With interest rates rising, how many won’t be completing their R1 purchase?

[R1T-8171]

paying interest on a depreciating purchase makes no sense if you have cash. And if someone needs a loan, the worse thing they can do is to be a "payment" buyer. TBH, if someone needs more than a 36 month note to "afford" a vehicle they are buying too much car for their budget.

just my .02

That is the point of view from someone with money. I will never tell anyone what to do with their money. My perspective and yours are two different ones, but both are completely irrelevant to what someone else wants to do. I finance every vehicle at 60mos and put $0 every time. Including my R1T, I've purchased 4 so far in 2022 and never lost a penny doing so. I could have paid cash for all 4 if I wanted to but why? I am not flush with cash and my money has been making me more than I've paid on my simple interest loans as I pay them weekly and pay minimal interest. It makes more sense for me, an average Joe, to put as much of my money to work than it does to throw at a car.

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[Prime]

Here's my two cents from a car selling standpoint. Unless you're hunting for a particular payment, put down $0 cash. If you have good credit, finance the vehicle and make double/triple/quadruple payments, whatever. Keep your money, pay minimal interest and make your money work for you. Paying cash for a vehicle is dumb unless you have fuck you money. And, if you do, you likely don't give a shit about what I have to say. But that vehicle will never be worth what it is today, tomorrow. You wreck that vehicle, it likely won't recoup you all of the cash you spend. And for everyday joes or upper middle class, there are better ways you could use your money rather than wrapping it up in a vehicle.

Agree, especially with the way the economy is heading, way better to have more liquid assets.

 

[Gamma rays]

That is the point of view from someone with money. I will never tell anyone what to do with their money. My perspective and yours are two different ones, but both are completely irrelevant to what someone else wants to do. I finance every vehicle at 60mos and put $0 every time. Including my R1T, I've purchased 4 so far in 2022 and never lost a penny doing so. I could have paid cash for all 4 if I wanted to but why? I am not flush with cash and my money has been making me more than I've paid on my simple interest loans as I pay them weekly and pay minimal interest. It makes more sense for me, an average Joe, to put as much of my money to work than it does to throw at a car.

I get your point and completely agree about financing if interest rate is low. But, with current rates hovering at around 5%, I am curious what would get you guaranteed return of 5% for the next 3 or 4 years?

GR

 

[jphillips97]

So financial adviser hat on.. it’s always best to have as much liquid cash on hand as possible. So putting a massive down payment on a hard asset like a house or a car isn’t always advisable. If we were to go into a recession a smaller monthly payment would be easier to handle than a huge one over 36 months. I think it’s fine that you do you. With the level of inflation even at higher interest rates most people won’t be at a loss over 72 months.

To add to that I’d take any additional $ I didn’t put on a huge down payment and put it into some high growth stocks once it bottoms out and help pay for my car.

Are you actually a financial advisor? I do not think most would give this advice at least not so generally

 

[jphillips97]

In most years I have earned over 10% gain on my investments, some years much more, a few years lower, such as this year. I could easily pay cash for the Rivian, but I'll put ~25% down, take a 3.5% loan for 60 months, keep the rest of that portion of my cash reserve invested and make a net 6% - 7% gain per year, not including compounding, instead of paying cash for the full purchase.

"you all are the reason that repos are at an all-time high". Your generalizations are ridiculously over-generalized. It's amazing that you know so much about the financial status of the general members here!

Would you take out a loan just to invest it? If you finance a car that you have the cash to pay for you are effectively doing just that.

 

[jphillips97]

paying interest on a depreciating purchase makes no sense if you have cash. And if someone needs a loan, the worse thing they can do is to be a "payment" buyer. TBH, if someone needs more than a 36 month note to "afford" a vehicle they are buying too much car for their budget.

just my .02

This is spot on

 

[jphillips97]

That is the point of view from someone with money. I will never tell anyone what to do with their money. My perspective and yours are two different ones, but both are completely irrelevant to what someone else wants to do. I finance every vehicle at 60mos and put $0 every time. Including my R1T, I've purchased 4 so far in 2022 and never lost a penny doing so. I could have paid cash for all 4 if I wanted to but why? I am not flush with cash and my money has been making me more than I've paid on my simple interest loans as I pay them weekly and pay minimal interest. It makes more sense for me, an average Joe, to put as much of my money to work than it does to throw at a car.

