Cash or Loan?

[Atfulldraw]

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?

what did he do with the 750 a month he wasn't spending on the truck payment for the year before he got fired?

[sweetinlow660]

My opinion is that buying a vehicle is the absolute worst investment there is. As a matter of fact it’s not an investment it’s an expenditure. There are some great pointsbtonbothbsides of the argument, not tying up money, investing while paying off the vehicle, not locking yourself into a payment agreement, etc etc. I see the problem not in financing the vehicle I see the problem in that financing one luxury item (because for most of us a 40k truck is not a necessity) is that you’ll finance another and another until you reach a point where you are simply working yonpay bills. Speaking from experience here. Now for those that are more responsible, have learned the hard way or were just born and or raised financially savvy this doesn’t apply. But it is a lesson that a lot of younger people could benefit from. Personally I think being debt free is the smartest way to go. It’s the slowest to get rolling but waking up to go to work and knowing that GMAC isn’t getting this weeks check sure feels good.

[westtexducks]

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.

And the fact that you jumped to the conclusion I am clueless on a bowhunting forum for not putting a full blown spreadsheet with every cost for an example tells me your an arrogant *****. I am sorry for a quick little scenario for giggles in the 2 minutes it took me to throw it together just as an example and to give some folks something to think about I didn't do a complete ROI calculation using taxes and fees etc... But hell how am I to know what you might actually end up paying on taxes anyway? Depending on how and what you put it into changes your tax rate tremendously and is highly variable on the individual. I wasn't throwing that together to say 100% my way is the right way or your stupid, I threw that together just as a little small example to get the wheels turning for some people. And for most folks it would be money better spent if they maxed out their 401k every year than it would be to go and dump it on an asset with no return on investment.

[westtexducks]

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.

And that's fine to, more power to them, I am not anybody's accountant and haven't claimed to be. All I did was throw an idea and some numbers on a discussion board to get some folks to think about some things that they might not have otherwise. Every persons situation is different and everybody's tolerance of risk and debt is different if it is working for your than by all means go for it. But lots of folks preach the cash only or you can't afford it thing and that isn't always true in every circumstance for all people. But hey if it works for you and you make a good living for your family then congrats your better than most folks out here with $20 to there name at the end of every pay period.

[35remington]

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.

Not many folks are willing to take financial advice from someone who habitually fails to spell the contraction of "you are" correctly. If you want people to listen to your investment strategy, you'll need to fix that.

If, in our hypothetical example, this man was planning to spend his ENTIRE NEST EGG on a pickemuptruck, well that would be an insane thing to do. No one would recommend that. Nor would any sane person recommend putting one's emergency fund in the stock market. The assumption should be that the man has $40K of cash saved up for a vehicle, and then we proceed from there and you recommend he invest that money while taking out a loan for the truck. And I would recommend he pay cash for the truck. The we could have a conversation about the worst case scenario where he loses his job.

If you play in the 15% tax bracket, your married-filing-jointly income was $75,900 or less in 2017. Although it doesn't surprise me that people who make this much spend half of it on a truck, it's still scary.

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?

You misunderstand the scenarios. The guy who gets a car loan and then invests the money he otherwise would've spent on a car doesn't have that cash in hand anymore. He invested it in the stock market. So what does he do?

[Kevin]

And the fact that you jumped to the conclusion I am clueless on a bowhunting forum for not putting a full blown spreadsheet with every cost for an example tells me your an arrogant *****. I am sorry for a quick little scenario for giggles in the 2 minutes it took me to throw it together just as an example and to give some folks something to think about I didn't do a complete ROI calculation using taxes and fees etc... But hell how am I to know what you might actually end up paying on taxes anyway? Depending on how and what you put it into changes your tax rate tremendously and is highly variable on the individual. I wasn't throwing that together to say 100% my way is the right way or your stupid, I threw that together just as a little small example to get the wheels turning for some people. And for most folks it would be money better spent if they maxed out their 401k every year than it would be to go and dump it on an asset with no return on investment.

Hah! I've been called a lot of things but arrogant isn't one of them. If that ruffled your feathers, that is your choice but that wasn't the intent. That wasn't even the point of my post. The point is many people have good intentions of using all that saved money and convince themselves to buy something they really shouldn't anyway. Then instead of actually saving and investing that money, they just spend it on more stuff. Its a hard cycle to break. Trust me, I know!

[kyle1974]

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?

He’s actually better off with a paid off 15k vehicle and 60k in the bank....


