Are car loans really that bad?

Personal Finance Forum 59 Replies

I recently posted some questions regarding financial strategy involving car loan debt, student loand debt, mortgage debt and cash for new acquisitions.

There is a strong contingency of folks that claim you should never borrow money for a car and that if you owe money on a car, you should pay it off. Because a car depreciates.

I actually don't think having a car loan is necessarily bad if you are financing it at below 4 percent. The argument of "it depreciates" doesn't change my opinion because it will still depreciate even if it's paid off. If you plan on keeping the car for 5 to 6 years, the costs for maintenance and depreciation will be the same no matter what.

Lets assume the car payment does not increase your DTI ratio above what will allow you to qualify for a mortgage. Now assume you have 15K. Let's assume that you also need a new car and also want to buy a house. Why not buy the car with a loan at 3% and use the rest of the money to pay for DP and closing costs on a house? In my mind, there is no difference in doing this and doing an 80/20 split on a mortgage (100% financing that so many investors regard as the holy grail). Except it is better because although the car will depreciate, it could be sold in a pinch if you had a couple thousand to cover the deficiency.

So, what I am saying is, in the right scenario, financing your vehicle, rather than paying cash, does not need to be considered any differently than any other form of raising borrowed money. Thoughts on this?

For the sake of a comparative discussion, lets discard the argument that you buy a 2000 beater as an alternative.

In theory if you can get higher returns on your capital then it may make sense, again "in theory". I personally don't believe in any form of consumer debt but if you are going to finance a car look into someone like who will give you 1.49% on new or used.

Originally posted by Steve K:
In theory if you can get higher returns on your capital then it may make sense, again "in theory". I personally don't believe in any form of consumer debt but if you are going to finance a car look into someone like who will give you 1.49% on new or used.

So, Steve, you are against consumer credit. What if the loan was a secondary loan secured by the property but with the same terms as it would have been on the car note? I feel that would be worse because I would rather have the car at risk than the property.

Is there an investment reason for not wanting to use the car for collateral rather than the property, other than the car loan simply being classified as a consumer loan?

I feel the exact same way. I purchased a 40k car with 10k down. To imagine someone paying cash for that would be a down right waste of liquid cash. I have heard many people talk about buying a car with cash and it does not make sense to me either. A car loan is one of the cheapest loans to can obtain. I guess I lent myself 30k at 1.9%. That is free money in my opinion. I will go buy some cash flowing properties with that.

Oliver Trojahn, Oliver Buys Real Estate | [email protected] | 636‑575‑0543

When I hear people talk like this as an investor it makes me want to scream. The government and big business have been borrowing so much for so long they have the public dumbed down into thinking its ok to borrow as long as its low interest or as long as its not to much dti. Let me tell you something about borrowing money and the types of things borrowing does to a person.
Borrowing will cause a person to put money above family as he makes decisions to work longer hours to make more money to pay off debt instead of spend time with his or her children. That is one example. Dont have kids here is another example.
Now we study the case of Billy x and Johny x. Johhny x we shall call him buys a 30k car and says yahoo I got a great deal on this car its the best ride ever. I make pmts of 600 per month for 4 years and its 1.9% interest. 1 year later one of 6 things happens. Johnny Gets injured in a ski accident and has to take time off of work insurance pays 80% of accident but he is left with a 4000 dollar bill he must pay and Johny cant work for 3 months because of the injury cannot make car pmt. His credit is trashed and vehicle may get repoed.
Or johny losses job no fault of his own due to a corp restructuring or down size or over burdened employer with too much debt closes its doors altogether. Johny with only unemployment cannot afford bills must sell car at a loss and bring money to table to save his credit. After sale he must take a rotten job doing crappy working in a restaurant just to make ends meet because he burnt up his savings on fire selling his expensive car he has borrowed on to save credit.
Or Johny meets a beautiful woman that he cant believe falls in love with him and with car pmts he is wondering how he will save for a wedding since her parents dont have money Or Johny is married has a baby and wife leaves job and it cause income for couple to get cut in half. Or car gets wrecked and even though you have a rental car in place and get car fixed it just isnt the same and you want a better car but realize that you owe more on it then its worth after it has been fixed your stuck with it for 3 more years. Or your offered a new job that is a promotion and you like the job offer but you must go over seas to work. Its not that much extra money but you will have the promotion you always wanted the car is a ball and chain you worry can u sell it fast enough to take job offer. Boss needs answer by monday.
Now Billy he went to a police auction and paid cash for a 6 year old police cruiser and paid 4000 for a car with 50,000 miles on it. The nice thing about billys car is he paid 2500 under its book value claim.

