Quote:
Originally Posted by dlgilbert4
Can consumer debt be good in some cases?
For example, I have a 5yr 0% loan on my truck. I also had the option to get $3000 cashback and take financing - I did the math and it was exactly equal (not surprisingly).
Isn't it good to have consumer debt if the interest rate on that debt is less than, say, the interest rate you can get with a savings account at an online bank?
D.
Great question and one that will probably bring a lot of debate. Makes sense (and possibly cents - lol) to take a 0% loan and invest the $30K you spent on the truck and earn money on that, right? Wrong.
That said, let me give you the inside story. I worked for Ford Motor Co. for 15 years in their credit arm Ford Motor Credit Co. The Motor Co. paid the Credit Co. to finance these vehicles at the subvened APRs (0.0%, 1.9%, 2.9%, etc.). They then passed the cost of rate subvention onto the dealer in terms of hire invoice prices which are then passed onto the consumer. In other words, that $30k truck you bought would have been the equivalent of $25K or $26K or so if subvened rates did not exist.
That's why Ramsey says when making a purchase, especially a high-ticket item, walk in with cash or cash equivalent and ask for a deal. Tough on a auto because the cost of rate subvention is already built into the dealer's invoice cost. But, there is also holdback and other incentives the dealer receives from the manufacturer upon sale of the vehicle.
Same concept applies when you purchase something at BestBuy, a furniture store, etc for "no payments, no interest for 6 months or 12 months." The cost of money is built into the price you buy the goods for.
A caller to Dave's show actually shared a story that he was at a store and when checking out (with about $800 in merchandise) was asked if he wanted to apply for a store credit card to receive 15% off. He said no but that he would pay cash if he received that same 15% off. Long story short, the cashier called the manager over and the guy got 15% off.