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[bpa556]

Lots of assumptions being proffered around here. Most folks don’t pile up 40k by accident and then wonder what to do with it.

If you saved it to buy a truck, buy a truck with it.

If you saved it because you’re a person who likes to have a certain amount of liquid capital on-hand for emergencies, finance the truck and keep your emergency fund.

Some folks use other people’s money to increase their own wealth. These people, almost invariably, maintain a credit rating that will guarantee the lowest interest rate available. Money is not making (statistically significant) money in a savings account, so the bulk of these folks’ wealth is in some form of investment. They’re perfectly willing to let it appreciate there while they borrow to purchase a depreciating asset (truck). If your investments are making 8%, and you’re paying 2% on the truck note. You’re using other people’s money to acquire a truck while your “truck money” wealth is still increasing by 6%. When the note is paid off, the truck is worth far less than purchase price, but your original “truck money” has grown by 6% per year.

It should not be assumed that the truck money will be invested in the stock market. It can be invested in any number of APPRECIATING assets. The single safest place (to my eye, anyway) to invest your money is in raw land (agricultural, not commercial). If you own some, your money is MUCH better invested in improving it than buying a depreciating asset outright. Assuming you didn’t get taken to the cleaners at purchase, you’ll never lose money investing in raw agricultural land. Commercial land is a whole other beast. Much higher risks involved in that game.


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[hunt247]

Can your money make more money than the interest on a loan?

[8mpg]

what did he do with the 750 a month he wasn't spending on the truck payment for the year before he got fired?

Good question...but $35k in the bank at the time of firing feels better than the $9000 in payments saved.

You misunderstand the scenarios. The guy who gets a car loan and then invests the money he otherwise would've spent on a car doesn't have that cash in hand anymore. He invested it in the stock market. So what does he do?

I guess I did misunderstand. But after 1 year, how much did he actually make on his investment vs the loan? I understand investing is a great way to go, but it doesnt always make money. I'll reference my dad as he got gutted in the 2008 market/housing nonsense and lost half his retirement. Unfortunately that was about the time he was supposed to retire. While the market has trended to making money, there is no guarantee.

He’s actually better off with a paid off 15k vehicle and 60k in the bank....


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I agree...but most people wont go that route.

[sweetinlow660]

He’s actually better off with a paid off 15k vehicle and 60k in the bank....


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this

[RiverRat1]

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.

Why would you tie up 40k of your cash in a vehicle if you can get a 0% interest loan at certain times of the year? Or hell even 2-3% loan? Put just enough down to buy the vehicle invest the rest and you will end up making money over the life of that truck. Not unheard of right now to make 5+% on investments that would give you 2-3% return on your money while paying off your truck.

Where are the investments giving 5+% returns?

After this record bull run it would not surprise me if the markets don't reach new highs for 3-5 years.

Well not a rich guy with a Rolex on my wrist. (Don't own a watch or cell phone) But you can't take that money with you. Can't see having payments. Thought I would ask. At my age I don't buy GREEN banana"s.

Do what makes you feel good. I usually pay them off. The only safe way on the loan side would be CDs or bonds and you don't want that. Besides, it won't make you enough to make a difference.

[RiverRat1]

When you get a so called 0% car loan the interest is figured in the price. Do you really think you are getting something for free? Usually you can choose between a rebate or an "interest free loan." What ever you do don't finance it if you intend to pay it off right away. If you do you paid for the interest upfront.

You can explain this over and over and some people will never get it.

People a "0% loan" is not interest free. You just pay interest upfront.

People feel the need to "save" money. It's a horrible stupid trend that's getting worse. Like Kohls marking up everything HIGH and then slapping 60-80% off stickers on everything. Or HEB telling you how much you saved after you're done at check out.

And I just looked at Black Friday ad's.. Looks like everything was marked up and then put "on sale" LOL

[Capt.Brown]

When you get a so called 0% car loan the interest is figured in the price. Do you really think you are getting something for free? Usually you can choose between a rebate or an "interest free loan." What ever you do don't finance it if you intend to pay it off right away. If you do you paid for the interest upfront.

This is 100% correct

[RiverRat1]

Can your money make more money than the interest on a loan?

That's the million dollar question. And what a couple are debating.

Bottom line is MOST people will not make more money by investing it. It's easy to look at a long term DOW chart and say yes..But a lot harder in reality to do it.

And what if we finally get that huge market correction? You still owe payment and the 40k invested is now worth 30k.. That would make an old man like myself not sleep at night.