fulltimedaniel wrote:
Talk about Voodoo economics! Paying cash for any substantial durable good that has high depreciation is crazy. Borrow the money at 2017 dollar rates and pay it back with dollars that are worth less in the future. The interest rate is the issue here too. If you have good credit banks and others are willing to go as low as 2%. That is virtually free money as long as inflation is at or above that number.
There are also other considerations: The cost of maintenance on an older vehicle rises over time along with the cost of labor and parts to maintain it. New vehicles have a warranty.
There is also a reliability factor to consider.
So I don't think the issue is as straight forward as it would seem.
Was this purchase the OP talked about a wise one? Probably not economically speaking. And it sure sounds as if the guy paid full price...not counting what came off in the over generous allowance for his current truck.
There are also other considerations in buying new vs used cash vs financing.
One of my favorite cars I owned was my 1995 BMW 740 IL. At about $74k new it was not cheap. But when I sold it in 2007 with more than 100 thousand miles on it it was by far the cheapest car I have ever owned in terms of real cost both operating and overall. It never needed even so much as a light bulb until 2006. And when I sold it it was like new. Solid, quiet ungodly fast and needed nothing.
So just because a vehicle is expensive doesn't mean you will lose your shirt on it. But it does depend on what vehicle you buy. And of course I financed that car it would have been the height of folly to pay cash even at the low depreciation rate of the BMW.
We're on a fixed income, so the dollars we have are the only dollars we are going to have. They may be working for us in a balanced investment portfolio, but there are no guarantees how much that might earn. Carrying no debt just makes sense to me. We paid cash for our house, cash for both vehicles (2010 Ford Edge and 2016 F-150), cash for the TT, and we pay off credit cards in full every month.
We keep our vehicles until they reach a point of negative returns. My 14 year old 1989 Toyota PU was traded in 2003 for a Honda Accord V6 Coupe. I drove that for 9 years and only sold it when we moved to the Bahamas in 2012 - with just 79,000 miles it had a lot of life left in it, but it was too costly to import a second car into the Bahamas (about 65% of the book value in import duty, plus shipping), and we had already shipped a 2000 Toyota Avalon down there. The 2 vehicles we have now will be driven until age or maintenance costs dictate that they be replaced.
One more comment, although I've never leased, supposedly if you are planning to always trade in a vehicle as soon as it's paid off, or before, then you might be able to go a bit cheaper by leasing. I know that the monthly payments on a lease are usually less than loan payments. The downside, and what has always made leasing unattractive to me, is that when the lease is up, you still don't own anything. When I pay off a loan, the car is now mine. I like the feeling that I have a tangible asset at the end of the payment cycle.
