re: Financial question

["Tamer Rashad" <tamer@xxxxxxxxxxxxxxxxxx>]

Bob,

I disagree with you that paying interest on a car is not a good and sound
financial decision. If you have the cash to spend on purchasing a car,
shouldn't you keep that cash and finance the car as long as the car loan has
an interest rate lower than your return on investment.

Let me explain this. If you want to buy say a new BMW 3-series for a total
of $40,000 and you have all that amount in cash. You are saying that I
better buy the car in cash and save myself the interest. I suggest a better
simple financial strategy. If you can get a loan say at 10% or lower with
zero down-payment, you better take it if you can invest those $40,000 in a
fund that will give you any return above 10% and you cash the difference.

Tamer Rashad
92 325iC
tamer@domain.elided
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Date: Wed, 05 Aug 1998 14:18:44 -0500
From: Robert Moore <rlm@domain.elided>
Subject: re: Financial question

Tamer,

You ask an interesting question, probably not considered frequently
enough.

I think your question, though, should have more to do with net worth as
opposed to net income. I don=92t like to spend a large fraction of my net
worth on a typically depreciating asset like a car. I buy meager cars by
most people=92s (Americans=92, at least) standards (though I consider the=
m to be excellent cars and tremendous bargains). Well cared for, used
BMWs, for instance, are great cars to buy (BMW content).

You omitted a major cost...depreciation. This is probably the most
significant expense in the first few years of owning a new car. A
payment on a loan really isn=92t an expense...at least not all of it. The
interest portion is an expense, but the principal portion just gets
converted to equity in the car. A lease payment, on the other hand, from
what I can tell, is a pure expense (if the car is not purchased at the
end of the lease).

If your interested in long term =93sound financial planning=94, you are n=
ot interested in either borrowing money to pay for a car or leasing a car.
It doesn=92t make good financial sense. Pay cash, then save for the next
one.

Bob
'91 318is
'89 325i

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