Automotive

At what salary til you should invest into a new car?

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Penalty Box
Dec 27, 2013
8003 posts
3969 upvotes
Toronto
dudeexcellent wrote: Wow, blown away for all the hate towards treva84. He's one of the only ones on here talking much sense to be honest.

If you can get a 0% loan....and I mean a true 0% loan where the price of the car is the EXACTLY the same as what you would pay in cash, then it makes sense to finance at 0% for as long as you can. The yield on a 5-yr GOC bond yesterday was 1.02%. So if you can get 0.9%, then you can break even. Any yield higher than that requires risk....even realizing the 1.02% has reinvestment risk on the coupons. One exception of course would be if you can get a higher yielding GIC covered by the CDIC.

Just because you earned 20%, 15%, 65% or whatever figure you want to quote over the past X years is COMPLETELY IRRELEVANT....as every financial product says in the fine print, past returns are not an indication of future returns. Anything you earn over the risk free rate is a risk premium you earn over time by taking risk (hence the term risk premium). If you finance your car and hope to invest in order to realize anything over the risk free rate, you are taking placing a bet that you may win or you may lose. Returns of 25% would have been easy last year.....say an S&P 500 index fund that wasn't hedged to CAD.

Anyhow, that doesn't always mean that financing a car is wrong. While I think that remaining debt free is a very noble goal, I for one like to switch cars every few years and like leasing for this reason. I'm leasing at a true 0.9%, so I'm not doing to bad....but you wouldn't catch me dead leasing at 4%. That's for my main family car. Would I go into higher interest debt (say prime + 1.5% on my HELCO) for a car I really wanted.......maybe......but I'd realize that I'm making an emotional decision and not a smart financial one.



Except that the "risk free rate" and lets use GICs because they are risk free in most puposes, you could easily get 3% or more on 5+ year GICs.... therefore in most situations just investing in GICs would yield a better return. (at the time when i bought my car you could get a 3% gic 5 years no problem.)

Then there are BONDS, also relatively low risk. And corporate AAA bonds are yielding more than that in some circumstances...



there is always a risk... a risk you could buy your car and tomorrow that same car sellls for $5,000 less... like who cares... all I know is that my $33,000 that I DIDNT spend on my car made me 10% last year. therefore it's already paid itself by not being put into the car.
Deal Fanatic
Apr 16, 2007
7377 posts
2437 upvotes
Financial District B…
blitzforce wrote: The one's I'm interested in are around 30k(+ other IDK fees) and even if interest is 0%, monthly payments are still around $900/month for 3 years until everything is paid off. How do most young adults afford that unless they don't save for down payments for the purchase of a home in the foreseeable future, plus other monthly/annually bills?

At what salary til you should invest into a new car?
Your monthly/yearly salary for the most part is irrelevant as debt service(TDSR) is the key qualifier used to determine serviceability of any applied-for auto loan.

If you speak to a loans manager at your bank and are advised your current debt service permits a $300 auto payment then that should be your target.

Depending on the car you choose and its purchase price specific conditions may apply in order to create acceptable terms(rate, term length, cap cost reduction) that will suit both you the buyer and the lender.
----------------------------Licensed Credit Bureau member, S1, FI Automotive, CCP forums most banned = x 13 and counting, guess who that is?... stomped to the curb once again
Member
May 14, 2012
375 posts
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PICKERING
As for your other comment I would appreciate knowing the AAA corporate issues in Canada.....trust me its a VERY small universe and would be very difficult for a retail investor to access. Also, GIC's generally provide zero liquidity, particularly the high interest ones.....but "like who cares".
Deal Guru
User avatar
Oct 14, 2003
14225 posts
1113 upvotes
blitzforce wrote: The one's I'm interested in are around 30k(+ other IDK fees) and even if interest is 0%, monthly payments are still around $900/month for 3 years until everything is paid off. How do most young adults afford that unless they don't save for down payments for the purchase of a home in the foreseeable future, plus other monthly/annually bills?
They don't buy 30k cars.
Science
is the new
rock 'n'
roll.
Deal Fanatic
Oct 7, 2010
8962 posts
1188 upvotes
Ojam wrote: They don't buy 30k cars.
They don't, they buying a 50k car using parents money. There are only 2 type of people at work whom are post 90s. They leech off family for a car OR they take the bus. Rarely anyone pay their own way these days.

