Why buy a car with cash?

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Pepper11
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Why buy a car with cash?

Post by Pepper11 »

There seem to be many Bogleheads who are proponents of paying for a car in cash, or happy with their decision to have done so. I will be purchasing a new car soon and will have cash to pay for it. However, most car companies are offering 0% financing for 60 months on new cars (72 month in Hyundai's case) and about 2% for used cars. Paying cash seems like free money I would be giving away, as the interest is certainly less than expected inflation, much less an expected return by conservatively investing the unused cash.

Unless you expect 5 years of deflation, even if you have $10 million in the bank, why pay cash? Isn't paying cash nearly guaranteeing you will decrease your net worth more than if you let Toyota front the bill?
jdilla1107
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Re: Why buy a car with cash?

Post by jdilla1107 »

If you get 0% financing, it means you could have gotten a lower price on the car. 0% financing costs real money and they build that into the price. You won't be able to get close to invoice price with 0% financing, but you can with cash.

This is exactly why the dealer wants to know if you are financing up front.
Last edited by jdilla1107 on Mon Jun 23, 2014 9:46 pm, edited 1 time in total.
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ClevrChico
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Re: Why buy a car with cash?

Post by ClevrChico »

A cash purchase eliminates a lot of "funny business" at the dealer with numbers. It helps eliminate buying more car than you need on a payment.
john94549
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Re: Why buy a car with cash?

Post by john94549 »

The weirdness of auto buying/financing is beyond ordinary mortals. For example, I was always under the assumption that buying a car "for cash" meant a better deal. Alas, I was then informed of financial incentives available to dealers who "financed" cars, even with loans with no early payment penalties. Those incentives would get passed on to those who financed, even if they paid off the loan in 30 days. Bottom line: you can't out-wit car dealers. Hire a car-buying service, shell out the hundred dollars or so for their expertise, then call it a day. Buying a car is neither fun, nor rewarding. Let someone else do it.

When my 1994 Buick finally bites the dust, I will no doubt ride around in many cars at local dealers, sample their wares, as it were, then engage a car-buying service.
livesoft
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Re: Why buy a car with cash?

Post by livesoft »

As I recently wrote, I bought a used car and told the dealer that I was just going to write a check for it. No trade-in was involved. I negotiated*, got the price I was willing to pay, then went in with my checkbook to put a deposit on the car and told the dealer that I would pay the rest after selling some shares.
He said, "No worries, we can give you a loan for 0%."
I replied, "You don't even know if I qualify or what my credit score is."
His answer, "I don't think there will be any problem with that."
Anyways, the loan was approved and I got the car. I wasn't in a hurry to pick up and needed another driver anyways, so I sent my spouse and son to pick it up the next day.

The loan was not from the dealer, but was from the manufacturer. Could I have gotten the car for a lower price? Possibly. There is no way to know now. However, I would state that the loan didn't enter the picture until after the deal was done.

The car-buying experience was not distasteful and essentially stress-free for me. Perhaps mostly because I wasn't in a hurry and didn't need to make a deal in haste.

*Some of you won't like this, but while looking at cars, I told the salesman that I was willing to pay up to $35K out-the-door. You may thinking, "Oh, no! I bet the guy kept the price up high because livesoft revealed a number first." Anyways, I have revealed what I paid for the car in another post.
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freddie
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Re: Why buy a car with cash?

Post by freddie »

Hasn't been my experience. I got sub invoice on a .9% loan several years back. The financing comes from the car company not the dealer. Now if they would have offered 2k instead of the financing, I would have done that no questions asked.
jdilla1107 wrote:If you get 0% financing, it means you could have gotten a lower price on the car. 0% financing costs real money and they build that into the price. You won't be able to get close to invoice price with 0% financing, but you can with cash.

This is exactly why the dealer wants to know if you are financing up front.
bhsince87
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Re: Why buy a car with cash?

Post by bhsince87 »

IMO, cash is not always best deal for the buyer, or the dealer. There can be incentives and tax and accounting tricks that can make it better for a dealer to offer you 0% financing than a cash deal, even for the same exact "out the door" price. If you can find a deal like that, heck yeah take it.

