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Just go by interest rates...
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Posted by TimF [Email] (more from TimF) on Thu, 27 Feb 2003 17:52:56 Share Post by Email
In Reply to: Lots of good stuff, thanks, Dennis, Wed, 26 Feb 2003 18:23:09
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People who tell you to pay cash aren't taking into account the opportunity cost of that money...the interest you could be earning if you invest it elsewhere.

I will argue that the decision on whether to purchase outright with saved cash or to finance (lease or buy) depends entirely on interest rates. Long term returns on investments in the US stock market have averaged 7-8% over the past century. If the interest rate you can get on a car is less than this, leave your saved money invested and finance the car. You earn the difference in rates.

Interest rates on car loans (and "money factors" on leases) are so low right now I can't imagine anybody not taking advantage of this free money. The effective interest rate on Saab's current 9-3SS lease deal ($999 down, $299/mo, 36 months, $14323 residual, $26525 MSRP) is actually an effective interest rate of somewhere between 0 and -2% (not counting disposition fees or excess mileage at the end of the lease). That is, they're paying YOU to take this car at MSRP. They're still making money on the car's mark-up and, they hope, excess mileage (30K over three years is pretty small for the average American.)

-Tim


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