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You missed my point entirely....whatever the number is... whether its $2,000 or $15,000 it does not matter. Its not enough to make a difference to me, so therefore, yes, its worth it to me to spend the money to not have any debt.
And, in any event, your calculation fails to consider the interest I am earning on the funds that are accumulating from the "payments" that I am not making....or said another way, while you are paying off the bank each month, I am making a deposit of an equal amount to my high yield savings account which is building each month by both interest and princ.
 

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You missed my point entirely....whatever the number is... whether its $2,000 or $15,000 it does not matter. Its not enough to make a difference to me, so therefore, yes, its worth it to me to spend the money to not have any debt.
And, in any event, your calculation fails to consider the interest I am earning on the funds that are accumulating from the "payments" that I am not making....or said another way, while you are paying off the bank each month, I am making a deposit of an equal amount to my high yield savings account which is building each month by both interest and princ.
Look man, its clear that you've never had any formal financial education. If you want to say "I know its worse, and gosh darn it I love it!" thats fine.

The NPV of a series of deposits over 5 years is less than the sum of those deposits. In this case, if you pay $1000 a month into an account over 5 years, that $60k is only worth the same as $47k invested today (8% rate in example, 51k at 6%).

The value of the same sum of deposits sitting in an interest earning asset will be far higher after 5 years.

There is no viable argument that you should avoid incurring reasonably low interest debt on a depreciating asset, and in recent years it has been even more foolish to do so. Only now is just starting to break even.

I know your type, you listen to that fucking grifter Dave Ramsey who's advice is for poor people, but you think it applies to you. In reality youre just getting hosed by not taking advantage of low interest secured debt.
 

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Look man, its clear that you've never had any formal financial education. If you want to say "I know its worse, and gosh darn it I love it!" thats fine.

The NPV of a series of deposits over 5 years is less than the sum of those deposits. In this case, if you pay $1000 a month into an account over 5 years, that $60k is only worth the same as $47k invested today (8% rate in example, 51k at 6%).

The value of the same sum of deposits sitting in an interest earning asset will be far higher after 5 years.

There is no viable argument that you should avoid incurring reasonably low interest debt on a depreciating asset, and in recent years it has been even more foolish to do so. Only now is just starting to break even.

I know your type, you listen to that fucking grifter Dave Ramsey who's advice is for poor people, but you think it applies to you. In reality youre just getting hosed by not taking advantage of low interest secured debt.
What a pompous ass!
You have no idea as to my type. And, fortunately, I am not in a position to count your pennies. If we were talking about a significant amount of cash, I would agree with you.....but we are not!
 

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Your lack of substantive counter argument is quite telling. Your only retort is that I am being pompous for making factual statements.

Maybe I will make a simpler statement.

(Under todays conditions and the past 5 years) Using a loan to buy a car = you get more money

Paying cash = you get less money

Do you want more money or less money?
 

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One last time....I agree with your basic premise, however, the amounts are so minor it does not matter. If we were talking about buying a $1M property, then yes I would not pay in cash. You need to consider that everything is not about the money!
And, my pompous comment was directed at your comment regarding my formal financial education. I would match mine to your any day!

Over and out!
 

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I gotta agree with Maik here!

Ian I wish you could just stick with the subject rather than always preceding your comment with a diss such as "obviously you [are an idiot] because you don't agree with what I am posting"

Anyway back to the subject of debt....IAN....you are literally basing your argument off your current situation and the fact that we have seen one of the largest moves up in short term interest rates, EVER. So because you locked in a loan on your Acura @ 2.875%, and NOW one can earn more than that because short term rates are jacked up, that means one should always take on debt to buy a car. Sorry but you are missing a great many things in your fallacious logic.

1) what were you earning on short term risk free rates at the time you chose to take out your 2.875% loan?

2) I highlight RISK FREE above because of your fallacious logic that one can "take the money and invest it in the S&P 500 and come out ahead". You are comparing apples and oranges which is why I originally asked what you have in your LOW RISK FIXED INCOME portion of your portfolio. That is a better comparison. Otherwise according to your logic, one should borrow as much as humanly possible to invest in the S&P500. That works fine if the market rises, but not so much when it falls. The S&P500 carries risk. Maik's intuition that he "doesn't want debt" is more than just his intuition. If a 5 yr car loan costs 6% right now, then paying that off (or not borrowing it to begin with) is the equivalent of a 6% risk free return. You also need to factor in taxes on your interest income. So by borrowing money to buy your DEPRECIATING ASSET at 6% today, where are you going to earn a risk free rate that on an after tax basis exceeds the 6% interest you are paying on that loan?