As others have pointed out, you need to trust the dealer to make sure the cost is actually the same to you with a cash vs financing deal.

Also, taking out a low interest loan can help your credit rating in some cases. This might end up saving you money on a mortgage down the road.

One potential negative is if you use the loan to stretch to a car you wouldn't necessarily buy otherwise. But if you keep the cash on hand to pay it off entirely, you should be safe either way.
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nordsteve
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Re: Why buy a car with cash?

Post by nordsteve »

My recent experience:

Last fall I purchased a Subaru Outback with 1.9% manufacturer financing for 48 months. I specifically inquired about substituting a discount at more than one dealer, all of them claimed that there was no option to do so.

I saw no reason to pay with cash when I could borrow at 2%.
livesoft
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Re: Why buy a car with cash?

Post by livesoft »

bhsince87 wrote:Also, taking out a low interest loan can help your credit rating in some cases. This might end up saving you money on a mortgage down the road.
While that's true, in the short term the loan will ding your credit score. I know that my creditkarma score dropped 20 points when the loan showed up there after an initial 4 point drop for the credit inquiry.
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music_man
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Re: Why buy a car with cash?

Post by music_man »

john94549 wrote:The weirdness of auto buying/financing is beyond ordinary mortals. For example, I was always under the assumption that buying a car "for cash" meant a better deal. Alas, I was then informed of financial incentives available to dealers who "financed" cars, even with loans with no early payment penalties. Those incentives would get passed on to those who financed, even if they paid off the loan in 30 days. Bottom line: you can't out-wit car dealers. Hire a car-buying service, shell out the hundred dollars or so for their expertise, then call it a day. Buying a car is neither fun, nor rewarding. Let someone else do it.

When my 1994 Buick finally bites the dust, I will no doubt ride around in many cars at local dealers, sample their wares, as it were, then engage a car-buying service.
I think now a days, it's more difficult for the dealer if the buyer chooses to be well informed. You can sit right there in the dealership and check out prices of other local dealers for a car you're buying to get an idea if you're getting over charged or not. Dealers definitely prefer customers to finance as they are able to mark up the rate the lender quotes in order to get an extra cut.
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bogleblitz
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Re: Why buy a car with cash?

Post by bogleblitz »

if it is 0% then it is a good deal. But most of what I see, it is usually high percentage for car loans.

The debate is the same as should I pay off my mortgage early. I find both ways a tie. One wins if stock market goes up with car cash money. One loses if stock market goes down during the 3-5 year car loan money.

I like paying off mortgages early and paying cars with cash. Lets me sleep better at night not worrying that the stock market will crash and I need to sell my car.
music_man
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Re: Why buy a car with cash?

Post by music_man »

jdilla1107 wrote: This is exactly why the dealer wants to know if you are financing up front.
Also, why you should be evasive when asked this question up front. I might say "I haven't made up my mind or depends on the final cost".
jdilla1107
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Re: Why buy a car with cash?

Post by jdilla1107 »

freddie wrote:Hasn't been my experience. I got sub invoice on a .9% loan several years back. The financing comes from the car company not the dealer. Now if they would have offered 2k instead of the financing, I would have done that no questions asked.
jdilla1107 wrote:If you get 0% financing, it means you could have gotten a lower price on the car. 0% financing costs real money and they build that into the price. You won't be able to get close to invoice price with 0% financing, but you can with cash.

This is exactly why the dealer wants to know if you are financing up front.
.9% on a 3-5 year loan wouldn't have cost much of anything several years ago. Depending on exactly when it was (near the crisis?), short rates really were that low.

The point is that extra low rates cost something and are being built in somewhere. I have seen one dealer where different rates come back with different dollar amounts in cost to the dealer.
john94549
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Re: Why buy a car with cash?

Post by john94549 »

In Poker it's called a "tell." If the salesperson's grin falls somewhat when you say you want an all cash deal, it might mean he or she gets a cut from financing. Seriously, I suspect these days the best deal is (a) buy on credit, through the dealer, with onerous terms and conditions, but NO PREPAYMENT PENALTY, then (b) pay off the loan ASAP.

