I need some financial advise

[se15679875]

Originally Posted by zx10guy

Your first two points are way too simplistic. From a basic view point, yes, buying new is generally not good due to the depreciation hit. But this is only really relevant if you like to flip cars in a short period. There is something to be said about buying new in terms of you know how the engine was broken in. You are sure how the car was maintained and overall taken care of. You might get those assurances with a used car...then again you might not. I have bought a used car before and had a generally good experience. It helped that I knew the original owner of the car. I held on to that car for about 15 years. All my other vehicles were purchased new. And all of them were driven into the ground before I got rid of them. One car I had for 12 years before sending it to the scrap yard when it blew a head gasket; didn't want to sink the money into the repair. The other car I had for about 8 years. That car was totaled out by my insurance after hitting a deer. It was a 2006 Ford Focus ZX3 with about 170,000 miles. My insurance paid out just over $5000 back to me. I currently own two motorcycles both bought new; a 2004 ZX-10R and a 2009 848. Both still running and both still looking like they just came off the showroom floor. So it really depends on the intent of the purchase. If you hold on to a new bought vehicle for a long time, buying new isn't such a bad idea as many people make it out to be.

On the second point, paying cash again is too simplistic. If you're able to get a zero or low interest loan, I don't see a problem going that route using other people's money. I've always been able to finance my vehicles at low interest rates. With some cars I put zero down. With the 135i, I did put down a substantial down payment but still financed a good part of it. All the loans I got were at 1.49% interest rate fixed for 5 years. I did end up paying off the loans early usually within 2 or 3 years. I took the money I would have dropped into paying cash into investing.

There's no one size fits all and it really depends on the circumstance. This is the same as those saying pay cash for everything and to cut up all your credit cards. In my situation, this is walking away from 1.75, 2, and 3% cash back depending on the item purchased along with credit card fraud protections and the extended warranty/lost/stolen protections I get with my AMEX. I pay off my balances in full every month.

I agree with part of your second point.

It's true that if you are able to finance a car for 1.49% and you believe you can get greater than 1.49% returns in the stock market, then it makes financial sense to do so. I wish I could get these rates. Despite having excellent credit, I've never had a lender offer me anything near 1.5% fixed financing over 5 years for a car loan.

One caveat - I don't agree with the way you're doing it. You said that you had a fixed 1.49% loan for 5 years and yet you paid off the loans early in 2 or 3. If you're willing to assume the risk of investing in the stock market for 2 or 3 years, why wouldn't you keep the remainder of your balance in the market for the remaining 2 or 3 years? Some might argue that this is prudent if you think the market will go down, but lay investors like us aren't able to make this kind of determination in the short run (just look at the tens of millions of Americans who opted to stay out of the market from 2011- for fear of another downturn a la 2008; they've missed out on one of the greatest bull markets in history).

All that being said, many people who finance cars aren't doing so because they're financially savvy and accruing investment returns on their principal. Many people who finance cars do so because they literally don't have the money to buy the car outright in the first place, and this is where people get into trouble.

It's not unlike credit cards. Having cash back or travel rewards type credit cards with $0 fee (or a minimal fee) is an excellent tool to reap benefits as long as you don't pay a dime in interest and pay off your balance in full.

The overwhelming majority of Americans who use credit cards don't use credit cards in this way. They carry a balance from month to month and pay interest on that balance. I would never recommend a credit card to someone who uses it in the way most Americans use it (paying any more than a penny in interest), just as I would never recommend someone finance a car that they can't - in theory - write a check for, absent extenuating circumstances.

[AlpineWhite_SJ]

Originally Posted by se15679875

One caveat - I don't agree with the way you're doing it. You said that you had a fixed 1.49% loan for 5 years and yet you paid off the loans early in 2 or 3. If you're willing to assume the risk of investing in the stock market for 2 or 3 years, why wouldn't you keep the remainder of your balance in the market for the remaining 2 or 3 years? Some might argue that this is prudent if you think the market will go down, but lay investors like us aren't able to make this kind of determination in the short run (just look at the tens of millions of Americans who opted to stay out of the market from 2011- for fear of another downturn a la 2008; they've missed out on one of the greatest bull markets in history).

