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So I have rocks in my brain for taking a 2.9% interest loan? I don't see it that way considering my investment horizon allows me to earn 8% in a vangaurd sp500

by mrep 7y ago

So I have rocks in my brain for taking a 2.9% interest loan? I don't see it that way considering my investment horizon allows me to earn 8% in a vangaurd sp500 etf with the money I could have used to pay for my car outright.

VBprogrammer 7y ago
The alternative isn't to buy a brand new car for the same amount of money. The alternative is to actually buy a car you can afford. You are still losing maybe 50% in the first year in depreciation. If you are paying it over 7 years then you are under water on the car from the minute you pick it up until it's paid off in full.
imtringued 7y ago
By that same logic you can invest more money by buying a cheaper car instead of financing a more expensive one.
- hurricanetc 7y ago
  You can finance a cheaper car. Buying with cash carries a large opportunity cost due to compound interest being a helluva drug. If you can finance at an interest rate below what you are earning in the market then you are better off financing. People who pay in cash are leaving money on the table for non-financial reasons.
  - VBprogrammer 7y ago
    It seems improbable that dealers / manufacturers can't do simple compound interest calculations too. If they are offering loans at below market rates they are basically giving you a discount on the cost. If they are willing to do that then you should be able to get a similar discount on a cash basis.
    - hurricanetc 7y ago
      Fed rates are low enough that banks can borrow and offer financing at seemingly impossibly low rates while still making money.
toasterlovin 7y ago
This doesn’t make sense. You’re arguing that this was about capital allocation for you, but if that’s the case, buy a used car for half of what a new car would cost. If you buy from someone like Carmax, you can get access to loans which are almost as cheap as what you’d get on a new car, and you’re buying a car with very little wear and tear.
- mrep 7y ago
  crikli said "Anyone that signs up, of their own free will, for a seven year loan on a depreciating asset has rocks in their head." I'm saying that financing can easily make sense with low interest rates. Nothing in my comment nor criklis has anything to do with buying a used vs new car as the same logic applies to both.
scarface74 7y ago
Would you borrow money at 2.9% to invest in the stock market?
- mrep 7y ago
  On margin where I can get margin called? Maybe, but I don't like that additional type of risk.
  - scarface74 7y ago
    Its basically the same thing when you borrow at a longer term to invest the difference. Mathematically, it makes a lot more sense for us to refinance to another 30 year loan (to get rid of PMI) and invest the difference but I am planning on refinancing to a 15 year.
- loco5niner 7y ago
  Yes. I did exactly that. Also got a tax break since I put it in my 401k

by mrep 7y ago

VBprogrammer 7y ago

The alternative isn't to buy a brand new car for the same amount of money. The alternative is to actually buy a car you can afford. You are still losing maybe 50% in the first year in depreciation. If you are paying it over 7 years then you are under water on the car from the minute you pick it up until it's paid off in full.

imtringued 7y ago

By that same logic you can invest more money by buying a cheaper car instead of financing a more expensive one.

hurricanetc 7y ago
You can finance a cheaper car. Buying with cash carries a large opportunity cost due to compound interest being a helluva drug. If you can finance at an interest rate below what you are earning in the market then you are better off financing. People who pay in cash are leaving money on the table for non-financial reasons.
- VBprogrammer 7y ago
  It seems improbable that dealers / manufacturers can't do simple compound interest calculations too. If they are offering loans at below market rates they are basically giving you a discount on the cost. If they are willing to do that then you should be able to get a similar discount on a cash basis.
  - hurricanetc 7y ago
    Fed rates are low enough that banks can borrow and offer financing at seemingly impossibly low rates while still making money.

toasterlovin 7y ago

This doesn’t make sense. You’re arguing that this was about capital allocation for you, but if that’s the case, buy a used car for half of what a new car would cost. If you buy from someone like Carmax, you can get access to loans which are almost as cheap as what you’d get on a new car, and you’re buying a car with very little wear and tear.

mrep 7y ago
crikli said "Anyone that signs up, of their own free will, for a seven year loan on a depreciating asset has rocks in their head." I'm saying that financing can easily make sense with low interest rates. Nothing in my comment nor criklis has anything to do with buying a used vs new car as the same logic applies to both.

scarface74 7y ago

Would you borrow money at 2.9% to invest in the stock market?

mrep 7y ago
On margin where I can get margin called? Maybe, but I don't like that additional type of risk.
- scarface74 7y ago
  Its basically the same thing when you borrow at a longer term to invest the difference. Mathematically, it makes a lot more sense for us to refinance to another 30 year loan (to get rid of PMI) and invest the difference but I am planning on refinancing to a 15 year.
loco5niner 7y ago
Yes. I did exactly that. Also got a tax break since I put it in my 401k