Depends, long term financing for consumable goods is not a financial formula for success, it's how you end up underwater with the asset to the liability. Any time your asset falls below the liability that is insolvency, so no, financially it's not a good investment.

Now enters the economic value, your use and ownership has value to you. What that might be is up to you. Cars are an emotional purchase, rarely purchased for personal use based on needs, you omitted the mention of a functional clean vehicle at a much lower cost.

The best financial choice in buying a vehicle isn't very satisfying I know. I bought cars so often the state sent me a dealers application twice!

Perhaps you'd have better luck with a 1967 Mustang GTA, keep the miles down to normal use, keep it sharp and in 5 years you'll get your money back or make some! :)

You can get the new car smell in a spray bottle now....LOL,

But, why not buy the house first, then the car, do your lender a favor you might get a better rate on the house, better ratios, no verification, better reserves!

I was going to say I haven't had a car loan in over 30 years, but I did buy a motorcycle, no interest for 12 months, so I did use thier money and paid it off the day prior to the interest being applied! But, I always had the cash to pay it off, just the principle of the thing.

There is no good financial investment argument for buying a new car for personal use. It's an economic decission paying for the edification of ownership.

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy |

Billy has a nice car cheap and isnt messing with his credit when he heads to get a mortgage nothing will slow him down from buying his dream home or 8 unit apt building that he wants to buy. Billy if he wants can also use the monthly income he would be making pmts on to save for an investment its estimated billy saves 600 per moth for 4 years and even though he drives a not so cool car he wakes up with 28800 dollars in saving and uses the cash 4000 to buy another police cruiser and uses the balance of the 24000 to buy a 200k apt building that has an appraised value of 400k.
Billy now has a monthly cashflow of 2000 per month for the rest of his life while johnny is still driving a cool car.
Who is doing better Billy or johnny?
Sorry about my grammer or english i type fast since I have 4 windows open on my pc im talking to others in other forums like my gold and silver forum and my other realestate forum, Im also negetiating building materials online as well for realestate projects.
Here is the thing when you burn cash on pmts you screw yourself out of having that money for a rainy day.
The last few days I have been bombarded with excellent deals that if I had pmts going out on crap like cars that depreciates I would never be able to get these great deals with cash. Dont get me wrong I like a nice ride and if I have cash and a 20k corvette is offered to me for 5k I buy it. Or a 3000 dollar crotch rocket is offered to me for 700 cash today only I buy it! You see what I mean. I dont make pmts unless the tenants are making the pmts.
I have over a 100 units under my belt because I live this way. I dont punch a clock, and I never get outta bed before 9am. I have a 7 year old boy that asked me how come other peoples daddies have to work all the time? Im like because they did not make the right decisions in life.
So this is where I am coming from. When you borrow money make sure its for a cashflowing asset or what will make you money. I understand you might want a mortgage for a home to live in..I will allow that once exception.

William, I think most people agree that buying a brand, fully-loaded luxury vehicle that you probably can't afford is not a good investment. But I think the question was geared more toward whether it makes since to finance the purchase of a car or pay cash.

