Quote:
Originally Posted by zx10guy
Your first two points are way too simplistic. From a basic view point, yes, buying new is generally not good due to the depreciation hit. But this is only really relevant if you like to flip cars in a short period. There is something to be said about buying new in terms of you know how the engine was broken in. You are sure how the car was maintained and overall taken care of. You might get those assurances with a used car...then again you might not. I have bought a used car before and had a generally good experience. It helped that I knew the original owner of the car. I held on to that car for about 15 years. All my other vehicles were purchased new. And all of them were driven into the ground before I got rid of them. One car I had for 12 years before sending it to the scrap yard when it blew a head gasket; didn't want to sink the money into the repair. The other car I had for about 8 years. That car was totaled out by my insurance after hitting a deer. It was a 2006 Ford Focus ZX3 with about 170,000 miles. My insurance paid out just over $5000 back to me. I currently own two motorcycles both bought new; a 2004 ZX-10R and a 2009 848. Both still running and both still looking like they just came off the showroom floor. So it really depends on the intent of the purchase. If you hold on to a new bought vehicle for a long time, buying new isn't such a bad idea as many people make it out to be.
On the second point, paying cash again is too simplistic. If you're able to get a zero or low interest loan, I don't see a problem going that route using other people's money. I've always been able to finance my vehicles at low interest rates. With some cars I put zero down. With the 135i, I did put down a substantial down payment but still financed a good part of it. All the loans I got were at 1.49% interest rate fixed for 5 years. I did end up paying off the loans early usually within 2 or 3 years. I took the money I would have dropped into paying cash into investing.
There's no one size fits all and it really depends on the circumstance. This is the same as those saying pay cash for everything and to cut up all your credit cards. In my situation, this is walking away from 1.75, 2, and 3% cash back depending on the item purchased along with credit card fraud protections and the extended warranty/lost/stolen protections I get with my AMEX. I pay off my balances in full every month.
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I agree with part of your second point.
It's true that if you are able to finance a car for 1.49% and you believe you can get greater than 1.49% returns in the stock market, then it makes financial sense to do so. I wish I could get these rates. Despite having excellent credit, I've never had a lender offer me anything near 1.5% fixed financing over 5 years for a car loan.
One caveat - I don't agree with the way you're doing it. You said that you had a fixed 1.49% loan for 5 years and yet you paid off the loans early in 2 or 3. If you're willing to assume the risk of investing in the stock market for 2 or 3 years, why wouldn't you keep the remainder of your balance in the market for the remaining 2 or 3 years? Some might argue that this is prudent if you think the market will go down, but lay investors like us aren't able to make this kind of determination in the short run (just look at the tens of millions of Americans who opted to stay out of the market from 2011- for fear of another downturn a la 2008; they've missed out on one of the greatest bull markets in history).
All that being said,
many people who finance cars aren't doing so because they're financially savvy and accruing investment returns on their principal. Many people who finance cars do so because they literally don't have the money to buy the car outright in the first place, and this is where people get into trouble.
It's not unlike credit cards. Having cash back or travel rewards type credit cards with $0 fee (or a minimal fee) is an excellent tool to reap benefits as long as you don't pay a dime in interest and pay off your balance in full.
The overwhelming majority of Americans who use credit cards
don't use credit cards in this way. They carry a balance from month to month and pay interest on that balance. I would never recommend a credit card to someone who uses it in the way most Americans use it (paying any more than a penny in interest), just as I would never recommend someone finance a car that they can't - in theory - write a check for, absent extenuating circumstances.