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dean1484
dean1484 MegaDork
8/9/21 8:19 a.m.
ProDarwin said:

If you are buying a new car, it makes more financial sense to take out a loan than to pay cash.  Your earnings in the market will greatly outpace your interest.

I used this logic to finance my last couple cars.  I netted a percent or so. Where the math gets a little fuzzy is the fact that you are drawing down on your investment to pay off the note so compounded interest goes down.  The new math for car loans works so that the interest is calculated up front and then added to the loan amount and then the total is divided by the number of months. Thus paying off principal early does not help you.  You are agreeing to pay back a total amount not an amount plus amortized interest. 
 

ProDarwin
ProDarwin MegaDork
8/9/21 8:41 a.m.
dean1484 said:
ProDarwin said:

If you are buying a new car, it makes more financial sense to take out a loan than to pay cash.  Your earnings in the market will greatly outpace your interest.

I used this logic to finance my last couple cars.  I netted a percent or so. Where the math gets a little fuzzy is the fact that you are drawing down on your investment to pay off the note so compounded interest goes down.  The new math for car loans works so that the interest is calculated up front and then added to the loan amount and then the total is divided by the number of months. Thus paying off principal early does not help you.  You are agreeing to pay back a total amount not an amount plus amortized interest. 
 

Paying off principal early never helps you IF you are willing to invest the 'extra' money instead :)

See also: any thread were the idea of early mortgage payoff comes up.

chaparral
chaparral Dork
9/28/21 8:44 a.m.

The other thing to consider is the point of increasing your net worth - do you want stability or flexibility?

If you have a paid-for house, you've just reduced your monthly expenses by $$$$. Does this allow you to spend a little more time choosing your next job?

If you have a paid-for car, you've reduced your monthly expenses by $$$ and probably took $$$ off your auto-insurance payment when you dropped collision. Does this improve your ability to budget for repairs?

You could come out ahead by ten thousand dollars investing the cost of a new car and financing it, but what were you planning to do with your gains, and how much would a loss hurt?

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