RULE #6: Don’t finance anything with depreciating value

RULE # 7

For many of us, financing tends  looks like an attractive option. We think that because the financing option is spread out over a long period of time, we will inevitably be able to afford our purchase.

This may be true; many of us could only buy a new car if we put a down payment on the vehicle, and then make monthly payments towards the principle. Makes sense, right? Wrong. Financing may look more affordable, but we have to look into whether or not these assets are appreciating or depreciating in value.

If you are financing something that is depreciating in value, then you better think wisely as to whether your purchase is worth it.

Think about it this way:

If I were to buy a new car straight from the dealership, the value of the vehicle would depreciate the moment I took it off the lot. If I made low monthly payments for five years, I would finally own the vehicle outright, and I would be finished making payments. But, here’s the crux: what would the vehicle be worth once I actually own it? The answer is that the vehicle would inevitably be worth much less than I had originally purchased it for. (To find out the depreciating value of Canadian vehicles, check out http://www.canadianblackbook.com )

Just some food for thought - think long term when financing assets that are depreciating in value.