Think behavioral economics. Most folks cannot or will not pay off the loan, early or otherwise. They pay it off only when they trade-in the car, when they sign up for another round of idiocy. Ergo, most folks never pay off car loans.

Just a thought.
sscritic
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Re: Why buy a car with cash?

Post by sscritic »

I just bought a car with a loan from the manufacturer at a rate of 4.64%. The benefit of financing was an additional $500 off. It is a simple interest loan. My first payment was $29,000. I have to keep the loan for at least four payments to avoid returning the $500 incentive. I think my total interest will be under $100, depending on how fast the Postal Service works. My first payment actually arrived on Friday June 6, but wasn't credited until Monday June 9. I hate weekends; businesses should be open 24/7. There is actually a clause in the contract that says I have to pay $75 if the total interest is less than that.

I will save between $400 and $425 by financing at 4.64%. Go figure.

P.S. There was no bargaining; I used Costco.
john94549
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Re: Why buy a car with cash?

Post by john94549 »

Sscritic, I must admit I am having a bit of fun back-testing your math. But then, as a retiree, I have little else to occupy myself.

Might I add, your hypothetical sounds like one of the questions on the "Common Core" exam.
Last edited by john94549 on Mon Jun 23, 2014 10:55 pm, edited 1 time in total.
sscritic
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Re: Why buy a car with cash?

Post by sscritic »

john94549 wrote:Sscritic, I must admit I am having a bit of fun back-testing your math. But then, as a retiree, I have little else to occupy myself.
Since it is simple interest, it is done by the day. Since I didn't tell you the day I bought the car, you don't know how many days of interest there were between that date and June 9. You also don't know the loan amount.

So make up a loan amount and a starting date, and see how the math works. I am planning to make my payments as soon as each month's statement hits my mail box (there is the USPS again, so I have to worry about them both ways), so you need to know when the statement are mailed.

I can't use bill pay to send them the payments electronically, although I could authorize them to pull from my checking account, but then it would only be the regular payment amount taken on the due date. That's too little, too late.

What hypothetical? The car is in my garage.
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Post by jimb_fromATL »

Pepper11 wrote:There seem to be many Bogleheads who are proponents of paying for a car in cash, or happy with their decision to have done so. I will be purchasing a new car soon and will have cash to pay for it. However, most car companies are offering 0% financing for 60 months on new cars (72 month in Hyundai's case) and about 2% for used cars. Paying cash seems like free money I would be giving away, as the interest is certainly less than expected inflation, much less an expected return by conservatively investing the unused cash.

Unless you expect 5 years of deflation, even if you have $10 million in the bank, why pay cash? Isn't paying cash nearly guaranteeing you will decrease your net worth more than if you let Toyota front the bill?
Don’t be fooled into thinking that 0% financing is really free financing. You need to look long and hard at the math and cash back or other discounts. Usually the offer is either 0% financing or a specific amount of cash back – which is effectively a discount off the sales price.

There are sometimes good financial reasons to finance a car instead of paying cash, especially when you already have the cash. (In fact the best time to borrow money is when you don't have to.) But 0% financing is not really one of 'em.

I've dusted off an old post of mine on the subject and dug up the spreadsheet to illustrate how the math works. (It's from a few years ago, so had to change the market financing rate example from 5% to 2%.) Here 'tis:

______________________________________________________________

For at least 15 to 20 years or more that I’ve noticed, and especially since 2001, when car sales are down because of a slow economy, or perhaps because of end-of-year leftovers, or if for any other reason a particular model is not selling well at its normal price; carmakers know they have to cut the prices to get more people to buy more cars. But they don’t want to set a precedent by lowering the MSRP, because it looks really bad to future buyers when they have to raise the MSRP later.

The total price of a vehicle is your down payment plus any equity if you have a trade-in, plus the cost of financing. One solution manufacturers have found to work very well for them is 0% or very low rate financing to make it look like the total price of the car is a lot less.

