[brianeck]

Originally Posted by Mark Venture

Agree 100%. I laugh when I hear people bring up the depreciating asset aspect. I ask- when you bought that big screen TV, or that nice set of golf clubs, or that expensive new phone...were you thinking about depreciation? Nope. These are quality of life things. I worry about appreciation/depreciation in my investments and my home. Cars are certainly not investments, so I don't treat it like one.
Have as many life experiences as you can, enjoy life as best you can. In the end, we all end up in the dirt, so enjoy whatever you can in the meantime.

I mean none of the things you mentioned add up to anywhere near ~~$70,000 USD, so they are kind of in a different expense or debt category. Additionally, I think you guys are missing the point about the "Depreciating Asset" discussion. Time Value of Money is not being considered.

Same for the guy who was talking about vacations and groceries and restaurants - paying cash for those things is very commonplace, but not that many people necessarily have $70,000 cash just sitting in their bank accounts.

Even if they do, $70,000 in the market can do a whole lot better than the 1.9% interest rate that BMW Financial Services charges. If you have $70,000 cash sitting around, good on ya, and it means you're in like the top 5% of the country. . . But you definitely can't fault someone else for either A) not having that much cash or B) prefering to earn more on their capital by way of an appreciating asset such as marketed securities, stock, or even real estate. Its not just the fact that the car loses value, its that pretty much anything else you could put the cash towards, within reason, should go up in value over that same 5 year period. Accordingly you're losing out to inflation, the depreciating value of the car, and the time value of money by not having invested it into something that inherently increased.

There is a whole lot of arbitrage to be made if you're financing at 1.9% and the market is making 7% per year for 5 years on your $70,000 cash - by the time the 5 years is up you're half way to having a whole other car in capital appreciation the latter way.

I'm not knocking anyone in either situation - my situation is unique too, as my company will pay $1,000 per month for a car payment regardless of whether its a lease or financing no questions asked. In my case, I'd be crazy not to finance, because I get the added value of then owning the asset after the fact with no cash out of my pocket.

[zazzau]

Originally Posted by brianeck

I mean none of the things you mentioned add up to anywhere near ~~$70,000 USD, so they are kind of in a different expense or debt category. Additionally, I think you guys are missing the point about the "Depreciating Asset" discussion. Time Value of Money is not being considered.

Same for the guy who was talking about vacations and groceries and restaurants - paying cash for those things is very commonplace, but not that many people necessarily have $70,000 cash just sitting in their bank accounts.

Even if they do, $70,000 in the market can do a whole lot better than the 1.9% interest rate that BMW Financial Services charges. If you have $70,000 cash sitting around, good on ya, and it means you're in like the top 5% of the country. . . But you definitely can't fault someone else for either A) not having that much cash or B) prefering to earn more on their capital by way of an appreciating asset such as marketed securities, stock, or even real estate. Its not just the fact that the car loses value, its that pretty much anything else you could put the cash towards, within reason, should go up in value over that same 5 year period. Accordingly you're losing out to inflation, the depreciating value of the car, and the time value of money by not having invested it into something that inherently increased.

There is a whole lot of arbitrage to be made if you're financing at 1.9% and the market is making 7% per year for 5 years on your $70,000 cash - by the time the 5 years is up you're half way to having a whole other car in capital appreciation the latter way. [...]

Very well said!

[johngetter]

Bought a CPO, put $35k down and financed $15k (bout 12k left over and a bmw extedned warranty).
The g20 has all the car features I’ll ever want or use. I’m not huge into the EV space, and my wife already has a PHEV. I used to car hop trying all the cars but felt something was missing, I landed on another BMW I don’t have plans on upgrading for 10 years.

It’s a 5.45% interest rate but my payment is what I spend on food in a week. I plan to keep it a long time so I use it to keep something on my credit.

What irks me is how fast these cars depreciate. It really made me want to lease and get something new every few years, but it’s constant money output.

