this is doug demuro and today i'm going
to be providing you with helpful
financial advice which i don't do all
that often uh particularly i'm going to
explain why i think that you should
finance your car instead of paying with
cash everyone is very focused on buying
things with cash oh i don't have a
payment i own it outright oh i have no
debt that sort of thing i only buy a car
if i can buy it with cash you hear that
all the time
and today i'm going to provide a little
counterpoint to this and i'm going to
explain why i think financing a car can
in some situations be a really good idea
better than buying with cash
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so first before i get into this video
even a little bit i want to make it
extremely clear that the advice in this
video is not intended for everyone in
every situation at every time that's
very important to mention i think
generally that a lot of people should
finance their cars in today's market
especially but i do not think that
everyone should finance every car
forever that's not what i'm saying here
there are always some exceptions and i
will discuss you know when to do it and
when not to do it and why i think it can
be a better idea than paying with cash
and i'm going to explain all of this
stuff when is it best when is it not
best today but i want to preface this
before people get upset no you don't
finance i want to explain why it's best
in some situations but first before i
get into that stuff let me explain a
little background the world of personal
finance and like being smart with money
this has really grown in the last few
years last few decades
probably as a response to there being so
many ways that you can spend money and
that you can spend money foolishly there
are so many different like finance
products out there and scams that you
can fall for and this and that and and
as those industries have cropped up more
and more i think that like the personal
finance smart money the dave ramsey's
the susie ormonds have popped up of the
world uh you know telling hey here's how
you be smart here's how you budget how
you manage your money that has become a
really big industry and also there are a
lot of amateurs on internet forums on
reddit like really all over being like
really smart with money and they give
all this really great advice or at least
advice that they think is really great
that's become a big trend in the last
few years and one of the things that
these people advocate is purchasing a
car with cash um these people say
generally don't finance a car don't make
payments don't go into debt uh there's
all this talk you know these days of
people living a debt-free life and and
buy cars with cash and buy assets with
cash and and occasionally i run into
people who proudly tell me you know
paying with cash is the only smart thing
to do it's the best way to do it i don't
have to think about debt i you know i
would never except for maybe buying a
house i would never go into debt
especially on a car which is a
depreciating asset and how could you
possibly want to go into debt for that
and and i'm here to tell you that i
truly think that some of this is the
worst advice that you can possibly give
people
when it comes to being financially savvy
in fact i think in a lot of situations
it's quite the opposite of being
financially smart now you might be
wondering why i'm covering this at all
you know it's the car review channel i
occasionally dabble in like the
financial aspect whatever but you know
why is this coming up and the answer is
it's constant that i'm getting asked
about this by people hey i'm thinking
about this you know i stretch i can get
this or you know i just got this and i
paid with cash i'm proud of that and
what do you think and and this topic
comes up all the time and it's almost
impossible to really discuss cars and
buying a car in a cool car without
talking about like how
you do that and like what you know what
makes that happen and i think a lot of
people also look to me
i have some cool cars you know i i think
i give generally pretty pragmatic advice
and a lot of people look to me and ask
me thinking hey you know what do you
think on this topic um
and so this is these are just these are
my thoughts and so here goes
there are two major reasons why i'm a
big supporter of financing cars
and the biggest should be obvious to
everyone although i'm aware that it
isn't and that is debt is incredibly
cheap right now unbelievably cheap to
get a loan i recently financed my new
land rover defender which i just bought
and my credit union gave me a 48 month
loan at
1.99
interest so i'm paying 1.99 interest on
this car that's
as close to free money as you're gonna
get in a lot of situations i put down
maybe twenty thousand dollars and i
finance the remaining fifty thousand
dollars at one point nine nine percent
now i bought that car on november first
give or take
at that time the dow jones industrial
average was at 27 000 points today
as i film this video who knows where
it'll be when i post it as i film this
video it's at 34 000 points if i had
taken the full 70 000 for my defender
purchase and instead paying with cash
like people say oh this is the smart
financial move instead of done that if i
had done what i did put 20 000 down keep
50 000 on the sidelines taken the
remainder and simply put it into an
index fund of the stock market i would
have earned the finance charge for the
entire loan back
in four weeks
this is a 48-month loan in the first
month in the stock market i would have
made back the entire finance charge and
obviously that 50 000 would be worth a
