So I have rocks in my brain for taking a 2.9% interest loan? I don't see it that way considering my investment horizon allows me to earn 8% in a vangaurd sp500 etf with the money I could have used to pay for my car outright.
This doesn’t make sense. You’re arguing that this was about capital allocation for you, but if that’s the case, buy a used car for half of what a new car would cost. If you buy from someone like Carmax, you can get access to loans which are almost as cheap as what you’d get on a new car, and you’re buying a car with very little wear and tear.
crikli said "Anyone that signs up, of their own free will, for a seven year loan on a depreciating asset has rocks in their head."
I'm saying that financing can easily make sense with low interest rates. Nothing in my comment nor criklis has anything to do with buying a used vs new car as the same logic applies to both.
The alternative isn't to buy a brand new car for the same amount of money. The alternative is to actually buy a car you can afford.
You are still losing maybe 50% in the first year in depreciation. If you are paying it over 7 years then you are under water on the car from the minute you pick it up until it's paid off in full.
You can finance a cheaper car. Buying with cash carries a large opportunity cost due to compound interest being a helluva drug.
If you can finance at an interest rate below what you are earning in the market then you are better off financing. People who pay in cash are leaving money on the table for non-financial reasons.
It seems improbable that dealers / manufacturers can't do simple compound interest calculations too. If they are offering loans at below market rates they are basically giving you a discount on the cost. If they are willing to do that then you should be able to get a similar discount on a cash basis.
Its basically the same thing when you borrow at a longer term to invest the difference.
Mathematically, it makes a lot more sense for us to refinance to another 30 year loan (to get rid of PMI) and invest the difference but I am planning on refinancing to a 15 year.