[doublevanosrc]

Originally Posted by Gladius Nova

No. Lol. We get new(ish) cars about every other year. My wife more frequently than me. Flavor of the moment for me just happens to be a G20. We have made peace that we will both depart this world with a car payment. So be it.

+1

[doublevanosrc]

I have enough to cash to pay it off but I don't want to clean out my savings.

I sold cars for a few years and don't remember so many people paying for their vehicles in cash for the full amount. Seems like this forum is full of very successful entrepreneurs and crypto traders.

[dhock_holiday]

Originally Posted by doublevanosrc

I have enough to cash to pay it off but I don't want to clean out my savings.

I sold cars for a few years and don't remember so many people paying for their vehicles in cash for the full amount. Seems like this forum is full of very successful entrepreneurs and crypto traders.

I work a 9-5 but put 40K down on my M340i purchase. Financed the rest and paid off shortly thereafter, I know others will say you should invest it. But I sleep better at night knowing my stuff is paid off

[doublevanosrc]

Originally Posted by dhock_holiday

I work a 9-5 but put 40K down on my M340i purchase. Financed the rest and paid off shortly thereafter, I know others will say you should invest it. But I sleep better at night knowing my stuff is paid off

To each their own.

[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.

[Dan B]

I look at loan interest rates vs what I can earn on the money and that is how I decide on how much to finance if at all.

For example, I financed a car when the interest rates were very low and paid cash when they were very high. I have kids in college right now so I am keeping larger cash reserves for that reason so I financed a part of this last purchase.

[bavarianride]

My bimmers(E39, F30, G20) were bought new with cash. I missed out on $1k BMWFS incentives on F30 but the current G20 got better pricing (around $2k) with cash deal than BMWFS.

The first 2 bimmers (E39 and F30) were custom order that took 2+ months to be delivered. I got 8% off MSRP on E39 at the peak of dotcom, and 12% off MSRP on F30.

The current G20 330i was an intercept of an inbound that arrived next day, and I took delivery the day after. It was right before BMW ran into inventory issue around 4/2021, and I got 16% off MSRP.

[ArchJR]

Originally Posted by doublevanosrc

I have enough to cash to pay it off but I don't want to clean out my savings.

I sold cars for a few years and don't remember so many people paying for their vehicles in cash for the full amount. Seems like this forum is full of very successful entrepreneurs and crypto traders.

It is a sign of the finance times. I leased my last nine cars. At first because I just liked new cars often, now because it is easier for tracking expenses for my business. I will probably pay cash for the next one since the lease and finance rates are stupid. Somehow psychologically writing a check for $80k or so is less of a burden than monthly car payments of $1,000+. At 5% finance rates, it is basically a wash compared to conservative investments like CDs and high yield savings accounts.

[bavarianride]

Originally Posted by ArchJR

At 5% finance rates, it is basically a wash compared to conservative investments like CDs and high yield savings accounts.

5% finance rate is 7.5% pre-tax assuming 50% of marginal state + federal tax rates, and 5% CDs are pre-tax too.

It makes no sense to pay extra 2-3% pretax to finance the car if there is enough liquidity to pay in full upfront.

Lease is even worse than finance given the current landscape.

[syfki998]

I like always being in a new BMW and I don't mod, so it's just more fresh and convenient this way.

[Mark Venture]

Originally Posted by bavarianride

5% finance rate is 7.5% pre-tax assuming 50% of marginal state + federal tax rates, and 5% CDs are pre-tax too.

It makes no sense to pay extra 2-3% pretax to finance the car if there is enough liquidity to pay in full upfront.

Lease is even worse than finance given the current landscape.

Can you expand on this? I've run loan amortization spreadsheets and looked at yields and funds until my eyes glazed over. Either I buy the car outright and be done with it - or finance the car at something like 5-6% and keep that bucket of cash in a lower risk/lower yield investment like a bond indexed mutual fund and draw down car payments from that...or, alternatively, fund a couple ETFs (with as low of an expense ratio as possible) with holdings in higher risk sectors and hope the market doesn't hit recession. I'm on the fence as to what approach makes most sense. Buy it outright and avoid the interest, or finance it and invest the cash while drawing down from that monthly to make the payments.

[bavarianride]

Originally Posted by Mark Venture

Can you expand on this?

U can try this in car loan calculator too:

$100k financed @5% for 60 months with $0 down (assuming sales tax and fees all lumped into that $100k).

The total interest is $13277, paid with after tax money.

The preserved $100k can be put in a 5% APR savings account for 60 months too, but each month the principal amount based on monthly schedule needs to be extracted from that chunk.

The spreadsheet with show that the interest earned is the same amount of $13277, but that is pre-tax.

Assuming 50% marginal tax rate, that $13277 of bank interest becomes $6613.5 after-tax.

To break even, one needs to earn at least 10% pre-tax(again assuming 50% marginal tax rate).

One can argue that the market can easily make 10% pre-tax, but that is not risk-free.