[bavarianride]

Originally Posted by chris_1001

I think the real idea here is that if the interest on the car loan is less than you make in a saving account it makes sense. If the loan and the saving rate are the same, it does not make sense.

And if it wipes out your savings, then you are screwed if something happens in life such as Job Loss, furnace breaks, medical emergency etc. Are you going to sell your car to fund an emergency?

Cash vs. finance still requires the principal(e.g. $100k) to be paid, the difference is whether $100k is paid in one lump sum, or spread out during the loan term(e.g. 5 years). As shown in post#34, finance carries extra cost on top.

If committing the principal amount, of any amount, can wipe out savings/emergency funds, one can consider not to make the purchase.

[Mark Venture]

Originally Posted by brianeck

I mean none of the things you mentioned add up to anywhere near ~~$70,000 USD, so they are kind of in a different expense or debt category. Additionally, I think you guys are missing the point about the "Depreciating Asset" discussion. Time Value of Money is not being considered.

Same for the guy who was talking about vacations and groceries and restaurants - paying cash for those things is very commonplace, but not that many people necessarily have $70,000 cash just sitting in their bank accounts.

Even if they do, $70,000 in the market can do a whole lot better than the 1.9% interest rate that BMW Financial Services charges. If you have $70,000 cash sitting around, good on ya, and it means you're in like the top 5% of the country. . . But you definitely can't fault someone else for either A) not having that much cash or B) prefering to earn more on their capital by way of an appreciating asset such as marketed securities, stock, or even real estate. Its not just the fact that the car loses value, its that pretty much anything else you could put the cash towards, within reason, should go up in value over that same 5 year period. Accordingly you're losing out to inflation, the depreciating value of the car, and the time value of money by not having invested it into something that inherently increased.

There is a whole lot of arbitrage to be made if you're financing at 1.9% and the market is making 7% per year for 5 years on your $70,000 cash - by the time the 5 years is up you're half way to having a whole other car in capital appreciation the latter way.

I'm not knocking anyone in either situation - my situation is unique too, as my company will pay $1,000 per month for a car payment regardless of whether its a lease or financing no questions asked. In my case, I'd be crazy not to finance, because I get the added value of then owning the asset after the fact with no cash out of my pocket.

Everyone's financial situation is unique. All of these discussions depend on the individual's financial means, liquidity, current and future financial goals. My situation is different from everyone else of course, this is an internet forum, so we see the full spectrum of people. For some, a $70-75K car is aspirational. For some, it's more or less achievable if they forgo a few things, like an expensive trip or two. Others are more fortunate and they don't worry a lot about $70K+.
As I say, a spectrum.
That said, I would not agree that time value of money is not being accounted for in this discussion. The last several posts are actually about exactly that.
What I find is that BMWFS rates are certainly not 1.9% as you mentioned, more like 6.0% even with an 830+ FICO. And given the gains and taxes you can get on an investment currently (as well as the huge market uncertainty right now, will we see a recession or not) the pre-tax gains you would need to make on a "bucket" of funds (for example a bucket of 70K) would need to be in the 10%+ range to offset the interest of 6% on a financed loan. So no one is discounting or ignoring the time value of money, it's just that returns right now are somewhat volatile, and not necessarily offsetting (or beating) the interest cost of a loan.

[Yalferd]

I saved money for years, used a trade in, and paid cash. I'll be keeping this car

[zazzau]

Originally Posted by Mark Venture

What I find is that BMWFS rates are certainly not 1.9% as you mentioned,

Some of us did get it at 1.9% — so yeah everyone’s situation is different and especially at a time when the rates are much higher the stakes will be different.

[metallica81788]

My lease is ending next month and I just sent in my payoff check

I drive 100 miles/day and can't really beat 570 miles per tank and the driving experience. Changed jobs a few months ago, so the mileage was not anticipated going into the lease (from <10k per year to now 25k). I have faith this B48 engine will be as reliable as a BMW can be. Wasn't interested in taking out a 70k loan at 7% for an X3 m40i plus didn't like the iDrive 8 in the new 340i. Dealers were going to charge me tires + mileage just to turn the car in, about 5k. Nope.
Will drive my 330 until it dies.

