Financing vs. Payng Cash for your Viper

[REMIX]

There was an interesting thread a few weeks back on Ferrari Chat about this. Seems to be two camps - 1) if you can't pay cash for a toy, you have no business owning one, and 2) Life is short, why not finance it?

I guess I'm somewhere in between. I try to pay as much outright as I can for a car, preferring to keep my payments (if any) nice and low and to also have as much cash on hand as possible in case of god-knows-what. Seems to be the best of both worlds. The main reason I don't yet have a Viper is because I feel I want to have about 70% in cash upfront (and then use a HELOC or conventional financing to fund the rest). I like to have cash around for my own sanity - so I may not end up with a car all that soon. I really don't like taking on debt, either. What's everyone's take on this? Just curious because I thought it was a good thread.

Regards,

REMIX

 

[Dr Roof]

I believe that you should pay cash but it seems that most have the opinion with low interest rates you should finance.

So Just do what your are comfortable with.

 

[SapphireGTS]

You should only finance it if you can make more off that same money in interest (invenstments) then what the interest on the loan would be. Why not use someone elses money while yours is making money. During the all the .com IPOs you would be crazy not to use someone elses money.

As volatile as the market is now, you may as well pay cash if you can or if you can get a good APR.

Is not a matter of weather you can or cant but weather you should or shouldnt.

GOOD LUCK!



DO NOT LEASE.

 

[jrkermode]

Answer number 1 has the nasty implication that an expensive purchase is purely a show of wealth. However, I mostly agree. Owning outright ensures you own the toy rather than the toy owning you. I would not go so far as to say someone has "no business" financing a toy. I just think outright ownership lowers the anxiety level significantly.

 

[PETSN8K]

With the current exceptionally low interest rates being offered, I feel you would be better off financing the car then investing the cash conservatively. In my opinion, by doing this you will actually MAKE money over the term of the loan.

It's always better to make your money work for you rather than you work for your money!

 

[MichaelP]

Finance and use the money to buy real estate in FL>

I of course being stupid paid cash.

 

[plumcrazy]

SapphireGTS said it best.

money is almost free now to borrow. why not do it. Im not getting squat outta my Cd's and bonds now.

im gonna put down a decent chunk 35-40% and finance the rest of it.

 

[vipah]

If you finance you should use a home equity line to do so. That way you can deduct the interest you pay as well, making the effective inerest rate even lower.

 

[CHAD]

Here's an alternative. Get an HELOC but pay for as much of the car as you can in cash. Then you have the HELOC as a cash safety net, making it simple to take out additional funds if you need them, while not uselessly hanging onto cash just in case you might need it. Unless you know what you are doing, now is not the time to get rich in the market. IMO, now is the time to pay everything off and get your guaranteed 5% (+/-) in interest savings. As stated above, any interest paid on the HELOC is deductible which is obviously not the case with traditional auto loan.

Chad

 

[MichaelP]

Why do it with a HELOC>

Depending on your tax level a HOMEL will be worth an extra 2%.

I still would invest the money and get an equity loan to pay for the Viper.

 

[Chuck 98 RT/10]

Live for today.

 

[iispms]

I financed about 2/3rds of my Viper, but should have it paid off in about a year or two.

I think you should do what ever you think is right for you. One person's idea of right is never the same as someone elses. To each is one.

 

[J DAWG]

Cash and Carry

 

[V10 MOJO]

lotta opinions so ill toss mine; saying if you cant pay cash you cant afford it sounds just like what is expected from a true [******] or a novice. i couldnt afford my first business so i guess i should never have started it, umm wrong. financing is a very smart business option when done right. and it will make yyou cash as well. not much i have i couldnt drop cash for, but to pay cash is not always the best way. anyone can afford just about anything with todays screwed up economy and whacked finance system, i simply ask myself, not if i can afford what im about to aquire but can i afford to keep it and maintain my current lifestyle. off the soapbox now, LOL

 

[S-JC]

If you can't pay cash but feel secure enough with your financial situation that you know you can make the payments, why put off enjoying the best of the best?

