Downpayment for car

[V_for_Vanilla]

why u suddenly mentioned car depreciation?

If not, how to compare.

 

[dork32]

I did a side by side comparison before. It is better to take the loan and invest the now-available cash. No need 5++% return. Even at 3% return the overall car depreciation is lower than not taking loan.

i am quite amaze by how many people cannot do maths here.

eg i have 50k and have just bought a 50k car.

option 1 i use the 50k to pay for the car. i owe nothing. at the end of 5 years i have car and nothing else.

option 2. i borrow 50k to pay for the car at 2.75% and pay 948 per month for 50 years. i put my 50k into investment at 3%. every month i draw down on my investment to pay for the car. at this rate my 50k will be gone in in 57 months. at the end of 5 years, you have to find another 3k from dont know where to pay for the car. you still own the car.

which option is better? do you know how to do maths?

 

[dork32]

why u suddenly mentioned car depreciation?

wahkao is right. it does not matter how much the car has depreciated. whether you take a loan or not, the car would have depreciated by the same amount.

 

[dork32]

To top it off.. if the person is investment saavy and have proven himself to be able to generate at least 50% return on his investment within a 5 year cycle. Would he be better off investing it or paying down in full. It really depends on the person's appetite for risk and aptitude for investing.

this is what i am saying all the while. if you can achieve 50% return in 5 years, you can beat the 5++% effective interest. if is worth taking a loan.

if you can only achieve a miserly 3%, then dont waste time investing. just forget about the loan.

 

[Mecisteus]

i am quite amaze by how many people cannot do maths here.

eg i have 50k and have just bought a 50k car.

option 1 i use the 50k to pay for the car. i owe nothing. at the end of 5 years i have car and nothing else.

option 2. i borrow 50k to pay for the car at 2.75% and pay 948 per month for 50 years. i put my 50k into investment at 3%. every month i draw down on my investment to pay for the car. at this rate my 50k will be gone in in 57 months. at the end of 5 years, you have to find another 3k from dont know where to pay for the car. you still own the car.

which option is better? do you know how to do maths?

The best thing he can come up with the the depreciation into the picture.

 

[peterchan75]

For $50k, one can probably buy a 5 year old car unless it's an OPC. At the end of 5 year, one can only get the scrap value and no car left.

 

[dork32]

For $50k, one can probably buy a 5 year old car unless it's an OPC. At the end of 5 year, one can only get the scrap value and no car left.

it does not matter whether it is 50k or 100k. this is just an example. even if it is 100k, the story will still be the same

 

[Mecisteus]

morals of the story are

1) the effective interest of a car loan is quite high ie >5% per annum

2) if you decide to take a care loan for 10 years and assuming if you have enough capital to pay off,

a) you are likely to put this capital in some low risk instruments for the same 10 years period. but there isn't any low risk instruments to beat the high 5% effective loan interest rate.

b) OR if you decide to put the capital into some high risk instruments, you have a good chance of not beating the 5% effective loan interest rate within the 10 years loan period.

in short, take the car loan if you are confident of beating the 5% effective loan rate.

 

[V_for_Vanilla]

i am quite amaze by how many people cannot do maths here.

eg i have 50k and have just bought a 50k car.

option 1 i use the 50k to pay for the car. i owe nothing. at the end of 5 years i have car and nothing else.

option 2. i borrow 50k to pay for the car at 2.75% and pay 948 per month for 50 years. i put my 50k into investment at 3%. every month i draw down on my investment to pay for the car. at this rate my 50k will be gone in in 57 months. at the end of 5 years, you have to find another 3k from dont know where to pay for the car. you still own the car.

which option is better? do you know how to do maths?

The car at the end of three, five or 10 years has different residual values (PARF). It is not 'nothing else'. This is why depreciation comes in as it shows the real purchase cost each year at different intervals after deducting PARF.

Your option two makes a woeful assumption on cash-flow not steeped in reality. You have assumed there is no other cash on hand other than the returns from a 3% investment of 50k to service the 5-year monthly loan instalment. This is why you think by the 57th month there is nothing left to draw down from. Btw is there investment that allows you monthly draw down this way? (Monthly FD? Stock trading? Such short term positions are not investments.) So enlighten me if there is.

What focus1974 means, I am assuming is similar to what I think, is you take all the cash outflow and inflow relating to the purchase cost of the car. Option 1 is simple. After five years, you subtract the PARF (residual value of car) from the 50k wholly paid. You get a depreciation figure. (Notice I have not even factored in market value of the car.) Now compare option 1 with taking a loan and use the 50k in investment yielding 3-4% annually. (If it is a bond, the returns come twice a year, meanwhile you need to have the cashflow to service the monthly cash outflow in loan instalments.) Now compute at the end of 5 years what is the depreciation for this method.

P.s. The above is a mouthful. And most of it has nothing to do with Maths.

 

[Mecisteus]

you have 2 options. take loan or no loan.

under both options, you are buying the same car. same depreciation method, PARF, etc, etc. so the depreciation can be taken out of the picture. they are affecting both options.

 

[V_for_Vanilla]

you have 2 options. take loan or no loan.

under both options, you are buying the same car. same depreciation method, PARF, etc, etc. so the depreciation can be taken out of the picture. they are affecting both options.

