how to get an FR-S - have 3 cars, 2 need to go

[Dadhawk]

Originally Posted by Koa

Time value of money comes into play here- instead of the huge cash outlay right up front, if one got to negotiate lower interest rates on the loan and spread the cash out through a 72 month window, and then invested the remainder into medium to low risk markets (earning 1-3% typically), then they could actually make money on the outlay, instead of incurring a huge loss right up front with no opportunity to make any dough.

There's always a risk of soured investments and changing socio-economic conditions (losing one's job, for example)... but we pay to play, don't we?

Sorry, this is all just financial Jedi mind tricks to me, trying to convince yourself that you haven't spent the money in your account when you have. And 0% is never 0%, the interest is paid somewhere in the purchasing process.

It also doesn't take into account risk (although you allude to it in your last statement.) If I lose my job tomorrow, I still have any one of five cars to drive (all bought over several years), and a place to live. If I need to start dumping the cars for cash, I can, etc, etc.

This is almost a "religious" argument so I won't delve into it any deeper. Bottom line though is I have a lot less risk, and a lot more options, at any given time with no car payments and a paid-for house.

I realize I'm not going to convince any of those of you that believe loans are good differently, and you won't convince me otherwise. Either way, its all good.

[Koa]

Originally Posted by Dadhawk

Sorry, this is all just financial Jedi mind tricks to me, trying to convince yourself that you haven't spent the money in your account when you have. And 0% is never 0%, the interest is paid somewhere in the purchasing process.

It also doesn't take into account risk (although you allude to it in your last statement.) If I lose my job tomorrow, I still have any one of five cars to drive (all bought over several years), and a place to live. If I need to start dumping the cars for cash, I can, etc, etc.

This is almost a "religious" argument so I won't delve into it any deeper. Bottom line though is I have a lot less risk, and a lot more options, at any given time with no car payments and a paid-for house.

I realize I'm not going to convince any of those of you that believe loans are good differently, and you won't convince me otherwise. Either way, its all good.

I didn't say financing the car was trying to convince one that they have money in the bank. Somehow, some way, we must give up something (money) to acquire something else (car). There is also risk in buying the car outright. That risk is foregoing any opportunities to invest money into other ventures, or pay for a catastrophic event in which you may have needed the funds that you otherwise sunk into the vehicle.

I did layout how financing versus purchasing outright has fiscal benefits that buying outright does not.

Ownership is subjective. With buying outright, you indeed hold the title. Financing, the loan institution indeed holds the title. Yet as we die, our possessions return to the pool. Do we really own the atoms we hold and lay claim to? (you wanted religious? )

Therefore, there is economic sense in financing, as well as owning outright. From the fiscal point of view, it does not make sense for many to buy outright when they can (1) take advantage of time value of money, (2) utilize their relationships with their dealership to get a better rate, and (3) investing the money they otherwise would have threw down to "own" the vehicle they drive to offset some of the costs from their return on investment.

[samisons]

Usaa will usually let you go like to like 30% above market value for a car if you have it. As well as some pretty decent incentives on the new car price. So some negative equity will be negated, although you're loosing a ton of money trying to get a new car. Not worth imho.

[Dadhawk]

Originally Posted by Koa

I didn't say financing the car was trying to convince one that they have money in the bank. ...

You are correct, my words not yours, and my intention was not to put words in your mouth.

My point was if I have a commitment to pay someone $10,000 for something, and have $10,000 in the bank, my net worth is zero, I do not have $10,000, I just haven't admitted it yet..

Again, I understand what you are saying, and even understand the math, I just happen to disagree and I know I cannot convince you otherwise. In the end, I'm right for me, and you are right for you.

[Koa]

Originally Posted by Dadhawk

You are correct, my words not yours, and my intention was not to put words in your mouth.

My point was if I have a commitment to pay someone $10,000 for something, and have $10,000 in the bank, my net worth is zero, I do not have $10,000, I just haven't admitted it yet..

Again, I understand what you are saying, and even understand the math, I just happen to disagree and I know I cannot convince you otherwise. In the end, I'm right for me, and you are right for you.

It's not about being right or not right. It's about acknowledging the pros and cons of each path.

Lets look at your example.

You are correct that while you have a loan obligation, you are also free to invest the $10,000 in your bank to recoup interest, and perhaps even make cash given your investment ROI is above the APR on your loan. You also take advantage of the Time Value of Money process, that states a dollar is worth more today than it is tomorrow. By giving the dealer less money now, and money later, the dollars you give later are worth less.

It's as simple as that.


Whether or not you disagree is fine, but it doesn't negate the fact that financing opens up opportunities that buying outright does not and vice versa.

The two greatest advantages of buying outright are:
1) Having the title in your hand
2) Recognizing the entire outlay as an expense (for tax purposes, if you're a business, one could deduct this expense as an operating cost and recognize a tax shield)

The two greatest advantages of financing a vehicle are:
1) free up your cash to either a) invest money outside of the down payment and monthly loan coupon payments or b) pay for other things (less of an advantage)
2) taking advantage of the TMV concept

Again, not about right or wrong

[Defuser]

Originally Posted by Koa

Ownership is subjective. With buying outright, you indeed hold the title. Financing, the loan institution indeed holds the title. Yet as we die, our possessions return to the pool. Do we really own the atoms we hold and lay claim to? (you wanted religious? )
.