My clunker that I have been driving for 10 years just shot craps, and I will likely have to purchase a new vehicle in the next week or so and I have been tossing around the financing or paying cash. I'm eyeing a Hyundai Sonata w/ 20,000 miles for $15,000.

I guess the idea is do I spend $15,000 in cash on a car, or do I finance most of it at 2% interest so I can use that $15k for a downpayment on a rental. If I can make 12% on my investment then I am actually returning 10% more on my money than I would be if I paid cash.

A $15,000 loan w/ a 4 year term and 2% interest is a $325 a month payment w/ $25.00 a month toward interest or $300 paid in interest per year. If an investor takes that $15,000 and purchases a $75,000 rental property, that rents for $750 a month and clears a $100 a month, then the investor will make $75 more a month than he would if he paid cash for the car.

If a person is living pay check to pay check and does not have a emergency fund or savings built-up, then they really shouldn't be buying a car in the first place w/ cash or a loan.

Medium houseflipping spreadsheetDavid Robertson, | 816‑388‑0197 |

The problem is people dont realize the power in savings because this money is so cheap but its not cheap when its stealing 500 a month of you monthly budget even if it is 2% interest. Thats a a suckers game since 500 a month would be a 100k of financing for a building that throws off a 700 per month cashflow.
The car companies know this. I agree that on the lower end cars you might be inclined to do this if the pmts was say under 250 per mo. Because you can barely keep a used car on the road for less then 150 a month so an extra 100 dollar bill might be worth the dependability and warranty you get on say a smaller compact car for commuting.I just worry about all the if's in life that happen when you borrow money if pmts have to be made by you and not a tenant.
Its one of the many tools that make people rich is not borrowing and using money to make money instead of using it to take money away from your monthly income. Its up to each to make there own decision Im just telling you what will happen if you borrow vs pay cash. The example above I give with billy he will always be wealthy by taking that money that would have been a car pmt and buying real estate, gold,silver,platinum or ect.
im a millionaire ands my every day drivers are a pair of 10 year old crown vics I bought at police auction. Dont get me wrong I have a corvette I drive on occasion and a crotch rocket but that stuff came as a result of paying cash for consumer items like a cars or a computer.
I like having dependable autos to and I get my cars services regularly. We have driven these police cruisers cross country numerous times with one flat tire so far. Todays cars are barely broke in at 100,000 miles and you will find if the drive train is in good shape on an auto you can just put 100 a month aside for repairs and oil changes and be able to have reliable transportation for 3 to 4 years on a 4000 dollar car that is paid for in cash.

Originally posted by Brian Hoyt:
Lets assume the car payment does not increase your DTI ratio above what will allow you to qualify for a mortgage. Now assume you have 15K. Let's assume that you also need a new car and also want to buy a house. Why not buy the car with a loan at 3% and use the rest of the money to pay for DP and closing costs on a house? In my mind, there is no difference in doing this and doing an 80/20 split on a mortgage (100% financing that so many investors regard as the holy grail). Except it is better because although the car will depreciate, it could be sold in a pinch if you had a couple thousand to cover the deficiency.

So, what I am saying is, in the right scenario, financing your vehicle, rather than paying cash, does not need to be considered any differently than any other form of raising borrowed money. Thoughts on this?

For the sake of a comparative discussion, lets discard the argument that you buy a 2000 beater as an alternative.

My opinion is that the only time you should borrow money is to buy a house to live in (it's difficult to save enough to pay cash for a residence), or to purchase a cash flowing asset. If you borrow against rental properties, they generate enough rent to cover the payment and then some. The interest is also tax deductible. Also, the properties will (hopefully) go up in value.

As far as borrowing against a car, I think that if you can't afford to pay cash for the car, then you can't afford the car. It's no different than buying a big screen tv on a credit card because you didn't save your money to buy it. I know you don't want to discuss beaters, but sometimes that is the answer. I used to have a $600 Ranger that I drove for a long time. It had no A/C and no power stearing. Not having a car payment allowed me to save money for more houses.

