Credit and Credit Scores: A short lesson

[jman220]

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I dont mean to. But, these people are talking like they need to get a car loan. Yeah, you need credit if you plan on buying everything you own on installment plans, but please explain why it makes sense to buy a car with credit?

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Many people don't have tens of thousands of dollars saved up. And for a lot of people, a car is a necessity to get to work. So they take a loan to buy one. Now, if people were smart, they'd buy an affordable used car that cost a couple thousand so they'd be able to pay it off in a short period of time. But of course, many buy expensive new cars that they pay over 3+ years at bad rates. This is obviously a bad idea.

But home debt is a smart move for most people who don't have the cash to buy a home before the age of 60. Education loans are smart since you are able to repay these loans after you graduate at very good rates. And loans to start businesses is pretty much an investment rather than a debt.

Your blanket statements of "pay cash for all" is unrealistic for most people under uber-wealthy status.

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Oversimplifying and stating that you should never "spend more than you have on hand right now" completely ignores the current utility value of money to you. If you're a young professional just getting started who isn't making much money yet, money has a much higher utility to you now than it does 10, 20, or 30 years from now. Therefore, even, for example, paying 6 percent interest on your car loan for 6 years doesn't necessarily mean you're actually losing utility by paying more over those 6 years then if you paid for the car upfront. The same goes for a 30 year mortgage. $250,000 right now probably has a higher utility value to you then $400,000 over the course of 30 years. This is to say nothing of the effects of inflation, etc.

Edit: However, it never makes sense to carry a credit card balance. Ever. There are just better forms of loans out there if you need them.