I should have never bought my Prius...

The less wealth you have the more important the rule is.

 

It depends on the particular investment, but I don't have any investments that don't average more than a 6% return.

Even for people just starting out, lets say they've managed to save $30,000. Why would you want to sink that into a car? Its a much safer financial advise to have them keep some semi-liquid as a slush fund and then to start investing with the other to begin to build wealth. A car doesn't build wealth, taking away from your wealth to buy one is silly.

 

I would say that people just starting out who have managed to save $30K (which is a lot of money and not likely with negative national savings rate) should use most of that as a down payment for a home if they don't have one already and only spend $3-5K on a car.

If they already own a home and have $30K saved they should still only buy a car in the $5K range and invest the $30K. No argument there.

People with no net worth but decent monthly cash flow should not be financing a $25,000 automobile.

Unfortunately many people have no assets or investments and are living pay cheque to pay cheque. They pay interest on garbage they bought on their credit cards and on car loans where the cars are becoming worthless. Not smart.

 

well then... i guess we need to decide which is sillier... or i guess we need to determine what is more important...

in the past few years i've taken from my investments to buy my Pri and my Zenn... with current gas prices, transportation needs, current operating costs of both vehicles, the depressed stock market, etc... i simply dont feel "silly"

i feel that i have made excellent investments in the past, all of which have plusses and minuses that have to be weighed... and i also feel that i have done well.

i probably have an income that is less than half the average priuschatter, so i think your statement can work for some people, but in reality, not for most. besides, there is just so much more to what i have done besides a profit and loss analysis.

 

We were told a month ago we would get 5.1% and then we go back to finish the paperwork this week as our Prius is suppose to be delviered in the next few days, and they told us 6.9% and 9.5% if we need more than what the car is worth. We went round and round with the credit union as the scores they were pulling were different than what we were getting from the same reports. So went to our dealership and got 5.9% or 6.9% if we go more than 60 months.

 

Definitely not true in all cases. It's not about whether or not you should finance a depreciating asset - it's about how much you are being charged to use someone else's money. Another poster had it right - if I can invest my money at a rate higher than the interest I'm paying on the car note, I make money. My interest rate on my Prius that I'm picking up Saturday is 4.5%. We'll put down a decent deposit, but why would I pay the entire amount cash (which I could) if my investments make more than 4.5%? It's math.

 

even if you arn't making more than the interest rate you are given there is still such a thing as "cheap" money

i make 3.5 on my savings account and my Toyota loan is 4.7 so i trade 1.2% a year on the ability to have my money available if a real emergency comes up.

 

Amen to that.

Do not buy what you cannot afford. If you are too broke to buy a car, get a beater and save money until you can actually pay for it.

 

Something we agree on!

You're operating on the assumption that I would say you shouldn't have bought your cars. I am not saying that.

However, you would be better off if you had kept your investments intact and purchased your vehicles with financing, assuming your investments earned a greater interest than the interest on the car loans. You'd be ahead of the game because you'd have the savings from the cars on an economy standpoint, and the $45,000 (I have no idea what a Zenn costs) would be earning you interest instead of slowly depreciating to nothing.

It does indeed work for EVERYONE, provided their investments yield them more than the interest on a car loan. If thats not the case, then you're better off paying cash for the car. Actually I would still do the loan to keep from depleting my assets, but thats me. Like Lord_Towers said at that point its "cheap" money.

Actually, I like leasing my cars because I can write the lease payments off for business and make it even cheaper.

People get all tied up in rhetoric like "never finance a depreciating asset" they hear from people like Suze Orman, and thats fine low risk advice. But financing a car is not an evil thing, as long as you're buying a car you can afford.

 

try wrapping your head around this from How Much of Your Car Should You Finance? Zero percent. - iTulip.com Forums

Does this add a new wrinkle?

 

I just got my first car and loan and had to pay 11% on an 05 with 26k miles because my parents credit score was so low (mine was in the 720's) and I still live at home while finishing grad school so I was told they take the composite score from the household. Not sure if that's accurate but it was my first time having any form of credit other than student loans so I just chalked it up to building credit and I was able to buy it w/o a co-signer so I was left with minimal options.