Business 9, Lesson 45 – Why You Should Not Borrow to Buy Something That Depreciates

As a general rule, you should never borrow money to buy anything.  Always pay in cash.  You do not want to become a serf of any institution or another person.  However, in this day and age, almost all businesses and people borrow money to buy depreciating assets, including houses.

For those who do not know what depreciating assets are, they are items that are consumed (e.g. laptops, clothes, cars, furniture, toolboxes).  For this essay I will be using cars as an example.  The concept of borrowing a depreciating asset is not black and white.

When a business buys a car on borrowed money, the car is depreciating but it is also used to generate an income. The income the business generates makes the business an appreciating asset.  The income generated is enough to pay off the loan on the car.  Businesses borrow money against their income stream.

When a consumer buys a car on borrowed money, the car starts to depreciate and the consumer is using their own personal income to pay off the loan.  In Singapore, for example, prices of cars are prohibitively expensive because of government taxations and regulations.  But many people still buy cars on loan for various reasons, whether it is for convenience, social status, timesaving or all of the above.  For some people, this may be worth it, while for others it is not.

Personally, I would never borrow money to buy anything, especially something that depreciates as I do not see any value in it.  But I do think that buying a depreciating asset for a business to generate income is smart as long as they have a way to pay off the loan and not fall behind on their payments. As for the consumers who buy a depreciating asset on borrowed money, it is a personal choice.  Who am I to tell you what to do with your money?

Thanks for reading!

Author: sophiaelahirpc

Part-time 9th Grade student in the Ron Paul Curriculum. Full-time teen writer living in Singapore.

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