Carmageddon: The makings of the next credit crisis could be in your driveway

I do not understand why people take loans for a car. If you can afford $x00 a month for 5 years, for a car loan, put it in the bank instead. Earn interest, instead of paying interest. In 5 years buy a new car for cash and sell your old one, then start saving again.

Bullet Bob said:

"...insane discounts on new sedans"

I think part of that is their own darn fault. I love the exterior of the Chevrolet Impala, but won't buy a car with automatic engine stop/start that can't be turned off. CVT? No thanks, Nissan Maxima. And somehow Toyota manages to make the front end of the Avalon uglier each year.

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Very, very true. I drove a BMW with start/stop and hated it - I couldn't wait to get out of that car.

And my wife's CVT in her Nissan is deplorable.

Toyota and Honda seem to be in a race to see who can build the ugliest sedans. I think they're both winning.

Mike-E said:

I do not understand why people take loans for a car. If you can afford $x00 a month for 5 years, for a car loan, put it in the bank instead. Earn interest, instead of paying interest. In 5 years buy a new car for cash and sell your old one, then start saving again.

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Or--now here's a radical thought--if you can make MORE on your cash putting it away than it costs you for the loan, then it's insane NOT to take the loan.

My loan is 1.86%. The cost of that loan over its life is $1100. If I put that $25K into the bank (which I did), and it earns MORE than $1100 for me (which it has already), THAT'S why you take the loan.

In the meantime, that cash is there, ready to pay off the loan on demand should circumstances demand it.

Otherwise, if you pay cash, you save the $1100 interest over the life of the loan--but you lose out on the $5000 of interest you could make over the term of the loan.

Do the math. You would pay $5000 to save $1100?

Other People's Money. If you can use it, use it.

Mike-E said:

I do not understand why people take loans for a car. If you can afford $x00 a month for 5 years, for a car loan, put it in the bank instead. Earn interest, instead of paying interest. In 5 years buy a new car for cash and sell your old one, then start saving again.

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Because this is more expensive.

With current interest rates and market conditions, always take the loan and invest your capital.

to be fair when comparing when to borrow vs pay cash, one should also consider that interest on borrowing will not be tax deductable, whereas in most cases investment returns will be. thus the "opportunity" of borrowing and investing cash that could have been used to pay outright is not necessarily attractive.

in my case, in summer of 2016, got a 5.5k discount off sticker and a 5 year loan at 0 interest rate...so the above paragraph doesn't apply.

the big costs for buying new are sales tax, restarting the steep end of the depreciation curve, and possibly higher insurance costs.