For what it's worth, I just bought a new car for $35k. Came with a 5 year interest free loan with nothing down. If you can get that type of loan, you don't want to pay it off quickly.
You bought a $35,000 depreciating asset on finance, and one that is substitutable by something for $5000. If you had to sell the car in a year's time then it's very likely that you may not even make back the value of the loan.
Meanwhile you could have taken the $30,000 difference, and automatically paid those earnings that would have otherwise paid off the loan into savings, a 10K or a start-up.
Yu could also have purchased a motorcycle (for the fun) and a cheap box car (for the practicality). And let's not get into the running costs, the decision to drive every day, insurance and so forth.
Buying depreciating assets with anything but spare cash is really sad.
(When I lived in the US I purchased 2 cars - for a total sum of $2000.)
First, while cars are depreciating assets, the depreciation curve is a decaying exponential. This means that while the first year you go into the red, after 3-4 years you are back around the black again.
Second, interest free loans are practically better than spare cash. How do you know your parent didn't have $35,000 in spare cash, but wisely took the interest-free loan to leverage himself? You certainly cannot dismiss the possibility, as the poster must at least have respectable credit and/or income to qualify.
Third, your parent was merely making an observation on interest-free loans, which was pertinent to the parent of said post. Where do you fit in, criticizing his/her financial decisions and telling them what they should be doing with their money?
There is an interest rate on the financing, a cost for payment insurance, and almost certainly a margin on top of both, but they've both been built into the price of the car.
It's very likely you could have gotten additional savings for paying cash up-front. It's usually cheaper to pass up these offers and negotiate the price down.
> It's very likely you could have gotten additional savings for paying cash up-front.
Payment method doesn't change your all-in cost significantly. The dealership has a minimum margin, and you'll pay it either on the front end (higher cash price) or on the back end (loan interest).
Generally speaking, car dealerships are in the business of selling loans -- not cars. If you want to pay cash they'll sell you a car, obviously, but the cost benefit of writing a check is way overblown.
what's the benefit in not paying it off quickly if you can?
That monthly payment is extra cash you could put away into savings or other investments, presumably at a positive interest rate. Even if the market sucks and interest rates on most banks are terrible right now, at the very least, it's still money you could have invested in yourself with some positive return.
You basically just advised doing exactly the opposite of what you wanted to advise. The money used to pay it off quickly is the extra cash you put away in other investments. If your choices are pay off a zero percent loan or invest for a positive return, you don't pay off the loan.
Meanwhile you could have taken the $30,000 difference, and automatically paid those earnings that would have otherwise paid off the loan into savings, a 10K or a start-up.
Yu could also have purchased a motorcycle (for the fun) and a cheap box car (for the practicality). And let's not get into the running costs, the decision to drive every day, insurance and so forth.
Buying depreciating assets with anything but spare cash is really sad.
(When I lived in the US I purchased 2 cars - for a total sum of $2000.)