This is very confusing. You have bought 4 cars this year and could have paid cash for all but you are not flush with cash?

The count’s point of view is one from someone with money and explains why he has money.

Would you take a loan out to invest? If you finance a car when you can afford to buy it outright you are investing a loan. If that is something you would do, cool. Many have had luck doing that but it is speculative at best.

 

[Zoidz]

Would you take out a loan just to invest it? If you finance a car that you have the cash to pay for you are effectively doing just that.

Apples and Oranges. That's a fundamentally different question from a financial strategy viewpoint. When financing a vehicle, the vehicle remains as collateral against the debt, so under normal circumstances you are never at risk for 100% of the outstanding loan value. If you take out a loan to reinvest, there's no collateral against the debt and in worst case you could lose 100%. Pretty obvious difference. This same concept applies to real estate investing, except in some cases someone else is making some or all of the mortgage payment for you via their rent so you get even better returns.

Do the math. For this example, assume a $60k vehicle loan over 5 years at 3.8%, vs. taking $60k cash out of your investment holdings which average 7% a year.

Total loan payments over 5 years - $66,000
$60k invested over five years with compounding at 7% - $85,000
$60k invested over five years with compounding at 5% - $77,000

Net difference - $11k to 19k in my favor

Go ahead and pay cash if you like, instead of earning compund interest, and short yourself tens of thousands of dollars over five years.

It's pretty simple math. Plenty of online calculators. I use Excel for my financial analysis.

 

[Count Orlok]

Apples and Oranges. That's a fundamentally different question from a financial strategy viewpoint. When financing a vehicle, the vehicle remains as collateral against the debt, so under normal circumstances you are never at risk for 100% of the outstand loan value. If you take out a loan to reinvest, there's no collateral against the debt and in worst case you could lose 100%. Pretty obvious difference. This same concept applies to real estate investing, except in some cases someone else is making some or all of the mortgage payment for you via their rent so you get even better returns.

Do the math. For this example, assume a $60k vehicle loan over 5 years at 3.8%, vs. taking $60k cash out of your investment holdings which average 7% a year.

Total loan payments over 5 years - $66,000
$60k invested over five years with compounding at 7% - $85,000
$60k invested over five years with compounding at 5% - $77,000

Net difference - $11k to 19k in my favor

Go ahead and pay cash if you like, instead of earning compund interest, and short yourself tens of thousands of dollars over five years.

It's pretty simple math. Plenty of online calculators. I use Excel for my financial analysis.

you're ignoring inflation and taxes. Also, where do I get 7% without risk? (and don't say annuity).

 

[jphillips97]

Apples and Oranges. That's a fundamentally different question from a financial strategy viewpoint. When financing a vehicle, the vehicle remains as collateral against the debt, so under normal circumstances you are never at risk for 100% of the outstanding loan value. If you take out a loan to reinvest, there's no collateral against the debt and in worst case you could lose 100%. Pretty obvious difference. This same concept applies to real estate investing, except in some cases someone else is making some or all of the mortgage payment for you via their rent so you get even better returns.

Do the math. For this example, assume a $60k vehicle loan over 5 years at 3.8%, vs. taking $60k cash out of your investment holdings which average 7% a year.

Total loan payments over 5 years - $66,000
$60k invested over five years with compounding at 7% - $85,000
$60k invested over five years with compounding at 5% - $77,000

Net difference - $11k to 19k in my favor

Go ahead and pay cash if you like, instead of earning compund interest, and short yourself tens of thousands of dollars over five years.

