car loan
 

hey i'm going to buy a car soon and would like to double check some finance stuff.

i'm 24 years old, going to spend $20-25k on a used (probably) car. i have the money to buy up front but have been told a loan is probably a better idea. i've had a credit card for several years and always pay it off each month but have no other credit. i'm a pro poker player and have 2 years of tax returns to support this. i might want to buy my own house in the next 5 years (would need a loan for this).

i've heard credit unions give better interest rates than a normal bank. what kind of rate could i expect regardless?

thanks for the help, i've never taken out a loan before and don't really know what to expect.

Re: car loan
 

In most situations there is no reason to finance a car when you have the cash available to buy it outright. It's on the same level of buying consumer products on a credit card than making payments. You're effectively paying more money for the same product over time and in the end you have 1) a product that's worth less than when you bought it 2) less money than you would have if you bought it outright because of interest payments.

Re: car loan
 

i don't know what my credit is or if i need to worry about it. if i needed to i'd be willing to pay slightly more if it would help build my credit. also, i invest my money so if the interest rate on the loan was less than the interest i make on investing it would make sense to get a loan regardless right?

i'm a noob, please correct me if i'm wrong or missing something.

Re: car loan
 

I have to agree with Soko. I don't believe in buying cars on credit.

Re: car loan
 

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I have to agree with Soko. I don't believe in buying cars on credit.

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is there something wrong my reasoning or is this a religious thing?

Re: car loan
 

no your reasoning is not wrong, its just they charge alot so its hard to beat guaranteed over the timeframe of the loan ~ 5 years

Re: car loan
 

I don't believe it is that hard to get credit so I don't see the need to pay more. I don't believe having the car loan will make a significant difference on your ability to get a mortgage.

I also do feel like it is a little disingenuous to drive a car that isn't paid for in full but that isn't relevant here.

Re: car loan
 

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no your reasoning is not wrong, its just they charge alot so its hard to beat guaranteed over the timeframe of the loan ~ 5 years

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Just to expand on this, your car loan will likely be in the 10-15% APR range. Buying the car upfront and avoiding the loan is like investing at a guaranteed 10-15%. That's tax free, too, so it's like a taxable income of 13-20%. There's no way your investments will make you more than 5% guaranteed.

Re: car loan
 

[ QUOTE ]
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no your reasoning is not wrong, its just they charge alot so its hard to beat guaranteed over the timeframe of the loan ~ 5 years

[/ QUOTE ]
Just to expand on this, your car loan will likely be in the 10-15% APR range. Buying the car upfront and avoiding the loan is like investing at a guaranteed 10-15%. That's tax free, too, so it's like a taxable income of 13-20%. There's no way your investments will make you more than 5% guaranteed.

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This is a pretty good illustration of the facts.

OP,

Also take into account the fact that you are financing something that depreciates, which is pretty silly.

Re: car loan
 

I didn't read OP's situation as an opportunity cost question. I believe OP's motivation for the car loan is to improve his credit score.