Don't give a care about what the investors here are saying. Must has been leeching off sometime in their adult to talk so big. No one will say I miss my job or my money in their death beds.
Penalty Box
Dec 27, 2013
8003 posts
3969 upvotes
Toronto
dudeexcellent wrote: As for your other comment I would appreciate knowing the AAA corporate issues in Canada.....trust me its a VERY small universe and would be very difficult for a retail investor to access. Also, GIC's generally provide zero liquidity, particularly the high interest ones.....but "like who cares".
the GICs were one small example.

the liquidity is the same as if you had put the $30,000 in the car.

You can buy a bond ETF that yields north of 5%.

XHY

go take a look.

dont like that??

XTR - 5%

dont like that?

fie - 6.6%

don't like that?

IYLD - 5%

dont like that?

XPF - 5%

don't like that?

PFF - 5%

don't like that?

yes, there is some risk. there is risk in life. so you can have what you believe is "zero risk" and put it all down on a car... and make a <2% return.

or you can have cash in investments and earn more.

it's really tat simple.. not sure what more you want to discuss really.. infact there isn't much of a discusssion any more... don't even know what your point is other than going round an round in circles repeating our selves.

you win.
Deal Addict
Feb 20, 2014
1189 posts
417 upvotes
Toronto
I love how it's the people who are the most risk-averse that are telling everyone else they're doing it wrong lol.

Live your zero risk life while you make no money on investments and the let the rest of us make money from our riskier lives.
Deal Addict
Nov 9, 2013
3505 posts
2857 upvotes
Edmonton, AB
Jenuine wrote: I love how it's the people who are the most risk-averse that are telling everyone else they're doing it wrong lol.

Live your zero risk life while you make no money on investments and the let the rest of us make money from our riskier lives.
Yes, because being comfortable with risk obviously then justifies making poor financial decisions like buying more car than you can afford.

Now, before you get all uppity and mention your 24% investment returns again, my comments are directed to the OP and average Joe who buying more than they can afford for financing longer than they should. Just because you claim to seemingly pull it off (your 24% bubble will burst, be sure not to sell low) doesn't mean everyone can.
Deal Addict
Nov 9, 2013
3505 posts
2857 upvotes
Edmonton, AB
dudeexcellent wrote: So, you mention bonds are low risk as well and specifically call out bonds as safe and specifically AAA. I point out that Canadian AAA corporate debt is very hard to come by (and I said Canadian since currency risk is off the table if truly "low risk") and ask for examples. Your first example is a High Yield US debt ETF and the second one has its top two holdings in High Yield funds.

Like you said....Thanks for coming out.

Now please show me a dedicated AAA Canadian corporate bond ETF. You can't, so your forced to OTC.
Apparently insightful and thought out comments are met with personal attacks - be prepared for Daivey to call you a dumpster diving unemployed basement dweller who obviously can't have a real job because you spend waaay to much time having informed opinions.
Deal Guru
User avatar
Nov 27, 2005
11632 posts
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Toronto
treva84 wrote: Yes, because being comfortable with risk obviously then justifies making poor financial decisions like buying more car than you can afford.

Now, before you get all uppity and mention your 24% investment returns again, my comments are directed to the OP and average Joe who buying more than they can afford for financing longer than they should. Just because you claim to seemingly pull it off (your 24% bubble will burst, be sure not to sell low) doesn't mean everyone can.
Let's say someone makes $50k a year and is interested in a $25k car. The person has $10k in cash at the moment. Is there any scenario where it's okay for this person to finance the car for 4 years?
Deal Addict
Nov 9, 2013
3505 posts
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Edmonton, AB
board123 wrote: Let's say someone makes $50k a year and is interested in a $25k car. The person has $10k in cash at the moment. Is there any scenario where it's okay for this person to finance the car for 4 years?
Well, based on my beliefs I would say no, because that person should just buy a used car for 10K (saving depreciation, saving payments, saving interest on the loan for something that will lose value over time). However I obviously realize most don't agree with this.

Thus, I'll take a more moderate approach - it's reasonable to finance a new car x amount of years so long as you avoid negative equity at the tail end of the loan. So, assuming said person isn't buying something that depreciates like crazy (like a dodge journey or caravan) which would leave them with negative equity and the payments don't comprise a large portion of their monthly income then yes, I would say this is an acceptable scenario for the average person to buy a new car.
Deal Addict
Feb 20, 2014
1189 posts
417 upvotes
Toronto
treva84 wrote: Yes, because being comfortable with risk obviously then justifies making poor financial decisions like buying more car than you can afford.

