I need to lose my car payment.

[Dave-ROR]

Originally Posted by Tcoat

How the hell does anybody get $100K worth of credit on cards anyway?
Again no financial expert but don't think you could even manage that here with the limits and monitoring the card campiness have.

My combined limits are higher than that. I have some cards for travel and work (no work CC program until this year) and rotate the cash back cards for daily usage and whenever I stop using one for a few months the they up the limit as if that will make me want to use it again... so I have 3 cards that are all 25-30k and then a number of other 10-15k cards. It's dumb. I've bought over 50K of shit on my amex for work with no issues on approval.. so retarded what these CC companies will allow.


Now I'd imagine they monitor it and maybe reduce limits if you start looking crazy? I don't know man I've never been anywhere near that level lol


edit: shit just added it up, a tad under $140,000 of CC limits.. who needs that?

[PhantomX]

Originally Posted by Tcoat

How the hell does anybody get $100K worth of credit on cards anyway?
Again no financial expert but don't think you could even manage that here with the limits and monitoring the card campiness have.

I'm guessing over 9,000 credit score.

[extrashaky]

Originally Posted by strat61caster

I hear this all the fucking time and even repeated it once or twice: but where the FUCK can you get a >3% return on a <5 year investment guaranteed?

Seriously, people need to back that shit up or I'll place you in my Dr. Oz and Dr. Phil category of advice givers.

Okay, I'll bite. Forget stocks. How about a back of the envelope calculation of the return on the capital investment in the car itself?

Last year I paid about $300 in interest, $2700 in gas and $2K in insurance. I really had no other maintenance costs, but let's go ahead and add another $250 for the rubber burned off the tires. To be fair, straight line depreciation over the life of my loan would be about another $7,500. That totals up to $12,750 that it cost me to operate the car last year.

But I received about $13,500 in tax free mileage reimbursement, giving me a difference of +$750. My capital investment in the car to date is about $10,800. Just calculating a simple return without taking into account compounding, I'm at 6.9%. My loan is 1.49%. I'm making money.

What I am not factoring in here is the car's contribution to my regular income. Without reliable transportation, I would not be able to keep my job. So the car really deserves credit for a big chunk of my paycheck, which increases its real return even if I can't calculate it.

So what have I been doing with the money that I didn't use to pay off my car? Some of it went into my 401K, which my company matches. That right there is free money I wouldn't have gotten otherwise. At the moment I'm actually not sure what my returns on my investments have been this year, but with the company match and my ridiculously smart buy of Alibaba at $85.20, I'm pretty sure it's higher than the 1.49% cost of the car note.

In fact, most of my cash is tied up in retirement accounts. I could pull cash out of them to pay for the car. But then I would have to pay income tax on it. That money is much better off in my account than in the US Treasury's account. Nobody ever remembers to consider tax avoidance as part of the investment.

I rent right now. Some of my income that could have paid off the BRZ is going into saving to buy property. Not only will doing that convert some of my rent expense to equity, but I also get the tax benefit of deductible interest.

And after all that, I actually still have some money left over for fun that I am not using to pay off the BRZ. Where is it going? Into my Jeep build. "What a waste of money!" you say. But aside from needing to mind your own business, it's actually not a waste of money, because I'm positioning the Jeep as a back up vehicle to the BRZ for when it starts showing its age, as well as an emergency vehicle for conditions in which the BRZ isn't ideal.

So yeah, I'm actually making money from my BRZ, and my other money that isn't going into the BRZ is either making me money or being invested to help avoid future costs.

Do I carry some risk? Sure I do. But I completely understand the risk I do carry and can accept it. It all fits within my risk appetite. Being responsible with money doesn't mean you never take any risks. It means understanding the risks you take, being willing to do what's necessary if it doesn't work out and not whining about it or begging the government for help.

It also means being able to tell people to go suck an egg when they tell me I "can't afford" this car just because my financial strategy included financing. Those people have not the first clue what they're talking about.

