Should You Pay Cash For a Car
Should you ever pay cash for a car? In this video, I'm going to break down the credit side and also the investment side vs paying cash for a car.
Now before I go into details:
1. Buying a Car is always going to be negative in your bank account balance. Both in cost and also in depreciation. ( the value of the car will keep going down, but theirs a way around that)
1. Cash vs Credit ( first lets bread down Credit)
- If you have a decent credit score and you’re buying a used car for example ( the average interest is 5% )
Here is a Car I found:
- Its Honda Civic, 4 doors, the year 2016, and Its around $12,000 bucks – but that’s negotiable.
- The idea is, if you financed the entire car for 5 years at 5%, then at the end ( payment of $226 monthly)
- You would have paid a total of $1,587 or $317 bucks per year
Pro: it's only going to cost you, $226 per month and you won't have to spend all that money at once. ( not including insurance though)
Tip: the reason I picked a used car for this example, is because the data shows that a car of 4 -5 years have already done most of its depreciation. That way you buy a discount and retain more of the car value.
- You pay in cash ( no payments and all the money is in the car losing value every year)
2. Investment vs Cash
- Thiers this great joke that I recently heard
- If your financial advisor calls you and tell you
- Give 30k and ill show you how to turn into 15k in the first 3 years
( you’ll probably fire them lets be hones)
- If you invested that 12k over 5 years at 7% return ( instead of buying the car here is a big difference)
- In 5 years, you would have around $16,830 bucks
- Meaning that by investing, you’ll basically get the interest money back for free, plus an extra $3,243 ( which Is around 27% of the cost of the car, which should help cover some of the depreciation)
Obviously: buying a used car, and financing, and investing the money and forgetting about it for 5 years is the best strategy.
3. Here is what My friend did
- We had a one-hour conversion
- About how he lived in an apartment for 20 years and didn’t own a home
- And after the convo, I thought he would buy a house and put down a down payment ( which he could defiantly qualify for )
A Week Later:
- I say him in a fancy brand new car, that he paid a little over 30k for
- I smiled and said the car looks amazing
- 3 years later ( that 30k is now worth 20k and it keeps going down)
Tip: the only time it's okay to buy a new car, is when your overall net worth is over 1million dollars – and even then don’t go buy a 100k car.
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*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I'm an Accountant but I'm not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.