I'm a fan of paying cash for used cars that you buy from the original owner. You can learn the history of the car and look at their house to see if it's maintained. If the landscaping is well maintained, then the car is probably well maintained as well. A 2-3 year old car will be about half price and barely broken in. You can also look at to see what types of problems the vehicle that you're interested in will have.

The best time to borrow money is when you don't need to.

I realize people in RE need a reliable vehicle, you don't need a new vehicle, but it should be shinny, clean, no rips or tears, smasked sides or cracked glass. You will also put miles on it, more than a librarian most likely.

David, is that disposable income you have, can you carry on in other ventures and keep your living standard without the 15k? If so, pay cash, if not, begin to leverage the purchase using what cash has the least value to you. It's the economic opportunity cost question. At some point that additional dollar will become more valuable to you.

Keep you DTI ratios for all other debts below 15%, 10% is better. In RE loans, you're looking at 36% for the better rates and loans, that puts the loan at 25/26%. You begin getting into harder qualifications at 40/42%. You may need room for other debts, student loans or short term credit.

More people fail to quaify for a mortgage due to car loans than any other debt! Just think ahead.

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy |

Luckily one of my brothers owns a used car dealership. He doesn't finance just buys them at a private dealer auction and fixes them and sells for cash.

I can get cars way below market that have been checked inside and out. Of course I get a great deal because I am family. He has had his business for decades. New dealers buy the stuff at private auction that semi-run and then try to pass off as great cars with financing. The car breaks down and then the people can't get to work and stop payment on their vehicles. Then you have to send the repo guy out after them and do it again.

Massive headache and many dealers themselves are paying a loan to finance companies on the lots of cars that they have.

My brother buys the no starts at the auction for next to nothing. Then he goes through the whole car and fixes everything and sells for cash to a buyer with a warranty. He does no financing and does not worry about having to use repo companies and all of that stuff to recover his product. His target sale range is 2,500 to 5,000 that most buyers want.

I have looked at new cars before but paying on a severely dropping negative asset just drives me up the wall when I think about it. The loan is just one component of the car. Why isn't anyone talking about the full coverage car insurance that will be crammed down your throat. In many cases that payment is higher than the monthly car loan payment!!

So I take total cost into factoring. When you look at new cars they are harder to get parts for to work on so maintenance is higher paying technicians. I personally think the sweet spot is cars that are just a few years sold that have depreciated in value substantially. Those are still new enough to not have many issues but cheaper to buy where most of the depreciation has already happened.

We have USAA and for both cars for just liability we pay about 600 a year. It was lower before but one time I went to rent a car and the car rental place wanted to charge me as much for the daily rate as their crap protection coverage because I did not have full coverage!! So I called my insurance company and for I think it was 10 dollars a month extra I get this supplemental full coverage on car rentals added to my insurance and now they can't charge me anymore. So If I rent one car a year I am already ahead of the game.

The newer cars just do not last anymore. They are plastic crap that wears out super fast and is overpriced. One of my cars has 168,000 miles and is still running great with original tranny and engine. My wife wants a newer car. I some point I might get beat into submission.......... LOL

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 |

Originally posted by Brian Hoyt:
Originally posted by Steve K:
In theory if you can get higher returns on your capital then it may make sense, again "in theory". I personally don't believe in any form of consumer debt but if you are going to finance a car look into someone like who will give you 1.49% on new or used.

So, Steve, you are against consumer credit. What if the loan was a secondary loan secured by the property but with the same terms as it would have been on the car note? I feel that would be worse because I would rather have the car at risk than the property.

Is there an investment reason for not wanting to use the car for collateral rather than the property, other than the car loan simply being classified as a consumer loan?

My viewpoint isn't really based on an investment decision as much as its a preference to have no consumer debt. In theory if you can deploy your capital at a higher rate it makes sense but obviously make sure you've got enough reserves for catastrophe.

