You guys are paying cash for Corvettes
11-22-2016, 09:44 PM
#301
I could pay cash but my personal opinion is why tie my money up in a depreciating asset. I dont keep cars that long anyway. I prefer to use cash for other things that at least have a chance of appreciating in value.
I think it is one of those "to each his own" topics though.
I think it is one of those "to each his own" topics though.
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Walt White Coupe (11-22-2016)
11-23-2016, 08:44 AM
#302
11-23-2016, 08:56 AM
#304
Instructor
11-23-2016, 09:39 AM
#305
11-23-2016, 09:43 AM
#306
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Money is essentially free at current interest rates which are only slightly above the rate of inflation. If you finance a car for five years, in the last year you're paying for the car in dollars that are worth 8-10% less than they are today. Combine the decline in value of the dollar and the lost investment value of that money, paying cash doesn't really make much sense.
I haven't "made" a payment on anything in years, whether it's a car payment, mortgage payment (thankfully long gone), phone, cable, etc. It's direct deposit. No checks. No envelopes. No stamps. No hassle. Done.
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Seekinganswers (12-04-2016)
11-23-2016, 09:48 AM
#307
Le Mans Master
Take a long look at an amortization statement and you'll see what those 'small' interest rates really cost.
2% of $100,000 is $2000 per year. You pay the interest up front.
Spread over 5 years it's a hell of a lot more.
Last edited by Phanni; 11-23-2016 at 09:49 AM.
11-23-2016, 09:50 AM
#308
For all you guys who claim that paying cash is poor financial management, consider this. Buying a corvette that will depreciate 10% per year is poor financial management. We buy them for a purpose no different than going on a vacation or eating out. This discussion is simply ridiculous.
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Seekinganswers (12-04-2016)
11-23-2016, 10:18 AM
#309
I don't know how many young people are reading this but I'm an older fellow and when I bought my first car a 1967 Dodge Dart my Dad made me finance it at the bank with a little coupon book of payment stubs. Then he made me multiply out how much I would pay for that car when I paid all those payments based on what the car cost. I was appalled at the interest way back in those days. My Dad said that is a gift you make to that banker for the use of his money, now with all those people doing that he will be rich and you will be poor. So common sense even back then tells you to apply Dave Ramsey's principles.
11-23-2016, 10:36 AM
#310
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So my loan at 1.49% on $58,343 for 3 years = $1423.07 total finance charge. For that cost I'll use their money and keep mine available. (Direct from bank statement)
11-23-2016, 11:15 AM
#311
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Take two Corvette buyers. Assume that both are financially comfortable and could afford either the cash payment or the monthly payments. Assume inflation averages 2% annually.
Buyer A pays $70000 in cash.
Buyer B pays $70000 financed at 2.25% for 5 years for a total finance charge of $4076.60. He takes the $70K and invests it in one-year, AAA-rated municipal bonds yielding 1% and rolls them over each year. (Not what I'd do, but for the sake of discussion).
At the end of Buyer B's payment period, Buyer A owns a five year old Corvette he paid for with money that was worth 10% more than it is today.
After completing his payments, Buyer B also has a five year old Corvette, but he has $3,570 in interest from the municipal bonds, only $506 less than his finance charge. Additionally, he has only paid for 20% of that car with money that is worth 10% more than it is today. Another 20% was with money worth 8% more than today, 20% with money worth 6% more....and finally 20% with today's money. He paid the bulk of a 2016 car with 2017-2021 money. In other words, less! I'm no mathematician, but I'll bet that alone is worth far more than the $506 difference between the finance charge and the yield from a bond or CD.
Me? I'll keep my stocks that are growing in value and paying 2-5% dividends. I have them in DRIPs and when I retire I'll turn the DRIPs off and use the proceeds to make payments on a C8.
Buyer A pays $70000 in cash.
Buyer B pays $70000 financed at 2.25% for 5 years for a total finance charge of $4076.60. He takes the $70K and invests it in one-year, AAA-rated municipal bonds yielding 1% and rolls them over each year. (Not what I'd do, but for the sake of discussion).
At the end of Buyer B's payment period, Buyer A owns a five year old Corvette he paid for with money that was worth 10% more than it is today.
After completing his payments, Buyer B also has a five year old Corvette, but he has $3,570 in interest from the municipal bonds, only $506 less than his finance charge. Additionally, he has only paid for 20% of that car with money that is worth 10% more than it is today. Another 20% was with money worth 8% more than today, 20% with money worth 6% more....and finally 20% with today's money. He paid the bulk of a 2016 car with 2017-2021 money. In other words, less! I'm no mathematician, but I'll bet that alone is worth far more than the $506 difference between the finance charge and the yield from a bond or CD.
