Financing vs Paying Cash for Cars: What's the Right Answer?

Tyler and I have had many debates typically long after the podcast is over and we're a couple or few Bourbons deep I find a lot of these discussions are

better that way because we're a little more socially lubricated we can kind of be a little bit more honest and say some things but uh yeah we thought we should

maybe record it this time right so the big one is should you finance a car this is not Financial advice none of what we're talking about is finan well it is

it's not investment advice right it's not licensed Financial whatever no it's it's opinions um this may sound like a rhetorical question right because our

culture says uh like why not what who what's the other option why wouldn't you that's how people do things but I'm from

the Dave Ramsey Larry briquette school of thought Tyler is what's your saying PenFed is my oh yeah all hell PenFed let's go PenFed is my Lord and

Savior for those of you who don't know is Pentagon Federal Credit Union they're an online credit union uh who offers very competitive rates I this is non endorsement no no no they it's

competitive rates and they will uh give you a loan on an old car right so we see their checks come in a lot to the dealership and we enjoy working with them and they're great for our customers

however my personal opinion differs from Tyler's and of course of course Ethan has been asking I think this all comes down our producer Ethan has been asking about like buying a sports car we've

been trying to get him into cars and so like there's this big existential struggle like should he keep his Nissan Morano which is paid off or should he go

deeply into debt for the a museum Quality Nissan Morano cross Cabriolet oh well the answer is yes or we can get some more whiskey get some sawalls and

just make him one that'd be great a cross cab conversion yeah dud oh my God you put enough whiskey in us we anything C4

cross cabri no never mind cab cross CIP never mind okay that didn't work cab stands for Cabriolet uh so did you think it stood

for tax cab shut up financial advisers often say and I've heard this from

yeah that you shouldn't pay cash for a depreciating asset which to me is the most nonsensical

advice on the planet are they what I think is weird about that and and I'm sure you're going to cover some of this is you are paying more money be with the interest on the loan for a car that is

losing money so you're losing more money than you would have if you just paid cash at the end of it yes well it goes back to a principle of money is fungible

and so is debt so if you're going to finance one thing or another it's not about essentially what you finance it's whether or not you are financing if you

shouldn't pay if a depreciating asset is a bad financial decision you shouldn't also pay interest on it you just shouldn't buy it don't buy a new car if you don't want a depreciating asset buy

a six-year-old used one I mean still depreciate some but not as much however and there's also two like kind of a dichotomy here I just said like uh if

debt is fungible it doesn't matter what you finance but at the same time you Tyler have a uh view that you shouldn't Finance daily drivers but it's okay to

finance toys yes so I don't want and this is again my personal opinion we'll see if uh o uh Co Op fin get dragged for

this um I do not want my daily transportation to be hung up in a like if if something happens something awful financially happens to me I don't want to not be able to pay for my required

Transportation I have to get groceries I have to go to work I have to do X Y and Z so I would like to own my daily Transportation I would then like to

stretch if I'm honest for toys the other logic I have with that is I'm not stretching for a brand new Ferrari that's going to depreciate maybe but depending on which one you buy or like a

brand new Aston Martin I'm looking at cars that are 20 years old and have done most if not all of their depreciation already which is where PenFed comes in because they'll give you a loan for one but you know and it's not to guarantee

that the bottom won't fall out and they won't go to zero there is risk in all of this but I feel uh that my personal view has allowed me to mitigate some of the

risk while also getting some of the benefit of using somebody else's money that I pay them back over time uh do you see benefit in terms of having extra

money in your savings account or investing that money instead or is it just that that you straight up can't afford the car oh 100% the second one I well which is I think the other thing because everybody on the internet and

I'm just I'm being straight about this like everybody's be like oh my God you could invest that money you could ruce X today's interest rates that's true I you know I'm not even I'm not trying to say

that I'm going to do that instead because I'm not I am I am using a a pool of fun cash that I have saved that I just don't have enough of to purchase

the thing I want does that not contribute to your anxiety the fact that you have like this thing this payment hanging out there this risk of like this

car could get repoed or I could lose my job whatever I can't make those payments and I have to deal with a shame of somebody coming to pick up my Porsche

the the number of the the total loan about has to be small enough so there have been a couple of times um I'm trying to buy a 996 GT you say that but

didn't you 100% % Finance your first 996 I'm getting there DG D so that is one of the things I want to talk about I have financed two CS uh through PenFed not a sponsor but hey hit us up um we don't