The wife's X7 is financed at 0.9% so taking longer to pay that one off and that was the right call with the investment difference.

I think I'll be paying mostly cash for cars from here on unless those <1% rates come back

[tgrundke]

I'm planning on keeping my '23 M340, so I financed and will be paying off in about 2 years, then holding.

[brianeck]

Originally Posted by zazzau

Some of us did get it at 1.9% — so yeah everyone’s situation is different and especially at a time when the rates are much higher the stakes will be different.

I did actually lock-in at 1.9% May 2022 also - to be quite honest the lease rates had shot up so much the 5 months prior that dramatically impacted my decision. I'm 100% with the other posters about how if interest is more in the realm of 6%, things change quickly.

I was able to lease my 2015 F80 M3 which I European delivered for under $700 a month, and the lease rates for the G80 I was being quoted at for 15,000 miles (which is the bare minimum I need) had skyrocketed from the $800s into the $1000's before i made my decision. Historically, I was a big proponent of "new every 3" leasing with no risk of the asset depreciation, concern for resale values, or hassle of dealing with second hand car buyers.

That's when I also did the homework to figure out that my company would pay the car allotment no matter what the underlying note looked like. I would highly suggest that anyone who works for a company that has a car payment incentive look into this, because its one thing to get your lease paid for and another to walk away with a car at the end of every 5 year period!

The most important thing to note is that I am fully aware that my situation above is incredibly unique - everyone's is. The type of work I do also does not have a "cash pile" in the business - if you work for a company or are self employed and have a cash reserve you can use to work towards your end, then it makes a whole lot more sense in your situation.

Lastly - I wholeheartedly agree that no matter what your situation is, you have to consider that you are taking on the full burden of the entire principal + any interest you will accrue, basically unless you're leasing. If you do lose your job, like in my case, you have to immediately be able to eat a $1,250 payment a month. . . With no job. While of course I could go and sell the car, and it would happen fairly quickly, I will also have just lost my job and have other grievous concerns to deal with. Financing does not mean you're at no risk the whole time!

[Nettles]

Some cash kings here. On a forum. In a thread. On the internet. You go Glen coco’s

[Mark Venture]

Originally Posted by Nettles

Some cash kings here. On a forum. In a thread. On the internet. You go Glen coco’s

I must be a bit out of touch, I don't know what Glen coco is.

[randomserious]

Originally Posted by TheKandyman

Is CA in this context California state income tax? Yikes!
There are a number of things I don't like about Florida, but I sure am thankful for no state income taxes .

that's only for the dollar over $1mm, for some reason he chose the top bracket. if your income is $1mm/yr i doubt you need to worry about saving $2k on financing.

i think Florida has higher property taxes I've heard?

[Joeybarb87]

Originally Posted by chris_1001

I have a 1.49% loan on mine (I did put a lot down) and my Savings account is 4.75%. So no... Its free money at this point. Paying it off when I'm making more on the money would be foolish (for me).

Where did you find 1.5% apr, can you help me? All I’m seeing is 5+ in NJ..

[TheMaxXHD]

Originally Posted by brianeck

Lastly - I wholeheartedly agree that no matter what your situation is, you have to consider that you are taking on the full burden of the entire principal + any interest you will accrue, basically unless you're leasing. If you do lose your job, like in my case, you have to immediately be able to eat a $1,250 payment a month. . . With no job. While of course I could go and sell the car, and it would happen fairly quickly, I will also have just lost my job and have other grievous concerns to deal with. Financing does not mean you're at no risk the whole time!

