alt Hacker NewsLet’s say you finance $40,000 in auto debt over 5 years. With a low interest rate of 6% paying $6,300 in interest. That’s over 15% of the amount borrowed! Many people have lager rates over longer periods.
Now consider what would happen if you invested that $6,300 for 30 years instead of spent it on interest. You’re losing out on tens of thousands of dollars in total lifetime wealth.
When you borrow money to “enjoy life” it can quickly end up costing 2x what it would if you spent the money outright, even if you borrowed at low rates.
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Well seeing that you need a car to go to work to have money to invest in the first place…
And before you say “buy an old beater”, then you have to contend with an unreliable car that may cause you to be late to work and get fired. It’s also much easier and cheaper to get a car loan for a newish car than to borrow money to fix a car.
Its kind of funny how the people who don’t want to work with “lazy,” mangly, poor people with bad teeth are the first ones to tell poor people how they could’ve made interest on 6300 dollars over 30 years.
The trick is to borrow $40,000 to buy the car at 6% and keep your $40,000 invested making more than 6%. Even at 7% annually, you’d make $16,102 over five years (1.07⁵ × $40,000). For that matter, at 6.1% annually, you’d make $13,782 (1.061⁵ × $40,000). Heck, even at 5.9%, you’d make $13,277! The reason why you make more even with a lower rate is that you pay less interest each month with the amortising loan!
The trouble is if one borrows that $40,000 to buy a brand-new car (which will lose $16,000 over five years), or if one borrows that $40,000 and doesn’t have or doesn’t invest $40,000, or both. Life’s a lot easier if you already have the money.