What really happens is this way the effective "list" price is reduced by the interest they would otherwise have collected on the loan through their financing arm. But it is only a temporary offer. When car sales pick back up, they won't have to deal with the bad publicity of raising the price later. They can explain it away that it was just a temporary offer they made out of the generosity of their hearts, but which is now expiring.

During the slump in the economy in 2000-2001, offering 0% did indeed get new car sales moving again. The same happened after the crash of 2008.

Plus, as far back as tthe economic crash of 2001 the 0% financing gimmick gave a somewhat unexpected bonus for car dealers ... which was documented in trade journals and other news sources. Dealers and manufacturers found that when they offered 0% or low rate financing incentives or cash back, dealer profits went up.

It turns out that a lot of buyers --most of whom go by monthly payment and don't really do the math to know what they're really paying for the car anyway-- are so dazzled by the thought of saving money with 0% financing that they don’t try as hard to get big discounts off the MSRP. They often end up paying more in the long run for the car ... and the dealers make more profit on each unit too.

Here's an example of how it can work
  • Suppose the car has a MSRP of $25,000. A dealer would probably be quite happy to discount it by $2,500 to make the sale to a qualified buyer. So their real bottom-line price is $22,500.

    Next, let's suppose the manufacturer's lending division would normally be willing to finance 95% of the purchase price at 2.% for 48 months. If they did that, the payment would be $463.73 and the total interest would be $884.

    But let’s suppose that because of either slow sales, or perhaps year-end clearances, they're willing to cut another $1,000 off the MSRP in order to sell more cars. They know that the majority of people finance cars and go by the payment rather than the price. So they can let it go for $1000 less by calling it 0% financing, without lowering the retail price.

    As an added bonus they may offer to finance it at 0% for 60 months with 0% down payment. Sounds great, right? The manufacturer is giving you free financing and not requiring any cash up front either.

    For example, the dealer could show the buyer that instead of paying $1125 down and having a payment of $463.73 at 2.% for 48 months, they can have 0% for 60 months, pay nothing down, and the payment will only be $400.00 per month.

    Wow! 0% for 5 years, and a payment that is $63.73 lower too! That manufacturer is just about giving the cars away! Better jump on the deal without taking too much time to think about it, and before the dealer comes to their senses!

    The customer goes away happy with 0% down and 0% financing, never realizing that instead of paying $1125 down + (48 X $463.73) = $23,384 for the car, they will pay 60 X $400.00 = $24,000 for it.

    The manufacturer is happy because they reduced their surplus inventory, and didn't have to admit that they lowered the suggested retail price.

    And the dealer is very happy indeed, because they sold the car for $24,000 instead of their bottom-line minimum-profit price of $22,500.

One thing that has happened is that customers began waiting until the next 0% or low rate financing offer. So nowadays, the MSRP and profit margins pretty much always allow room to make it look like the manufacturer is financing their cars for free.

jimb
Last edited by jimb_fromATL on Mon Jun 23, 2014 10:59 pm, edited 2 times in total.
WL2034
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Re: Why buy a car with cash?

Post by WL2034 »

I've always thought of it more as, "being able to afford buying the car with cash," rather than necessarily paying cash. It's better not to buy more car than one can afford because one can "afford" the monthly payments, and end up paying down a high-interest loan for 5-6 years. As long as you can afford to pay cash for the car, whether or not you actually should buy the car with cash depends on figuring out how you get the best deal when comparing how low you can haggle the price vs. getting a 0% or very low interest rate loan. It does seem that there are strange incentives at play sometimes that might make it so that the best deal really is to finance at 0% rather than pay cash up front.
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William4u
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Re: Why buy a car with cash?

Post by William4u »

I use cash only since I buy my cars from Craigslist, a cash only venue (more or less). I find the best deals there on reliable used cars. I also think that if I get a loan, I'm likely paying too much.

My rule of thumb for what is paying too much: I divide the cost of a car by 1000, and that is the number of years I expect to get reliable service out of it. So if I find a good deal on a $5000 car, I expect it to run well for 5 years with scheduled maintenance.

