Car loan at 3.9% worth it or cash purchase?

[resjudicata]

@suupertrump Treasury direct has TIPs for approx 5% as well which is state tax exempt (still have to pay federal taxes on it)
Edited, had it the other way around. Thank you Tom Clancy for the correction!

 

[jordansomething]

@resjudicata TIPs are not federal tax exempt. They are exempt from state and local tax like other treasuries. Only municipal bonds are federally exempt.

 

[hdlewallen]

@suupertrump If you can pay cash for the car and still have money left over for emergencies just do that. Don't try to be smarter than you need to be. Life always has surprises in store.

 

[cwriter15]

@suupertrump I took an even higher loan than you before pandemic. 4.5%. I’ve invested that cash and the gains is besting the interest many folds.

 

[mercedesduran]

@suupertrump Take the loan and make extra principal only payments when/if it makes sense. That's a good rate.

 

[dorisghester]

@suupertrump 4% is borderline where I stop wanting all the loan I can get. I’d take it over cash here, but not really care one way or the other if I really had the spare cash available.

I just got a new Subaru and they were doing 2.9% on their financing promo.

 

[student1963]

@suupertrump It's basically a wash, I think after federal income tax it's a slight monetary loss to take the loan.

BUT

Do not undervalue liquidity. I'd pay 1-1.5% to keep an extra $10k liquid in case of emergency. Unless you have a significant e-Fund already I'd say take the loan.

 

[eaglehaze]

@suupertrump Cash purchase.

Car loans keep people poor.

 

[suupertrump]

@eaglehaze Can you elaborate?

 

[eaglehaze]

@suupertrump Do not take another car loan.

Save up and pay cash.

Car loans simply put you in a precarious position should an emergency happen.

No one gets rich on the float on $100k - much less $30k. The juice is not worth the squeeze.

 

[oceanwanderer]

@eaglehaze

Car loans simply put you in a precarious position should an emergency happen.

Two scenarios where you have 30k in the 5% bank account and want to buy a 30k car.

1. Spend the 30k on the car. Your bank account is 0.
2. Pay 20k on the car, finance 10k at 4.5% and keep 10k in the bank earning 5%. (You could pay any portion of the car, not necessarily just 2/3)

The next day, your fridge dies, and you need to spend 5k for a new one. Scenario 2 you can pay for the fridge outright. How do you pay in scenario 1?

Keeping cash on hand will make you far more flexible in an emergency. And if needed, you could pay the car loan off.

 

[eaglehaze]

@oceanwanderer You should not spend your emergency fund on a car.

If you can’t pay cash for a car then you can’t afford it.

In your example you spent money on a car you could not afford. You should just buy a $20k car.

 

[oceanwanderer]

@eaglehaze You missed the point entirely. Congrats

I didn't say anything about spending out of an emergency fund

 

[eaglehaze]

@oceanwanderer You should have 6 months expenses in an emergency fund.

Your scenario is a mismanagement of one’s finances where you spend more than you can afford on a new car.

If you really have only $30k in savings then you likely only need to spend $5-10k on a car.

 

[oceanwanderer]

@eaglehaze I didn't say anything about spending your emergency funds on a car.

Again, you entirely missed the point.

 

[eaglehaze]

@oceanwanderer Well you said you could not fix/replace a busted fridge after you bought the car…

 

[oceanwanderer]

@eaglehaze I used that to illustrate that having cash is more flexible than not having the cash. Always. There's no situation where that's not the case.

Car loans simply put you in a precarious position should an emergency happen.

You're the one who implied an emergency arise where you don't have enough money. Having the extra cash will always leave you in a better situation.

If you prefer, think of it as if a low risk investing opportunity comes up, which will likely net you 8% apy. You can't spend a paid off car on it. You could spend the 10k in cash you have.

 

[hdlewallen]

@eaglehaze I agree. Don't take on extra debt if you don't need to. You never know what life is going to throw your way and the less debt you have the better.