MagneticA
Well-Known Member
Taking a loan is a necessity for MANY people. It is a way for us to have things now. But it comes at a cost. Most people know this and accept it for big ticket items, because the immediacy of having the item outweighs the time it would take to save. But when items are in our wheelhouse, when we can afford them, it’s not bad practice to stay away from loans. We buy depreciating assets with cash all the time (shoes, phones, etc). If you can afford something there is nothing wrong with buying it.
Remember - a loan is a loss of money. If we were offered a car for 30K or the exact same car for 32K, which would we choose? Even if the difference was less, we would choose the better deal. Who wants to throw away money? We even nitpick fees during negotiations to cut off a few hundred bucks. But when it comes to a loan vs. paying in full, people justify loans left and right. Why? Because for many it is a necessity to take a loan, and that’s okay. It’s an acceptable loss we’re willing to take. But let’s not fool ourselves: loans are a guaranteed loss of $.
When you take out loans in order to invest, you are hedging your bets. It’s called speculation. Sometimes it will work, sometimes it will not. But regardless of the success; there are stipulations that you accept (time, fees, stress, etc.). My father-in-law speculated like this with my wife’s student loan. He had the $ to pay it off, and promised her he would, but rationalized that the interest rate was so low he could make more in the market. Long story short… well, you can guess what happened there.
I approach car payments like I do car insurance. My insurance has an option to make monthly payments or pay up front. If I make payments the total cost is higher than if I pay up front. So if my insurance is $1500 or $1650, I’m going to choose $1500. Over the course of 50 years of driving, simply by accepting the monthly payments I would overpay $7500 (numbers of course would be different over time). If I have the choice to buy my car for 30k or 32k, guess which one I’m going to choose? Let’s say over the course of my life I buy 10 cars with a loan. That’s like overpaying $20k (numbers of course would be different over time). If a person can afford to do so, it isn’t bad math to pay up front.
Remember - a loan is a loss of money. If we were offered a car for 30K or the exact same car for 32K, which would we choose? Even if the difference was less, we would choose the better deal. Who wants to throw away money? We even nitpick fees during negotiations to cut off a few hundred bucks. But when it comes to a loan vs. paying in full, people justify loans left and right. Why? Because for many it is a necessity to take a loan, and that’s okay. It’s an acceptable loss we’re willing to take. But let’s not fool ourselves: loans are a guaranteed loss of $.
When you take out loans in order to invest, you are hedging your bets. It’s called speculation. Sometimes it will work, sometimes it will not. But regardless of the success; there are stipulations that you accept (time, fees, stress, etc.). My father-in-law speculated like this with my wife’s student loan. He had the $ to pay it off, and promised her he would, but rationalized that the interest rate was so low he could make more in the market. Long story short… well, you can guess what happened there.
I approach car payments like I do car insurance. My insurance has an option to make monthly payments or pay up front. If I make payments the total cost is higher than if I pay up front. So if my insurance is $1500 or $1650, I’m going to choose $1500. Over the course of 50 years of driving, simply by accepting the monthly payments I would overpay $7500 (numbers of course would be different over time). If I have the choice to buy my car for 30k or 32k, guess which one I’m going to choose? Let’s say over the course of my life I buy 10 cars with a loan. That’s like overpaying $20k (numbers of course would be different over time). If a person can afford to do so, it isn’t bad math to pay up front.
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addle: There is no repercussions for the rudeness.