lot more today the market's up like 20
that means the 50 000 would be 60 000 in
today's money or maybe even more
depending on exactly what you invested
in whereas if i had just paid with cash
all that money would be tied up in the
car which is losing value the 50 000
probably worth 35 000 today and i never
would have realized that gain
and that opportunity cost is the biggest
reason why you should finance your cars
take your money don't put it into a car
when you can get debt as cheap as you
can right now 1.99 instead
do something else with the money and
make it work for you instead of just
tying all that money up in a car
debt is shape the opportunity cost is
really high and it's so funny all the
buy with cash crowd they're so proud of
being debt-free that's like a big thing
but in this case being debt free is
actually losing money if i had bought
the defender with cash i would actually
have less assets than not buying the
defender with cash i yes i would have
the peace of mind of knowing that i'm
debt free but i would prefer to have
more money and more peace of mind and
it's not a small amount more money we're
talking about tens of thousands of
dollars here and and personally it's so
funny this like budgeting smart money
crowd they think peace of mind has a big
value you would think that they would
value having money as having a big value
and and that's where i don't quite
understand where they're coming from in
this case now this is the part of this
video where i want to be very very very
clear i do not think that everyone
should finance every car ever for the
reason i just stated uh the debt is
cheap and that the market is going up
this only works for a few reasons for
one debt has to be cheap
so if you can finance a car at two
percent at one percent it's almost a
no-brainer you gotta do it there's no
point in not doing it three percent two
honestly probably even up to four or
five percent you should still probably
finance a car the opportunity cost is
probably still higher uh four and a half
percent five percent you should probably
still be in the market versus tying up
money in an asset but if interest rates
start to get to a point where they're at
seven percent where they're at eight
percent your credit isn't that great
maybe you're paying 12 13 because you've
had you know
foreclosure or whatever in the past
then you'd probably rather put your cash
into a car you're probably not going to
make more money in any financial market
than 12 13 percent seven percent even
eight percent and in that case it does
make more sense to pay with cash and i
agree with that but when loans are cheap
especially as cheap as they are right
now it just doesn't make any sense to
tie up all your money in a car because
you can you can get a higher return in
the stock market so
next point here is let's talk about that
return over the last year the market is
up something like 20 25 it's absolutely
insane and it won't last there's no
question it won't last although it's
been pretty strong for a pretty long
period of time but i remember 2008 2009
when the market was down something like
20 in under a year and that was tough
and that happens
and a lot of people who buy cars with
cash they use this as their excuse not
to finance a car because they say well
you can't guarantee a return in the
market so i'd rather just put my money
in my car then i'm debt free
and this is true you can't guarantee a
return in the market but historically
over a long period of time you generally
will guarantee that you will earn
more than the finance charge on a two
percent or a three percent loan
historically the market has gone up by a
certain percentage every year and it
generally
will in the future in perpetuity so if
you finance a car and you invest the
money and you you keep and then you lose
money because the market goes down it
happens but
if you do this for every car you ever
owned throughout your lifetime you may
lose money on one or two of them but
you'll have five six seven other cars
throughout a lifetime that you'll make
money on and in the end you will
unquestionably come out ahead at least
based on historical projections going
back over a century um and so yeah i get
that there's some risk in doing this and
it may not work in your favor but
historically speaking generally speaking
it will especially if you do it over
every car purchase that you that you
make over your lifetime and one other
caveat to this one other reason why
maybe you shouldn't be financing a car
even in this situation i only support
this strategy if you are financing a car
you can otherwise comfortably afford
that's a big point to mention here if
you're making sixty thousand dollars a
year don't go out and finance a new c8
just because doug said financing was the
smart decision
that is not what you should be doing
it's only really the smart decision if
you have something better that you can
do with the money if the money doesn't
exist then this is a question you
probably don't want to be doing this but
if you can take the money that you would
have spent and tied up in a car and do
something else with it then that is what
you should probably be doing when debt
is this cheap and frankly i think that's
the main reason that all of the personal
finance obsessed like budget friendly
people
those types generally say don't finance
a car it's not they know that you'll
make more money in the market they don't
say it because they think you won't they
say it because they're worried if they
tell people to go finance then they will
stretch they will say oh yeah i could
finance this or i could finance this and
go well beyond their budget and so those
