5 ms·

IMO, it seems like a waste of money, even if it's not very much. I'm far from a financial expert, but I don't see a benefit to getting a loan, if you don't need

IMO, it seems like a waste of money, even if it's not very much. I'm far from a financial expert, but I don't see a benefit to getting a loan, if you don't need it, other than credit-building. Then we're back to the "honor society" problem: https://xkcd.com/703/ https://xkcd.com/703/ Can someone enlighten me to the benefits? as I'm sure there are people more knowledgeable than I. My personal preference: I'd much rather be broke, with no debt, than have a ton of cash and debt.

coldpie 11y ago
Sure. Imagine I have $20k in the bank and want to buy a $15k car. Scenario A: I pay $5k down and get a $10k loan, leaving me with $15k in the bank. I can use that $15k to go on vacations, invest in the market and try to earn more than the interest rate on the loan, or anything else you can think of to do with $15k. Over the course of three years, I pay about $300 per year in interest on the loan. Scenario B: I pay $15k in cash on the car and have $5k left. This is no longer enough to invest. Since I want to have a cushion, it may cut my vacation plans short or cut a vacation out of the equation entirely. But, three years later, I have $900 more than in Scenario B. Now I can go on my vacation, and maybe even upgrade to first class, but three years have passed. It's a trade-off thing, for sure. But if you're smart about managing debt, then it can be a worthwhile way to spend your $900 given what it allows you to do with the loaned money in the interim.
- CaptSpify 11y ago
  soo.... correct me if I'm misunderstanding, but it sounds like it's encouraging bad behavior. Your basically paying for a vacation you really shouldn't be affording, you just "think" you can now afford it. The same goes for the investments. I guess to me, I don't see any way that Scenario A makes sense.
  - coldpie 11y ago
    What doesn't make sense about it? I'm spending an extra $900 to be able to afford a vacation I otherwise couldn't. Suppose some friends are going on a trip and I'd like to go along; suppose the Olympics are happening; suppose I want to do a trip while I'm still in my 20s; there's plenty of time-sensitive situations in which an extra $900 is worth spending to allow things to happen sooner.
    - CaptSpify 11y ago
      Well, the $900 is a big assumption. You could have just as easily lost all that money. To be clear: I'm not saying your wrong, I'm saying I don't understand. It seems like there's just an assumption that you'll end up with more money, despite there being a risk that you won't?
      - coldpie 11y ago
        Well, you have a job, right? That's where the money comes from. Lenders use your credit rating, income, length of employment, age, and other factors in determining a loan's risk. You budget $X per month for your loan repayment, and you repay it. Three years later, you have repaid the entire loan, plus the $900 interest, and everything is square.
  - dinkumthinkum 11y ago
    I think you misunderstand what money is in a more real sense. It is a tool we use in our lives. I think parent describing the scenarios is making good a explanation if you leave the premise that all debt is necessarily bad.
    - CaptSpify 11y ago
      I think that's probably true, it could be a mindset thing. I just hate having debt, it's like holding something over my head. I don't actually believe it to be inherently bad though, I just don't like it.

coldpie 11y ago

Sure. Imagine I have $20k in the bank and want to buy a $15k car. Scenario A: I pay $5k down and get a $10k loan, leaving me with $15k in the bank. I can use that $15k to go on vacations, invest in the market and try to earn more than the interest rate on the loan, or anything else you can think of to do with $15k. Over the course of three years, I pay about $300 per year in interest on the loan. Scenario B: I pay $15k in cash on the car and have $5k left. This is no longer enough to invest. Since I want to have a cushion, it may cut my vacation plans short or cut a vacation out of the equation entirely. But, three years later, I have $900 more than in Scenario B. Now I can go on my vacation, and maybe even upgrade to first class, but three years have passed. It's a trade-off thing, for sure. But if you're smart about managing debt, then it can be a worthwhile way to spend your $900 given what it allows you to do with the loaned money in the interim.

CaptSpify 11y ago
soo.... correct me if I'm misunderstanding, but it sounds like it's encouraging bad behavior. Your basically paying for a vacation you really shouldn't be affording, you just "think" you can now afford it. The same goes for the investments. I guess to me, I don't see any way that Scenario A makes sense.
- coldpie 11y ago
  What doesn't make sense about it? I'm spending an extra $900 to be able to afford a vacation I otherwise couldn't. Suppose some friends are going on a trip and I'd like to go along; suppose the Olympics are happening; suppose I want to do a trip while I'm still in my 20s; there's plenty of time-sensitive situations in which an extra $900 is worth spending to allow things to happen sooner.
  - CaptSpify 11y ago
    Well, the $900 is a big assumption. You could have just as easily lost all that money. To be clear: I'm not saying your wrong, I'm saying I don't understand. It seems like there's just an assumption that you'll end up with more money, despite there being a risk that you won't?
    - coldpie 11y ago
      Well, you have a job, right? That's where the money comes from. Lenders use your credit rating, income, length of employment, age, and other factors in determining a loan's risk. You budget $X per month for your loan repayment, and you repay it. Three years later, you have repaid the entire loan, plus the $900 interest, and everything is square.
- dinkumthinkum 11y ago
  I think you misunderstand what money is in a more real sense. It is a tool we use in our lives. I think parent describing the scenarios is making good a explanation if you leave the premise that all debt is necessarily bad.
  - CaptSpify 11y ago
    I think that's probably true, it could be a mindset thing. I just hate having debt, it's like holding something over my head. I don't actually believe it to be inherently bad though, I just don't like it.