[strat61caster]

Originally Posted by extrashaky

So what have I been doing with the money that I didn't use to pay off my car? Some of it went into my 401K, which my company matches. That right there is free money I wouldn't have gotten otherwise. At the moment I'm actually not sure what my returns on my investments have been this year, but with the company match and my ridiculously smart buy of Alibaba at $85.20, I'm pretty sure it's higher than the 1.49% cost of the car note.

In fact, most of my cash is tied up in retirement accounts. I could pull cash out of them to pay for the car. But then I would have to pay income tax on it. That money is much better off in my account than in the US Treasury's account. Nobody ever remembers to consider tax avoidance as part of the investment.

I rent right now. Some of my income that could have paid off the BRZ is going into saving to buy property. Not only will doing that convert some of my rent expense to equity, but I also get the tax benefit of deductible interest.

And after all that, I actually still have some money left over for fun that I am not using to pay off the BRZ. Where is it going? Into my Jeep build. "What a waste of money!" you say. But aside from needing to mind your own business, it's actually not a waste of money, because I'm positioning the Jeep as a back up vehicle to the BRZ for when it starts showing its age, as well as an emergency vehicle for conditions in which the BRZ isn't ideal.

You're describing perfectly my last paragraph (post 66), I personally agree with your approach (it's similar to my own). I never said car loans were bad, I'm saying if you have the cash on hand to buy the car it's more advantageous to pay off the car, it's a mythical comparison in a vacuum that always gets tossed around. You are living within your means to continue growing your wealth.

If you had $25k in your pocket, if you had saved that much in a secondary account, inheritance, drug running, whatever, you're saying you'd just make minimum payments and immediately dump the rest of the money into your 401k/alibaba stock/0.03% savings account but with no illusions on greater returns in ~5 years but rather returns in 30+ years when you retire, and that's why financial advice is so contentious, it's extremely variable to each unique circumstance, an individual's outlook and what they are comfortable with.

Whether or not you paid cash you'd still continue to make the investments you listed above, your anecdote has little relevance to the hypothetical we are discussing.

Come at me: Pay off the damn car, there is no better investment for the next ~five years than minimizing your non appreciating debt.
*cue not all debt is bad argument


Edit: I'm not going to touch the 'car is making me money!' math because that would also be true if you bought the car outright and you'd be $300 ahead! It also doesn't apply to most people as normal commuting is not deductible.

[extrashaky]

Originally Posted by strat61caster

Edit: I'm not going to touch the 'car is making me money!' math because that would also be true if you bought the car outright and you'd be $300 ahead! It also doesn't apply to most people as normal commuting is not deductible.

LOL. You asked for someone to put up or shut up regarding ROI, so I did. "But! But! But!" No.

And I would not be $300 ahead. I would be roughly $19K behind, money that someone else would be using instead of me.

Originally Posted by strat61caster

If you had $25k in your pocket, if you had saved that much in a secondary account, inheritance, drug running, whatever, you're saying you'd just make minimum payments and immediately dump the rest of the money into your 401k/alibaba stock/0.03% savings account but with no illusions on greater returns in ~5 years but rather returns in 30+ years when you retire, and that's why financial advice is so contentious, it's extremely variable to each unique circumstance, an individual's outlook and what they are comfortable with.

If I had $25K in my pocket and still had a 1.49% car loan, I would still use it for something else. The total interest expense over the course of my loan is about $800. That's really not a whole lot of money. I have already made $750 cash on the car in the first year. If I can afford to pay off the loan, I can also afford not to pay off the loan and get more utility out of the same money. Why would I want to tie up an additional $19K of my cash in a depreciating capital investment if I can use someone else's money very cheaply? I get the car AND the use of the money. And right now, since I'm slightly upside down on the car and have GAP insurance, I'm even shifting the depreciation risk to my credit union.

If car loans were at 6%, this wouldn't make a whole lot of sense. But with loans this cheap, it's hard for me to imagine a situation where paying cash would have been a better move.

