5 ms·

If you don’t want a monthly car payment pay a monthly car payment so later you can have a smaller monthly car payment?

by dwighttk 5y ago

jimbob45 5y ago
I think the idea is that you accrue the interest yourself instead of paying it to someone else.
- ironmagma 5y ago
  The amount of interest accrued in a savings account is pretty wimpy though.
- unclebucknasty 5y ago
  Yeah, but a savings account? Interest rates for savings are abysmal, and auto-loans are themselves frequently near (or at) zero these days, so it's losing advice as-given. Better advice: put the money in the market or other higher-yielding investment, then take a low or no interest loan on the vehicle when the time comes so those investments can continue to grow at the much higher clip. Money's just too cheap to give away your own cash. Obviously, if the interest rate environment changes, this should be re-evaluated.
  - Larrikin 5y ago
    What percentage are you talking about as being abysmal. 0.1% offered at some shitty brick and mortar bank is terrible but nearly all the online first banks offer (or offered before covid) what I thought was a decent 1-3%
    - X-Istence 5y ago
      Highest these days is like 0.5%. If you are really lucky you can find 0.8%
    - unclebucknasty 5y ago
      I'm not seeing anything like that. Here's the latest roundup of "the best rates" over at Bankrate [0], which includes some online-only banks. Highest I see there is 0.57%, with most at 0.4% and 0.5%. You might be able to scrounge up a few basis points somewhere if you're really determined and/or willing to meet some requirements. Still, even with our low-inflation these days [1], you're actually losing money in these savings accounts. Main point though is that it's more of a relative game vs your ROI elsewhere. Even indexes and ETFs that are reasonably "low-risk" are routinely returning much more these days, and of course over the long haul equity markets still beat this handily, even when smoothed for downturns. [0] https://www.bankrate.com/banking/savings/rates/ https://www.bankrate.com/banking/savings/rates/ [1] https://www.statista.com/statistics/244983/projected-inflation-rate-in-the-united-states/ https://www.statista.com/statistics/244983/projected-inflati...
      - Larrikin 5y ago
        TMobile Money is 4% for the first $3000 and 1% after that for customers and 1% flat for everyone else. Ally used to be pretty good but I've moved all my savings over for now
        unclebucknasty 5y ago
        Yeah, obviously not scalable, but cool for a risk-averse T-Mobile wireless customer who wants a guaranteed 4% on $3K. It is funny though that they give the example that at $5,000 saved your effective APY is around 2.79%. I mean, the bottom line is that as soon as you get above $3K, any additional savings drops to a lowly 1%, which doesn't keep pace with inflation (i.e. you're losing money). But they're presenting it like 2.79% is some kind of average that matters, thus implying it's a good idea to keep pouring money in. The reality is that the offer is not an average, but two discrete terms of 4% and 1%. And, on the latter, you're trading whatever other returns you could've made elsewhere for that miserly 1%. Much better to put it elsewhere, even for those who bite on the initial $3K for 4%.
- syshum 5y ago
  Interest on savings accounts is far less than inflation, out side of an emergency fund there is little reason to save cash.
  - imtringued 5y ago
    Isn't the benefit of the car loan that you can have emergency funds? I mean, if you save up $5k and get a car loan for $25k you for years you effectively have a 2 year emergency buffer. If you pay off the car up front you may run into liquidity issues until you have restored your emergency fund.
    - syshum 5y ago
      No one should consider using their emergency fund for anything other than emergency's, so I am not sure what your point it The comment I was responding too talked specifically about saving money in a savings account for the purposes of buying expensive things like a car. It should go with out saying one should not use their emergency fund for these purchases (unless they are an emergency) Once you have the 6mos to 1 year of expenses in your emergency fund you should divert any other cash to other accounts such as Debt Repayment (providing the debt is more than 5-7% interest or current inflation) and/or investments such as tax advantaged retirement accounts
- ratsbane 5y ago
  You don't have to put it into a savings account. I do the same thing but into a stock fund.