Sure. I am talking about the true purchase cost of a car. Depreciation after factoring in all outflow (loan instlament), and inflow. (Includes investment returns, if any)

Edit: Perhaps I put it another way. Instead of depreciation think of cash flow. Compute and see which way makes you better off after five years.

 

[dork32]

you have 2 options. take loan or no loan.

under both options, you are buying the same car. same depreciation method, PARF, etc, etc. so the depreciation can be taken out of the picture. they are affecting both options.

you are so right man.

 

[dork32]

Your option two makes a woeful assumption on cash-flow not steeped in reality. You have assumed there is no other cash on hand other than the returns from a 3% investment of 50k to service the 5-year monthly loan instalment. This is why you think by the 57th month there is nothing left to draw down from. Btw is there investment that allows you monthly draw down this way? (Monthly FD? Stock trading? Such short term positions are not investments.) So enlighten me if there is.

you are the one that mentioned 3%, not me. i am doing the mathematics and saying if it is 3% then forget it.

i did not say you should never borrow. i am on the same side as mike. you can hit 5++% borrow, you can consider borrowing.

yes there are such instruments in the market. one simple one that fits this is maybank saveup account.

 

[dork32]

T

What focus1974 means, I am assuming is similar to what I think, is you take all the cash outflow and inflow relating to the purchase cost of the car. Option 1 is simple. After five years, you subtract the PARF (residual value of car) from the 50k wholly paid. You get a depreciation figure. (Notice I have not even factored in market value of the car.) Now compare option 1 with taking a loan and use the 50k in investment yielding 3-4% annually. (If it is a bond, the returns come twice a year, meanwhile you need to have the cashflow to service the monthly cash outflow in loan instalments.) Now compute at the end of 5 years what is the depreciation for this method.

P.s. The above is a mouthful. And most of it has nothing to do with Maths.

it does not matter what the parf is, whether you take loan or not, it is still the same.

it does not matter what the market value is, whether you take loan or not, it is still the same.

you dont even have to bother what happens in between, cash flow in, flow out, donald trump wins, us invade russia... you just have to measure at the end of 5 years which one got more money/value, that is the better choice.

 

[dork32]

Sure. I am talking about the true purchase cost of a car. Depreciation after factoring in all outflow (loan instlament), and inflow. (Includes investment returns, if any)

Edit: Perhaps I put it another way. Instead of depreciation think of cash flow. Compute and see which way makes you better off after five years.

we dont care about the true purchase cost of the car. we need to drive, at whatever rubbish price, we will still buy.

the question is we should put a bigger down payment or take a bigger loan.

 

[dork32]

hi mike, sorry for being your parrot. i agree with what you said.

i cannot stand people talking rubbish so much so, that i have echoed what you said again.

 

[dork32]

ok you want to play outflow and inflow

eg i have 50k and have just bought a 50k car. and i have a salary for 948 a month

option 1 i use the 50k to pay for the car. i owe nothing. i will put my salary into the my investment at 3%. at the end of 5 years, my salary will become
$61 285

option 2. i borrow 50k to pay for the car at 2.75% and use my salary to pay for 948 per month for 5 years. i put my 50k into investment at 3%. at the end of 5 years, my 50k investment would become 58 080.

you realize that the difference is 3k. this is exactly the same as the 3k that i quoted in the previous example. it means, it does matter what happens in between, it is still the same.

or you want another example with salary of 5000 per month? what do you think the difference is.

 

[dork32]

you dont call it maths because you cant do maths.

you can figure out how i can come up with 61k and 58k then we can talk maths.

 

[V_for_Vanilla]

ok you want to play outflow and inflow

eg i have 50k and have just bought a 50k car. and i have a salary for 948 a month

option 1 i use the 50k to pay for the car. i owe nothing. i will put my salary into the my investment at 3%. at the end of 5 years, my salary will become
$61 285

option 2. i borrow 50k to pay for the car at 2.75% and use my salary to pay for 948 per month for 5 years. i put my 50k into investment at 3%. at the end of 5 years, my 50k investment would become 58 080.

you realize that the difference is 3k. this is exactly the same as the 3k that i quoted in the previous example. it means, it does matter what happens in between, it is still the same.

or you want another example with salary of 5000 per month? what do you think the difference is.

Yes, I see where you are coming from. But you are assuming I need to use $948 from my salary for the instalments. My assumption is I do not need to use my 'salary' (or whatever you wish to call it) as I have other sources of cash for that purpose. So while I pay off the loan instalments, I use the 50k unused capital to invest. After 5 years I total my outflow (instalments) and inflow (returns). Net nominal outflows is lesser than the one time 50k payment you make at the start of the first year.

Your monthly compounding 3% investment product is not too shabby. I will also participate and put $948 in each month. Again the cash comes from other cash sources. Don't assume $50k and only $50k is all there is to it, which is essentially what you are assuming.

One more thing to note is without car loan the selling price for brand new is slightly higher (because no loan rebate from bank) and do not include three-year servicing. So these are additional costs too. My current car is bought without loan. My next car I will be taking loan even though I can pay in full. Because I feel overall package is still a better option. Of course your mileage may vary.

 

[V_for_Vanilla]

hi mike, sorry for being your parrot. i agree with what you said.

i cannot stand people talking rubbish so much so, that i have echoed what you said again.

you dont call it maths because you cant do maths.

you can figure out how i can come up with 61k and 58k then we can talk maths.

You are being quite rude. So long then.