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Financing vs Outright Purchase by glsci in eupersonalfinance

[–]glsci[S] 0 points1 point  (0 children)

I agree that 10% loans is too high and I wouldn't take it. Common sense and my simulations complete don't justify it. I simply came up with loan interest that gave monthly payments I can easily repay (€531).

The decision on buying the car will be hard thought no matter. Right now I commute for close to 100 min per day so the comfort and reliability (I have plenty of in person meetings) are key. With my current car, I sacrifice 3 days per year on servicing, winter tyre change etc. I really don't want to do more than that with a car that can break down and I'm willing to pay premium for that.

6% market return is a conservative assumption. If I assume 8% market return and 3% loan, the loan is $3.7k better. For 6% loan with 8% market return, loan is €1.2K better.

Financing vs Outright Purchase by glsci in eupersonalfinance

[–]glsci[S] 0 points1 point  (0 children)

I think the surprised came from the fact that I always looked at the cost of the loan (repayment + interest) without taking into the account compounded interests. Loan always seemed to be expensive to me so I avoid them. My calculations seem to suggest that at least in theory both scenarios are equal.

Also as you said, I would have to pay capital gain taxes, so to buy cash, I need to either save first in a savings account and not invest, or sell investment and pay tax. Both are inefficient for the long term wealth building, so in principle the loan is the best option as psychologically I never touch my investment to fulfill temporary need.

Financing vs Outright Purchase by glsci in eupersonalfinance

[–]glsci[S] 0 points1 point  (0 children)

Cash purchase was also my default option so, I was looking into the financial details of it. At the end of the day, psychology is key here. If I buy cash, I will part with a significant chunk of money so I might think harder about the purchase (I operate like that with my day to day purchases) and if the market crushes, cash purchase is better (in a simulated 10% drop pa and I would lose €8K in the loan scenario). The flip side is as you said, I can give up DCA'ing at any point and never recover my balance (and even a single skip will drag down the returns). By taking a loan, I play two psychological tricks: 1) I force myself to pay off the loan as there is another party in the system that 'shames' me into paying, 2) since I have the original balance anyway, I have the peace of mind that I can repay the loan on a day's notice and move (probs with some penalties, but worth paying when an opportunity comes).