Quote:
Originally Posted by Barefootsies
Exactly.
You keep cash in the bank, and use someone else's money. Especially with good interest rates. That is cheap money!
If you pay cash for any big ticket item, whether you have it or do not, says a lot about their financial prowess, or lack there of.
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If you have $10,000 sitting in a bank account you are making 1-2% at best, which you still have to pay taxes on, all while inflation is typically around 3-5%. If you have a $10,000 credit card debt, auto loan, whatever it may be... odds are your rate is anywhere between 5-20% depending on what it is. In this case, let's say it's 6% for an auto loan. You are losing money by doing this, not making money, not creating leverage, you are losing money.
Now if you take that $10,000 and invest it in something that you absolutely know will make you a higher percentage return than your auto loan PLUS cover the taxes, then it makes more sense to borrow. Borrowing money for luxury items at a high rate (yes, even 6% is high compared to cash) all while you have the cash sitting around does not make financial sense. Period.