If it lasts longer, that is just gravy. Paying more than this for a car is paying too much, IMHO. So, for example, I can get a 10 year old car for $5k, and drive it for 5 or more years.

It takes some patience to get the good deals. So far so good!
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Re: Why buy a car with cash?

Post by john94549 »

Sscritic, in fairness, I suggest we give it a rest. My wife can barely get me to agree to go to the 1969 reunion, if you get my drift.
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Re: Why buy a car with cash?

Post by sscritic »

Actually, I had a choice between the $500 or a low percentage rate. The rate I was given was 0.25% below what the finance guy at the dealer quoted me. I guess a good FICO is good for something.
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Re: Why buy a car with cash?

Post by sscritic »

john94549 wrote:Sscritic, in fairness, I suggest we give it a rest. My wife can barely get me to agree to go to the 1969 reunion, if you get my drift.
Are you going in your 1994 Buick? Maybe you can rent a 1969.
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bru
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Re: Why buy a car with cash?

Post by bru »

sscritic wrote:
john94549 wrote:Sscritic, I must admit I am having a bit of fun back-testing your math. But then, as a retiree, I have little else to occupy myself.
Since it is simple interest, it is done by the day. Since I didn't tell you the day I bought the car, you don't know how many days of interest there were between that date and June 9. You also don't know the loan amount.

So make up a loan amount and a starting date, and see how the math works. I am planning to make my payments as soon as each month's statement hits my mail box (there is the USPS again, so I have to worry about them both ways), so you need to know when the statement are mailed.

I can't use bill pay to send them the payments electronically, although I could authorize them to pull from my checking account, but then it would only be the regular payment amount taken on the due date. That's too little, too late.

What hypothetical? The car is in my garage.
All of this seems like a lot of work for less than $500 in savings. Did you try to get an additional $500 knocked off the price without having to use their financing? I bet you could have.
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Re: Why buy a car with cash?

Post by sscritic »

bru wrote:All of this seems like a lot of work for less than $500 in savings. Did you try to get an additional $500 knocked off the price without having to use their financing? I bet you could have.
Do you bargain every time you go to Costco? Can you get your hot dog and Coke for $1?
There was no bargaining; I used Costco.
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Re: Why buy a car with cash?

Post by killjoy2012 »

It's really not all that complicated if you know who the various players are and what 'levers' they have available to increase profit margins. You just need to keep in mind that the manufacturer != dealer, and that the dealer != F&I Guy, and that all 3 make money in different ways.

If you understand those relationships, then negotiating a straight up purchase is fairly trivial. Leasing is more complicated. And it also helps if you know someone on the inside that can help fact check certain numbers for you.
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Re: Why buy a car with cash?

Post by johnkidding »

Look for opportunities that only exist for cash buyers.

We bought our last car at the auto insurance auction (through a friend with a dealer's license). This method required cash upfront. We paid 65% of the price for a new (2013 last year) model with 10k miles on it. Only got half the warranty, but for the thousands we saved I'll take it.
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Re: Why buy a car with cash?

Post by HardKnocker »

I just bought a new car yesterday for cash, intending to buy for cash all the way. The deal had been made under the invoice price already. This brand offers no price offsets for paying cash so it made no difference in the price.

0% for 3 years was offered after making the deal and I considered it, even filling out some initial financing papers. But after beginning the hassle of going through the process I said forget it and paid cash. I did get a free credit report out of it. :beer

Contrasting this scenario with myself 30 years ago when I didn't have a nickel and financed a car 100% out of necessity is interesting.

The price of cars nowadays is insane.
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Re: Why buy a car with cash?

Post by Jack FFR1846 »

I look at what I might do with the money otherwise. I recently even started a thread asking if I should pay cash for my new (ordered) wrangler or finance through my credit union at 1.24%. The resounding answer was to finance and put money in fidelity taxable to get a $200 bonus. I paid cash. I hate debt and did the calculations. I hate paying any interest. I can still finance since the credit union rate is valid for car loan refinance. Instead, I'm building savings so I can open that taxable account with cash. Did I mention that I hate paying interest?
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bru
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Re: Why buy a car with cash?

