everyone who doesn’t pay up front and in full for everything in their life is a jabroni imo
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I guess I don’t understand the argument here. It seems to me that it being a good or bad decision depends on the relative interest rate. But for some reason you’ve identified the cases where it’s a good decision as being “edge cases”, so then sure if you rule those out then it’s probably not great to finance a car.
But in this case where they’re not just saving a bunch of money but also donating significant amounts to charity iirc, it seems reasonable to assume that they’re not actually so constrained that they’re forced to borrow at terrible rates.
The other point that I think you may have misunderstood: if someone asked me how I spend my money, I’m going to have an annual car amount line item regardless of which of those three scenarios I’m in. But for some reason the latter two situations are typically viewed as virtuous while the first is viewed as irresponsible. And I don’t necessarily agree that it’s more expensive to make car payments than to pay cash, because you have to take time value of money into account when the two payment alternatives happen at very different times. A lump sum on day one very well could have a higher present value than 5 years of payments. Again it depends entirely on interest rates.
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As a stupid analogy, this seems similar to saying, “Berkshire Hathaway earns an enormous amount of revenue each year, but they’re still borrowing money to make acquisitions. Warren Buffett must be an irresponsible manager of capital.”
I doubt anyone comes to that conclusion, and I think the same idea applies at the household level.
But it’s very possible I’m a psycho with poor money management skills!
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I think we’re agreed on that.
Also agreed.
However, I think people making decisions along these lines is quite rare. How many auto loan interest rate arbitrageurs do you know. It’s uncommon. Maybe common enough that “edge case” isn’t the right term, but I’d bet that the vast majority of auto loans are not taken for that reason.
I guess we could look at it a bit differently. The car loan is just a symptom of the disease. There is a lot of fat in that budget. That’s where the bad financial decisions are and because of that they are forced to finance a car they could easily afford on 500k/yr.
The first one is only irresponsible if because you put yourself in a situation where you are paying more for the same product (excluding the whole interest rate arbitrage issue, of course).
I guess if you (specifically, spidercrab) did the first one, I’d be far more likely to put you on some calculated-interest rate related decision than some random. So, it very likely is different for you than it is for most people.
Generally yes but it’s a bit more situational when price/demand and borrowing costs are all over the place. It wouldn’t be very keen of me to use my 200k of savings earned from my job that’s about to get replaced by ChatGPT to pay off my mortgage at 3% when my 5 year CD is earning 4.5% - or purchasing things that may not be priced the same in the future.
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Only 28% of millennials (ages 27 to 42) and members of Gen Z (ages 18 to 26) answered “not at all” when asked if they still relied on their parents for financial support, according to a recent study
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TLDR, but did it say what the numbers used to be a generation ago?
C’mon dude.
A 24 month car loan is ~5.25% and a 24 month Treasury is 4.95%. ‘Flushing money down the drain’ is an absurdly dramatic way to describe this hypothetical.
There any number of practical and behavioral factors as to why the $500k earner may rationally prefer to finance an auto rather than creating a sinking fund.
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Well, I’m a nit in a lot of ways.
I’ll cop to it being dramatic, but it’s -EV.
I agree with this. I lumped them all together (at least the ones I consider reasonable) as “edge cases”, because I think we could come up with a number of unique ones, but together they probably make up a small minority of auto loans.
I’d be shocked if I could look at your personal finances and not find an example of a bigger “leak” than passing on a 0.3% interest rate spread on 10% of your annual income every 5 years.
You probably could, and I’d try to plug them once identified.
The exceptions are the ones I can’t get my wife to get on board with. There are a lot of those. This is not one of them. As long as we have possession of the car, she wouldn’t care about that.
I’d be shocked if 24 month car loans were more than 5% of all car loans
This hypothetical was about people making $500k/yr financing a car because (presumably) their assets are illiquid or would trigger tax consequences.
I put leak in quotes because when you consider the interest rate risk asymmetry of a car loan (you can pre-pay if rates go down and hold if rates go up), plus the optionality of reserving liquidity, it’s got to be pretty close to being worth 0.3%.
I think if you go into the transaction consciously with that specific plan you are a very atypical borrower. Most people who are financing cars on 500K salaries aren’t thinking about all of that.
Way over $500k earning household and we have a lease, other car is 10 years old that’s been paid off. I find it really hard to care much about small EV choices when that much money is coming in, it just doesn’t matter to me but I’m not a finance nerd like most of you.
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My guess (and my point) is that when you factor in everything, not setting aside $80k cash to buy a car probably is a better decision for you, and you understand that intuitively.
Lease is a whole different animal.
But why not just pay for the car you bought in cash? Were you making a lot less then? Liquidity issues? Something else? Even if you don’t care, I think just writing a check is way less hassle than dealing with financing bullshit. If short term liquidity is a problem, you could just take a loan and pay it off very early.
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Do you get a discount if you pay cash for a car instead of finance?