Buying a new car: Cash vs Finance

[Dr. Fong]

I already know all that. All it comes down to is if I have the money to pay for a vehicle outright, why shouldn't I? I'm not the type to change vehicles every three years. I'm driving a 12 year old truck, that doesn't look that old, maybe 5-6 years, because I take care of my stuff. My TV is 13 years old. I could run out and buy a new 60" 3-D one, but why bother? The prices keep going down. I'll use this one till it dies.

 

 

Well it sounds like you've made up your mind about the car, but you really need to think about getting a new TV. It's one thing to be frugal, and it's an admirable quality, but when you could be enjoying TV so much more than you currently are I think you owe it to yourself to give yourself a little luxury. If you think you like watching football now, wait until you're watching it in high def in your living room. It's totally worth it.

[kegtapr]

Certified Pre-Owned at .9% for the first two years of the loan, while a standard used car bank loan is about 5%.

 

 

I already know all that. All it comes down to is if I have the money to pay for a vehicle outright, why shouldn't I? I'm not the type to change vehicles every three years. I'm driving a 12 year old truck, that doesn't look that old, maybe 5-6 years, because I take care of my stuff. My TV is 13 years old. I could run out and buy a new 60" 3-D one, but why bother? The prices keep going down. I'll use this one till it dies.

 

You might want to rethink that TV thing. Prices this fall/winter are going to be the lowest you'll see. There's a large overstock of panels in the market due to decreased sales and manufactures are using the new fangled LED tech to drive prices back up. You'll never find better prices on CCFL LCD's then you will this fall, especially as they are phased out for the LED's (which are pure hype and offer no benefit until they are all local dimming set's, not edge lit.)

Edited October 30, 2010 by kegtapr

[ExiledInIllinois]

WRONG!!

 

Keep your cash. Use their MONEY. Who taught you people anything about financing anything, Christ!!

 

Never finance... I never will again.

 

I made a cash price on a 46k brand new car and told them take 31k... Clean deal, write the check right now. They did. How else can you get 15k off sticker price. My only regret? I should have went lower seeing how easy it was. Sure the higher the car, the more they will move. Yet, the bargaining chip is priceless... Do you homework, you can get some great deals... Anytime... No matter what the economy is doing.

 

I agree with waht DC said.

 

 

 

 

 

 

 

[nichebiche]

Never finance... I never will again.

 

I made a cash price on a 46k brand new car and told them take 31k... Clean deal, write the check right now. They did. How else can you get 15k off sticker price. My only regret? I should have went lower seeing how easy it was. Sure the higher the car, the more they will move. Yet, the bargaining chip is priceless... Do you homework, you can get some great deals... Anytime... No matter what the economy is doing.

 

I agree with waht DC said.

 

actually, dealerships make money when you use their finance department, so you probably would have had more leverage and could have saved yourself some extra money off the price of the car if you said, "i'll give you $29,000 AND i'll finance with you."

 

and, really, the answer isn't simple. theoretically, financing with the rates available today is the correct way to go. when done properly, you will end up with more money in your pocket in the end. however, for most people it's not about the math and they cannot handle their money, but feel great comfort in not having to pay one more bill every month. to each his own.

[sullim4]

Depends on where your "cash" is from. A savings account? Do you have to sell stock?

 

I only ever play the investment game with long-term money like my Roth 401k and company stock awards. I keep other surplus cash in the bank (or pay principal off of my mortgage) and while the interest rate sucks, I can count on the money being there in case stuff happens (like getting into an accident and totaling my car). I make regular deposits into that account and only withdraw money in case of emergency, and that's left me with a sizeable fund to tap.

 

So in my situation I would pay cash. But I'm not a financial whiz in any sense of the word.

[BuffaloBill]

So hypothecially speaking, and this is hypothetical as I have not gotten an estimate on damages yet...

 

If you had to absolutely positively had to buy a new car. And you had the money in the bank to pay cash (not hypothecial because I can)

 

Would you pay cash or finance?

 

 

I've not read the thread yet - I am interessted in other responses though as I will be in the same situation next year.

 

The situation ultimately ends up being a math question based on what other investment options are available for your free cash. If you can out earn the cost of the loan through an investment you have confidence in then you take the loan. If the money is just going to sit in something like a passbook savings account (earning little interest) then you pay cash for the car.

 

 

On another related note, I always look to be used. It is best to do this through an original owner that you know. I look for low milage, well maintained cars. It depends on the make and the model of the car but there is usually a "cliff" point where the car is still relatively new (2 or 3 years typically) and the price drops significantly. Personally, this is when I look to buy. Cars depreciate in value with time (very few rare exceptions) and most people do not take this hidden cost into account when they buy.

