When is an Auto Loan a Good Debt

Very few debts can be regarded as good ones, and if the buyer is fortunate enough to be able to pay for an item outright, more often than not it is a good idea. Granted, these are troubled times and parting with a lump sum of $25-30,000 can be a harrowing experience. Jobs are being outsourced, etc., and having money set aside to make a mortgage payment is far more important than the possibility of having a car repossessed. These are facts that fall under the umbrella of common sense; it’s simply a matter of having priorities. However, it brings the consumer around to an important question: can debts, car loans in particular, ever be construed as a good investment? It sounds unlikely, but here’s where the story begins…

American automakers have been struggling mightily for a number of years. General Motors stock is (comparitively speaking)at a fifty year low, and Ford isn’t doing any better. Chrysler has been sold a couple of times in recent years, and with gas prices soaring, it’s simply time to start playing “Let’s Make a Deal!” It’s all over the TV-0% financing over a period of 60 or 72 months (5-6 years). When interest rates on autos are low or virtually non-existent, it’s a great time to buy a car. Simply invest the initial cost of the car in a sound, conservative manner and make the interest-free payments out of your pocket. It’s as easy as that.

An investment of $25,000 with a 5% yield will be worth $32,084 in five years or $33,688 in six. A $30,000 investment at the same rate will have a values of $40,473 and $42,541 for the aforementioned periods of time. 5% is a conservative number: maybe the investment will be better or worse, but the intelligence behind making this decision is obvious. The same can even be said for investing the cost of the car when financing is at 2.9% (a popular figure) or anything else that is relatively low. Simply subtract the car loan interest from the possible yield of any given investment and do the math. There are investment calculators all over the internet that will give the results of the transaction.

Imagine that! A consumer’s car is on it’s last legs, and he is fortunate enough to be able to lay down the 30k for a new, loaded Chevy Impala. At the time the auto dealer is willing to do anything-even eliminate the interest while financing the car. It’s possible for the consumer to actually make upwards to $10,000 by investing the money instead of paying for the car outright. The lady buying a Lexus will do a bit better, while the guy buying a Chevy Cobalt will make less, but money is money. This is the perfect time for the consumer to ACTUALLY take advantage of a downturn in the economy and turn an auto loan into a good debt.