If you don’t want a monthly car payment pay a monthly car payment so later you can have a smaller monthly car payment?

jimbob45 5y ago

I think the idea is that you accrue the interest yourself instead of paying it to someone else.

ironmagma 5y ago
The amount of interest accrued in a savings account is pretty wimpy though.
unclebucknasty 5y ago
Yeah, but a savings account? Interest rates for savings are abysmal, and auto-loans are themselves frequently near (or at) zero these days, so it's losing advice as-given. Better advice: put the money in the market or other higher-yielding investment, then take a low or no interest loan on the vehicle when the time comes so those investments can continue to grow at the much higher clip. Money's just too cheap to give away your own cash. Obviously, if the interest rate environment changes, this should be re-evaluated.
- Larrikin 5y ago
  What percentage are you talking about as being abysmal. 0.1% offered at some shitty brick and mortar bank is terrible but nearly all the online first banks offer (or offered before covid) what I thought was a decent 1-3%
  - X-Istence 5y ago
    Highest these days is like 0.5%. If you are really lucky you can find 0.8%
  - unclebucknasty 5y ago
    I'm not seeing anything like that. Here's the latest roundup of "the best rates" over at Bankrate [0], which includes some online-only banks. Highest I see there is 0.57%, with most at 0.4% and 0.5%. You might be able to scrounge up a few basis points somewhere if you're really determined and/or willing to meet some requirements. Still, even with our low-inflation these days [1], you're actually losing money in these savings accounts. Main point though is that it's more of a relative game vs your ROI elsewhere. Even indexes and ETFs that are reasonably "low-risk" are routinely returning much more these days, and of course over the long haul equity markets still beat this handily, even when smoothed for downturns. [0] https://www.bankrate.com/banking/savings/rates/ https://www.bankrate.com/banking/savings/rates/ [1] https://www.statista.com/statistics/244983/projected-inflation-rate-in-the-united-states/ https://www.statista.com/statistics/244983/projected-inflati...
    - Larrikin 5y ago
      TMobile Money is 4% for the first $3000 and 1% after that for customers and 1% flat for everyone else. Ally used to be pretty good but I've moved all my savings over for now
      - unclebucknasty 5y ago
        Yeah, obviously not scalable, but cool for a risk-averse T-Mobile wireless customer who wants a guaranteed 4% on $3K. It is funny though that they give the example that at $5,000 saved your effective APY is around 2.79%. I mean, the bottom line is that as soon as you get above $3K, any additional savings drops to a lowly 1%, which doesn't keep pace with inflation (i.e. you're losing money). But they're presenting it like 2.79% is some kind of average that matters, thus implying it's a good idea to keep pouring money in. The reality is that the offer is not an average, but two discrete terms of 4% and 1%. And, on the latter, you're trading whatever other returns you could've made elsewhere for that miserly 1%. Much better to put it elsewhere, even for those who bite on the initial $3K for 4%.
syshum 5y ago
Interest on savings accounts is far less than inflation, out side of an emergency fund there is little reason to save cash.
- imtringued 5y ago
  Isn't the benefit of the car loan that you can have emergency funds? I mean, if you save up $5k and get a car loan for $25k you for years you effectively have a 2 year emergency buffer. If you pay off the car up front you may run into liquidity issues until you have restored your emergency fund.
  - syshum 5y ago
    No one should consider using their emergency fund for anything other than emergency's, so I am not sure what your point it The comment I was responding too talked specifically about saving money in a savings account for the purposes of buying expensive things like a car. It should go with out saying one should not use their emergency fund for these purchases (unless they are an emergency) Once you have the 6mos to 1 year of expenses in your emergency fund you should divert any other cash to other accounts such as Debt Repayment (providing the debt is more than 5-7% interest or current inflation) and/or investments such as tax advantaged retirement accounts
ratsbane 5y ago
You don't have to put it into a savings account. I do the same thing but into a stock fund.