 

Short version.......

 

 

 

OK, I'll try it like I teach my 9 year old.

 

If you have10K in cash, and you want to buy a car.

Your bank is offering 10% on a CD

You take that 10K and put in in said CD.

You take a loan out against said CD at 2% lower that what you're earning. 8%

That means you're paying 2% for your loan against your money.

At the end of the term you have all your money plus the 2% and what ever value there is with the car that you bought.

 

Get it?

 

 

Where are you getting 10% on a CD these days? Not even the guys emailing offers from Nigeria are giving out those terms.

 

Never finance... I never will again.

 

I made a cash price on a 46k brand new car and told them take 31k... Clean deal, write the check right now. They did. How else can you get 15k off sticker price. My only regret? I should have went lower seeing how easy it was. Sure the higher the car, the more they will move. Yet, the bargaining chip is priceless... Do you homework, you can get some great deals... Anytime... No matter what the economy is doing.

 

I agree with waht DC said.

 

 

Truth is that it is advantageous for the dealer (not always you) to finance as they make money on that arrangement also. Dealers make less on the actual sale of the car than most of us would think. The real margin is in the ancillary sales - financing, extended warranties, options, service etc. You paying cash is not likley a great deal for the dealer. As for the discount - you got a great deal.

Edited October 31, 2010 by BuffaloBill

[ExiledInIllinois]

actually, dealerships make money when you use their finance department, so you probably would have had more leverage and could have saved yourself some extra money off the price of the car if you said, "i'll give you $29,000 AND i'll finance with you."

 

and, really, the answer isn't simple. theoretically, financing with the rates available today is the correct way to go. when done properly, you will end up with more money in your pocket in the end. however, for most people it's not about the math and they cannot handle their money, but feel great comfort in not having to pay one more bill every month. to each his own.

 

29K on what sticker price? If I would have said: "31k on a 46K car... I will finance w/ you." No doubt, they would have told me to pound salt. True what you said about the finance dept... Yet, they have you over a barrel... You will end up spending more. With cash, you can name your price right to THEIR invoice. The trick is finding out what their invoice is. Of course do your homework... Find the car and dealer/lot on line... Get the number of the vehicle you want. It also helps if you take a vehicle that they want to move.

 

I love car shopping with cash... You turn the tables on the dealer and turn them into the whore!

 

 

 

 

 

[Doc]

Where are you getting 10% on a CD these days? Not even the guys emailing offers from Nigeria are giving out those terms.

Where can you get a CD for even more than three percent these days? Ten percent?

 

If you can get a deal where you knock-off roughly 1/3 of the sticker price by paying cash, as in EII's case, you make that deal. Although I'd be curious to know what the price of the car would have been for EII's car had he financed it. I seriously doubt it would have been less than $31K, unless he could have absolutely convinced them that he had the cash to pay upfront but wanted to "do them a favor" by financing with them.

 

The last car I bought was a Honda Pilot back in 2003. They had just come out and were in high demand, so I paid cash and full sticker price. It's a buyer's market now though, but I plan on running that car into the ground (same with our other car, a minivan, despite the wife's wishes to get s new one just because it's old ).

Edited October 31, 2010 by Doc

[ExiledInIllinois]

Where can you get a CD for even more than three percent these days? Ten percent?

 

If you can get a deal where you knock-off roughly 1/3 of the sticker price by paying cash, as in EII's case, you make that deal. Although I'd be curious to know what the price of the car would have been for EII's car had he financed it. I seriously doubt it would have been less than $31K, unless he could have absolutely convinced them that he had the cash to pay upfront but wanted to "do them a favor" by financing with them.

 

The last car I bought was a Honda Pilot back in 2003. They had just come out and were in high demand, so I paid cash and full sticker price. It's a buyer's market now though, but I plan on running that car into the ground (same with our other car, a minivan, despite the wife's wishes to get s new one just because it's old ).

 

It was a great deal... They did squeal a bit... But they made it. Actually, I went to look at the car I wanted and the battery was dead! I didn't have the nerve to swap the car with the other vehicle/vin on the lot... They said they put a new one in... I am guessing they charged it. Still going strong 4.5 years. Also, go "scratch and dent" if you can... Save more money. If the vechicle gets a tad damaged during unloading (say the front end)... By law they HAVE to replace the parts... AND disclose it to you. I picked one that had minor front scratch from the carrier... They disclosed that front was replaced.