I have had discussions based on this general premis with friends and family. We don't really "own" anything. A visit to the Palatine Hill in Rome is an example. I am sure it had proud "owners" in its day.

These existential debates usually devolve into topics like the size of the universe, and what exactly is it expanding into? Then, ultimately, entropy and the overall agreement that life is an amazing and unlikely situation to be enjoyed.

Cheers!

[Koa]

Now, this is pretty conceptual stuff. In reality people abuse the opportunities financing and credit give them and use the advantages as a crutch to live outside their lifestyle's limits. I fully agree that financing is a tool often neglected or underutilized, to whom I bet you agree with as well @Dadhawk.

But I can't help but put forth the advantages to financing. If utilized properly, the path opens up a world of new opportunities to both individuals and businesses alike.

Meanwhile, the business world in general is slowly awakening to the problem of having TOO MUCH cash in the bank and paying for things outright when it makes more economic sense to lease or finance (refer: Apple's recent balance sheets and their shareholders' criticisms of it). Leverage and metrics around assets to debt, liquidity ratios, etc. are fast assuming space in companies' key indicators reports and monitoring lists.

I'm a finance scientist and accounting manager by profession so this stuff is really interesting to me. Just trying to pass it on.

[Razz]

What about diapers and formula?


How about the other expenses in 4 years?


Maybe even 6 years if you finance it that long.


FRS needs another 15k to make it a real nice car and your not even taken care of the family.

[Tcoat]

Originally Posted by Koa

In reality people abuse the opportunities financing and credit give them and use the advantages as a crutch to live outside their lifestyle's limits.

Me, this ^^^^^^^

[extrashaky]

Financial problems are the #1 contributing factor for divorce. And absence does NOT make the heart grow fonder.

So do you really want to go off on deployment while leaving your wife to deal with your financial mess?

[Dadhawk]

Originally Posted by Koa

It's not about being right or not right. It's about acknowledging the pros and cons of each path.

Agreed.

Originally Posted by Koa

Lets look at your example.

You are correct that while you have a loan obligation, you are also free to invest the $10,000 in your bank to recoup interest, and perhaps even make cash given your investment ROI is above the APR on your loan. You also take advantage of the Time Value of Money process, that states a dollar is worth more today than it is tomorrow. By giving the dealer less money now, and money later, the dollars you give later are worth less.

It's as simple as that.

Sort of that simple. What I'm doing is using money I have previously invested and grown by not using it for car payments to make a purchase today, and continuing to invest what would be going towards a car payment. So, in a sense, I'm using 5 year old money to buy a car today, instead of using today's money to own a car in 5 years.

So, to me at least, we are doing the same thing, just in a different order.

I lose the potential continued growth of money I have spent, but gain the advantage of growth on money over the next 4 to 5 years that I may or may not use on a car.

You have the advantage of keeping your money in the bank, but losing the growth that would occur on the money you spend on the car payment.

Originally Posted by Koa

Again, not about right or wrong

I agree as well, as I said, just my preference, and the real advantage (to me) is I never end up in the situation the OP is in. If I want a new car, I decide to sell the old one, or not, and do I have the balance of money required (or not). Very simple decision. I like simple.

Last word, which plays into it a bit for me, is I keep cars long term, typically well over 200,000 miles. I would never buy a car now, and trade it in before the typical pay-off period. If I never kept a car long enough to "own it" through payments, then I might consider a different path.

[totopo]

Originally Posted by Koa

Now, this is pretty conceptual stuff. In reality people abuse the opportunities financing and credit give them and use the advantages as a crutch to live outside their lifestyle's limits. I fully agree that financing is a tool often neglected or underutilized, to whom I bet you agree with as well @Dadhawk.

But I can't help but put forth the advantages to financing. If utilized properly, the path opens up a world of new opportunities to both individuals and businesses alike.

Meanwhile, the business world in general is slowly awakening to the problem of having TOO MUCH cash in the bank and paying for things outright when it makes more economic sense to lease or finance (refer: Apple's recent balance sheets and their shareholders' criticisms of it). Leverage and metrics around assets to debt, liquidity ratios, etc. are fast assuming space in companies' key indicators reports and monitoring lists.

I'm a finance scientist and accounting manager by profession so this stuff is really interesting to me. Just trying to pass it on.

I think it's pretty silly to apply concepts for banks and corporations on individuals.

One of the biggest differences is I think is that the term cash flow is a poor one to use as individuals. For a bank or corporation, in lean or recession times, usually the income in whatever sense slows down gradually, and you can shift your strategy or whatever you want to do and try to survive. For individuals, you usually have a fairly stable month to month cash flow (income), with slight raises every so often until OMGWTF you get fired or laid off and overnight you have 0 cash flow. It's not like most people have 4 jobs and can live on the other 3 until they replace the 4th or something.