Yes and no - you're assuming that you have to pull money out of the market to pay off the loan, when instead you could be looking at the trend on your return in the market and determining where to place cash that you haven't invested yet. If I'm earning more in the market than my interest rate, it makes sense to keep making payments. But if I see a decline in my return to break even or less than the interest rate, I may choose to invest cash into paying off the loan instead of placing it in the market.

[zx10guy]

Originally Posted by se15679875

I agree with part of your second point.

It's true that if you are able to finance a car for 1.49% and you believe you can get greater than 1.49% returns in the stock market, then it makes financial sense to do so. I wish I could get these rates. Despite having excellent credit, I've never had a lender offer me anything near 1.5% fixed financing over 5 years for a car loan.

One caveat - I don't agree with the way you're doing it. You said that you had a fixed 1.49% loan for 5 years and yet you paid off the loans early in 2 or 3. If you're willing to assume the risk of investing in the stock market for 2 or 3 years, why wouldn't you keep the remainder of your balance in the market for the remaining 2 or 3 years? Some might argue that this is prudent if you think the market will go down, but lay investors like us aren't able to make this kind of determination in the short run (just look at the tens of millions of Americans who opted to stay out of the market from 2011- for fear of another downturn a la 2008; they've missed out on one of the greatest bull markets in history).

All that being said, many people who finance cars aren't doing so because they're financially savvy and accruing investment returns on their principal. Many people who finance cars do so because they literally don't have the money to buy the car outright in the first place, and this is where people get into trouble.

It's not unlike credit cards. Having cash back or travel rewards type credit cards with $0 fee (or a minimal fee) is an excellent tool to reap benefits as long as you don't pay a dime in interest and pay off your balance in full.

The overwhelming majority of Americans who use credit cards don't use credit cards in this way. They carry a balance from month to month and pay interest on that balance. I would never recommend a credit card to someone who uses it in the way most Americans use it (paying any more than a penny in interest), just as I would never recommend someone finance a car that they can't - in theory - write a check for, absent extenuating circumstances.

Originally Posted by AlpineWhite_SJ

Yes and no - you're assuming that you have to pull money out of the market to pay off the loan, when instead you could be looking at the trend on your return in the market and determining where to place cash that you haven't invested yet. If I'm earning more in the market than my interest rate, it makes sense to keep making payments. But if I see a decline in my return to break even or less than the interest rate, I may choose to invest cash into paying off the loan instead of placing it in the market.

It was a mixture of both diverting funds to paying off the loan due to market conditions and also because I got tired of having to deal with the payments. Yes, I could have carried out the loan to term but the non rational side of me just wanted out of the payments.

And with the credit card discussion, no one is forcing anyone with a gun to spend beyond their means using plastic. It starts with the person having self control and some sense. The problem isn't with the credit tool. The problem is with the person. Which is why I find it funny how many vilify credit cards. I admit in my younger years just out of college I fell into that trap. But quickly learned from my mistakes. I haven't paid a lick of interest on any credit card for two decades now.

[jmg]

Originally Posted by Wrecker335d

Thanks for the replies. The only thing I'm really interested in is what option in the OP is less of a financial loss. I don't plan to keep the car since I don't really like it. I do want a DD that I can actually keep for 5+ years and am able to stand driving it for that long. A Honda Civic does not meet those requirements since they're too damn boring, so I am willing to pay a bit more. I make enough to save about $2k/mo after all my expenses (food/gas/stuff is included). I don't have too much into retirement right now since I spent a decent bit opening up a salon beginning of last year (which now I won't have due to splitting up with her); but now I'm putting more money away for it. No house right now either, just renting. I will most likely get one after I finish my degree in 2 years and move out of Long Island to somewhere much cheaper with better jobs (currently working at a non-career job/going to school off the G.I. Bill).

