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I recently read an interesting idea in Robert Kiyosaki's book "Rich Dad, Poor Dad".

His suggestion was that even if you have enough money to buy a car with cash, you would better get a loan, invest your money and pay your rates with the interests you get from your investment. When your car is payed off, you will still have the invested money that keeps generating passive income.

With my calculation this doesn't seem to work: Let's say I want to buy a used car for 10.000€. I could get a loan with an interest of 2,75% and a monthly rate of 178€ over 5 years. So I would need to find an investment that generates 21.3% interests per year, which seems quite impossible with a reasonable level of risk.

Is there any way I could use this idea if I plan to buy a used car?

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    You're confusing some issues: (1) Kiyosaki OVERWHELMINGLY STATES, MANY MANY MANY TIMES that you should never, ever, ever buy an expensive car for any reason (until you are truly rich). You spending 10.000 euros on a car is a staggering waste of money. It will be identical to a used car costing 1000 or 1500 euros.
    – Fattie
    Commented Nov 4, 2016 at 16:37
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    Secondly (2) when Kiyosaki mentions "investing it instead" he is strictly talking about "investing" in his sense of the word. (Say, in a business - and that means a REAL business that ACTUALLY generates cashflow, not just some "idiotic idea".) Present-day "investments" in the sense of "interest-bearing investments" simply pay: nothing, zero; it's irrelevant.
    – Fattie
    Commented Nov 4, 2016 at 16:39
  • Thanks Joe, I agree and wouldn't ever buy a new car either, but from my POV buying a good used car you can rely on and doesn't generate additional repair costs every other month is OK for 10000 euros. But the question wasn't about the price anyway. So if you say, "investing in his sense", this sounds like you need to have a lot of experience with investing in businesses to be able to find such a good deal. Do you have any advice how someone could gain knowledge in this area? What would "Rich Dad" invest those 10000€ in that could generate 178€ cash flow per month?
    – big_p
    Commented Nov 4, 2016 at 17:14
  • HI my friend. Do not pay more than 1000, maybe 1500 euros for a car. It is absolutely crazy to pay 10.000 for a used car. Don't do it.
    – Fattie
    Commented Nov 5, 2016 at 11:55
  • Don't believe everything you read as truth. Take it with grain of salt. Do you think you can get loan at a lower rate than higher low risk return from any investment taking into account all the additional cost. In my world Kiyosaki is a moron. DONT BELIEVE A WORD HE SAYS. thecollegeinvestor.com/4726/…
    – Hakunamatata
    Commented Nov 5, 2016 at 21:36

2 Answers 2

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I think you are a little confused.

If you have 10.000€ in cash for a car, but you decide instead to invest that money and take out a loan for the car at 2,75% interest, you would have to withdraw/sell 178€ each month from your investment to make your loan payment. If you made exactly 2,75% on your investment, you would be left with 0€ in your investment when the loan was paid off. If your investment did better than 2,75%, you would come out ahead, and if your investment did worse than 2,75%, you would have lost money on your decision.

Having said all that, I don't recommend borrowing money to buy a car, especially if you have that amount of cash set aside for the car. Here are some of the reasons:

  1. Sometimes people feel better about spending large amounts of money if they can pay it off over time, rather than spending it all at once. They tell themselves that they will come out ahead with their investments, or they will be earning more later, or some other story to make themselves feel better about overspending. If getting the loan is allowing you to spend more money on a car than you would spend if you were paying cash, then you will not come out ahead by investing; you would be better off to spend a smaller amount of money now.

  2. I don't know where you are in the world, but where I come from, you cannot get a guaranteed investment that pays 2,75%. So there will be risk involved; if the next year is a bad one for your investment, then your investment losses combined with your withdrawals for your car payments could empty your investment before the car is paid off. Conversely, by skipping the 2,75% loan and paying cash for your car, you have essentially made a guaranteed 2,75% on this money, comparatively speaking.

  3. I don't know what the going rate is for car loans where you are, but often car dealers will give you a low loan rate in exchange for a higher sales price. As a result, you might think that you can easily invest and beat the loan rate, but it is a false comparison because you overpaid for the car.

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  • 3 is true, but in some cases the dealer also will give you a better price if you take out a loan with them versus if you pay cash (since they get kickbacks). That's more true with new cars than used, but I wouldn't be surprised if it's true sometimes for used also...
    – Joe
    Commented Nov 4, 2016 at 16:59
  • @Joe, that's also why it's sometimes better to use the dealer's preferred lender rather than bringing your own financing. The dealer won't get a commission on the loan you bring them.
    – quid
    Commented Nov 4, 2016 at 17:18
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    Nice answer. I'm inclined to walk away after reading the first line. Any mention of RK, or DR for that matter, is enough for me to move on.
    – JTP - Apologise to Monica ♦
    Commented Nov 4, 2016 at 17:55
  • @Joe Yes, but that money has to come from somewhere, and that "somewhere" is the customer. If the dealer is getting a kickback from the bank, then the loan is probably not a discount rate loan.
    – Ben Miller
    Commented Nov 14, 2016 at 15:24
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The only way this suggestion works is if you can realize a higher rate of return on the investment than the payoff of the loan. There's no guarantee of that, so it can be a risky strategy from the standpoint that you'll end up paying more for the car when all is said and done.

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  • all such mathematical calculations involving debt neglect to include the unknown future risk of an asset going down in value. This is particularly true of automobiles, which with few exceptions always go down in value. Borrowing money to finance an automobile is therefore going to lose money in almost every instance.
    – rocketman
    Commented Aug 14, 2017 at 22:00

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