A long, long time ago, when I was still a teenager, my father took me aside and explained about Car Loans. (Note: This was all very much pre-computer and PC).
Case #1: One does not have money in the bank to buy a car outright, so one takes out a loan. He very carefully calculated out how much one would have to pay for that loan, complete with the car loan interest rate. At the end of that time, plus maybe a few years, one still doesn't have that much money in the bank, so one has to take out another car loan. For those not truly well-off, one gets stuck in this rat race.
Case #2: Hold off buying the car, but deposit a certain amount of money every month into an interest-bearing account. (This was back when, well, banks actually paid reasonable interest on deposits. Today, one would use a bond fund or something for the purpose.) Since one is aiming at buying a car down the road, the amount being saved becomes larger over time due to compounding interest, so the amount put away every month is substantially less than what one would have to pay for with a loan.
When enough money is accumulated, go out and buy the car. With cash. Drives the dealerships beserk; they like those loan origination fees. And the chance to diddle the loan interest rates. And, if played right, gives one a leg up on the dealer's usual machinations of trying to extract the most from a buyer.
Once one has the car: Keep on putting money aside for the next car. At the end of each cycle of this method, one has a heck of a lot more money.
I have never taken out an auto loan in, what, five decades of owning cars.
The above is, I'm sure, no surprise to anybody who hangs out on an investment forum. But it's amazing how few consumers realize how bad the rat race of buying stuff on time is.
electrek.co