 

[REMIX]

I guess the question is: How much cash is enough? If I feel I can live for 12-18 months without any income or increase in my investments and be able to maintain a semblence of my current lifestyle, is that enough? Of course, this is in ADDITION to cash put down on a "toy". I'm a worry wart.

By "lifestyle", I mean:

Mortgage payments
The occasional home improvement and maintenance (avg $10,000/yr)
Eating out a couple times a week, renting movies
Various auto expenses (insurance, gas, etc)
Taxes (property, income, etc).
The occasional gadget or plasma screen TV.

In other words, doing what I've been doing.

Vacations aren't in the cards for me because I travel a lot. And when you travel all the time, you don't want to be away from home when you have the chance. No kids 'round here 'cept for me.

Just trying to gauge here. BTW, I just set up a Viper account.

Good responses.

REMIX

 

[SCS]

I wouldn't park that much cash in a depreciating asset...I would put down as little as possible on the car and use the cash to buy rental property which should more than take care of the car payments...

After 5 years you have a paid for car and you have the property throwing off cash and building equity...The other way you only have the car which will be worth a lot less than you paid for it...There is nothing wrong with using OPM...

 

[jrkermode]

Borrow money to buy the car and make money doing so? How does that work?

If I borrow $50k to buy a car, all $50k goes to the seller. Where do I make the money? I'm left with a car, which is depreciating (-20% leaving the lot, -5% annually thereafter), and paying interest on a loan. No matter how low the loan rate, I'm losing money in the transaction.

If the strategy is to borrow money to pay the seller, then borrow even more money to invest, is that really a car buying strategy? Seems to me that's someone simply advising me borrow as much money as I can, which of course is personal financial strategy not a car buying strategy.

I guess the final interpretation could be that I borrow a bunch of money. Make a bunch of money, then go buy the car anyway I choose. Again this strategy is primarily about building wealth, not buying a car.

 

[MichaelP]

Borrow money to buy the car and make money doing so? How does that work?

If I borrow $50k to buy a car, all $50k goes to the seller. Where do I make the money? I'm left with a car, which is depreciating (-20% leaving the lot, -5% annually thereafter), and paying interest on a loan. No matter how low the loan rate, I'm losing money in the transaction.

If the strategy is to borrow money to pay the seller, then borrow even more money to invest, is that really a car buying strategy? Seems to me that's someone simply advising me borrow as much money as I can, which of course is personal financial strategy not a car buying strategy.

I guess the final interpretation could be that I borrow a bunch of money. Make a bunch of money, then go buy the car anyway I choose. Again this strategy is primarily about building wealth, not buying a car.

Who said you could borrow money to pay for the Viper and still make money?

 

[MichaelP]

I wouldn't park that much cash in a depreciating asset...I would put down as little as possible on the car and use the cash to buy rental property which should more than take care of the car payments...

After 5 years you have a paid for car and you have the property throwing off cash and building equity...The other way you only have the car which will be worth a lot less than you paid for it...There is nothing wrong with using OPM...

Well I have only been in realestate investing for 20 years so maybe you could edjamacate me how you do this.

You take the money you would have used to buy a Viper, use it as a down payment on a rental property and you have enough to pay taxes, loan, repairs AND the $500 a month Viper payment. Hey I got the 80K if you can show me how to do this I will pay you a bird dog fee.

 

[Birvini]

You should only finance it if you can make more off that same money in interest (invenstments) then what the interest on the loan would be. Why not use someone elses money while yours is making money.

Exactly!!! And as someone else said, do the home equity thing. Bank One is offering a line of credit for 3.99% with no closing costs.

 

[PETSN8K]

I think jrkermode may have been referring to my post. If so then let me try to explain.

If you have already decided to purchase a car, then it is safe to assume you have already accepted the fact that the car is likely to depreciate. Depreciation of the vehicle does not factor into this equation as it is an unavoidable but acceptable loss.

Now, lets say you finance the car at 4%. You then take the cash (you would have used to pay for the car) and invest it in rather conservative investments. You may not immediately have a >4% return on your investments but, with all predicators pointing to a "more bullish market" in the future, I believe your total return on the investments will exceed the 4% cost of the loan. In other words, when you finally pay the car off you will have more money in your investments than you paid for the car (including interest). Thus, in the long term you made money.

