mkg3
Well-Known Member
The thing is that if the net return (investment ROI - finance cost) is positive, then its better to finance the debt. This is the reason why I have not paid off our house.
Further, depending on what the cash to pay for the vehicle is currently doing. If its sitting around in some savings account, then you're losing money because of inflation alone. If its in high yield savings account its probably paying 2~3% today so yes go buy it outright in either case.
But if its invested, and have to sell the holdings to pay for the vehicle, don't forget to include the capital gains tax (short- or long-term) and increase in your AGI for tax filings. In other words, one has to take a look at the entire impact beyond just the accessing the price of the purchase from the investments.
I have found over the years, when rates have been very low that financing makes sense and manage how and when to liquidate investments to control the tax brackets and capital gains tax resulted in the lowest outlay for the vehicle purchase (e.g., pay 1/3 when buying, another 1/3 each, in the following two years). Clearly, when they offer 0% interest, the whole thing is financed. Its free money.
I fully intend to finance about $50K of the Rivian purchase whenever that day comes and probably pay if off in couple of years. Taking the entire amount out to pay for it will be much more costly in terms of taxes and my ROI is significantly higher than the interest rate.
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