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I was thinking about buying a truck recently and I got this bit of advice: "a loan is a hedge against inflation". More specifically, a fixed interest rate loan
by all2 5y ago
I was thinking about buying a truck recently and I got this bit of advice: "a loan is a hedge against inflation". More specifically, a fixed interest rate loan is a hedge against inflation.
You are borrowing at an initial dollar value of A (in terms of inflation), and servicing your debt at a fixed rate, for a fixed time. During that time the value of the dollar decreases, and you now have a value of <<<A.
This presumes that your income/cashflow will stay the same or increase slightly during the borrowing period.
- staticman2 5y agoI think that's bad advise, or at least incomplete, if the money that was going to buy a car is just sitting in a savings account you're guaranteed to be poorer since inflation will still hit your savings account plus you are paying interest on the loan.
- iancmceachern 5y agoAnd with a 0% loan it us even better
- redisman 5y agoYou can get very cheap car loan offers right now which might be interesting. 0 or 0.9% for 3-4 years. Given 3-7% inflation it’s a nice discount if you have the cash to take advantage of better returns
- ryathal 5y agoIt's only a discount if you get a YoY raise equivalent to inflation. Otherwise you just lose even more money.