even have an affiliate Link Stop plugging them I financed so I had just started at my in my career out of college um you know I was making pretty solid money I

had dreamed of owning a Porsche forever um and I decided that instead of waiting to save up the cash to purchase the car I went full send and financed the entire

purchase price of a 996 in 2017 um so I paid $24,000 of somebody else's money um I paid for taxes Transportation I did all that other stuff I paid for but the purchase price

of the car I did not did the bank make you get like a special warranty just for the IMs to make sure their collateral was covered no they didn't care I like talked with them on the phone they're

like nope this is per our metrics the car is worth more than you're paying for it so I was like okay okay I would not do that again I what's weird is I am more stable now

than I was then but I wouldn't do that again there's just too much risk feels weird well probably because you've gotten yourself to a point of stability so you understand what that feels like

and you understand what the real risk is in financing in being that leveraged well and like that car could have blown up a month after I got it like I have

put so many wonderful miles on that car and so far knock on wood it has been fantastic but gosh that r i could if that car blew up in 2017 I could not have afforded to

replace it or fix it uh our friend John sabbo has a saying don't uh pay cash for toys right so he would be okay with

financing a new car or daily driver leasing it or whatever but then your toys or your toys like that's extra money that's not a life cost right there

is an actual cost to owning a vehicle right there's just the wear the use the gas the maintenance Etc and people assume well part of that's just wrapped up in the payments right if you're

buying an old car and you have payments on it there's a saying I heard recently you're going to have Parts you got have payments but never have parts and payments essentially like don't finance

a car out of warranty right so you're kind of going the opposite way and going oh yeah screw it I'm going to take double risk I'm going to buy 996 with IMS and boore scoring issues and I'm

going to 100% finance it which to me is like I could not sleep at night but what I what helps me and I think this does come down to a level of risk Comfort um

CU I'm not trying to say that what I'm doing is smart it has so far worked for me and I like to try and mitigate risk as much as I can while also understanding that if I have the ability

to stretch a bit to to to achieve something to to get in a vehicle that I would like now I would like to take the little little bit of a risk to try to make it

happen um because I have seen so many people in my life um as they have aged get to the point where they do have the money where they finally retire or you know it's like the the retiree getting his Corvette like finally but it's like

you can't drive stick potentially you could have other issues it's like I am taking some risk now in spite of all my anxiety to enjoy stuff that I

love within I I want to say within reason but sooner sooner I think so there's a couple

what I believe are uh misnomers or or or false beliefs about financing cars that play into this one is well I could never

afford it unless I financed it which is completely false because you're still paying the same amount for the car itself you're paying the same amount of depreciation you're paying the same

amount of wear and tear of Maintenance in fact you're paying more because you're paying the bank for the privilege of using their money but you are still

paying for the entire car over time and don't say oh well I leased my car so I'm not leasing is the most expensive way statistically to own a car period I don't care if you say the payments are

less whatever because of the structure the interest rate is higher and you are taking the most amount of depreciation because you are buying a new car and turning it in after 3 years period it is

the most expensive way to own a car so you're not you can't use the excuse that oh well I can't afford it other than financing you bought it anyway you're

just paying extra for it and that is the for in the way that I view this that interest money is the cost of having it now versus later there is additional non

money costs the stress the anxiety the extra monthly payments yada so it's not just that um the another thing about before people get crazy when I took out

that 24,000 loan on the 996 the interest rates were wildly different I paid $800 over 3 years in interest which is honestly at that amount of money for a

toy meaningless that is one service well but then the the problem with that is right so in hindsight yes mathematically it made sense the behavior aspect of it

is a problem because people will use 0% financing as a justification to go get a loan the reality is that 0% is usually not 0 % right the bank doesn't do

anything for free neither do car dealers you are paying for that somewhere else often and I used to work at a new car dealer and we would get

specials and it was you can either give them a $55,000 cash rebate or 0% financing because the cost of 0% over

the course of the loan was $4 to $5,000 to the bank so it's like well one or the other we're just subsidizing the rate so

a 0% loan if you're buying like you know 90 days same as cash is a complete scam but if you're buying a car it's being subsidized there's no free lunch it's

not really 0% so like that's that's a false narrative and you can't get hung up on that oh man if I could get 0% on a loan for a GT3 though Doug well we you

take a 10% loan for a GT3 I'm not like I'm not faulting you for that I want you to own a GT3 but like I could never do it right to me it's if you can't afford

