Are car loans really that bad?

[James H.]

I recently posted some questions regarding financial strategy involving car loan debt, student loand debt, mortgage debt and cash for new acquisitions.

There is a strong contingency of folks that claim you should never borrow money for a car and that if you owe money on a car, you should pay it off. Because a car depreciates.

I actually don't think having a car loan is necessarily bad if you are financing it at below 4 percent. The argument of "it depreciates" doesn't change my opinion because it will still depreciate even if it's paid off. If you plan on keeping the car for 5 to 6 years, the costs for maintenance and depreciation will be the same no matter what.

Lets assume the car payment does not increase your DTI ratio above what will allow you to qualify for a mortgage. Now assume you have 15K. Let's assume that you also need a new car and also want to buy a house. Why not buy the car with a loan at 3% and use the rest of the money to pay for DP and closing costs on a house? In my mind, there is no difference in doing this and doing an 80/20 split on a mortgage (100% financing that so many investors regard as the holy grail). Except it is better because although the car will depreciate, it could be sold in a pinch if you had a couple thousand to cover the deficiency.

So, what I am saying is, in the right scenario, financing your vehicle, rather than paying cash, does not need to be considered any differently than any other form of raising borrowed money. Thoughts on this?

For the sake of a comparative discussion, lets discard the argument that you buy a 2000 beater as an alternative.

[Mike McKinzie]

Since I have done BOTH things mentioned here, buying several cars at a Government Auction and bought a 2012 Hyundai Genesis for my wife, since she works in her car. Currently, I drive a 2002 Chevrolet Trailblazer that I bought at a Government GSA auction in Colorado, paid a total of $7,100 for it, cash. It is nearing 200,000 miles and time to start looking for something newer. Personally, I have not bought a new vehicle since my 1988 Cadillac Sedan de Ville. I really like the 2013 Chevrolet Trucks, priced around $40,000. I easily have enough money to pay cash for it, but with financing in the 0-3% range, WHY? I just made some offers to buy some houses, $40,000 each, that rent for $795 a month.

As an investor, do I spend $40,000 on a new truck, and just have a new truck, or do I buy a rental for $40,000, put $10,000 down on a new truck, collect $795 in rent, make a $500 car payment, and have both the truck and the rental?

I have purchased many used cars, even at auctions, and NONE of them have Sirius XM, Onboard navigation, heated/cooled leather seats, etc.... As a matter of fact, the last truck I bought at auction had MANUAL windows, MANUAL locks, NO cruise control and a cassette player.

Why are we all working so hard if not to buy some of the nicer things in life? At some point, we need to enjoy the fruits of our labors!