Another problem with cash flow is usually banks and corporations spend cash on stuff to help them make more money, which usually is worth something in and of itself and can be sold for at least something at a future date. Individuals rarely spend cash to buy stuff to help them make more money. You spend extra money, not invest it, which is a huge difference. Cars being a great example. When you go on vacation, you can't sell your memories at a later date if you end up needing some more cash. That money is gone.

A big problem is economic risk and over-leveraging. At the end of the day, if you are over-leveraged as a company and worst comes to worse, you can declare bankruptcy, fold up, lay off a ton of people, worse case scenario, shut down and everyone is out of a job. For a human, worse case scenario is you are broke and homeless. You can't go oh well, throw in the towel, and start over with a new life.


PS. I always chuckle when people talk about "negative equity" in a car. The debt and the car are completely separate issues, unless you are considering defaulting.

PSS it always feels like to me, the people who espouse the financial model to individuals are young people who have just graduated out of college and haven't yet lived through their first economic crash. Older people I feel like who have seen their jobs and savings come and go with the economy I feel like view things as stuff they have, and money they owe.

[Koa]

Originally Posted by totopo

I think it's pretty silly to apply concepts for banks and corporations on individuals.

One of the biggest differences is I think is that the term cash flow is a poor one to use as individuals. For a bank or corporation, in lean or recession times, usually the income in whatever sense slows down gradually, and you can shift your strategy or whatever you want to do and try to survive. For individuals, you usually have a fairly stable month to month cash flow (income), with slight raises every so often until OMGWTF you get fired or laid off and overnight you have 0 cash flow. It's not like most people have 4 jobs and can live on the other 3 until they replace the 4th or something.

Another problem with cash flow is usually banks and corporations spend cash on stuff to help them make more money, which usually is worth something in and of itself and can be sold for at least something at a future date. Individuals rarely spend cash to buy stuff to help them make more money. You spend extra money, not invest it, which is a huge difference. Cars being a great example. When you go on vacation, you can't sell your memories at a later date if you end up needing some more cash. That money is gone.

A big problem is economic risk and over-leveraging. At the end of the day, if you are over-leveraged as a company and worst comes to worse, you can declare bankruptcy, fold up, lay off a ton of people, worse case scenario, shut down and everyone is out of a job. For a human, worse case scenario is you are broke and homeless. You can't go oh well, throw in the towel, and start over with a new life.


PS. I always chuckle when people talk about "negative equity" in a car. The debt and the car are completely separate issues, unless you are considering defaulting.

PSS it always feels like to me, the people who espouse the financial model to individuals are young people who have just graduated out of college and haven't yet lived through their first economic crash. Older people I feel like who have seen their jobs and savings come and go with the economy I feel like view things as stuff they have, and money they owe.

lot of assumptions there..

There's a bit of debate about the first couple, but one thing I can't stand is a passive aggressive dig (refer: your last assumption about, in essence, me and people you think are like me)

I graduated college years ago and now am an accounting manager at one of the largest B2B operations supplies & equipment distributors in the West Coast. I've lived through our most recent depression (some, namely the government, try to label it a recession), as well as the great American fiscal scandals of the early 21st century and resulting sarbanes oxley years thereafter. Yes, I'm young, but I am enjoying the perspective given by managing operations and accounts with billion-dollar annual flows..

I was just offering another perspective as to why financing a vehicle makes economic sense, on the individual level, given certain circumstances.

P.S. About the "Individuals rarely invest their cash" bit.. you'd be surprised at how much and to what magnitude people now put towards either a defined benefit plan (401k etc) or on the markets (stock, commodities, futures).

[dreamingat30fps]

Originally Posted by Koa

lot of assumptions there..

There's a bit of debate about the first couple, but one thing I can't stand is a passive aggressive dig (refer: your last assumption about, in essence, me and people you think are like me)

I graduated college years ago and now am an accounting manager at one of the largest B2B operations supplies & equipment distributors in the West Coast. I've lived through our most recent depression (some, namely the government, try to label it a recession), as well as the great American fiscal scandals of the early 21st century and resulting sarbanes oxley years thereafter. Yes, I'm young, but I am enjoying the perspective given by managing operations and accounts with billion-dollar annual flows..

I was just offering another perspective as to why financing a vehicle makes economic sense, on the individual level, given certain circumstances.

P.S. About the "Individuals rarely invest their cash" bit.. you'd be surprised at how much and to what magnitude people now put towards either a defined benefit plan (401k etc) or on the markets (stock, commodities, futures).

I'm in the cash team, but mainly because I don't like things I can't walk away from in 5 second flat!

But seriously, by making myself only buy cars if I can pay cash, I have stopped myself from doing some dumb shit. I did not always follow this rule and I paid for it. I think I would be much better off today had I followed this rule much earlier in life.

Does that mean paying cash is always better mathematically? No. I work in the finance field (marketing) and I know some guys who get a chubby if you give them a calculator and ask them to start calculating loan terms. These guys would never buy a car cash.

I think the benefits of paying cash are more behavioral and can lead the "average" person to behave in ways that will benefit them financially long term.