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Small tangent: I tend to borrow all the money that is offered to me at 0% effective rate, e.g., when buying a new mobile phone. I would even go as far as to bor

Small tangent: I tend to borrow all the money that is offered to me at 0% effective rate, e.g., when buying a new mobile phone. I would even go as far as to borrow all money that is offered to me at sub-inflation rates. Is this rational?

trident5000 6y ago
Yes this is rational behavior unless the payback schedule gets you in trouble or the rates shift.
jedberg 6y ago
Yes it's totally rational. I do the same thing. I had a school loan that was at a 0.1% interest rate. I could have paid it off with my savings, but my savings interest was more than that, so it made more sense not to pay it off. I was sad when it was finally paid off, because it meant I was no longer arbitraging the interest.
throw0101a 6y ago
When it comes to cars, what's often offered is 0% financing or some kind of cash back. It may actually be better to go with the cash back. Preet Banerjee made a 10 minute video laying out the math on why not going with 0% financing may be better: * https://www.youtube.com/watch?v=KGPu0jPryfU https://www.youtube.com/watch?v=KGPu0jPryfU
- LudwigNagasena 6y ago
  > When it comes to cars, what's often offered is 0% financing or some kind of cash back. Well, that just means the financing is not 0%.
- jedberg 6y ago
  That video was good, but I'm disappointed he didn't point out that it's usually better to rent a depreciating asset, ie. get a lease. Of course there are a lot of other factors, like how long you typically keep your car for. But if you're the kind of person who like a new car every 3-4 years, it's almost always better to just lease the car than to buy it. Especially if you have a schedule C business that you can write some of it off against.
  - throw0101a 6y ago
    > That video was good, but I'm disappointed he didn't point out that it's usually better to rent a depreciating asset He has lots of video on personal finance. I'm sure it's covered in one of them (he has a rent versus buy-house comparison for example: IIRC he used to own, but now rents).
AnimalMuppet 6y ago
Yes, if it's the same cost. Take my car insurance, for instance. I can pay it all in one chunk, up front, for $X, or I can pay two payments of $Y. But (IIRC) X < 2Y. It's not the same cost. (This is one of the ways that it's more expensive to be poor - if you don't have the money to pay for car insurance up front, it costs more.)
jjk166 6y ago
You just need to be careful because usually these offers have fine print along the lines "if you don't pay this back fast enough, you will have to pay very high interest even on the debt you already paid off."
- jedberg 6y ago
  Yes!! I did one of those 0% TV purchases. They purposely made it so you couldn't set up automatic payments, so you had to do it manually every month. One month I was a day late, so they changed the interest to 19%, and charged me interest for all the past payments too. Luckily I was able to get them to reverse it and then I just paid it off, but had I not noticed, I would have owed them a ridiculous amount of money.
imtringued 6y ago
It is rational if you think you can meet your debt obligations e.g. through a job. However, the problem with this approach is that your bank account no longer offers "resistance" to spending. It is easy to get into debt that you can never repay. This shouldn't be an issue if you do proper accounting but many people don't do that.

trident5000 6y ago

Yes this is rational behavior unless the payback schedule gets you in trouble or the rates shift.

jedberg 6y ago

Yes it's totally rational. I do the same thing. I had a school loan that was at a 0.1% interest rate. I could have paid it off with my savings, but my savings interest was more than that, so it made more sense not to pay it off. I was sad when it was finally paid off, because it meant I was no longer arbitraging the interest.

throw0101a 6y ago

When it comes to cars, what's often offered is 0% financing or some kind of cash back. It may actually be better to go with the cash back. Preet Banerjee made a 10 minute video laying out the math on why not going with 0% financing may be better: * https://www.youtube.com/watch?v=KGPu0jPryfU https://www.youtube.com/watch?v=KGPu0jPryfU

LudwigNagasena 6y ago
> When it comes to cars, what's often offered is 0% financing or some kind of cash back. Well, that just means the financing is not 0%.
jedberg 6y ago
That video was good, but I'm disappointed he didn't point out that it's usually better to rent a depreciating asset, ie. get a lease. Of course there are a lot of other factors, like how long you typically keep your car for. But if you're the kind of person who like a new car every 3-4 years, it's almost always better to just lease the car than to buy it. Especially if you have a schedule C business that you can write some of it off against.
- throw0101a 6y ago
  > That video was good, but I'm disappointed he didn't point out that it's usually better to rent a depreciating asset He has lots of video on personal finance. I'm sure it's covered in one of them (he has a rent versus buy-house comparison for example: IIRC he used to own, but now rents).

AnimalMuppet 6y ago

Yes, if it's the same cost. Take my car insurance, for instance. I can pay it all in one chunk, up front, for $X, or I can pay two payments of $Y. But (IIRC) X < 2Y. It's not the same cost. (This is one of the ways that it's more expensive to be poor - if you don't have the money to pay for car insurance up front, it costs more.)

jjk166 6y ago

You just need to be careful because usually these offers have fine print along the lines "if you don't pay this back fast enough, you will have to pay very high interest even on the debt you already paid off."

jedberg 6y ago
Yes!! I did one of those 0% TV purchases. They purposely made it so you couldn't set up automatic payments, so you had to do it manually every month. One month I was a day late, so they changed the interest to 19%, and charged me interest for all the past payments too. Luckily I was able to get them to reverse it and then I just paid it off, but had I not noticed, I would have owed them a ridiculous amount of money.

imtringued 6y ago

It is rational if you think you can meet your debt obligations e.g. through a job. However, the problem with this approach is that your bank account no longer offers "resistance" to spending. It is easy to get into debt that you can never repay. This shouldn't be an issue if you do proper accounting but many people don't do that.