Now, before you get all uppity and mention your 24% investment returns again, my comments are directed to the OP and average Joe who buying more than they can afford for financing longer than they should. Just because you claim to seemingly pull it off (your 24% bubble will burst, be sure not to sell low) doesn't mean everyone can.
There are two types of people that you're getting mixed up in this situation:

1 - These people have the money to pay for the car in full in cash but they choose not to because they want to take advantage of the low interest rates. They may put a down payment and use the rest of their money to invest in bonds/stocks/etc. that yield relatively decent/high returns. Or they may not put a down payment at all and finance the complete cost of the car while they invest their money. Clearly these types of people know what they're doing and have thought it through. They're also clearly not in financial ruin and are financially stable. Those of us who have stated that we do/have done this, we've all made money doing this. You can't tell us it was a stupid financial decision when we've made upwards of 30% on our investments while you've made nothing on your money.

2 - These people are financially unstable and probably have a spending problem which is why they NEED to stretch out the financing payment terms to lower their monthly costs because they don't have the money to pay for a car in full in cash. They also probably struggle to pay bills every month. They clearly don't have any financial sense and most likely know nothing about investments nor would they have the financial means to do so.

If you're referring to group #2 in your argument, then yes, I agree. These people should only buy a car that they can afford in cash and should not take out a loan or carry debt because they can't manage it.
Deal Addict
Nov 9, 2013
3505 posts
2857 upvotes
Edmonton, AB
Jenuine wrote: There are two types of people that you're getting mixed up in this situation:

1 - These people have the money to pay for the car in full in cash but they choose not to because they want to take advantage of the low interest rates. They may put a down payment and use the rest of their money to invest in bonds/stocks/etc. that yield relatively decent/high returns. Or they may not put a down payment at all and finance the complete cost of the car while they invest their money. Clearly these types of people know what they're doing and have thought it through. They're also clearly not in financial ruin and are financially stable. Those of us who have stated that we do/have done this, we've all made money doing this. You can't tell us it was a stupid financial decision when we've made upwards of 30% on our investments while you've made nothing on your money.

2 - These people are financially unstable and probably have a spending problem which is why they NEED to stretch out the financing payment terms to lower their monthly costs because they don't have the money to pay for a car in full in cash. They also probably struggle to pay bills every month. They clearly don't have any financial sense and most likely know nothing about investments nor would they have the financial means to do so.

If you're referring to group #2 in your argument, then yes, I agree. These people should only buy a car that they can afford in cash and should not take out a loan or carry debt because they can't manage it.
#2 - the majority of the new car buyer and likely the group the OP falls into - is who I am directed my argument towards. As mentioned before, your situation is unique, even in the fact that you got 0% financing which applies to 10% of buyers. Your situation is the exception, rather than the rule.

Furthermore, to your claim that I have made "nothing with my money", I'd like to point out that by buying a new car you're putting your money into something that will lose value over time. Your 24% investment gain in 1-2 years will be offset by the ~ 50% depreciation over the 4-5 years you own your car. This is why I buy used (I prefer to put my money into appreciating assets rather than depreciating assets) - but this is a discussion for another thread.
Deal Addict
Feb 20, 2014
1189 posts
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Toronto
treva84 wrote: #2 - the majority of the new car buyer and likely the group the OP falls into - is who I am directed my argument towards. As mentioned before, your situation is unique, even in the fact that you got 0% financing which applies to 10% of buyers. Your situation is the exception, rather than the rule.

Furthermore, to your claim that I have made "nothing with my money", I'd like to point out that by buying a new car you're putting your money into something that will lose value over time. Your 24% investment gain in 1-2 years will be offset by the ~ 50% depreciation over the 4-5 years you own your car. This is why I buy used (I prefer to put my money into appreciating assets rather than depreciating assets) - but this is a discussion for another thread.
I think the issue people had with your argument was that you were generalizing everyone in both of those groups into one group. Sure, the majority of people probably do fall into #2 but there are also a lot of people who don't.

Btw, I bought my car with the intention of keeping it for 10+ years. Obviously buying a brand new car and then selling it in 5 years is a stupid financial decision.

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