What you want and what you can afford might be two different things.

Which option is less of a loss: Keeping the lease until it's over and put money into a interest bearing account, or pay off the negative I have on it (which was about $10k) later this year and get rid of it then get a cheaper car I can actually stand keeping for many years, and have more money a month I can save with a less debt/income ratio.

Compare the interest on the interest baring account and the interest on the negative balance. Put money into the one with the most interest... I bet it's the negative balance.

[Hawkeye]

Originally Posted by ASAP

Americans are currently overloaded on debt. We are at a record of household and automotive debt... higher than pre recession levels. Just wait...

FWIW, I spend less than 6% of my NET income on my car payment... not sure how many people can say that (even on here)... that's called being responsible. Then again, I put a 50% down payment on my car.

I put nothing down because when they give you a loan at a rate much lower than your investment return... debt makes sense. I don't get the "evil debt" mentality... debt is great when it is used wisely.

[DETRoadster]

Originally Posted by Hawkeye

I put nothing down because when they give you a loan at a rate much lower than your investment return... debt makes sense. I don't get the "evil debt" mentality... debt is great when it is used wisely.

Agreed. Cheap debt is not a bad thing. For me personally, I just cant bring myself to do it. Would I have been better off to take that $25k I put down at the end of 2016 and invest instead? Yes, 100% better off. Rationally, logically, I know this but I still cant be under water on an asset. I just cant. It's like marrying a stripper. You know right from wrong. You know you shouldn't. But some guys just cant help themselves.

I also know that logically speaking I should have invested that $25k I put down and then taken my $450ish per month car payment and invested that as well, and just ride the bus everywhere. THAT would be sound financial choices. But you gotta live a little.

[jmg]

Originally Posted by ASAP

Americans are currently overloaded on debt. We are at a record of household and automotive debt... higher than pre recession levels. Just wait...

FWIW, I spend less than 6% of my NET income on my car payment... not sure how many people can say that (even on here)... that's called being responsible. Then again, I put a 50% down payment on my car.

Did you account for that 50% down payment on your car when you calculated 7% on you car payment? Because you can make your monthly car payment 0% if you put 100% down.

[PoorLurker]

Originally Posted by DETRoadster

4.2% for me. I also put 50% down. Sounds like you and I are on the same plan.

Originally Posted by DETRoadster

I also know that logically speaking I should have invested that $25k I put down and then taken my $450ish per month car payment

mentalmath.gif

[eluded]

Here's a piece of a financial advice, never invest your money in a German car and look at it as a investment

[ASAP]

Originally Posted by jmg

Did you account for that 50% down payment on your car when you calculated 7% on you car payment? Because you can make your monthly car payment 0% if you put 100% down.

Cash payments typically don't get people into trouble... especially if you have cash... recurring payments can and do screw everyone... that my friend is how every crisis we've ever had started.

Recurring Payments - Perfect Coming In. Screw you bad going out.

In virtually every other country of the world... cash is king, here recurring revenue / payments are king. Well, the latter is only true until everything goes to shit and we have a plethora of irresponsible parties.

[zx10guy]

Fixed this for you.

Originally Posted by ASAP

Cash payments typically don't get people into trouble... especially if you have cash... recurring payments CAN screw everyone... that my friend is how every crisis we've ever had started.

Recurring Payments - Perfect Coming In. Screw you bad going out.

In virtually every other country of the world... cash is king, here recurring revenue / payments are king. Well, the latter is only true until everything goes to shit and we have a plethora of irresponsible parties.

[AlpineWhite_SJ]

Originally Posted by eluded

Here's a piece of a financial advice, never invest your money in a German car and look at it as a investment*

*Unless that German car is an air cooled Porsche

[MrRoboto]

Originally Posted by AlpineWhite_SJ

*Unless that German car is an air cooled Porsche

Or a 1M.

