Automotive

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

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Deal Addict
Nov 9, 2013
3762 posts
3343 upvotes
Edmonton, AB
Hopefully you don't have to file for bankruptcy or go underwater on your long term car loan. Also I prefer to pay my CC off, rather than carrying a balance. I don't need to cancel them.
Deal Guru
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Nov 27, 2005
11694 posts
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Toronto
treva84 wrote: Hopefully you don't have to file for bankruptcy or go underwater on your long term car loan. Also I prefer to pay my CC off, rather than carrying a balance. I don't need to cancel them.
Do you pay your credit card bill immediately or on the last day?
Deal Addict
Dec 19, 2013
1274 posts
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North Vancouver
board123 wrote: Do you pay your credit card bill immediately or on the last day?
For me, I pay off most of it, but leave a little so it'll show up on the monthly statements. Once it shiws up, i pay it off. This shows on paper I'm using credit and it helps with the utilization ratio used to determine credit rating. Otherwise, your utilization ratio would be zero because no balance is shown. A tip my accountant taught me to do to raise my credit rating.
Deal Addict
Dec 19, 2013
1274 posts
258 upvotes
North Vancouver
treva84 wrote: Hopefully you don't have to file for bankruptcy or go underwater on your long term car loan. Also I prefer to pay my CC off, rather than carrying a balance. I don't need to cancel them.
Hard for him to go underwater or declare bankruptcy when all he has to do is cash out his investments and then use it to pay off any outstanding loans.
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May 14, 2012
376 posts
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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.
Deal Addict
Nov 9, 2013
3762 posts
3343 upvotes
Edmonton, AB
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.

Thanks bro :cry:
Deal Addict
Feb 20, 2014
1193 posts
418 upvotes
Toronto
Can we just lock this thread now?

Everyone's risk tolerance is different. Everyone's financial situation is different. Neither way is right or wrong.

If you have low risk tolerance and don't want to invest your money in volatile funds that can earn you a large return, then don't. Buy your cars in cash. If you have a higher risk tolerance and don't mind taking out a loan to invest, or having car payments while you invest your money, then that's fine too.

treva84's problem is that he was trying to push his thinking on to everyone else and assumed that everyone who didn't adhere to his way of thinking would end up declaring bankruptcy. Just because you don't agree with our approach, it doesn't mean that it's wrong or inferior to your approach.
Deal Addict
Dec 19, 2013
1274 posts
258 upvotes
North Vancouver
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.
But he started the hate first. He pretty much said anyone who is in debt made a stupid choice. Pretty big statement. Everyone was fine before that. If you look at my post, I explain why some people would rather take low interest loans for certain things over paying in cash.
Deal Fanatic
Aug 12, 2006
6596 posts
2653 upvotes
Canada
A new car is not an investment.

A vintage Ferrari may very well be.

IMHO, you should never consider a vehicle an investment. It's a tool, or a necessity, or just plain a necessary evil.
Banned
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Jun 28, 2012
5562 posts
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Calgary
beppy wrote: 30k now you can get GTI, Hyundai Genesis, 370z, i highly doubt most young people who own those cars earn more than 100k.

What i am wondering is for those who own the 50k level cars, what salary range would seam reasonable 100k+? 120k+? 140k+?
I know a couple girls who make 35-37k annually and drive MB and Lexus IS350. Monthly payments are 4 figures.
Member
May 14, 2012
376 posts
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PICKERING
bomiheko wrote: But he started the hate first. He pretty much said anyone who is in debt made a stupid choice. Pretty big statement. Everyone was fine before that. If you look at my post, I explain why some people would rather take low interest loans for certain things over paying in cash.
Yeah he did kind of get up on his no debt high horse, and I'll be the first to agree that it's not that simple. But his advice is not bad for most people and his arguments were infinitely more nuanced than those knocking him.
Member
May 14, 2012
376 posts
69 upvotes
PICKERING
Jenuine wrote: Can we just lock this thread now?

Everyone's risk tolerance is different. Everyone's financial situation is different. Neither way is right or wrong.

If you have low risk tolerance and don't want to invest your money in volatile funds that can earn you a large return, then don't. Buy your cars in cash. If you have a higher risk tolerance and don't mind taking out a loan to invest, or having car payments while you invest your money, then that's fine too.

treva84's problem is that he was trying to push his thinking on to everyone else and assumed that everyone who didn't adhere to his way of thinking would end up declaring bankruptcy. Just because you don't agree with our approach, it doesn't mean that it's wrong or inferior to your approach.
What you say there is completely true, but also completely different than some of the uninformed personal attacks of your previous post.

In my opinion borrowing to invest is suitable only for high net worth individuals with a very high risk tolerance.

If we look back to the op, his responses were much more on point and applicable than yours. He could actually give his advice in a professional context.
Deal Addict
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Apr 15, 2005
3372 posts
150 upvotes
Toronto
I would wait till I make 300k/yr, then think long and hard about buying a brand new base model corolla with wind up windows and optional AM radio with luxury hub caps and deluxe vinyl seats. Maybe one day, maybe...
Deal Addict
Feb 20, 2014
1193 posts
418 upvotes
Toronto
dudeexcellent wrote: What you say there is completely true, but also completely different than some of the uninformed personal attacks of your previous post.

In my opinion borrowing to invest is suitable only for high net worth individuals with a very high risk tolerance.

If we look back to the op, his responses were much more on point and applicable than yours. He could actually give his advice in a professional context.
Lol I wasn't giving advice. I don't care what people on RFD do with their money to judge them. I do what I think is best for myself financially. The approach that I chose has worked well for me. It might be less applicable to some people because they aren't willing to carry debt in order to invest their money but it's not a stupid financial decision if it's done right.

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