"Never Finance a Depreciating asset"
This holds true if you have low credit score and can't secure a low interest rate.
Credit score has zero relevance to my point. Financing a depreciating asset means you're paying money to a lender to buy something that is also losing value. You're burning the candle at both ends for... what? To have something that strangers say "look at that guy, he must be successful" when reality most people are so financially uneducated they'd rather just hate someone because they drive a nice car and assume they had it given to them. It just doesn't make sense and most people aren't in a financial position to do such things and those that are got there because they likely know better. The outliers on either side aren't really relevant to this conversation.
The majority of cars are NOT an investment. Its a tool. Be it a expensive tool or a cheap one all depends on a persons financial situation. If you drive it for 200k + miles with minimal repairs/maintenance then its a worth while expense along with having fun.
Yeah, because lots of people who buy a brand new car keep it for 200k to help spread out that depreciation. Even if that were the case, that car is going to have a VERY low % of it's initial purchase price remaining in terms of value so would you rather have a $100k that's now nearly worthless or a $40k car that's nearly worthless.
The reality is that most buy a new car for a few years. They buy a new car and then lose 50% of whatever that purchase price is which becomes a realized loss when they trade it in or sell it likely to buy their next new car. Let's create a scenario based on loose numbers to help visualize what I'm talking about (not that these loan terms are 72mos even though I state that the term of ownership is 4-5 years but this is the same across all comparisons so it's apples to apples. The amount you'd decrease annual hit spreading it across 200k is nominal plus nobody is really going to do that):
1) New car purchase price $100k financed for an above average (read: decent) rate of 3% over a term of 72mos (I assume that's how long people are financing these things for.. the total cost is even worse though the longer you go).
Total Loan Amount $107,300.00
Sale Tax $7,000.00
Upfront Payment $0.00
Total of 72 Loan Payments
$117,380.26
Total Loan Interest $10,080.26
Total Cost (price, interest, tax, fees) $117,380.26
That's $17,000 in loan costs and sales tax, rounded down. On top of that, the same car will be worth roughly 50% after 4-5 years meaning that the same $100k car is now worth $50k which equals a total loss of $50k plus the $17k in the previous sentence for a total loss of $67k in only 4-5 years. That's somewhere around $15k per year of ownership that you lose due to depreciation and loan costs plus tax. That's a real world figure of what cost of ownership is. Another way to look at it is to take your annual salary after tax (read: take home) and deduct $15k right off top. I don't care what you make and what your obligations... that's noticeable.
Up next....
2) You buy a car for whatever cash you have on you. You have ZERO payment. Each month and you can put any and all excess money side to buy something better later. For most, this will be a beater (read: gas car) that is perfectly serviceable but has zero in the way of creature comforts. It's not spectacular and it won't impress any of your friends or neighbors. Your loan costs will be zero and your loss due to depreciation will also be next to zero and, if you play your cars right, you can probably even make money. This method allows you to keep putting money away (whatever you budgeted for a monthly payment is a great starting place) to buy something better paying cash. Do this long enough and you can basically pay cash for a brand new $100k car if that's what you want. Most likely, during this period, this exercise will help teach you the value and you likely won't want to pay cash for a $100k car even though you can technically afford it based on some of the figures from #1 above. That's actually the goal. This is the most ideal if your ultimate goal is to not worry about money ever again. You'll get there rapidly if this is your focus. This is the option I would recommend for anyone in their 20's who is just setting out on life and wants to make life MUCH easier in the long run by being smart with their finances.
Lastly, a nice blend of the two above which will get you 90% of the experience with something like 25% of the cost required. To me, this is the best option because it maximizes value while taking a limited hit to your ownership experience....
3) Find a nice used car for around $40k or so and then shop for a great interest rate (ideally, cash but for purpose of this exercise I'll assume that the buyer doesn't have $40k cash sitting around) and buy a car that's already taken the bulk of it's depreciation hit from the previous owner. You'll pay less than half as much in tax and the depreciation rate is not only significantly lower but it's based on a starting point of less than half which will amount to far less loss. A similar example is below for purposes of this exercise (not that I even bumped the interest rate up to account for used car loans having slightly higher interest rates):
Total Loan Amount $43,100.00
Sale Tax $2,800.00
Upfront Payment $0.00
Total of 72 Loan Payments
$47,846.37
Total Loan Interest $4,746.37
Total Cost (price, interest, tax, fees) $47,846.37
Your loan costs and sales tax in this scenario is a scant $8k (rounded up) versus $17k (rounded down) from #1 above. That's a real savings of $9k total which is NOT an insignificant sum of money. Your annual cost is more like $2k compared to $15k. Tell me what you can do with an extra $13k every single year towards investments or paying off debt. That's a flat dollar amount and not some hypothetical amount that could actually lose money which is what people are selling with this 2% "net" BS that could actually cost you everything.
If you do #2 above for long enough you'll be able to do #3 w/o even needing a loan. Then, when you do that enough you'll be able to do #1 paying cash if you still insist on owning a new car after a decade or two or learning the value of a dollar which isn't likely because your life goals will extend WELL beyond that of something a stupid as a car.
So, if you insist on buying a Tesla, a good used one makes FAR more financial sense than a brand new one. If you are just going to buy a brand new one because you like impressing everyone who sees it then don't come in here trying to fabricate #'s that make it seem like it's a smart financial decision when it's not and you can't cook the #'s to say it is. Just own that you like losing $15k per year of your after tax income to impress strangers. That's really all you're doing because the minute gain in day to day ownership experience in no way justifies this cost delta.