types generally say well pay cash for a
car because that's the smart move at
least that way you know you won't
overextend yourself and i'm saying the
exact same thing don't finance if it
means you are over extending yourself
only do it if you can take the money
that you would have put into the car and
do something better with it now in my
mind there is one exception to this one
situation where you may want to over
extend yourself at least a little bit in
order to get a better car and this is
where i think i'm generally going to
diverge from the budget obsessed smart
money personal finance types they will
not generally agree with what i'm about
to say but i believe in it very strongly
and that is
it is in my opinion a good idea to
finance a new car a car that you can't
afford to buy with cash if
you're trying to take advantage of
advancements in technology and in
specifically in safety technology i
cannot tell you how many people come up
to me or email me or i read online i'm
driving around in this beater 98 corolla
94 civic and it's paid for and it cost
me only three grand bought it on
craigslist and it's gonna run for the
next two years and i don't have a car
payment and then i'll sell it for three
grand and yeah i'm killing it because
i'm not spending anything
cool
the problem is car safety technology has
advanced so dramatically since the 80s
or the 90s so many of these people have
these beater cars
and
i get it you're thrilled with yourself
for not having a car payment and being
debt free and all the sacrifice you put
up with to drive this old car just to
make the smart financial decision
but cars today just weren't built to the
standard that modern cars are and they
certainly weren't built with the
knowledge that every other car on the
road a decade two decades later would be
a chevy suburban or a ford expedition
that would absolutely destroy your
crappy little beater if they ever should
face off in an accident and i hear
people say this oh i got my 94 accord i
paid cash no debt look at me i'm so
smart with money
and i'm thinking yeah you're smart with
money but not your life
uh no i i don't think you're gonna die
driving a 1990s car generally speaking i
have this one i drive it all the time i
have another one i drive all the time
etc i happily drive my own 90s cars
around and but the truth is logically
they're not safe by modern standards
comparison they're not safe at all i
drive them for fun but i don't take my
kids in them you know that's that's the
one that really blows me and i'm so
smart with money i have this 96 accord
wagon and that's my car and i take my
kids around it's my family car i'm like
you take your kids in a 96 accord wagon
just so you can have some
tell people that you're smart with money
that you're debt-free get your kids out
of that thing and into something with
airbags with anti-lock brakes with a
backup camera you know backup cameras
were instituted as a mandatory feature
because so many people were backing over
their kids in their driveways and people
were like oh that's not going to happen
to me that's what the people said who
backed over their kids in their
driveways i just like it to me it's it's
such a clear thing i get people want to
be financially smart but you also want
to be alive
and i think dailying a 90s car taking a
90s car on road trips and all the cord
old subaru's
you know it looks like a smart and
acceptable thing to do oh we lived
through that era and it was just fine
well a lot of people didn't and you know
it's a lot safer to be in a modern car
today you know no matter how proud of
yourself you are and how much you love
to brag about saving money it doesn't
really matter all that much if you're
dead
and so i just my personal view is you
should be willing to extend yourself a
little bit when you're financing a car
if it means taking advantage of these
great safety features that have come up
anti-lock brakes airbags curtain side
airbags those are the three big ones to
me so many of those 90s cars don't have
any of that stuff and you look at death
rates and you look at injury rates cars
that don't have those features and
they're big i'm not saying you should
finance a brand new 2021 car so you can
get blind spot monitoring and lane keep
assist although those are very helpful
features but just getting airbags just
getting intellect breaks a camera backup
camera to me that would be worth
extending yourself a little bit beyond
what you would normally spend on a car
with cash just because i think that that
trade-off is worth it personally so
there you go that is my advice people
always ask me about car and financial
advice everyone always says pay cash for
a car i'm so happy that i'm debt free
but don't necessarily just follow that
advice because debt free sounds like a
good thing you'd rather be in debt uh
than not in debt if it means that you
can get the money to do more for you
when it's not tied up in a car so
finance a car that you can afford not
stretch for a car finance card that you
can afford and use the money to do
something else especially when debt is
so cheap and be willing to maybe stretch
your budget a little look away from cash
only cars and stretch to a finance one
if it means you can take advantage of
more safety features that will keep you
alive that will keep your family alive
your children that sort of thing
even if it means taking on some debt not
going crazy but a little bit it might be
worth it so that's my take financing can
work for some people despite what a lot
of people tell you and i hope now you
understand why
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you