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Middle class perspective: if you can buy a car for cash, but you can get a good interest rate on a loan, you may be better off taking the loan. The opportunity
by buescher 6y ago
Middle class perspective: if you can buy a car for cash, but you can get a good interest rate on a loan, you may be better off taking the loan. The opportunity cost of having cash sunk into the car can be greater than your financing costs.
- chrisseaton 6y agoA basic, simple loan like this also is often good for your credit record.
- throwaway99997 6y agoUnless your credit score is absolutely perfect, the APR on a used car loan is easily 8-10% That's a pretty big chunk of change to spend to boost your credit record https://www.bankrate.com/loans/auto-loans/rates/ https://www.bankrate.com/loans/auto-loans/rates/
- chrisseaton 6y agoRight I was thinking about new car loans which I've seen at zero, which is why it makes sense to work the money somewhere else.
- buescher 6y agoYeah, that's another way it costs to be poor. But you can read that page as "a new car loan can be as low as 4.2%, even if you only have fair-to-good credit". It can still make sense to hang on to the cash if you don't otherwise have a cash reserve.
- offtop5 6y agoThe problem is most people buy more car than they can afford when they finance it. If I have to save $10,000, and I have it in my mind that I don't buy things on credit, I'm only going to buy a $10,000 car. But if I have $1,000 for a down payment and the car dealership talks me into a $30,000 car with zero down, I might take that deal.
- buescher 6y agoTrue, but a complementary problem is that your $10000 used car is probably overpriced, driven up by the demand for lower-cost-up-front cars. Edmunds' 5-year TCO on a 2015 Corolla is only about $20/month less than that of a 2021 Corolla. There have been years where their estimate was for slightly higher TCO on the five-year-old car.