or take HELOC to pay for it...I agree that there's a problem in these cases. But for some people, you can afford it, you buy the car you want at the price you can afford and you have a nice ride for the years to come. I've read a few places that 8% of your gross monthly income is a good target for your monthly car payment. Of course, if you have more than 28% in monthly house payments, then this relationship doesn't hold anymore.
Don't get me wrong, I'm not trying to convince myself I make a good decision, I'm just trying to defend my point objectively.
Gohabsgo_IHB
New member
Sorry for the confusion, you could take out $941 out of your CD for 60 months before it is depleted. I did this to compare using this $50,000 to pay cash for a car vs keeping it in your CD and using the fund to finance your monthly payments.