Financing over paying cash

Locky · 02-26-2020, 07:40 AM

You will always find debates on if you should wait to save up the money to buy a travel trailer or just go ahead and finance one. Here is my thinking on it.

For instance, if you are wanting to finance a $25,000 travel trailer for 10 years at 4% interest you will end up paying $30,374 for it. So that means $5,374 more than if you were going to pay cash. In the end that comes out to $44.78 a month you have paid extra to start enjoying camping now instead of waiting, but there is more to this than just that.

If you wanted to save up and pay cash for it and you decided to put aside $400 a month in the trailer fund it would take you approximately 5 years, 2 months and 2 weeks to save up the $25,000. You grab your cash and head down to the dealer just to find out that same model that you like is now $28,000. Also lets say you have 2 kids who were 5 and 7 but now after waiting for you to save up the money they are now 10 and 12. So is it worth the extra $44.78 a month to started camping 5 years earlier and making great memories with your family worth it?? You be it is.

Again this is just my opinion for what it's worth, but when you have people that try to tell you to only pay cash or you're stupid for buying one are not really using their money wisely. If they would have taken that $25,000 in cash and invested it in something to where you only make on average 8% a year for 10 years they would have ended up with $53,973. So if they would have financed the trailer and invested the $25,000 after 10 years they would have had the trailer paid for and roughly just over $23,000 in the bank.

So in conclusion, you know your financial situation and if you can easily afford the trailer payment then get out there and enjoy it as much as you can.

Cabinfever97 · 02-26-2020, 08:15 AM

In a perfect world of finance you should only pay cash for many things in life, a RV being one of those. In my opinion life is way too short! That doesn't mean you should not have a reasonable budget. There is another way to look at financing in today's world of returns yearly in the markets. Better to leave your money somewhere making double digit returns while using someone else's money at half that. Those numbers fluctuate year to year. Again, life is too short and kids grow very fast. Have a reasonable budget. Dont use your very last dollar for a RV payment. LIVE LIFE!!!!!

Mike134 · 02-26-2020, 08:37 AM

Paid cash for the camper. Financed the Truck for 72 months. Ford offered 0% so who cares how long the term is, it's free money.

Locky · 02-26-2020, 08:41 AM

Quote:

Originally Posted by Mike134

Paid cash for the camper. Financed the Truck for 72 months. Ford offered 0% so who cares how long the term is, it's free money.

But you could you have made more money by financing the camper and investing the money.

BehindBars · 02-26-2020, 08:53 AM

Another way to work toward escaping a lifetime financing loop is to buy a used camper the first time or two. There is no need to buy a brand new RV to begin enjoying camping with your kids. Make some sacrifices and perhaps put some sweat into a used RV or two, and eventually get out of the financing merry-go-round.

Spend some time buying a used car, truck, or RV, invest the difference, and eventually you could reach a point where new vehicles and RVs of your choice can be purchased for cash with the equivalent of pocket change.

Locky · 02-26-2020, 08:59 AM

We bought our first 4 travel trailers used and never paid over $2,500 for any of them. So yes, buying used is another great option.

Mike134 · 02-26-2020, 09:10 AM

Quote:

Originally Posted by Locky

But you could you have made more money by financing the camper and investing the money.

I'm money ahead paying cash right now instead of investing, had I left the money invested it would have evaporated the past 2 days. Sometimes you get lucky when you take your profits from the market.

Locky · 02-26-2020, 09:15 AM

Quote:

Originally Posted by Mike134

I'm money ahead paying cash right now instead of investing, had I left the money invested it would have evaporated the past 2 days. Sometimes you get lucky when you take your profits from the market.

I would like to forget about these last 2 days lol. But I made 33.45% last year and was up to 10.60% year to date on Monday but lost 8% the last 2 days.

hobienick · 02-26-2020, 09:23 AM

And if you wait a few months it will seem like these past few days never happened in the market. I find day trading to be to stressful and too much luck is involved. Investing for the long term makes much more sense.

Sometimes it is just worth the experience to finance the toy if you can afford it. Money is so cheap to borrow right now I hate to take it out of my investments. To each their own. Run your numbers and make the best choice for your situation.

SlowrideHD · 02-26-2020, 09:33 AM

Quote:

Originally Posted by Locky

I would like to forget about these last 2 days lol. But I made 33.45% last year and was up to 10.60% year to date on Monday but lost 8% the last 2 days.

I wish I would have had your financial advisor last year! Did OK but not 30%!

Lost more the last two days than I paid for my first home! Now that I think about it, I lost more yesterday than I paid for my first home! Yuck.

mpouls1 · 02-26-2020, 09:37 AM

Interesting this popped up. Just started debating whether to just pay off remaining balance on the TT. Bought new 2019, 5% interest, 5 year loan. Monthly payment ~ 450 but we pay extra so actually 550/month. I'm only considering because of the interest saved. I don't like spending thousands of dollars I don't have to. Owe about 18k. Still haven't decided...

Locky · 02-26-2020, 09:39 AM

I am stock market illiterate. Just by luck I have left 80% of my money in Jennison large cap growth fund for the past 3 years and it's done well for me.

Mike134 · 02-26-2020, 09:54 AM

Quote:

Originally Posted by SlowrideHD

I wish I would have had your financial advisor last year! Did OK but not 30%!