Me? I'll keep my stocks that are growing in value and paying 2-5% dividends. I have them in DRIPs and when I retire I'll turn the DRIPs off and use the proceeds to make payments on a C8.
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23/C8Z (11-23-2016)
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11-23-2016, 11:32 AM
#313
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That's not how it works. Here is a $100,000 loan at 2.25% from USAA. Your total finance charge is $5,823.80.
With most of these responses, is it any wonder that a lot of Corvette purchasers pay cash? It's that "old dog" proverb. And most of us fit in that category.
11-23-2016, 11:57 AM
#314
11-23-2016, 01:09 PM
#316
The only problem using investments to offset the pain of paying/parting with cash for the car, is that your investments are not guaranteed to perform as many of you seem to think they will. Your projections on what might occur, is just that. A guess into the totally unknown future. When your investments go belly up, you're still on the hook for an unpaid, depreciating liability. You don't have the money to meet your obligations. At least not from your investments that surprised you in a disappearing act.
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pdiddy972 (11-24-2016)
11-23-2016, 01:41 PM
#317
The only problem using investments to offset the pain of paying/parting with cash for the car, is that your investments are not guaranteed to perform as many of you seem to think they will. Your projections on what might occur, is just that. A guess into the totally unknown future. When your investments go belly up, you're still on the hook for an unpaid, depreciating liability. You don't have the money to meet your obligations. At least not from your investments that surprised you in a disappearing act.
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11-23-2016, 01:56 PM
#318
Burning Brakes
You guys that think you can consistently make X% on an investment have never lived through a stock market correction, apparently. Or just a sector correction. Or a stock (think Chipotle) that ran into some bad luck.
And for the guy that posted that crazy "example" with the muni bonds is ignoring the fact that your money is tied up for a very long period of time.
Oh wait, sell the bonds, you say? Ha! With interest rates going nowhere but up, those bonds will be worth less now than what you paid for them.
Stock investments are more liquid, but you're also paying taxes on the dividends and any gains.
The big thing that many are forgetting is the comfort factor. For many people, paying off a mortgage early makes no financial sense, but it's the comfort factor knowing that the liability is gone. I'm sure that applies to cars as well.
Besides, if we were all savvy investors, we wouldn't be buying a new C7, we'd buy a clapped-out C4 for cheap and invest the difference, yada, yada, yada.
Or just ride the bus. Now that's being smart with your money.
And for the guy that posted that crazy "example" with the muni bonds is ignoring the fact that your money is tied up for a very long period of time.
Oh wait, sell the bonds, you say? Ha! With interest rates going nowhere but up, those bonds will be worth less now than what you paid for them.
Stock investments are more liquid, but you're also paying taxes on the dividends and any gains.
The big thing that many are forgetting is the comfort factor. For many people, paying off a mortgage early makes no financial sense, but it's the comfort factor knowing that the liability is gone. I'm sure that applies to cars as well.
Besides, if we were all savvy investors, we wouldn't be buying a new C7, we'd buy a clapped-out C4 for cheap and invest the difference, yada, yada, yada.
Or just ride the bus. Now that's being smart with your money.
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chas70 (11-23-2016)
11-23-2016, 02:06 PM
#319
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After completing his payments, Buyer B also has a five year old Corvette, but he has $3,570 in interest from the municipal bonds, only $506 less than his finance charge. Additionally, he has only paid for 20% of that car with money that is worth 10% more than it is today. Another 20% was with money worth 8% more than today, 20% with money worth 6% more....and finally 20% with today's money. He paid the bulk of a 2016 car with 2017-2021 money. In other words, less! I'm no mathematician, but I'll bet that alone is worth far more than the $506 difference between the finance charge and the yield from a bond or CD.
11-23-2016, 02:25 PM
#320
70k loan at 1.49% will cost you a whopping $1619.60 over the life of the loan.
70k in a 3% 3 year cd will get you $6300 over the life of the CD
Say a 25% tax bracket and your taxes off that CD will be $1575
$6300 - $1575 = $4725 - $1619.60 = $3105.40 in your pocket
This is the only way to do it, now tell me its better to pay cash up front if you can find a deal like this.... did the same thing with my wife's Lexus at the same time and her loan rate was 0.90% and opened a 3% CD for her too.
70k in a 3% 3 year cd will get you $6300 over the life of the CD
Say a 25% tax bracket and your taxes off that CD will be $1575
$6300 - $1575 = $4725 - $1619.60 = $3105.40 in your pocket
This is the only way to do it, now tell me its better to pay cash up front if you can find a deal like this.... did the same thing with my wife's Lexus at the same time and her loan rate was 0.90% and opened a 3% CD for her too.