[Dadhawk]

Originally Posted by extrashaky

If I can afford to pay off the loan, I can also afford not to pay off the loan and get more utility out of the same money. Why would I want to tie up an additional $19K of my cash in a depreciating capital investment if I can use someone else's money very cheaply? I get the car AND the use of the money. And right now, since I'm slightly upside down on the car and have GAP insurance, I'm even shifting the depreciation risk to my credit union.

I promise I won't get sucked into this every time, and every time I do....


I agree with your first premise that if you have the money to pay off the car but choose to borrow the money instead, it is an OK decision. I've done that myself on a couple of occasions, but I have no (for me) delusion I'm making money by doing so. I was pretty much up with you until the "someone else's money" and gap insurance.


I have never understood the "someone else's" money thing. Yes, I understand the argument but just don't see it that way. What you are doing (to me) is using your money just in a different way, and sending someone else more money just to avoid spending what you already have spent (committed). In terms of net worth, you have already spent the money so it's not "yours". You have a $25,000 asset and a $25,000 expense, so that adds up to zero. in your case, it sounds slightly negative.


Yes, you are earning a little interest/growth off of the banked money, and the differential may be positive, but it could also be just as negative very quickly, although as you say with lower interest rates, maybe not as likely.


I chose instead to use money that has grown in advance of purchase of the car (through dollar cost averaging and growth) and using the car payment to invest, instead sending it to the bank.


You are also paying for gap insurance in your example, so you have to figure that into your net "earnings" as well. Also, (maybe not for you since you have the money in reserve) if a person in your situation loses their job tomorrow, gap insurance is of no value to helping when you have to dump the car.


I own 5 cars, all of which I could sell tomorrow for cash. If I had them upside down, I could not do that. If I lose my job, it would be my choice if I sold the cars, not the bank deciding I can no longer make the payment so they are coming to get it.


Same with my paid-for house (no I didn't pay cash but I did pay off my 15 year mortgage in 7 years, partially because I didn't have car payments). If I lose my job tomorrow, I have a place to live, a car (or cars) to drive, and if necessary assets I can liquidate for cash.


As I've said before in these forums, for those of us where we have planned well enough to buy the car for cash or by loan as an option rather than a choice, this is just a philosophical argument about risk. You are willing to take it, I'm not (sort of "Rich Dad, Poor Dad" vs "Dave Ramsey".)


Seems like we philosophers do agree on one thing though, if you don't have significant enough assets to cover the risk you shouldn't be buying the car (or boat, or motorcycle, or expensive dinner, or call girl). A guy with $100 (or $1000, or maybe even $10,000) to his name should not be buying a $25,000 car regardless of the interest rate, or immediate salary.


OK, I'm done now, and feel better.....

[GreenMonster]

Originally Posted by Dadhawk

If you don't have a car payment, that is exactly what you can do. You save the money instead of sending it to the auto loan. Then you also have the cash available for other purposes if necessary.

I haven't had a car payment since 2003, so I've been paying myself, instead of a bank every month. Sure, I'm driving a 12 y/o car, but I don't have to worry about available cash if it's needed quickly. If I lose my job, or want to put down a big down payment, I'm good.

[Tcoat]

What I have got out of all of this is that there really is no one "best" way.
Even the guys that like to focus on their favorite methods seem too make a lot of "well yes under those circumstances" or "true if you are doing it that way" comments when they get more detail.
I think if you have an overall well thought out plan (be it pay cash, finance, or trade beads) and stick too it then you should be in great shape.

[Alltezza]

Originally Posted by Linseal

I need to lose my car payment. How hard would it be to trade in my 2013 FR-S with 44k miles, and drive off the lot with something reliable, maybe a first gen xB? I currently owe $10,989 for the FR-S. Is this something that is possible, or am I looking at still having some kind car payment no matter what?

Damn I wish I had 10K left right now lol

[GreenMonster]

Originally Posted by Tcoat

Why should I use "my" money to buy a car? If I can finance at a rate under what I can get by investing the cash then I come out ahead (not much but still ahead).