The only way I'd consider financing a car is if I paid cash for a property or note that covered the car note. That situation makes sense to me and is something I might consider as I'll have to buy two new cars this year.

Interesting feed back. In most of the respones I am hearing mainly just personal bias against car loans specfically. All the arguements about rich people and borrowing habbits can be directed at any kind of debt, regardless of how it is secured. Most investors would not blink at taking an usecured loan at 3% interest over a 5 year term to secure a good deal on a property. The only difference with the car loan is that it is secured by a depreciating asset. Rather than the whole world coming to an end if the car payment can't be made - the car goes back to the bank and you get a credit hit.

I specifically said to keep the argument for buying a clunker out of the argument. I spend alot of time in my car. As far as @William Bannister 's old Crown Vics, after accounting for the difference in gas mileage between those and my 2011 Altima, the additional monthy cost is only about 100 - all payments, expenses, maintenace, registration, etc, considered. It's worth 100/month to me even if it is not to you. As far as being frugal, why do you have two? It costs money to insur and register the second one every year doesn't it? So lets just not turn this into a bragging competition about how cheap we are. I wouldn't waste my money on a Corvette, so that just goes to show that we only have different personal preferences and spend money in different places. I like to use my nice things regularly and enjoy them - not polish and park/hide them.

And again, like I said anyways, lets delete the "I will just drive an old piece of crap" stuff from the equation. I spend too much time in my car to accept driving some old crapper around. I also don't buy clothes and dishware at Goodwill. I eat out lunch almost every day instead of eating a sandwich. But I rarely buy electronics and don't have cable TV.

Being that this is a real estate forum I will not get into the numerous many reasons why I rarely eat out other then to say msg,chlorine, floride in water and ect when your in a restaurant. I do eat out but its more a social, business thing and I dont eat much of the food..
My wife does a much better job with food at home.
I agree with Joel on the aspect of insurance on brand new auto they cram it down your throat. I hate that too. The crown vics I drive arent garbage they have no rust or problems and both have under 76,000 miles currently. They get 22 mpg so too me it works if I want to haul the family. They are fully loaded vehicles power windows,cruise,tilt6 way seats v-8 with passing power if needed. Also I have 2 crown vics because my wife and I go in different directions often;) I also dont have cable since its not where I spend my free time.
The corvette and cycle I mention are luxuries and hopefully that point was made are they necessary absolutely not. I did not buy the corvette until I had a million dollar net worth. To save money means to look at the entire equation.
I have also owned a car lot and am quite able to see the expenses that we spend to keep a car on the road.
The crown vics are everywhere and are easy to obtain parts in any city nationwide. If you break down on the road would you rather have some foreign car thats hard to get parts or my crn vic that could be repaired the very next day? I have yet to visit a city of 50,000 people in this country that didnt have a dealer nearby that sold ford or chevy products. this means I can get my car serviced just about anywhere quickly and be back on the road.
I wont argue if Honda or Chevy is better I read the info that shows the Japs are killing us on quality. Even though you might find a few American engineers that would argue I suspect that is the minority.
BTW for the record I have a lot of vehicles the thing is most of the vehicles have a business purpose my corvette and cycle purely entertainment and a waste of money. The crn vics are like a hammer in my tool belt. Just like my pickup truck and double axle trailer are tools in my tool belt. The truck and crn vics make me a lot of money every year. I drive 2 hours up to Indy or down to Memphis to make 20k on a deal..I need a vehicle thats not too expensive because I burn up cars fast because I drive a lot! If you drive a lot then you will understand why I dont want to drive a 15k car to the junk yard in 4 years;)
Also you might not like what a crn vic looks like but they are a smooth ride.Also when I have building materials in a car or a 7 year old boy wiping his dirty hands on the seats Im not to worried when I am driving a 5k car vs a 20k car. The other factor is when someone scratches or dents my car as happened last year I wasnt all that upset by it.. I am not even sure why I still have my corvette anymore I rarely drive and it just sits in garage 90% of the time. I guess family has taken over and I just dont have the heart to sell it.