Post by bru »

sscritic wrote:
bru wrote:All of this seems like a lot of work for less than $500 in savings. Did you try to get an additional $500 knocked off the price without having to use their financing? I bet you could have.
Do you bargain every time you go to Costco? Can you get your hot dog and Coke for $1?
There was no bargaining; I used Costco.
Perhaps you could have gotten as good or better deal on your own. But I guess you were satisfied. Good luck with the hoops and relying on the USPS.
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Re: Why buy a car with cash?

Post by Snapper »

I just bought a Toyota and was going to pay cash but opted for the 0% offered. Price negotiation was based on a cash deal w no trade. Price did not change but dealer did offer me $1,000 in lieu of the financing. I think I can more than make up the $1,000 with the loan. In my experience the whole assumption that you are paying for it someplace is overblown. It is pretty much a part of Toyotas business strategy. I think the options with them are pretty transparent and there is no hidden game.
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Re: Why buy a car with cash?

Post by TheTimeLord »

Pepper11 wrote:There seem to be many Bogleheads who are proponents of paying for a car in cash, or happy with their decision to have done so. I will be purchasing a new car soon and will have cash to pay for it. However, most car companies are offering 0% financing for 60 months on new cars (72 month in Hyundai's case) and about 2% for used cars. Paying cash seems like free money I would be giving away, as the interest is certainly less than expected inflation, much less an expected return by conservatively investing the unused cash.

Unless you expect 5 years of deflation, even if you have $10 million in the bank, why pay cash? Isn't paying cash nearly guaranteeing you will decrease your net worth more than if you let Toyota front the bill?
The deal is often 0% or $X cash back.
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TheTimeLord
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Re: Why buy a car with cash?

Post by TheTimeLord »

stevep001 wrote:My recent experience:

Last fall I purchased a Subaru Outback with 1.9% manufacturer financing for 48 months. I specifically inquired about substituting a discount at more than one dealer, all of them claimed that there was no option to do so.

I saw no reason to pay with cash when I could borrow at 2%.
Where did you find a savings account where you netted more than 2% after paying taxes on the interest?
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Re: Why buy a car with cash?

Post by bloom2708 »

We recently paid cash for a new 2014 Ford Explorer. If there would have been an extra $1,500 for taking the financing I probably would have financed it for the 3 required months and then paid it off. My father-in-law did this for a 2013 Ford Taurus. At times you may get a financing rebate, but you might lose a different rebate. Not all manufacturers offer those type of deals.

I sold our previous car before. So it was a no trade, no financing deal. We hope to drive the car for 8-10 years. Since becoming debt free in 2007 we just don't borrow money. So far it is working out just fine.

In the end it probably makes little difference if you finance or pay for it. It was a planned purchase and wasn't "investment" long term money.
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Re: Why buy a car with cash?

Post by jjustice »

No one has mentioned that when you pay cash you don't have to buy comprehensive and collision insurance. I go by the rule of thumb that you don't insure for losses that you can afford. I buy only liability and uninsured moterist insurance, even when my cars are new. I'm so far ahead now that I could afford to total a couple of cars.

John
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Re: Why buy a car with cash?

Post by Leesbro63 »

ClevrChico wrote:A cash purchase eliminates a lot of "funny business" at the dealer with numbers. It helps eliminate buying more car than you need on a payment.
+1
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Re: Why buy a car with cash?

Post by Leesbro63 »

jjustice wrote:No one has mentioned that when you pay cash you don't have to buy comprehensive and collision insurance. I go by the rule of thumb that you don't insure for losses that you can afford. I buy only liability and uninsured moterist insurance, even when my cars are new. I'm so far ahead now that I could afford to total a couple of cars.

John
This to me seems like a foolish bet, albeit one that you've won so far.
Leesbro63
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Re: Why buy a car with cash?