Everything in life is a gamble. You have to look at the facts, weigh the odds and make the best decision for you.

 

[CHAD]

pc, don't forget you have to beat 4% AFTER TAX which is closer to 6%.

Chad

 

[jrkermode]

My mistake pc.

I thought we were assuming the buyer did not have a bucket of cash in hand, rather they were choosing between financing now or saving up and paying cash later.

 

[PETSN8K]

jrkermode,

After re-reading the original post, you're right.

In this case I would recommend you at least keep 4 months (preferably 6 months)income as savings. You can consider this an emergency fund.

Then, if you really want the car and feel you can afford it, buy it! Take advantage of the low interest rates offered now and enjoy yourself. All the time having the knowledge that if something unfortunate happens you have the savings to fall back on until you can either unload your toys or get back on your feet.

 

[DodgeViper01]

Paying cash definitely has it's advantages. If you pay cash you will never have to worry about a payment on the car. It is also great because you do not incur interest. By the time you are done paying the car off on a 5 year loan you have already paid an additional $10,000+. Financing is good if you want to do it but personally I like the idea of paying cash. Once you pay it, it is over and you have nothing to worry about it. The only problem is that not everyone can just "throwaway" that money just like that.

 

[MichaelP]

Paying cash definitely has it's advantages. If you pay cash you will never have to worry about a payment on the car. It is also great because you do not incur interest. By the time you are done paying the car off on a 5 year loan you have already paid an additional $10,000+. Financing is good if you want to do it but personally I like the idea of paying cash. Once you pay it, it is over and you have nothing to worry about it. The only problem is that not everyone can just "throwaway" that money just like that.

This is only true if you get a high interest auto loan. If you get a home equity loan of say 5% it is MUCH less.

 

[CHAD]

$75k paid over 5 yrs @ 5% int is just over $9900 in interest incurred.

The question is, can you make $10k profit with $75k over the next 5 years, after tax. Personally, I would not take that bet. I'd take the guaranteed 5% savings and pay cash.

Chad

 

[MichaelP]

$75k paid over 5 yrs @ 5% int is just over $9900 in interest incurred.

The question is, can you make $10k profit with $75k over the next 5 years, after tax. Personally, I would not take that bet. I'd take the guaranteed 5% savings and pay cash.

Chad

I thought we were talking about a 50K Viper with 8K down.

 

[REMIX]

I think it's possible, especially down here in Florida with property. If I use my house as a gauge, as of my last appraisal it's appreciated around $60,000 during the past two years. Granted, I did some serious improvements, but I am faily handy with a saw, hammer and a paintbrush so the cost was minimal. I made some pretty lucky investments in some NASDAQ stuff when it was way cheap back in October of last year and am looking at 30%+ return since then as of this Friday (yes, most people thought I was being reckless - I just saw some stock I thought was dirt cheap - who knew?). If I were looking to invest $75k, I would put a mimimal amount of down payment (5%) into some rental property and let it throw off some cash and appreciate (assuming I can keep it occupied - this, again, not much of a problem down here). All the interest can be written off and my friends and I can handle all but the most difficult of improvements. I have some friends that have done very well using this method. Question is: do I want a Viper more than I want to have multiple appreciating investments in my life?

Hmmmmmm....

True, F355. Most people cannot afford to throw away that kind of cash. I don't remember the statistics, but I read somewhere the average family has nearly ZERO in savings and about $4,800 in revolving credit card debt. I do know people who are living way beyond their means - my girl works in collections at a credit union and you wouldn't believe the repos they get (no Vipers, unfortunately - but I'm all over it if I ever see one). I hate credit - just hate it.

MichaelP - I just cannot see putting 8k down on a 50k vehicle - particularly one that has no real practical use.

REMIX

$75k paid over 5 yrs @ 5% int is just over $9900 in interest incurred.

The question is, can you make $10k profit with $75k over the next 5 years, after tax. Personally, I would not take that bet. I'd take the guaranteed 5% savings and pay cash.

Chad