Originally Posted By: fdcg27
I think part of the problem is that Pop appears not to understand the difference between being able to pay cash for a car and actually laying down all of that cash.
He appears to have no grasp of the concept of financial leverage.
You clearly have a good grasp of it.
Put simply, if I avoid the opportunity cost of laying down 20K on a new Accord and can invest that cash at a rate of greater than .9% (which any fool can do while asleep) then it would be financially ignorant to pay cash for the car, even though one could well afford to do so.
When I was younger and dumber, I thought and spoke as Pop does in these forums.
As I grew older and wiser and came to appreciate the concept that money is a tool, not an end in itself, I became more receptive to the idea of using financial leverage when it would result in a more efficient use of liquidity than would paying cash.
In short, if I can put more money in my accounts over the next few years by taking cut-rate financing, I'll just say thanks to Honda Motor Credit.
Absolutely. .9% is a come-on rate that is captured in an inflated purchase price, but 4% or less is easily doable at any credit union for a person with decent credit. Financing a vehicle for its expected term of use, assuming you use it to get to work, is A-OK. I would not finance a hobby car. In the interest of financial conservatism, I would strive to make a downpayment equal to the first year's depreciation. Beyond that, paying cash at the moment is fussbudget stuff.
I disagree that a used car is always a better deal. If Edmunds is to be believed, my 2.25 year old car is worth $4,000 less than what I paid for it on a person-to-person sale. That's $154 per month for my transportation all that time. On a car with a warranty.
To be absolutely honest, i paid cash for my car. I have a college-age kid and they don't give you a break in assessing your personal situation because of personal loans--only mortgage loan. They naturally reduce your aid because of money in the bank. But that's kind of a special case.