 

I don't mind... I feel I got a great deal.

[Jim in Anchorage]

29K on what sticker price? If I would have said: "31k on a 46K car... I will finance w/ you." No doubt, they would have told me to pound salt. True what you said about the finance dept... Yet, they have you over a barrel... You will end up spending more. With cash, you can name your price right to THEIR invoice. The trick is finding out what their invoice is. Of course do your homework... Find the car and dealer/lot on line... Get the number of the vehicle you want. It also helps if you take a vehicle that they want to move.

I love car shopping with cash... You turn the tables on the dealer and turn them into the whore!

Whats the diff to the dealer. You go to the bank get a loan the dealer gets a ck for full amount. You write a ck from your savings account they get a ck for the full amount. Why do they care where the money came from? You do not have to fiancé tru the dealer

In describing your fabulous negotiating skills are you forgetting you got a trade in allowance?

 

By the way, even at $31,000 your car has lost half its value.

Edited October 31, 2010 by Jim in Anchorage

[ExiledInIllinois]

Whats the diff to the dealer. You go to the bank get a loan the dealer gets a ck for full amount. You write a ck from your savings account they get a ck for the full amount. Why do they care where the money came from? You do not have to fiancé tru the dealer

In describing your fabulous negotiating skills are you forgetting you got a trade in allowance?

 

By the way, even at $31,000 your car has lost half its value.

 

I know. I know.

 

I didn't have a trade. I never trade. I kept it as a third car.

 

It really boils down to: What car do you want and how much you are willing to pay reasonably. If you don't get it, walk and wait... Find something else... In my case, you still got a good, nice old car to drive (no trade). Why do you have to trade-in? Number one rule: "Don't go car shopping when you actually NEED a car or your other one is broken." Doing that, you are automactically a loser in the equation. Shop on YOUR terms.

[Just Jack]

Also, go "scratch and dent" if you can... Save more money. If the vechicle gets a tad damaged during unloading (say the front end)... By law they HAVE to replace the parts... AND disclose it to you. I picked one that had minor front scratch from the carrier... They disclosed that front was replaced.

On a related note, I was looking for a cap for my truck. Every place around me wanted between $1000-$1200 for a fiberglass one. I ended up finding a dealer in PA that had one with "paint damage" for about $600. Went and got it, before putting it on, myself and the dealer looked it over, and could not find any damage, but they still let me have it at that price. So driving about 6 hours (round trip) I saved about half my cost.

[thebug]

Well for me it was easy. 42,000 after taxes at 0% financing. Why would I use my money?

[ExiledInIllinois]

On a related note, I was looking for a cap for my truck. Every place around me wanted between $1000-$1200 for a fiberglass one. I ended up finding a dealer in PA that had one with "paint damage" for about $600. Went and got it, before putting it on, myself and the dealer looked it over, and could not find any damage, but they still let me have it at that price. So driving about 6 hours (round trip) I saved about half my cost.

 

Exactly. My brother drives a car-carrier... When he unloads, he has to disclose any damage... And the dealer has to disclose that to you. ASK! Say a minor issue where the front fairing scrap... Slight dent, whatever.

 

He is extra careful when he hauls for private customers (more expensive vehicles)... Say down to their southern snow-bird destination. One lady had an Aston Martin. She said: "Now [My brother's first name], take care of my baby." While handing him a grand tip.

 

Well for me it was easy. 42,000 after taxes at 0% financing. Why would I use my money?

 

What was the sticker on the car? Dealer's true invoice?

 

I do agree... The 0% is fine. Yet... There is got to be a catch or they wouldn't do it. The point is they are still winning. IMO, my point is to get them as low as humanly possible. Afterall, it is all about YOU, isn't it? Again, make the do the whoring.

[DC Tom]

I've not read the thread yet - I am interessted in other responses though as I will be in the same situation next year.

 

The situation ultimately ends up being a math question based on what other investment options are available for your free cash. If you can out earn the cost of the loan through an investment you have confidence in then you take the loan. If the money is just going to sit in something like a passbook savings account (earning little interest) then you pay cash for the car.

 

Or if you've got other, higher interest debt you can pay off with the cash. I've you've got $30k cash sitting around, and $40k in consumer debt at 15%, finance the care at 5% and pay off $30k of the consumer debt.

 

Of course, if you've got $30k in cash and $40k in high-intered consumer debt, you're pretty much a !@#$ing idiot to begin with. But the point remains: pay off higher interest debt first, even if you take on low interest debt to do it.