How does leasing help solve the problem? If anything it’s the more riskier route because your paying for a car you wont ever own unless you buy it out at the end. If you lose your job, you have to be able to pay for the lease until it’s the end, which is often higher payments anyway than financing since likely you didn’t put anything down on the lease, and then you have to figure out at the end if you can afford to buy it out or find another car while you have no job or possibly be without a car, making matters worse.

The least riskiest path is to never lease, pay the car off outright, either cash, or finance until you can. Or lease if you already plan on buying out the car at the end of the lease, depending on the terms it may work better. And keep the car for 8-10 years. We got people here that are still running 20 year old BMWs. You don’t need a new car every 2-4 years, and the savings in the long run for most people skews heavily with no car payments for as long as you can manage.

[TheMaxXHD]

I think the critical thing for this thread is this, everyone’s situation is different, all options have their strengths and their weaknesses. Everyone needs to evaluate based on their current circumstance. There is no one size fits all answer.

To answer OPs question. Some do pay off their cars, some don’t. Entirely depends on that person and their situation.

[heisenbergB58]

I'm paying off my 2020 M340i. I work for the brand and don't pay much for labor, on top of this being a solid car already 🤷

[Blazin65]

I could have paid cash for the 330i I bought 6 months ago. But when I pay cash for something that will finance for 3.5% when I'm earning over 10% in the stock market. No reason. Doesn't matter whether it's a BMW or a Ford Pinto.

[cr2000]

Cash at the time of purchase always - for anything. You sleep better with a debt free lifestyle.

[Mark Venture]

No one here is saying that if you know you can earn a percentage rate in the market that beats the finance rate (accounting for gains taxes) that you should not do that. Of course you should.
If you were able to get a 3.5% finance rate 6 months ago, that's good - 6 months ago, the fed rate was about 4.6% (vs. about 5.1% today.) If you were invested mainly in Dow indexed stocks/funds over those 6 months, you only saw a 4.4% return, and adding taxes on gains, financing was not a good choice. If, however, you were heavily weighted in Nasdaq indexed stocks/funds, financing was a great call, because it's returned more than 24% over the past 6 months. So even with gains tax, that's a big win.
Been said many times in this thread, the best decision is highly variable. Many factors here - what are you investing in, what is the finance rate of a prospective loan, what are your ROI percentages, how much liquidity do you have, can you even afford a lump sum purchase as an option, what is the tax on the gains you make, what will the market do over the *entire duration* of your finance term (which no one can predict.)
I wish we all had crystal balls to know what the market will do. Over long time periods - decades - it has a solid, fairly predictable historical return. Car loans, however, are not decades long so they can't be compared to 20-30 years of market performance. Short term market downturns can sour what would otherwise have been a wise choice to finance.

[toddwalton]

Originally Posted by cr2000

Cash at the time of purchase always - for anything. You sleep better with a debt free lifestyle.

Or, instead of throwing down $60,000 cash on a car, you keep $59,200 of it with your investment banker and your portfolio, taking out a small $800 a month to make your payments, and let him work his magic for you.

I don't understand why anyone interested in the win/loss of owning a car would walk away from 5 years worth of portfolio growth just to say "I didn't take on debt". You can sleep better with your investment banker putting that car money to work for you.

[toddwalton]

Originally Posted by TheMaxXHD

We got people here that are still running 20 year old BMWs. You don’t need a new car every 2-4 years, and the savings in the long run for most people skews heavily with no car payments for as long as you can manage.

That's a good perspective. Mine is a bit different:

I'm not sure who put cars on such a pedestal. These aren't houses, this isn't land, this isn't some investment. It's something you need, it's something you pay for, it's something you don't have ROI expectations about, it's just a basic lifestyle accessory that you have to pay for each month.

A car is no different than any other monthly utility. You pay $500 for your electricity, you pay $300 for your cable/internet, you pay $250 for your mobile phone, you pay $800 for your groceries, and you pay $700 for your car. You don't think about what your electricity costs. You just know that it's hot and you need AC and you hit the button and you pay the bill at the end of the month. Your car, same thing.