In my portfolio I have some amount of fixed income and you probably do too. If you have money sitting in cash or bonds that is earning 3-4% (which is also taxable so the real return is lower) why would you want to preserve that money and then borrow at 6% which is also not tax deductible?

Again it's cool story that you locked in while rates were low and now the market is different. That doesn't mean your logic is correct. Taking out a car loan on a depreciating asset, you just need to compare on an apples to apples basis on what you are going to earn on that money that you otherwise would have used to buy the car vs the cost of the loan. There could be situations where the manufacturer is subsidizing the loan where indeed it could make sense. Like if for example Honda was offering 0.9% financing for 5 years in the same market where one could lock in a 5yr CD for a higher number, then that makes sense. But I don't think that's where we are in reality today.

Happy to understand your logic and would appreciate if you could spare me the "hey idiot" preamble so we can stay civil here.
 

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Again no representation of the present value of money and opportunity cost.

.

Read it, it will make sense.

It makes sense on almost any loan at any relatively low fixed interest rate over a long term. You just square the amount you are borrowing with the respective interest rates and other economic factors. Nobody who can get a loan at a low rate should avoid doing so, especially with a secured asset like a car. If you have insurance there is literally no risk that you cant pay the loan off.

Unsecured debt is insanely bad financially and most of why "debt" gets a response like you see above. Debt isnt debt if you can easily and quickly discharge it for a minimal loss. I could literally have carvana com pick up my car tomorrow for $61k on a $50k balance. So what is the down side? Make a big enough down payment, and pay the nominal fee to keep your cash in your accounts earning returns. If inflation is higher than interst rates then its even more advantageous.
 

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Again no representation of the present value of money and opportunity cost.

.

Read it, it will make sense.

It makes sense on almost any loan at any relatively low fixed interest rate over a long term. You just square the amount you are borrowing with the respective interest rates and other economic factors. Nobody who can get a loan at a low rate should avoid doing so, especially with a secured asset like a car. If you have insurance there is literally no risk that you cant pay the loan off.

Unsecured debt is insanely bad financially and most of why "debt" gets a response like you see above. Debt isnt debt if you can easily and quickly discharge it for a minimal loss. I could literally have carvana com pick up my car tomorrow for $61k on a $50k balance. So what is the down side? Make a big enough down payment, and pay the nominal fee to keep your cash in your accounts earning returns. If inflation is higher than interst rates then its even more advantageous.
Still not with you. I understand what PV is. I understand what Opportunity Cost is. Debt isn't debt if you can pay it off? Huh? Of course you can pay it off. What is the distinction between unsecured and secured debt.

I am talking about the difference in the interest rate you pay on the debt vs the returns you stand to make from that cash. This is all a moot point if one NEEDS to take out a car loan because they don't have the money otherwise. There is nothing to debate there. If one wants to buy an MDX for $70K and then only have $20K in cash, then they are taking out a loan for $50K. But the assumption in your argument with Maik is that we aren't talking about that scenario. So you are talking about a scenario where you ALREADY HAVE that $50K in cash (presumably it is invested in something....could be sitting in a checking account earning basically nothing, or could be in a money market fund earning 3-4% right now, or could be invested in the S&P500 in your example). So the choice is, do I take that $50K and just buy the car with it, and then I am forgoing the return I was earning on that $50K that I just used to buy the car, or do I save the $50K in my account and take out a loan for $50K but then I am paying interest on it. At 6% let's say. If I have money in a money market fund earning a couple percent (after being taxed at income tax rates) why am I in a hurry to go borrow another $50K and pay 6% on it, so I can keep that original $50K working in the MMF earning a couple percent. I am LOSING MONEY over the period by paying more interest than I am earning on the money. That is a negative proposition.

If I am missing something please do elaborate but my belief is that if one is agreeing to pay 6% on a loan that one doesn't need today, then one is by definition assuming that one can earn more than 6% (after taxes) on that money because otherwise one is just wasting money to the interest rate differential. And please don't make the mistake of ignoring risk vs riskless by saying that the return on the S&P500 was X% over the past couple years which is more than 6%.

You say above "Make a big enough down payment, and pay the nominal fee to keep your cash in your accounts earning returns". What "returns" are you earning in this account that is risk free and tax adjusted exceeding the price of debt? Again YOU might be sitting on a car loan today that has a lower interest rate than current low-risk or risk free returns, but that is not because you are a financial genius, but just because the Fed is hiking rates like crazy at an almost unprecedented rate and so current market rates have now risen past the car loan rate that you had locked back when rates were really low. Again setting aside some manufacturer incentive lower-than-market rate which I don't think exists right now because OEMs don't need to offer it to sell cars, pretty sure the banks aren't lending money on secured car loans at rates that are below the prevailing risk free rates.