Lost more the last two days than I paid for my first home! Now that I think about it, I lost more yesterday than I paid for my first home! Yuck.

I'm a Warren Buffet follower, buy a low cost S&P 500 index fund and hold for the long term. But you do need to reward yourself and take some profits in the good years.

BehindBars · 02-26-2020, 09:59 AM

A down side to financing is the need to disclose your personal information to yet another financial institution, make payments, keep tabs on the account for accuracy, etc. All money advantage/disadvantage calculations aside, it’s just so much easier to hand over a check for the purchase and the whole deal is a done deal, and you move on with your life.

Reverse_snowbird · 02-26-2020, 10:01 AM

Quote:

Originally Posted by Locky

But you could you have made more money by financing the camper and investing the money.

Perhaps, but that's not guaranteed. Also, many people don't have the knowledge of how to invest their money and interest rates at banks are ridiculous.

We financed our mh for 20 years because we didn't want to deplete our cash reserves. Financed my new car for 5 years at 0% interest so that we could keep cash in investments.

corn18 · 02-26-2020, 10:03 AM

Quote:

Originally Posted by Locky

But you could you have made more money by financing the camper and investing the money.

Could is the key word here. Recency bias makes people think the market only goes up. Debt is not an evil demon. How we feel about debt has much more influence on how people handle debt than actual numbers.

For those that want to compare equity returns vs. debt interest rates, good luck to you. That's gambling. The better comparison is to compare bonds of similar duration to the interest rate on your debt. If you have a 20 year loan on your camper at 4%, compare that to bonds with a duration of 12 years or so (10 years is easier, so well use that). 10 year treasuries are yielding 1.37% right now. So, compare 4% to 1.37%, right? Nope, not that simple. The bond rate is nominal and the loan rate is real. The loan rate will never go up regardless of inflation. Bond rates will move with inflation (at least if the fed is doing their job). To match up the rates, subtract inflation from the loan rate. It's been running 2% lately, so the loan rate is actually 2%. Now you can compare the 10 year bond rate of 1.37% to the loan rate of 2%. That's a difference that I could live with to get the trailer now and start making memories with my family.

But I don't do that because I have an emotional problem with debt. We accumulated a lot of debt over 25 years and found ourselves with a net worth of negative $200k with nothing to show for it at age 48. So we attacked the debt and started saving and now we are completely debt free (including mortgage). Now we hate debt and even avoid 0% loans for fear of sliding back into our old ways. This is not the best use (or non use of debt) but it works for us.

The smart thing to do is to manage your spending the same, with or without debt, and take advantage of cheap money along the way. If you can pay cash but a 0% loan is available, always take the 0% loan, all else being equal. As for campers, I am so glad we did finance ours because we could never pay cash for it and the 7 years of family camping time we had are cherished moments. I can't say the same about the 4 cars we financed to the hilt.

Locky · 02-26-2020, 10:56 AM

These are all great replies back and hopefully will help some of the younger families on here. They need to look at their situation and see what is best. I'm almost 54 and can retire in 2 years from my job. Did I alwats make the best decisions...heck no. But with age you start to get a grasp on things.

Lundy · 02-26-2020, 11:34 AM

I completely agree with your post. We financed our first trailer when the kids where very young 3 and 5. We were able to get 18 years of great camping memories with them that they still talk about today. We had solid dependable jobs and making a payment was never a problem. If we had tried to save for the trailer it would have taken a long time to get there and would have eaten into those camping years. I would pay any amount to have those memories with the kids that is time you cannot get back. Before kids we tried the used RV thing and it was a disaster. It was broken more then we used it, which made the camping experience miserable. When I’m on my deathbed it will not be the money I spent that comes to mind, but those camping memories will. I really cannot stand those people who tell you if you cannot pay cash than you shouldn’t have an RV.

Locky · 02-26-2020, 11:44 AM

Quote:

Originally Posted by Lundy

I completely agree with your post. We financed our first trailer when the kids where very young 3 and 5. We were able to get 18 years of great camping memories with them that they still talk about today. We had solid dependable jobs and making a payment was never a problem. If we had tried to save for the trailer it would have taken a long time to get there and would have eaten into those camping years. I would pay any amount to have those memories with the kids that is time you cannot get back. Before kids we tried the used RV thing and it was a disaster. It was broken more then we used it, which made the camping experience miserable. When I’m on my deathbed it will not be the money I spent that comes to mind, but those camping memories will. I really cannot stand those people who tell you if you cannot pay cash than you shouldn’t have an RV.

Exactly

TitanMike · 02-26-2020, 12:14 PM

Many people will finance large ticket items like an RV so they can enjoy it earlier in their life, especially if they have a young family.

The interest paid will certainly add to the cost but inflation can certainly make it more expensive later.

If one does have the cash, investing and expecting a high rate is a big gamble unless you invest in an instrument with a guaranteed rate of return (CD, Bonds, High Yield Savings Acct) but reality is, simply put, RATES SUCK.

Don't forget too, you may make 8% NOW in a "Fund" but how much have you made when you sell after the market goes in the toilet?

Finance or pay cash is up to each person to decide for themselves based on their personal finances, either cash on hand or ability to pay over time.

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