Post by Leesbro63 »

Snapper wrote:I just bought a Toyota and was going to pay cash but opted for the 0% offered. Price negotiation was based on a cash deal w no trade. Price did not change but dealer did offer me $1,000 in lieu of the financing. I think I can more than make up the $1,000 with the loan. In my experience the whole assumption that you are paying for it someplace is overblown. It is pretty much a part of Toyotas business strategy. I think the options with them are pretty transparent and there is no hidden game.
With interest rates near zero, this has become true much of the time. That zero or near zero financing is NOT in lieu of some other cash bonus. I had my daughter do this (even though she had the cash) to help build her credit. She will just use the cash to make the payments, which will essentially be the same thing. The kicker is if she whizzes away the cash. Her track record with money is excellent, so it's a risk I think she can take. But I generally agree that paying cash eliminates the "it's only $10/month more" thing that dealers can do when financing and certainly leasing.

EDIT: This wasn't the case when interest rates were higher. A zero interest rate meant you paid more for the car. And someday interest rates will rise again.
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Re: Why buy a car with cash?

Post by KyleAAA »

jjustice wrote:No one has mentioned that when you pay cash you don't have to buy comprehensive and collision insurance. I go by the rule of thumb that you don't insure for losses that you can afford. I buy only liability and uninsured moterist insurance, even when my cars are new. I'm so far ahead now that I could afford to total a couple of cars.

John
I wonder what the actual odds are on this. I know multiple people who've been hit by uninsured motorists.
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Re: Why buy a car with cash?

Post by Jack FFR1846 »

KyleAAA wrote:
jjustice wrote:No one has mentioned that when you pay cash you don't have to buy comprehensive and collision insurance. I go by the rule of thumb that you don't insure for losses that you can afford. I buy only liability and uninsured moterist insurance, even when my cars are new. I'm so far ahead now that I could afford to total a couple of cars.

John
I wonder what the actual odds are on this. I know multiple people who've been hit by uninsured motorists.



My 9 month old jeep was totaled over the winter when my son swerved on a flash frozen road where teenagers were messing around at the end of a driveway at 11pm. Insurance settled for about $32,000 and I ordered a new wrangler. I can handle my $1k deductable but not a total loss
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ubermax
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Re: Why buy a car with cash?

Post by ubermax »

This won't help with your decision but several months ago I tried to measure which of these options would be the best : cash, lease, or borrow from the local bank - the key determinant that fell out for me was the residual value at the end of the lease ; dealerships have access to a large data base that can predict that value very well I suspect ; I contend that if you could predict that value pretty accurately then under certain loan or lease conditions there would be an advantage to either borrowing or leasing .

I did some web searching to find an analysis of the lease/buy decision for autos to no avail - plenty of books on non-auto equipment leasing - I think in practice the decision is based on the person's current financial situation - can't generalize but I think young people with families tend to lease or borrow and when they get to be old codgers they have more options :happy .

Good Luck , lot of good posts so far !!!

But wait SScritic is probably one of the codgers & he financed - can't generalize I guess :wink:
sambb
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Re: Why buy a car with cash?

Post by sambb »

The smartest way to save money is to just stay out of the dealer for as long as you can.

Whether it is cash or 0% is irrelevant - it is a small difference.

however, if you buy a car every 3 years instead of every 6-8 years, you will lose alot more money
Over 20 years, try to have just 3 cars instead of 6. Big difference. Some can go 20 years with one car - I cant do that. But I tip my hat to those that can.

Thats the bottom line.

After that, this is all nuances and small potatos.

The best deal is to buy a reliable car and drive for awhile. Im not a fan of keeping them for more than 10 years, but <3 is really bad I think. Ive made that mistake. Everytime you step into a dealer you lose money.

One of my friends works at a dealer in finance. He states that people will grind it out for hours over $200 or $300, and when they drive the car off the lot, they lose $2500-$5000. If they are that concerned about $200, why not just keep the old car? Paradox city!

The next best thing is to buy slightly used cars. I have had all sorts of models, everything from accords/camrys to sports cars and BMWs. Buying the european cars or luxury cars at one-two years old is really a money saver. I have been satisfied with that, but nothing compares to the VALUE of a camry or an accord as an overall car, and resale. I am happy to buy those new.

Saving money on 0% vs cash is just such a tiny amount of how to be economical with cars.