I purchased my 40k vehicle after driving a free POS for 10 years. No car payment was amazing. However, with a lot of peoples mindset on this post I guess I also shouldn't buy nice clothes, go out to eat, or go to the movies either, maybe I should cancel my cable and my gym membership as well. Each one of those items is a luxury item to some extent that has a monthly bill associated with it, similar to a car loan. However, the car out of all things actually retains some value. Everything else has no value once consumed. I would be the first to tell you I try not to spend to much money in those categories but the fact is I do a little and wouldn't change it for the world. I can afford it though along with my 40k car that I have a loan on. Let's do a simple math problem with my 40k car as an example (lets assume i didn't put anything down on it):

Total interest paid over 5 years @ 1.9% for a 40k loan = $1,962 (this is the cost of the loan over 5 years). wow what a deal.

The 40k cash you didn't pay for the vehicle invested on a municipal bond at 5% interest for 5 years = $11,051 earned interest.

$11,051 - $1962 = $9,089 net gain.

If you paid cash for the vehicle you would lose the potential to make $11,051 in interest and have all your cash tied up in a depreciating asset. I guess you can qualify for more loans though, however, you wasted all your down payment money on a car. So you can't buy anything.

Imagine investing in real estate with that money. Also, like Brian said, you could always sell the car. With that said, I recommend putting money down on all vehicles because you do not want to be upside down. I also recommend buying a used cheap vehicle but if you don't want to because you want to live your life and have fun I would finance it any day of the week. This also assumes you can actually afford the monthly payments and it will not effect your debt to income for real estate investing.

Getting a low interest loan would work better for any priced car.

Oliver Trojahn, Oliver Buys Real Estate | [email protected] | 636‑575‑0543

For me it's not about the car payment only. The car insurance and tag is usually more expensive monthly than the finance on the car.

I have looked at leasing the new cars but get you on that too. They make you put down a sizeable chunk of cash and then you get limited miles and a crap lease to boot and have to be fully insured. When you add all of that up leasing doesn't have much of a benefit at all.

You can find very nice cars that are 5 years old for a great value with low miles. I would classify those differently than 10 to 15 year old junkers with high mileage.

Who doesn't love that new car smell?? You pay a price for it though.

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 |

Since I have done BOTH things mentioned here, buying several cars at a Government Auction and bought a 2012 Hyundai Genesis for my wife, since she works in her car. Currently, I drive a 2002 Chevrolet Trailblazer that I bought at a Government GSA auction in Colorado, paid a total of $7,100 for it, cash. It is nearing 200,000 miles and time to start looking for something newer. Personally, I have not bought a new vehicle since my 1988 Cadillac Sedan de Ville. I really like the 2013 Chevrolet Trucks, priced around $40,000. I easily have enough money to pay cash for it, but with financing in the 0-3% range, WHY? I just made some offers to buy some houses, $40,000 each, that rent for $795 a month.

As an investor, do I spend $40,000 on a new truck, and just have a new truck, or do I buy a rental for $40,000, put $10,000 down on a new truck, collect $795 in rent, make a $500 car payment, and have both the truck and the rental?

I have purchased many used cars, even at auctions, and NONE of them have Sirius XM, Onboard navigation, heated/cooled leather seats, etc.... As a matter of fact, the last truck I bought at auction had MANUAL windows, MANUAL locks, NO cruise control and a cassette player.

Why are we all working so hard if not to buy some of the nicer things in life? At some point, we need to enjoy the fruits of our labors!

