Who Pays $700 (SEVEN HUNDRED) per month on a car??

[Lebowski]

Says you. Opinions aren't wrong just because you disagree.

Uh, yours is an opinion that can be refuted in quantifiable terms.

[Payman]

Uh, yours is an opinion that can be refuted in quantifiable terms.

*sigh*  Again, quantifiable to YOU.

[dazzleman]

*sigh*  Again, quantifiable to YOU.

I think Lebowski's point is that a car will depreciate no matter how you pay for it, and the decision to buy a depreciating asset is a completely separate one from the decision of how to pay for it.  I think he's right about that.  Financing a depreciating asset doesn't make the financial hit of the depreciation any less.

The issue of how much of a cash cushion to have is a separate one.  I strongly believe in people having a cash cushion; it's like the oil that greases the wheels of our lives.  Without it, we all have a lot less personal flexibility.  Managing finances is always a balancing act, and there are not necessarily any right answers.  One of the biggest balancing acts overall is the balancing of current gratification against future benefit.  Neither extreme is the right answer, IMO.

Ideally, financing should not be a factor in deciding how much money to spend, but only in deciding how to pay for spending that was decided upon using the right factors, by which I mean overall income/wealth/financial position.  In other words, don't buy an expensive car (or house or anything else) you can't afford just because someone is stupid enough to lend you money that you're going to have a tough time paying back.

[Lebowski]

*sigh*  Again, quantifiable to YOU.

"Quantifiable" = not open to interpretation.  As in, 2 + 2 = 4

Mathematically, how you finance the car does not impact the depreciation.  That is not my opinion.  It's math.  You can disagree, but you'd be wrong.

Again: "Don't pay cash for depreciating assets" is a rallying cry of the uninformed.

[Payman]

"Quantifiable" = not open to interpretation.  As in, 2 + 2 = 4

Mathematically, how you finance the car does not impact the depreciation.  That is not my opinion.  It's math.  You can disagree, but you'd be wrong.

How you finance the car does not impact the depreciation... I KNOW THAT. What I said is that making a large downpayment, to me, isn't always the best choice if the money could be put to better use, or left in the bank. I'd rather have a $400 monthly payment with $5000 in the bank than a $350 payment with NO money in the bank.

[dazzleman]

How you finance the car does not impact the depreciation... I KNOW THAT. What I said is that making a large downpayment, to me, isn't always the best choice if the money could be put to better use, or left in the bank. I'd rather have a $400 monthly payment with $5000 in the bank than a $350 payment with NO money in the bank.

You guys are talking about different things.

I agree with you that it's best to keep money in the bank.  The other main point is not to take on a payment you can't afford (as many people have done).

[Lebowski]

What I said is that making a large downpayment, to me, isn't always the best choice if the money could be put to better use, or left in the bank. I'd rather have a $400 monthly payment with $5000 in the bank than a $350 payment with NO money in the bank.

No, what you said is:

Unless you're trading in, I don't think it make sense to. Take that $5000 and invest it, or renovate your house. With today's low interest rates, you're spending $5000 in hard saved cash to save a couple grand in interest on a depreciating asset.

You pretty clearly brought the "depreciating asset" aspect into the financing decision.  This is wrong.  I'm not picking on you to be an ass, but because this is an EXTREMELY common misconception and is one that is often used by car salesmen to get people to finance or lease as much car as they can afford (which is funny - if you are depreciation averse you should be driving a 10yr old beater). 

I will agree if paying cash will use up your last dollar, don't do it.  A reserve fund is very important.  However, this thread is about $700 car payments (which to me implies a $30k+ car), I'm assuming anyone considering a $30k+ car already has some reserve cash set aside.  If not, they're stupid.

[dazzleman]

No, what you said is:


You pretty clearly brought the "depreciating asset" aspect into the financing decision.  This is wrong.  I'm not picking on you to be an ass, but because this is an EXTREMELY common misconception and is one that is often used by car salesmen to get people to finance or lease as much car as they can afford (which is funny - if you are depreciation averse you should be driving a 10yr old beater). 

I will agree if paying cash will use up your last dollar, don't do it.  A reserve fund is very important.  However, this thread is about $700 car payments (which to me implies a $30k+ car), I'm assuming anyone considering a $30k+ car already has some reserve cash set aside.  If not, they're stupid.

People trying to get you to borrow and spend more than you can afford always push certain misconceptions.  The misconception that borrowing to finance a depreciating asset somehow lessens that depreciation is one of them.  Another is that when you borrow against home equity and spend the money, that you have spent your own money, rather than money that will have to be repaid.  It's discouraging how easy it seems to be to get large numbers of people to buy into and act upon some of these misconceptions.

[ChrisV]

Ideally, financing should not be a factor in deciding how much money to spend, but only in deciding how to pay for spending that was decided upon using the right factors, by which I mean overall income/wealth/financial position.  In other words, don't buy an expensive car (or house or anything else) you can't afford just because someone is stupid enough to lend you money that you're going to have a tough time paying back.

Breaking the ding bell, here.

As for the depreciation factor, I've always said, you can take depreciation rates into account, but if you're worried about depreciation, you can't afford what you're buying.

[sportyaccordy]

Breaking the ding bell, here.

As for the depreciation factor, I've always said, you can take depreciation rates into account, but if you're worried about depreciation, you can't afford what you're buying.

That's not necessarily true. I am sure the tons of people who bought super high end luxury cars would have reconsidered if they had known the huge hit they would take when the economic crisis came

[Payman]

That's not necessarily true. I am sure the tons of people who bought super high end luxury cars would have reconsidered if they had known the huge hit they would take when the economic crisis came

I bought my Cadillac STS thanks to depreciation. 

[GoCougs]

That's not necessarily true. I am sure the tons of people who bought super high end luxury cars would have reconsidered if they had known the huge hit they would take when the economic crisis came

ChrisV's law still applies I think even more so to a non-essential mega luxury item - you shouldn't buy those things until the entire cost is literally not a concern.

[ChrisV]

That's not necessarily true. I am sure the tons of people who bought super high end luxury cars would have reconsidered if they had known the huge hit they would take when the economic crisis came

Actually, that supports my point. At that point, they coudn't afford the car. The concern over depreciation comes in the portion of financing where you're upside down in the car and can't sell it for as much as you owe. If you can afford the car, what you can sell it for isn't going to be something to worry about, only an inconvenience if you decide you don't like the car anymore. If you keep the car for the full term of the financing, then the depreciation doesn't matter because you are not upside down in it.