How much to spend on a nice first car?

[guids]

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Im betting you can do better than 5% interest probably OP.

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This is an inappropriate assumption for this scenario.

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I dont care about the scenerio as much as I care about helping the OP out.

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Right and for this moment in his life given the information he has given us it would be entirely inappropriate to advise him that he can "probably" make more than 5% by taking on riskier investments with his car payment money.

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meh, not really, fbno direct has a 6% savings account, I never said it had to be riskier, you added that part in.

[TheMetetron]

guids,

Why wouldn't the loan company put all their money into fnbo then? Intro-rates don't count here. If it is going to return more than his loan will charge him for the life of his loan, then yes it is riskier.

[guids]

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guids,

Why wouldn't the loan company put all their money into fnbo then? Intro-rates don't count here. If it is going to return more than his loan will charge him for the life of his loan, then yes it is riskier.

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I have no idea.


with online banking, I dont think it would be too hard for him to keep track of his money, and shift it around at a rate better than 5% if he keeps up on it, and keeps finding rates that he likes once the intro rates change. E-loan has 5.5%, even emmigrant is 5.05 etc. Im no expert, so I havent looked into much, but I keep up with some of the finance blogs

[TheMetetron]

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guids,

Why wouldn't the loan company put all their money into fnbo then? Intro-rates don't count here. If it is going to return more than his loan will charge him for the life of his loan, then yes it is riskier.

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I have no idea.


with online banking, I dont think it would be too hard for him to keep track of his money, and shift it around at a rate better than 5% if he keeps up on it, and keeps finding rates that he likes once the intro rates change.

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guids,

Read some BF&I or maybe some books on the subject. It doesn't seem like arguing with someone who isn't really educated on the subject is going to get me anywhere.

Clayton,

Post the question of borrowing vs paying cash in BF&I for opinions from people who are smarter than both guids and myself at this.

both,

You won't find risk-free investments returning more than the rate his loan is charging him for the life of his loan. Teaser rates or other gimmicks won't change this. I know guids doesn't like to believe this, but I guarantee you it is true. It makes zero sense to think otherwise.

[guids]

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guids,

Why wouldn't the loan company put all their money into fnbo then? Intro-rates don't count here. If it is going to return more than his loan will charge him for the life of his loan, then yes it is riskier.

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I have no idea.


with online banking, I dont think it would be too hard for him to keep track of his money, and shift it around at a rate better than 5% if he keeps up on it, and keeps finding rates that he likes once the intro rates change.

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guids,

Read some BF&I or maybe some books on the subject. It doesn't seem like arguing with someone who isn't totally educated on the subject is going to get me anywhere.

Clayton,

Post the question of borrowing vs paying cash in BF&I for opinions from people who are smarter than both guids and myself at this.

both,

You won't find risk-free investments returning more than the rate his loan is charging him. Teaser rates or other gimmicks won't change this. I know guids doesn't like to believe this, but I guarantee you it is true. It makes zero sense to think otherwise.

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Im not really arguing with you, I just dont see the logic otherwise, and I have no doubt that Im missing something, can you spell it out for me though, because I am interested in the subject. What about a CD that yields 5.4% etc, is it not feasible to shift that money around and take advantage of intro savings rates, etc?

also, why do you say intro rates dont count here?

[Sponger.]

Clayton,

Just lease the most expensive can you can possibly afford. I'm thinking a fully loaded Audi A6 would be pretty good.

[Shoe]

Cars are so overrated. There are so many more things in life I would prefer to have money for, which in my case is an awesome lake house and boat. I'd much rather have that and a crappy car than vice versa. To each their own however, that is just what works for me.

My suggestion would be to buy decent used cars that are only 2-3 years old and then drive them into the ground before repeating the process.

[jackblack73]

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Ok, assume $20,000 car.

Option 1:

Purchase $20,000 car in cash. Invest $70,000 @ 5% compounded yearly for 5 years. After 5 years you have $89,340.

Option 2:

Purchase $20,000 car with financing. Invest $90,000 @ 5% compounded yearly for 5 years. Pay 6% compounded yearly over 5 years on $20,000 of that (Pay $4,000 principal + interest per year).

Worth by year via option 2 below...

After 0 years: $90,000 savings - $20,000 debt = $70,000
After 1 year: $89,300 savings - $16,000 debt = $73,800 ($4,500 earned & $5,200 paid)
After 2 years: $88,805 savings - $12,000 debt = $76,805 ($4,465 earned & $4,960 paid)
After 3 years: $88,525 savings - $8,000 debt = $80,525 ($4,440 earned & $4,720 paid)
After 4 years: $88,471 savings - $4,000 debt = $84,471 ($4,426 earned & $4,480 paid)
After 5 years: $88,488 savings - $0 debt = $88,488 ($4,423 earned & $4,240 debt)


Option 2 leaves you with $88,488 at the end of 5 years while Option 1 leaves you with $89,340. Inflation is the winner as your $90,000 in 2007 dollars now requires $104,842 in 2012 dollars to get the same purchase power.

Edit: I assumed you'd pay off the interest every year and it was only compounded yearly. If you made your payments an equal size for 5 years, you'd end up with even less money via option 2. Also, I assumed yearly compounding which is not entirely accurate but good enough for demonstration purposes.

[/ QUOTE ]Your interest paid on the car loan is incorrect, as you only pay on the balance, which is lower every month. A $20,000 loan at 6% will result in $3199.36 of interest after 5 years, not $3600.

Anyway, I think he should finance even if it is a slightly -EV move. Invest your money with the intention of not touching it for 30+ years. Add to it every year, but never withdraw anything. The car payment should come from your budget, which you determine based on your income.

BTW, if you shop around you can beat 6% interest on a car loan, assuming you have decent credit. I got 4.99% from Justice Federal Credit Union.

[SlowHabit]

Why don't you ask CTS if it's worth it for a balla car [img]/images/graemlins/cool.gif[/img]

[El Diablo]

All,

Less finance vs. cash talk, more car suggestions.