car loan

[AvivaSimplex]

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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.

[kyleb]

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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.

[Henry17]

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.

[DrSues02]

I'm in the exact same situation...have had a credit card for hte past 5 years and have paid it off in full every month. However, my credit score was only 720 or so and I couldn't qualify for the best rates...although I did manage 9%.

The only way to build up that credit score is to have varying types of credit including a car loan. Although it sucks, im basically forced to pay the interest in order to build up the credit for future purchases.

I'm planning on paying the loan off in 2 years anyways.

[soko]

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I'm in the exact same situation...have had a credit card for hte past 5 years and have paid it off in full every month. However, my credit score was only 720 or so and I couldn't qualify for the best rates...although I did manage 9%.

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I think this is very misleading. Owning one credit card is not a very good idea to build credit. If you want to build credit you should have at least 3 or 4 cards. I've never had a car loan and have 760 credit score. Combined I doubt if I've charged more than a dozen things in my life, I still have $50,000 in available credit.

Anyways, for what it's worth to get the best interest rate on a home 680 credit score is good enough as long as you can meet the other requirements, money down, etc.

[Maulik]

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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.

[/ QUOTE ]

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.

[/ QUOTE ]

[Henry17]

Wouldn't there also be higher insurance costs? I was under the impression that when you lease or finance a car part of the conditions are that you get comprehensive insurance.

[Jimbo]

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Wouldn't there also be higher insurance costs? I was under the impression that when you lease or finance a car part of the conditions are that you get comprehensive insurance.

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This is true but if you want to self insure a $25K (or more expensive) car you have a great deal more money than I do.

Jimbo