???
 

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I've already said it 3 times in different ways.

You spend X dollars on a car today in full, versus X dollars spread over X years, you will never spend less overall to buy the car for cash today. If you get any moderate return on your money you are at the very least breaking even while keeping the cash in your control. More likely (based on past trends) you are make some to a significant amount above the cost of the interest in the loan.

It costs more money to pay cash than to get a loan. There may be a change in that sometime in the future, but its not true recently or currently.

The reason for this is because banks have (rightly) realized that, to people with good credit, cars are an insanely low risk to loan on and you can get effectively the lowest secured debt rate available on the market for a car. People will stop paying every bill including their mortgage before they stop making car payments (source unknown but there is a source that backs it up)
 

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60k in a savings account being drawn down at 1k/month (the worst possible return) is at least $4500 over the next 3 years on 3% interest, but probably more like 5500-6500 at 3.5-4.5%
 

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I've already said it 3 times in different ways.

You spend X dollars on a car today in full, versus X dollars spread over X years, you will never spend less overall to buy the car for cash today. If you get any moderate return on your money you are at the very least breaking even while keeping the cash in your control. More likely (based on past trends) you are make some to a significant amount above the cost of the interest in the loan.

It costs more money to pay cash than to get a loan. There may be a change in that sometime in the future, but its not true recently or currently.

The reason for this is because banks have (rightly) realized that, to people with good credit, cars are an insanely low risk to loan on and you can get effectively the lowest secured debt rate available on the market for a car. People will stop paying every bill including their mortgage before they stop making car payments (source unknown but there is a source that backs it up)
Ahhh okay thanks for clarifying. It is clear that you are just being lazy and making a bunch of assumptions. You are sort of taking this "opportunity cost" thing from your wikipedia but twisting it in a number of ways. Sorry but you're not being accurate. If you want to clearly lay out numbers then go ahead. I was clear in the logic.

Here are the errors in your logic. 1) yes, agree re: opportunity cost. That was my point too. As I laid out, the opportunity cost needs to be compared on a like for like basis. You say "if you get any moderate return on your money". No, to be accurate, you need to exceed the cost of the debt, on an after tax basis (the return will be taxed but the cost of the car loan isn't tax deductible for a regular person) for this to make sense. "If you get any moderate return on your money" sure again you are probably thinking "the S&P500 could return more than the cost of the car loan" but that is again lazy because you are trying to compare a risky investment with a risk free one (avoiding paying 6% is the same thing as earning a 6% risk free return).

2) "the reason for this" has nothing to do with banks "rightly realizing that cars are an insanely low risk". YES banks are willing to charge a lower interest rate secured by a car than they are for an unsecured loan aka a credit card interest rate that might be 20% or whatever. That has nothing to do with the price of tea in China or corresponds to how much you are going to earn on your investments. Banks are still making a spread over their cost of funding which is comprised of deposits where they don't pay much interest, to market rates where they can borrow money. They aren't going to loan you money at 3% if their cost of funds is 5%, even if you are an "insanely low risk".

Your whole premise is based on the assumption that one will make more money investing their money in (presumably stocks because otherwise this is a really stupid logic), guaranteed, than they will pay in interest on their car loan. When car loan rates were really low like 0.9% then I could see the temptation to really jump at this. Even though at the time, Maik's money in a money market fund was earning nothing so 0.9% was still paying something more than he would have been earning at the time. When the car loan rate is 6%, it feels even dicier to just assume that your stocks will return more than that over the 5 year period. And again, the fallacy in the logic is not accounting for risk, for the fact that stocks COULD lose 20% over that period too, while you are also paying 6% on your car loan.

And the above is why I asked if you have ANY fixed income investments. Because if your whole premise is apparently based on some nebulous "I will find a way to earn a lot of money on my money" world view then I would guess you are 100% invested in stocks. Or maybe more accurately, you should take your car loan logic to heart and also borrow the full amount you can at your brokerage on a margin loan! Because there, you can borrow a lot more money and "only pay a little bit of interest" while you find a way to get a moderately higher return on your money (by borrowing money against your stock portfolio and investing that borrowed money in more stocks to potentially juice your return through leverage). So you aren't even being true to yourself if you have any of your money sitting in a money market, or a short term bond fund, etc right now.