[ASAP]

Originally Posted by zx10guy

Fixed this for you.

all fun and games until we all remember something called depreciation... without at least 25% down, you will be screwed nearly immediately...

[zx10guy]

Originally Posted by ASAP

all fun and games until we all remember something called depreciation... without at least 25% down, you will be screwed nearly immediately...

And depreciation is minimized or negated if you hold on to the car for a long time. Which I do. So generalizations are just that generalization which doesn't take into account everyone's mindset/circumstance.

Same tired argument about the pay cash for everything and credit cards are evil crowd.

[MrRoboto]

If you buy a vehicle for fun and it is for more then basic transportation then the depreciation may be worth it. Lot's of people spend their money on expensive vacations, which depreciate 100% immediately.

[jmg]

Originally Posted by ASAP

Cash payments typically don't get people into trouble... especially if you have cash... recurring payments can and do screw everyone... that my friend is how every crisis we've ever had started.

Recurring Payments - Perfect Coming In. Screw you bad going out.

In virtually every other country of the world... cash is king, here recurring revenue / payments are king. Well, the latter is only true until everything goes to shit and we have a plethora of irresponsible parties.

Cash is king when the only thing to worry about is interest. BUT this is a depreciating asset.

BUT that wasn't what I was asking. You said you put 50% down, but your monthly is low. Are you basing your 6% on the monthly or the total out of pocket? Your depreciation could well overtake your down payment.. meaning that you probably won't recover all of it, given that a less than 50% residual is more common than not after 3 years. Remember, your out of pocket isn't calculated until you find out what the residual will be when you sell. You can play the market by financing, or you can lock it in at a certain rate with a lease. The ratio of your car expenses vs net income is set and known. That's the advantage of recurring payments on a lease.

If it all goes to shit, and your car's residual is actually 45% after 3 years... guess what? The guy who leased with a 59% RV wins, and you just lost 19% plus the liquidity of ~$25k.

[ASAP]

Originally Posted by jmg

Cash is king when the only thing to worry about is interest. BUT this is a depreciating asset.

BUT that wasn't what I was asking. You said you put 50% down, but your monthly is low. Are you basing your 6% on the monthly or the total out of pocket? Your depreciation could well overtake your down payment.. meaning that you probably won't recover all of it, given that a less than 50% residual is more common than not after 3 years. Remember, your out of pocket isn't calculated until you find out what the residual will be when you sell. You can play the market by financing, or you can lock it in at a certain rate with a lease. The ratio of your car expenses vs net income is set and known. That's the advantage of recurring payments on a lease.

If it all goes to shit, and your car's residual is actually 45% after 3 years... guess what? The guy who leased with a 59% RV wins, and you just lost 19% plus the liquidity of ~$25k.

Let's just say I bought a CPO 2 year old vehicle for 65% of the new price... I'd say I am in just about the best scenario imaginable... less not having a car.

[jmg]

Originally Posted by ASAP

Let's just say I bought a CPO 2 year old vehicle for 65% of the new price... I'd say I am in just about the best scenario imaginable... less not having a car.

CPO is definitely the way to go... but that doesn't clear you of monthly payments. Again, the down payment and resale have to be factored when calculating your % of net income spent on your car. That was the original intent of my post after all. You said 6% of net income, but with 50% down, I wanted to know if you had accounted for that. Not to mention the 0.9% financing that can sometimes be had for CPO cars.

[ASAP]

Originally Posted by jmg

CPO is definitely the way to go... but that doesn't clear you of monthly payments. Again, the down payment and resale have to be factored when calculating your % of net income spent on your car. That was the original intent of my post after all. You said 6% of net income, but with 50% down, I wanted to know if you had accounted for that. Not to mention the 0.9% financing that can sometimes be had for CPO cars.

The 6% would be after the down payment is taken off... but again, I had the cash to easily be able to do that and preferred to use my recurring revenue elsewhere.