It's pretty simple math. Plenty of online calculators. I use Excel for my financial analysis.

If you carefully read the core question it is not apples to oranges. It sounds like you would borrow to invest. That is fine and many have done well but it is speculative. I prefer to not finance a depreciating asset.

 

[Zoidz]

you're ignoring inflation and taxes. Also, where do I get 7% without risk? (and don't say annuity).

Inflation and taxes exist either way, it makes a relatively minor difference, plus a large portion of my investment portfolio is tax deferred/tax managed.

How do you make 5% - 7% without risk? There's ALWAYS risk, even if you keep it in the bank. If you can accept minimal risk, there's plenty of opportunities. No risk, no reward. The trick is to take small, smart risks, and reinvest that gain over and over and watch it grow, and your risk tolerance grows as well.

https://www.aol.com/news/10-dividend-stocks-over-5-201230281.html

https://www.marketwatch.com/story/t...e-plenty-of-room-to-raise-payouts-11655984667

https://www.barrons.com/articles/dividend-yields-5-percent-51650526201

Real Estate
https://www.fhfa.gov/DataTools/Tools/Pages/House-Price-Index-(HPI).aspx

 

[Count Orlok]

Inflation and taxes exist either way, it makes a relatively minor difference, plus a large portion of my investment portfolio is tax deferred/tax managed.

How do you make 5% - 7% without risk? There's ALWAYS risk, even if you keep it in the bank. If you can accept minimal risk, there's plenty of opportunities. No risk, no reward. The trick is to take small, smart risks, and reinvest that gain over and over and watch it grow, and your risk tolerance grows as well.

https://www.aol.com/news/10-dividend-stocks-over-5-201230281.html

https://www.marketwatch.com/story/t...e-plenty-of-room-to-raise-payouts-11655984667

https://www.barrons.com/articles/dividend-yields-5-percent-51650526201

Real Estate
https://www.fhfa.gov/DataTools/Tools/Pages/House-Price-Index-(HPI).aspx

thanks but no thanks. I already have too much in equities and real estate. I didn't get to this situation borrowing money for investments or cars.

 

[Zoidz]

If you carefully read the core question it is not apples to oranges. It sounds like you would borrow to invest. That is fine and many have done well but it is speculative. I prefer to not finance a depreciating asset.

Understood, everyone has their own financial risk/reward spectrum.

 

[Engi_Nerd]

As much fun as it is listening to people engage in endless financial dick measuring, I personally think the classic advice about avoiding vehicle debt at all costs has some weaknesses in the modern market:

- Vehicles will never be investments but EVs that get meaningful OTA updates depreciate slower than gas vehicles that do not.
-EVs generally have lower, more predictable operating costs
-Driving has never been more dangerous due to huge vehicles operated by distracted drivers. EVs have higher safety due to additional crumple zone, lower fire risk, lower center of gravity and higher mass.

The chink the armor is losing value from an accident, but it's risk I'm fine shouldering after seeing how well our Tesla performed being T-boned at 60 mph.

 

[R1T-8171]

This is very confusing. You have bought 4 cars this year and could have paid cash for all but you are not flush with cash?

The count’s point of view is one from someone with money and explains why he has money.

Would you take a loan out to invest? If you finance a car when you can afford to buy it outright you are investing a loan. If that is something you would do, cool. Many have had luck doing that but it is speculative at best.

The count's view is that of old money. Chances are, when he started, he wasn't throwing money around because unless he was gifted it, he didn't have it. He was borrowing just like the rest of us. Don't start at the bottom, get to the top and then look down on those climbing the ladder, telling us we are broke or what we can't afford.

I make solid money, I am not rich by any means but I am not broke. I have a rental property that is on borrowed money, so yes...I would take out a loan to invest. I net about $750/mo from that property. Why use my money? What benefit do I get from risking all my money? Doing so I have everything to lose and the same to gain as the next guy who borrows. Difference is the borrower's only liability is their credit. The same is said for auto loans.

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