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it is interesting that this irrational fear of being upside down is greater than the understanding that cash on hand is better than cash in an asset. i wish i had the ability to explain why it makes no sense to give away your cash now to avoid being upside down in a nice clear manner.
the real issue is the cost of the money (interest) vs not paying the interest. the idea of giving more cash to avoid being upside is really nonsense.
I understand what you're saying. But you're saying it in a vacuum that ignores human behavior.
I understand what you're saying. But you're saying it in a vacuum that ignores human behavior.
ok, at least we can agree that i am right in vacuum. i do understand human behavior changes things but when i talk finance its hard for me to not say the right thing to do.
Curious to hear about your experiences financing – did you take a car loan? How was that process?
If you're not paying cash, the best way to finance is to BYOF. If you don't fall under the manufacturer's "well qualified buyers" for their 0% for 60/72/84 months promotions, the very next step outside of that tier goes immediately to screwing the borrower.
I'd recommend becoming a member of a credit union. They usually require middle 600's scores to get their best (advertised) rates, which are often around 3%. Credit unions also often have financing for extended age autos, for model years traditional banks won't touch (10/11 years old). Rates might be higher, around 5-6%, but still better than what you'd get for a borderline-too-old vehicle from, say, Wells Fargo, with similar scores. Apples to apples, retail banks would offer anywhere between 9% and 15% interest on the above inputs.
that isnt necessarily true. some people pay more for products and some people pay less for products. just because you get one discount doesnt mean that it is automatically added in elsewhere.
Only 1%? That is a heck of a high rate currently on passbook savings. My credit union is currently 0.05% on savings. 1% is the highest they are currently paying on any deposit account, and that is a 7-year CD.
One thing you need to consider, though, is that if your investment is paying a $2250 annual dividend, that is also subject to Federal Income Tax, in most cases. Maybe even State, also (depending on your State).
Let's say your top marginal tax rate is 24%. So your tax on that $2250 annual dividend is $540. X 5 years that amounts to $2700 income tax. Interest on consumer loans isn't deductible, so taking out the loan effectively cost you an additional $2700 total in taxes, in this example. YMMV depending on your particular income & tax liability situation. Still come out ahead on the financing, just may not work out quite as well, if you look at the big picture.
I find there are usually four assumptions that are made that often may not be true when calculating the total savings when financing vs. cash:
1. Buyer will finance 100% of the sales price.
2. The amount of additional monthly income a cash buyer would not have committed by not financing is
not accounted for, i.e., assumes it will just be spent on other things, and not invested.
3. No factoring of income tax impacts of the annual investment earnings.
4. Money not spent on the purchase by financing instead, will not be earning below-average returns during
the loan term.
Ah, but long term dividends become qualified and get taxed 0-20% depending on tax bracket. Even so, 20% tax on $2250 is just $337. Still ahead. Or you can sink that savings into your HSA or IRA or whatever tax shelter you choose.
That's like saying "don't make any money so you can have lower taxes".
You're correct on 2. and 4. This is also what typically happens when people make their last car payment or pay cash for a car. They just let their lifestyle grow into their new "income" that's freed up by not having a car loan. Then they forget their car won't last forever, then go into shock when they realize they need a new car but didn't rebuild their savings nor prepared for having a payment.
And which are these stocks that pay 7.5% dividends?
Names, please.
Yep, thought so.
I'm not sure why people laugh at 7% returns like it's something impossible to attain. Maybe in your workplace plan, in which case I'd be there for the match and nothing further. But start a brokerage account or do this with your IRA's...
Don't go chasing dividends if the stock isn't doing anything spectacular. Compare that to the returns of a managed fund. (I'll make it easy, go on Morningstar and search all 5 star ETF's and Mutual Funds in both Tech and Emerging Markets). If you can start investing with at least $10k I'd go and target some ETF's and mutual funds, mixed among one another below. Not necessary to do, but I'd start with some between $50-150 per share until my portfolio grew to where I could buy similar amounts of higher priced ones in my next trade(s).
that isnt necessarily true. some people pay more for products and some people pay less for products. just because you get one discount doesnt mean that it is automatically added in elsewhere.
It's almost never stuffed into the price of the car, at least not for either party in the transaction.
Ford Motor Company sells the car to John Smith Ford & Lincoln, who in turn sells it to you. John Smith Ford & Lincoln doesn't lend money although they will markup a loan quoted to them at a wholesale rate by one of the lenders they work with.
Ford Motor Company owns Ford Credit, and if the analysts at Ford Motor Company need to stimulate sales, they'll incentivize the car through both rebates and finance offers that are below what's available to consumers in the open market, in fact usually/often below wholesale rates. When they do that, they actually kick some money to the F&I officer (a flat fee per car) since he's processing paperwork at no markup and no profit to him.
So, does Ford Motor Company account for their anticipated discounts/rebates when they set the invoice price to the dealership? Of course they do. Is there anything the consumer, or the dealer can do about that? Nope.
Cash wins only if you have very poor credit and have to pay a high interest rate. Otherwise, the lost opportunity costs of using cash more than offsets the interest paid on a loan.
Could be.
Usually.
Maybe.
It depends on (A) what you intend to do with investable funds and (B) how well you do, which is a function of market timing.
*If you financed and invested your cash in August, 2008, then it cost you dearly, since you lost money every year until 2013. Many people lost their jobs during that time; hopefully you would not be one, 'cuz then you would have a car payment, be losing money in a market, and have no job to pay for the car!
*If you financed and invested your cash in Feb, 2016 you are a very happy camper, since your invested cash worked so well for you.
*All you have to do is figure out how the market and fate will treat you for the next 5 years. Lotsa luck with that.
We're retired. Bought a car in 2011 and paid cash. But we don't spend a lot of money on cars. 15-20K is about it.
FWIW, if you remember in 2008 everyone was making money and excited. In 2017 people were pulling out of the market which was going to tank since a non-potician had taken the helm. Go figure...
If I - an old guy - wanted to acquire a new car today, I would probably lease. We don't drive much and I already have cars I like to work on. Young people should not do that. Usually. Probably....
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