Re:FICO to incorporate buy-now-pay-later loans into credit s...
by Esophagus4 on Thursday June 26, 2025 @10:30AM
(#44387811)
All totally valid points. If used responsibly across all those elements, within someone’s budget, with the ability to tolerate the risk… I can see the case for financing. I just think most people don’t quite use car loans that way… hence the proliferation of 72 month+ loans. (But then, they’re adults who can make their own decisions, so fair enough. They would probably say I’m risk averse, anyway.)
> Hey, an extra 1% a year for the duration of one’s working life adds up quite significantly!
I agree - but in this case, you’re not really netting an extra 1% per year forever… in that example, you’re saying you’d have a car payment for your entire working life! And a long period of buying depreciating assets I think is going to hurt a lot more in the long run than the 1% spread :)
That being said, I get that purchases are not always spreadsheet math. So maybe someone is willing to spend a little more over time to drive newer cars, and that’s up to them.
Which is what one should do, provided one believes that the long-term result will be positive.
> Financing a depreciating asset against one that is volatile in the short term (and has seen drawdowns of 20% several times in the last 10 years) is a duration to risk mismatch.
Financing an asset and the value of an asset are independent. If one believes that one will get a better yield by investing than one could by avoiding financing, then one should finance. I believe that over time my investment returns will be higher than the current car loan rate.
> people don’t in practice use credit as liquidity backed by an investment, they use it as a cash advance to buy more car than they would absent financing … So now instead of buying a $20k car cash, people will buy a $40k car, increasing their debt load against a depreciating asset.
Yes, fools are foolish. A wise man makes educated predictions of the future. If his current total portfolio debt load can support financing a purchase, and if the rate to finance it is less than what he predicts his yield will be, then he’ll finance it.
> if that small spread from borrowing to buy a depreciating asset makes a significant difference to you
Hey, an extra 1% a year for the duration of one’s working life adds up quite significantly! The key is to carefully manage one’s expenses and balance sheet, maintaining a healthy debt ratio, only incurring debt when it makes sense, and refinancing or paying it down when that makes sense.