One can also argue that there are tax-free CA muni's, but those are paying 2.5%-ish, and also is not risk-free.

[JABCAT]

Originally Posted by Cammy340i

Honestly...I don't get the why pay "cash" for a "depreciating asset". First, at least its an asset. Second, we all pay cash for lots of things that have no asset value...how about travel....how about expensive restaurants...how about entertainment...sporting events....all that cost plenty of cash (never finance a vacation)...and yet even though once experienced...and the cash spent...no asset value at all. In truth except for housing and financial investments (given the right time horizion)...most of our cash does not go into appreciating assets. we spend it living and experiencing life.

I agree. I don't like paying more for something (interest) than it actually costs, regardless of the low interest rate. The justification people make is "I'm making more on my money than I'm paying in interest". Ok, but you're still paying more for something than it actually costs. To me paying interest on a depreciating asset is worse than paying cash for it. But I work to not carry any debt, except for my home which has several hundred thousand in equity currently and we're working to pay that off early.

[zazzau]

Originally Posted by JABCAT

I agree. I don't like paying more for something (interest) than it actually costs, regardless of the low interest rate. The justification people make is "I'm making more on my money than I'm paying in interest". Ok, but you're still paying more for something than it actually costs. To me paying interest on a depreciating asset is worse than paying cash for it. But I work to not carry any debt, except for my home which has several hundred thousand in equity currently and we're working to pay that off early.

Different strokes for different folks.

[Cammy440iGC]

I also like to pay cash and have full title to my cars because then I can do whatever I want with the car...including giving it to my son or father.

[chris_1001]

Originally Posted by bavarianride

U can try this in car loan calculator too:

$100k financed @5% for 60 months with $0 down (assuming sales tax and fees all lumped into that $100k).

The total interest is $13277, paid with after tax money.

The preserved $100k can be put in a 5% APR savings account for 60 months too, but each month the principal amount based on monthly schedule needs to be extracted from that chunk.

The spreadsheet with show that the interest earned is the same amount of $13277, but that is pre-tax.

Assuming 50% marginal tax rate, that $13277 of bank interest becomes $6613.5 after-tax.

To break even, one needs to earn at least 10% pre-tax(again assuming 50% marginal tax rate).

One can argue that the market can easily make 10% pre-tax, but that is not risk-free.

One can also argue that there are tax-free CA muni's, but those are paying 2.5%-ish, and also is not risk-free.

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?

[Mark Venture]

Yup agree, though I wouldn't use a savings account, those return almost nothing. I would instead look at an ETF or mutual fund (or a mix)...but the market is not in a normal place right now compared to what it was for many years and it's less predictable/steady. And bavarianride brought up a great point I have to admit I had not considered much when I've done similar pay off vs. finance comparisons in the past - namely the pre-tax nature of the returns on investment. Instead I was focused on comparing interest rate to return rate without thinking much about the watering down effect of taxes on gains.

[randomserious]

sidenote, 50% capital gains tax is not realistic given that after 1yr it will be longterm gains and for most people 15%. marginal income tax rate is probably closer to 45% for the first year.

[bavarianride]

Originally Posted by bray

sidenote, 50% capital gains tax is not realistic given that after 1yr it will be longterm gains and for most people 15%. marginal income tax rate is probably closer to 45% for the first year.

Some around here has top marginal tax rate of 37% federal + 12.3% CA + 0.9% Medicare, or 50.2%. For a specific group, CA can go to 13.3% too.

LTGC may help, but a lot can also happen in a year.

[gavinwong]

Paid for mine with cash. After being in a company lease with a new car every 3 years since 2005, I came out of it in 21 and took the monthly car allowance instead.
Re the conversation on investements , I bought mine by selling my profit made on Tesla stock haha. Used the winnings to buy a proper car 😉got to take some off the table sometimes and enjoy it!

[ArchJR]

Originally Posted by bavarianride

5% finance rate is 7.5% pre-tax assuming 50% of marginal state + federal tax rates, and 5% CDs are pre-tax too.

It makes no sense to pay extra 2-3% pretax to finance the car if there is enough liquidity to pay in full upfront.

Lease is even worse than finance given the current landscape.

Good insight. There are other factors of course, like business use in my case and the ease of tracking a lease vs. depreciation. The biggest factor for me is the potential unpredictable depreciation from even a minor accident showing on Carfax, something I have encountered on multiple leased cars and walked away from. (Thanks, Whole Foods parking garage.)

I think the 2% - 3% potential savings over several years on a <$100k purchase is academic for most considering all factors, though I respect the obsession for accounting types. My accountant actually told me to lease even though the pricing is up $200/month for the same car three years ago. I have a hard time stomaching that advice.

[TheKandyman]

Originally Posted by bavarianride

Some around here has top marginal tax rate of 37% federal + 12.3% CA + 0.9% Medicare, or 50.2%. For a specific group, CA can go to 13.3% too.

LTGC may help, but a lot can also happen in a year.

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 .