Quote:
Originally Posted by tommy
This is such a silly argument, the only right answer is to do whatever will help you sleep at night. People have different risk tolerance.
The most common argument against cash buyers is they can invest the money instead and make more than the interest. The keyword I don't see mentioned often is you can 'potentially' beat the interest. That is to say, you can lose money on your investment and also have to pay interest on your loan. I'm not arguing the likelihood of either outcome, you can of course employ various strategies like selling cover calls, but generally to make 5% you must be willing to lose 5%.
Paying cash is just a way of mitigating risk, you lose and gain 0%.
Financing could net you +2% (5% gain, 3% interest)
It could also net you -8% (5% loss, 3% interest)
It's also worth mentioning that neither option is going to make you rich or poor anyway, 2% of 30k is only $600 annually.
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This is all true, but one of the biggest reasons to finance, provided your credit score is high enough and your APR is low enough, is that debts are worth less over time because of inflation.
To me, beating the market is a fool's errand because it's prone to huge swings and not something you can really predict. All it takes is a bad day and you're screwed, whereas inflation is relatively stable in comparison. If you get a 2-3% APR, you're effectively getting an interest-free loan in real-world purchasing power. If you're beating it, then the car is effectively costing you
less than your purchase price.