The best looking BMW ever:
i’m just saying the good folks at AF should know better more than the average flesh bag. Buying a luxury item is not the sin. Leveraging a depreciating asset is the sin.
Yeah I agree I wasn’t completely considering it from a cash flow perspective of most people. My firm has a partnership structure so essentially I’m allowed a capital draw from our capital account on a monthly basis without getting any tax withholding deductions.
some of yours rules are a bit odd.
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i pay over 1k/month. but i am paying my car off in 3 years with a 0% interest rate. I could easily stretch it out to half the monthly payment, but i wanted the lowest rate possible to pay it off. then relever the car when it is completely paid at the lowest rate possible again. and yea i also paid no down on my car.
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I like to borrow at cheap rates. so even if i have the money to purchase it outright, i’d rather borrow at 1% and invest my money. spreading out the cost of a large purchase just makes sense if rates are low since there is no cost.
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the 10% rule you refer to is about the yearly car payments not the purchase price.
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finally, leveraging a depreciating asset is smarter than leveraging a safe asset. a safe asset might actually incentivize your lender to want you to default since they are taking an asset worth more than the debt. a depreciating asset gives you more negotiating power since they most likely wont want you to default. i’ve seen this go down not in car payments but in business dealings, and also in loan modifications during the housing crisis.
A thousand bucks a month for a car is insane. 1k per month invested over three years at 8% is 41k, if you kept doing it over 10 years its 184k, and over 30 years it’s 1.5 million.
10% or total income sounds like a reasonable amount to spend on a car. I purchased a 2015 minivan with 50k miles on it for 17.5k. It’s basically brand new, leather, all sorts of electronics that I don’t even know how to work. The thing was going for nearly 40k back in 2014.
If I can 1) buy a $100k car up front, or 2) borrow $100k at 2% to finance the car, and invest in something I believe will pay more than 2%, then 2) could be the superior choice. If you are planning on buying the car anyway, then why not borrow if your cost is low?
This just in: Higgmond and Palantir agree on something! That is one sweet looking automobile.
^ Sweet Miata
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do you really think you’re paying 0%?
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see my duration matching comment above. Good luck when the market goes down and your payment doesn’t.
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i don’t think that’s the case.
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i don’t know how to respond to this silliness.
Presumably, you’re paying your payment out of your income, and not your investable assets. So one should have no bearing on the other. (Unless your income is somehow tied to your investable assets.)
And if you have a crystal ball and you know the market is going to nosedive, then it makes sense to sell stocks to buy cars. But then again, it makes sense to sell stocks to buy anything at that point.
Is anyone else a wee bit disappointed that IHIHM hasn’t chimed in to this debate?
So what are you driving TF? Can’t be bagging the hot yoga instructor in the back of a beater.
During 2008 financial crisis, I kept seeing all these sports cars offered for low prices. I thought about getting a couple years old BMW Z4 for $17k but didn’t do it. A couple years later, there was this SLK 65 AMG sitting on the lot for a while for $27k. It was pretty tempting, but I decided that such a car was not worth the price given the inevitable high maintenance requirement.
^ Our dealer had a 360 modena and a F430, both with 6-speed gated manual shifters (!) back in 2009. Really kicking myself for not pulling the trigger on one of those.
Borrowing money to finance a depreciating asset doesn’t sound all that clever.
Using a depreciating asset to collateralize a loan used for investment purposes isn’t necessarily a bad idea, depending on the interest rate, the risk-return of the investment, and one’s ability and willingness to accept the risk. Most of whether it is smart or dumb depends on what the money is used for rather than whether the money was borrowed. The main issue about the depreciating asset is how fast the asset depreciates and whether the loan can be called if the asset is underwater and whether the lender has recourse to attach other assets.
Both actions can look identical in terms of whether a car was bought on credit.
i drive an older truck since I went out on my own. Back when I was working for the man and thought I was something special I drove a BMW. I haven’t financed a car in over 15 years
Chics dig trucks so it’s all good.
The point is not to buy a car as an asset so you can take a loan though. It is assuming you already want the car - should you pay cash with say $100k present value, or borrow some amount with $100k (or whatever higher value based on a non zero rate) future value instead; you will have a liability discounted at your opportunity cost of capital.
The Z8 is very pretty - and decent performance.
The 507, however, is where it’s at:
No disagreement Ohai.
Step 1: You make a consumption decision that you want an expensive car.
Step 2: You decide that the opportunity cost of the cash used to buy the car yields a return that is higher than the interest rate on the loan.
Step 3: finance the car and invest the difference in whatever opportunity you identified.
Step 4: Enjoy the spread, although that spread needs to be risk adjusted.
But there is a feedback loop there which could have you stretching for a vehicle because it seems affordable with low rates and higher returns. Also it could be very easy to misunderestimate your risk adjustment. Just seems like a lot of work to justify something that probably won’t offer commensurate increase in happiness. Was it Gringo who came to this conclusion after driving an A7 for a little while?