Yeah, I'm ok with a loan at a low rate (those advertised for "well qualified buyers" for example), especially If it lets me have my money working in other places, or in a rainy day fund.

[strat61caster]

Originally Posted by extrashaky

LOL. You asked for someone to put up or shut up regarding ROI, so I did. "But! But! But!" No.

And I would not be $300 ahead. I would be roughly $19K behind, money that someone else would be using instead of me.

If I had $25K in my pocket and still had a 1.49% car loan, I would still use it for something else. The total interest expense over the course of my loan is about $800. That's really not a whole lot of money. I have already made $750 cash on the car in the first year. If I can afford to pay off the loan, I can also afford not to pay off the loan and get more utility out of the same money. Why would I want to tie up an additional $19K of my cash in a depreciating capital investment if I can use someone else's money very cheaply? I get the car AND the use of the money. And right now, since I'm slightly upside down on the car and have GAP insurance, I'm even shifting the depreciation risk to my credit union.

If car loans were at 6%, this wouldn't make a whole lot of sense. But with loans this cheap, it's hard for me to imagine a situation where paying cash would have been a better move.

Your example does not apply to the average consumer, I cannot utilize the tax deduction you are using, this advice is useless to me, I am glad I paid my car off ASAP.

Sure you can claim "oh I'd be $19k in the hole if I paid cash!" but next year you'd be +$10k right? Still not adding up imo.

More 'utility' is relative, I'd rather have more money in my hand at the end of the month vs. putting it in a car payment.

Good luck on your upside down asset, good thing it's making you all this money, imagine how much money you'd be 'making' if you were driving a $500 Civic.

[extrashaky]

Originally Posted by strat61caster

Sure you can claim "oh I'd be $19k in the hole if I paid cash!" but next year you'd be +$10k right?

No, it counts backwards:

If I paid cash in full, I would have originally been out around $30K. As it was, I was out $5K for my down payment. So the difference is -$25K. That's $25K that I have the use of that I would not have the use of had I paid cash up front.

If I paid cash in full, after a year I would still have been out $30K, as opposed to about $11K after a year of payments. So the difference is -$19K. That's $19K I wouldn't have the use of.

The difference gets smaller each year. I would never be up by $10K by paying cash. After four years I would be up by about $800, the amount of interest I'm paying over the life of the loan.

Originally Posted by strat61caster

More 'utility' is relative, I'd rather have more money in my hand at the end of the month vs. putting it in a car payment.

You don't have more money at the end of the month, because you already spent the full price of the car. You have less money.

You have $30K. You spend it. Then you have zero. You make $2,000 in the next month. Now you have $2,000.

I have $30K. I finance and have a $600 car payment. I make $2K in the next month. Now I have $31,400.

Observe:

$31,400 > $2,000

Originally Posted by strat61caster

Good luck on your upside down asset, good thing it's making you all this money, imagine how much money you'd be 'making' if you were driving a $500 Civic.

If I were driving a $500 Civic, I would be making nothing, because a $500 Civic would not be reliable enough to keep my job.

And it doesn't matter that my asset is upside down at the moment, because I'm not counting on, nor was I expecting, a capital gain. At most I'm about $2K underwater right now. I don't expect that to last. Since I'm using smart leverage of debt in my overall financial strategy, I have more than enough resources at my disposal to easily bridge that gap if it became necessary to sell the car.

[srt4evah]

Originally Posted by reni

LOL

What's so funny? AAPL made me $50k in the last 12 months.

Originally Posted by Dave-ROR

You need to send me your list of investments. I certainly have made a fair bit more on the money I could have spent on the BRZ in cash on my investments but 30-40%... lol no... even compounded/reinvested/etc over that 5 years...

AAPL
TSLA
FB

All 3 stocks rose 30-40% in the last 12 months... not that hard to pick hot stocks, the trick is just knowing when to sell.

[srt4evah]

And fwiw, TSLA is up 526% over 2 years, and FB 126%. I wish I'd jumped on those 24 months ago...