the toy you don't buy it which I I you know I totally respect and is more I will admit I don't I haven't had a car payment for a little bit and it's really

nice it is so nice to just Corvette life I bought a C5 no car like so there is a huge benefit and if I there is a small part of me that looks at the cash I do have available and be like wow I could

like get something for that and then just have it and like not have to worry about it so there is this isn't perfect it is what has like I said it's historically worked for me what I am

will the risk I willing to take to achieve a a potential dream or whatever sooner than just saving up for it the

the mindset though with that is that you can go crazy right if you draw a line in the sand and say I'm not financing anything other than a house you could then say okay well I'm

going to take out a loan for this but I want to preserve my cash right I want want to buy house so I'm going to take out a loan for a wedding I'm going to take out a loan for GT3 I'm going to take out a loan for the boat I'm going to do all these things cuz I don't want

to wait and then people get all caught up and all of a sudden they've got four grand a month in payments and all these toys well but it starts right it's a slippery slope the mindset of I want a

GT3 now but I don't have the cash so I'm going to finance it that mindset then creeps to I also want this you have to be diligent what's more diligent than

just saying I'm not going to finance you have to the level of diligence I'm talking about Doug is not so diligent that you're waiting to have the cash for the GT3 it's like I'm going to only get

have two drinks but not four exactly moderation everything in moderation debt in moderation but the one thing that I do like is that if with the cars I'm

interested in that I would get a loan for the amount of that purchase price that I would be comfortable paying in a loan over probably 3 years years maybe

four but three is where I like to stick um I can get out of it I'm never underwater they are for the most part Enthusiast cars that people are

interested in so there's a market to offload it if I have to get out of it if I have some Financial Strife there will be a cost I will not get out of it what I paid the taxes you know everything

else but it is which is my Logic for the toy thing because I don't need it to get anywhere I can get rid of it if I have to but you take that to The Logical extreme

and you have like the Exotic Car hacks mentality and you have where people buy a car they finance the crap out of it and then they don't drive it they become

consumed with the resale value they buy options that other people like like it's feeding this whole frenzy of well I'm using other people's money and it's smart but also this car is an investment

it's not that it's an investment it's I can't afford to lose money on it cuz then I'll be underwater on my loan well that's where you got to like I don't want to say like actual numbers

but you know it's I it's a significant amount less than the purchase price of the car 50% down I get it I'm just saying The Logical extreme of that mentality

is it it entraps people right if you pay cash for a car and there's some people fine whatever the the mentality can exist no matter what there's some people that just only buy a car because they

think they'll make money on it but uh say that as a car dealer right what well but you know like Enthusiast but it's like well I want to buy a car that I can't lose money on well why you just

buy a car you like and enjoy it but when you add debt into that equation you put the pressure on it such that it's like well I can't afford to lose money now it

has to retain its value and I believe that's a bad place to be a th% and the the you do have to be diligent I think moderation in diligence not full

diligence the Doug's talking about but there have been a couple of situations where I have passed on an opportunity to purchase a car that was like right in front of my face because I ended up not being entirely comfortable with the

amount of money that would have been in a loan I'm so proud of you so that's what I'm saying it's like there's a there's a line I'm walking there's the so proud boy do I want a car and boy do

I want to be financially responsible sort of financially responsible speaking of being financially responsible there's no better way than to shrewdly negotiate

your purchase or s of your vehicle and that brings us to the shrewd negotiator of the week where oh mean a lot of us could afford this one Cash Kent Lucas

submitted this one it's a 1997 Aston Martin db7 The Supercharged straight six nice automatic transmission convertible top

that even less nice looks awful when it's down and decent when it's up uh all the bad things about db7 it's not the Vantage it's not a coupe not a V12

anyway 81,000 Mi driven at least they have a proper asking price it's you want to take a guess uh they're asking 15,000

yeah 14 Grand so many of these I see out there and they're like 35 grand for an automatic convertible and I'm like bro a V12 Coupe manual sold for 40 like no

it's worth half that anyway uh South Carolina 81,000 Mi asking 14 G vehicle runs good uh strong trans Mission overall good paint some spots in clear

coat on trunk lid so not overall good paint but okay automatic convertible top has some visible repairs blah blah blah handbrake does not engage price is OBO

vehicle can be seen INF field by Mike's Garage on Highway 76 oh my I can't believe we're to the point where d7s are sitting in fields

that's amazing that poor car [Music] nuts for sticks is a brand celebrating the manual transmission in all its forms so forget those Flappy paddles because

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