Don't know how to be any clearer about this but you're making poor assumptions here and thus coming to the wrong conclusion, or at least a misleading and misinformed conclusion
 

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60k in a savings account being drawn down at 1k/month (the worst possible return) is at least $4500 over the next 3 years on 3% interest, but probably more like 5500-6500 at 3.5-4.5%
Ian, let's be simple. If I offer to loan you $60K today at a 6% interest rate that you must pay me over the next 5 years, which you cannot deduct from taxes either, and you will take that $60K and invest it in a savings account earning 3.5-4.5% which is also taxed so the real income is lower, please elaborate how you are going to be wealthier at the end of 5 years.
 

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And by the way.....lets keep in mind that we are talking about a friggen car....not a life altering pile of dough!
 

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Ian, let's be simple. If I offer to loan you $60K today at a 6% interest rate that you must pay me over the next 5 years, which you cannot deduct from taxes either, and you will take that $60K and invest it in a savings account earning 3.5-4.5% which is also taxed so the real income is lower, please elaborate how you are going to be wealthier at the end of 5 years.
You make less because after 1 year, the 50k is worth 6-8% less than when you issued the loan. If inflation continues, then your losses compound and lets be real the FED aint fixing inflation anytime soon without going after profiteering sectors.

Right now a 6% fixed rate loan is below inflation.... lol

Evaluating unequal time periods is a shell game and surely to lead you to incorrect conclusions.
 

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You make less because after 1 year, the 50k is worth 6-8% less than when you issued the loan. If inflation continues, then your losses compound and lets be real the FED aint fixing inflation anytime soon without going after profiteering sectors.

Right now a 6% fixed rate loan is below inflation.... lol

Evaluating unequal time periods is a shell game and surely to lead you to incorrect conclusions.
Again what?

Can you do a better job of explaining yourself?

Nobody is evaulating unequal time periods. I am trying to evaluate a hypothetical 5 year period. Can we please stick with my example.

Today = does Ian borrow $50K at 6%, and take that money and invest it in a savings account earning let's say 4.5% pretax, or 3% after tax. The loan is for 5 years at a fixed rate of 6%. Let's for ultra simplicity say there is no principal paid on the loan and it is paid 100% at the end of 5 years.

After 1 year, Ian's $50K will have earned $1500 in after tax interest. Ian will have also paid $3000 in interest to hold that loan. Ian will be $1500 poorer.

DO YOU AGREE WITH THE ABOVE STATEMENT IAN?

Now you will say Yes but I am paying off the loan every month. So the loan balance is going down. True. But you have to use money from your savings account to pay it off, so there is a corresponding reduction in the amount of savings in that account earning money. In year 2, you will be paying 6% on the loan, and still earning 3% after tax, on a smaller loan balance and on a smaller amount of savings. You will still be losing money on the upside down interest.

DO YOU AGREE WITH THAT AS WELL IAN?
 

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And by the way.....lets keep in mind that we are talking about a friggen car....not a life altering pile of dough!
This is irrelevant. Your gut instinct about your lack of need to take out a car loan presuming you have a bunch of other investments is correct, and it has nothing to do with the fact that this isn't a "life altering pile of dough".
 

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You're over simplifying by a huge amount, I dont know why you are modeling this in one 5 year chunk these are all just formulas in excel that you can type in.

NPV of 50k at 6% discount 5 years is $42k. You are giving me 50k today that will be only worth 42k when you get it back. You get your 6% interest, netting 8k but that only makes you whole.

I got 50 into a 4.5% interest account, netting me $4790 in interest (risk free as you call it)
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So, the answer is no I dont agree with your math because in this scenario I make $5k and you got zilch. And I especially dont agree that the best way to invest 50k only nets you 4.5% returns.

I invested $30k to remodel the bathroom of my house which will, checks notes, net me somewhere in the range of 30-50% return in under 5 years. Mind you this is just an example of what that capital can be used for that will both give you gains and improve your life in the meantime.
 

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"I invested $30k to remodel the bathroom of my house which will, checks notes, net me somewhere in the range of 30-50% return"

Baloney.....you will not get a 50% return. You MAY recoup 50% of the cost. A new bathroom might have an actual return.
 

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"I invested $30k to remodel the bathroom of my house which will, checks notes, net me somewhere in the range of 30-50% return"

Baloney.....you will not get a 50% return. You MAY recoup 50% of the cost. A new bathroom might have an actual return.
Well I gutted it to the studs and increased the square footage so yeah I could easily get a 50% return on that when we sell the house. People love nice bathrooms and the old one was a piece of ****.

Like I said it's an example of what you can do with your money while it's not locked in the car.

I supposed you could always refi a car you bought with cash onto a loan but I think that requires an existing loan to happen.
 
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