In the post sizusfinlit.blogspot.com, the author discusses the differences between people who choose to purchase items using credit versus people who use cash. Being an advocate of living debt free, my suggestion is to pay cash when you purchase a car.
You will have these three main advantages which will help to solidify your financial future:
- Immediate savings on depreciation
- Savings on interest
- Gain on opportunity cost
Purchasing a car in good condition, which is 3 years old with low mileage, might save you an immediate $9,940. This 35% discount comes from the fact that cars may lose as much as 20% value the first year and as much as 65% value in the first five years due to depreciation.
In addition, using the national average interest rate of 5.73% (see www.subprimenews.com), and assuming a five year loan on the car, you would save another $4,329 in interest.
Finally, those who pay cash could use the $9,940 savings and in a conservative investment such as a municipal bond, earn 5% which would put $2,746 more money in your pocket over the five year period.
These savings add up to $17,015. What other costs are you adding on that aren't mentioned here?
This post was reposted from http://finlit.biz/debt/3-advantages-to-purchasing-your-car-with-cash/, originally written on January 24th, 2013.
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