Originally Posted by CannondaleMan
Not everyone, but financing a depreciating "asset" is ludicrous.
Think about it. You take out a loan for your brandidy new 2013 Taco for $29,000 at 1.79% for 60 months. You pay about $1450 in interest over that 5 years. Plus your truck loses a huge portion of its value over those 5 years. So you are paying interest on a loan for something that is losing its value at the same time.
Instead, if you take that $570 monthly payment, save it up over the 5 years you can then walk into the dealer and walk out with the truck and no payment. Then, you just start saving the amount of whatever that payment would be again and begin the process again.
Just makes financial sense.
That is not to mean that it is not difficult. I was not able to do this until I was 36 years old. Made a bunch of stupid financial moves along the way which were my fault. I have gotten to the point that I cannot stand debt. Ever. The only debt we have is our mortgage. No credit cards, no car loans, no money owed to anyone but the credit union for my mortgage and we are busting our butts to get that whacked.
The other benefit of no car payment is that you have less stress. If you lose your job, become injured, get hours cut, etc.., you have one less huge bill to worry about. A paid off truck cannot be repossessed.
The other benefit is that while you are saving up that money for your new truck, if - God forbid - something happens you have an "emergency fund" of sorts if you need a new roof, septic system, or whatever.
It just makes financial sense. You do not need to go through life in debt. Hard to get to the point that you can do this.....but so worth it.
This is a great way to manage money. However, one little piece that the guys who preach these methods always leave out is the time value of money consideration.
Same scenario you mention above, but invest the $29K for 5 years and pay the note. At the end of 5 years you end up with $6.5K net of the interest paid on the truck (assuming a 5% annual return). The truck depreciates either way (paid cash or financed), but this way you end up $6K richer - the money worked for and paid you for 5 years.
This only works if you can get a great rate on the loan (ie. 1.79%) AND be disciplined enough to invest the money and not just blow it all on mods.
Not trying to start an argument, just pointing out that there are times when financing is useful and beneficial.