I think it really depends on where you are on your path to your goals. Somebody like myself just starting out, it makes no sense to go buy a 40k car, cash or financed, because it only takes away from money I can invest. Some people on here that own 300-400 units, can take a $600 payment and it doesn't make a difference. My question would be, at what point do you have enough? Sure you could squeeze your family into a 2 bedroom apartment in a scary part of town to keep rent down, drive a car with 200k miles, and eat peanut butter and jellys at home every night. But for what? Having reserves is important, not being over leveraged is as well. But I don't see the point of being the richest guy in the graveyard. If your goal is 20k a month in passive income, once you hit that point, why would you not reward yourself?
Just my 2 cents

I think the point Is to live below your means whatever your income level is.

Just because you have the means to buy something expensive doesn't mean you need to.

I would rather take multiple vacations a year then have a big chunk of money attached to a car. At least with the vacations I get lasting memories I can take with me forever. A car is just a car. I have had fancy cars before and a year later the new car thing has worn off but that big payment is still there. They payment hasn't gotten older or gone away however. It's still sucking away potential cash you can use for other things.

2 years ago I bought a 1993 Cadillac Fleetwood Brougham from my brother. He bought it at a private dealer auction. It was a no start.

Turns out the car was absolutely cherry. A family in another state inherited it from their older mom who had passed away. It was a one owner vehicle with only 74,000 miles on it. It wouldn't start so they put it up for auction. Turns out it was only the ignition switch needed replacing!

I bought it for a little over 2k as my brother gave me a sweet deal. The interior was like it came off of the showroom floor and the outside was beautiful (all black and chrome bottom). The only thing I have done to it in the last few years was put a new starter in it myself, the motorized trunk latch on the back needed replacing ( I did that as well).

The brakes needed replacing and bleeding. (We let someone else do that nasty work). So all in total in 2 years I have about 750 in parts and labor. Still runs like a champ but my mom mainly drives it and loves the vehicle. The car has power everything and all kinds of gadgets. At the time it was Cadillac's most expensive vehicle over 50k back then. Has about 88k miles on it now.

I have also seen 7 series BMW's that are only 5 to 7 years old going for cheap as well. I look for motivated people where they own the vehicle but they paid cash and are now getting a job transfer overseas, divorce, health reasons, whatever. Find the below market deals by finding people needing to sell quick whether that is a car or a house.

Medium allworldrealtyJoel Owens, All World Realty | [email protected] | 678‑779‑2798 |

Here is an entirely different viewpoint with a more analytical approach:

Im 27, i own 4 cars, only 1 with a payment and not a single one has less than 100K miles. 2 of them have over 200k miles.

The one with a payment i purchased just over a year ago, when i started my sales job.

2007 335i sedan It was worth $24k when i got it for $20k. I put $3k down, and have driven it about 37k miles in 13mo.

What drove my decision? I LIVE IN MY CAR (pretty much) and I have a background working for professional race teams and i turned wrenches to pay for college so i really enjoy driving. This was important to keep my sanity on the road. Last sales job they provided me with a Charger and i would come home from a day on the road and feel tired. Now i come home energized and happy to see my wife.

The economic decision:
i went back and looked at how the 3 series BMW has depreciated. The easiest thing to do is look at what they leased for NEW. Manufacturers and dealers put a lot of work into assuming a certain amount of depreciation and wear and tear and they assign that value to it in the form of the lease payment. I also looked at other cars with high mileage and got an estimated % of depreciation per year. (came up with 14%, pretty high for an already 5yr old car but its German and i am packing on the miles).

After doing the math if i needed to sell it at any year within the 4 year loan i would get about 125% back year over year. It also helps that i am paid mileage that covers not just my payment but tires wear and tear. (for 2012 i netted $800 in the black)

Now I'm planning to quit the job and jump in RE full time in 2 mo after my marketing shows signs of consistency, (need 2 more months of 3 house purchases a mo). When this happens it becomes a much larger liability as i am on the hook for all payments.

Will just have to see how things are looking then and decide if i will sell. If i sell, will most likely find something i can pay cash for that is still fun to drive and more economical than my V8 land cruiser.

Medium facebook profile logoSam Craven, Senna House Buyers | [email protected] | 832‑722‑4815 |

I guess my overall point is: Cars are A LOT more of an emotional decision than a logical one. But that doesn't mean financing one is wasteful, and that doesn't mean a nice(r) one can't actually improve your life.

Medium facebook profile logoSam Craven, Senna House Buyers | [email protected] | 832‑722‑4815 |

On the topic of "beater" vs new/semi-new car. Another thought that has to do with perception......I have been driving a 2001 Pontiac Grand Prix since my Senior year in high school. At this point the car has 2 broken tail lights, a broken side mirror hanging off the side, rust on the bottom panels and just stopped running 2 days ago...this is a textbook "beater"...

I have finally run my car into the ground, but I wonder how I have been perceived by my associates at work and other business professionals that I might encounter in my real estate dealings because I drive a POS? What's the first impression I give off when I meet new people? Does what I drive effect my business? Would a private money lender lend money to me if I pulled up in a "beater"?

Have I saved money? Yes...but have I missed out on potential business opportunities or relationships because of perception?......

...Makes me wonder...

Medium houseflipping spreadsheetDavid Robertson, | 816‑388‑0197 |

I think we look at things in a vaccuum too often. I think everybody understands that if I have a $20,000 car loan at 2% and take the $20,000 in cash and put it in an investment making 5% it is better off mathmatically. This is a personal finance question, finance is maybe 10% of the equation, personal is the other 90% and I don't see that being weighted correctly. I don't know how much anyone on here has studyed the intricicies of some of the financial products such as the various derivatives and credit default swaps, these products are absolutely fantastic on paper, I mean the math is beautiful...

At the end of the day it is real life that takes effect and the missing metric is risk. Risk isn't taken into account when we say things like I can get a loan at 2% on a depreciating asset and invest at 5% and my life looks a lot better 5 years doen the road. I see it as just having too much risk, having a car loan. I purchased a very nice 5 year old SUV last year with 70,000 that meets all my family's needs for $10,000. It was too much in my mind but it was for the wife so I have a hard time saying no with all the help she provides for me. My truck is 17 years old, that I got from a guy at work for $4,000. I can do anything with it. By biggest saving is on insurance. I don't have to buy full coverage which fits my needs perfectly. Something happens, I can come up with another couple grand pretty easy because my expenses are so low. By not having comsumer debt, I need to make maybe $100/week to survive in my current lifestyle which isn't half bad if I do say so. This actually came in handy for me recently as I suddenly left my job last November. Besides health insurance, it wasn't a big financial stress because I have such low expenses. I was able to land a job and start within 4 weeks, and then get an even better job in pay and benefits that I start next week. Having low expenses and not having any consumer debt made this possible. This piece of mind changed the way I was able to look for new employment. Changed the way I was able to quickly use the free time to improve my rental business. Changed the way I was able to spend time with my family. Changed the way I was able to interact wduring interviews. It is control and if I had taken a loan for that SUV and had an extra $300+ month payment it would have been more stressful. Not to mention the fact that I could have looked at that SUV purchase and said well since I am borrowing anyway, why not take that great deal on this 2 year old SUV for $20,000. After all it's only 3%, I can invest my $10,000 in cash for 6% and I have everything I wanted with no cost. Well that $500 a month payment would have made these last couple months a lot different.

Great point @David Robertson . I wonder if there's a class of cars that are in between. I don't think showing up to a rental in a BMW is necessarily a good idea but meeting a private money investor in one would. It really depends on your core business. Most of our most successful real estate pros don't drive a super fancy car out in the field. We have one friend that finally gave up his truck at 500,000 miles.

Medium tng webAaron Norris, The Norris Group Hard Money | [email protected] | 951‑780‑5856 |