Another key money saver is to avoid the expensive options - do you really need navigation? Doesnt everyone's phone have it? This works well on porsche and BMW in the preowned market, where options are very expensive and retain value very poorly.
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Re: Why buy a car with cash?

Post by ralph124cf »

KyleAAA wrote:
jjustice wrote:No one has mentioned that when you pay cash you don't have to buy comprehensive and collision insurance. I go by the rule of thumb that you don't insure for losses that you can afford. I buy only liability and uninsured moterist insurance, even when my cars are new. I'm so far ahead now that I could afford to total a couple of cars.

John
I wonder what the actual odds are on this. I know multiple people who've been hit by uninsured motorists.
If you are hit by an uninsured motorist, then your own insurance pays. Leaving the physical damage uninsured, no matter who is at fault, is a function of the value of the car versus the risk that you are comfortable taking. In many areas, houses can only be insured with a percentage deductible, such as 1% of the value of the house. If you are taking that damage risk with that deductible on your house, and the total value of your car is less than the deductible on your house, you might as well take the same financial risk on your car.

Ralph
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Re: Why buy a car with cash?

Post by bobbun »

StarbuxInvestor wrote:
stevep001 wrote:My recent experience:

Last fall I purchased a Subaru Outback with 1.9% manufacturer financing for 48 months. I specifically inquired about substituting a discount at more than one dealer, all of them claimed that there was no option to do so.

I saw no reason to pay with cash when I could borrow at 2%.
Where did you find a savings account where you netted more than 2% after paying taxes on the interest?
Why does the investment need to be a savings account? The term of the loan is four years. Is a savings account really a better basis for comparison than a five year CD?
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Re: Why buy a car with cash?

Post by jimb_fromATL »

jjustice wrote:No one has mentioned that when you pay cash you don't have to buy comprehensive and collision insurance. I go by the rule of thumb that you don't insure for losses that you can afford. I buy only liability and uninsured moterist insurance, even when my cars are new. I'm so far ahead now that I could afford to total a couple of cars.

John
It's easy to say that collision and comprehensive coverage insurance is not worth anything if you're on the lucky ones who never needs it. The same applies for home insurance and health insurance, disability insurance, etc.

In the case of car insurance, it's a lot easier to be "self insured" when you've had a long run of good income and good luck in not having any car accidents. But what if a hit-and-run driver had totaled your first car? The average price of a new car these days is around $31,000. Not many people start out with enough cash reserves to make it worth the risk.

Many people do advise dropping damage coverage when a car is older, depending in its value and how much you can afford to lose if the car is totaled, and I've dropped it on older cars in the past. However, I've fairly recently come to realize that there's more to the decision than the value of the car being insured. It also depends on whether you ever drive rental cars or other peoples' cars, and how some parts of the insurance law are written in your state, as I described in this post



jimb
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Re: Why buy a car with cash?

Post by likegarden »

We are retired and paid with cash last year buying a new car because we do not want any loans and their monthly payments. Our house is also paid for, we sleep well at night.
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Re: Why buy a car with cash?

Post by cannondale »

There are always risk with buying used. For one thing, you don't get the lemon law protection. And you don't know the history either.

As well, for some of the more desirable Japanese cars, the drive-offf-the-lot depreciation hit isn't what it used to be. The difference between a used 2013 Honda Civic and new 2014 isn't that great.
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Re: Why buy a car with cash?

Post by Abe »

As I remember, the way it used to work was you had a choice. You could get zero or low rate financing but no rebate, or you could pay cash and get the rebate. I have not bought a new vehicle in a while so I don't know if it's still that way or not. In effect, the rebate that you did not receive if you financed was additional interest that you paid, so it was not as good as it sounded. In other words you were paying more than the interest rate they advertised. They have ways to get you. The only way to know for sure is plug the numbers into a financial calculator or spread sheet and make a comparison.
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Re: Why buy a car with cash?

Post by abuss368 »

There is imputed interest built into the price of the car. I would finance over the 72 months.
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Re: Why buy a car with cash?

Post by Rodc »

The smartest way to save money is to just stay out of the dealer for as long as you can.

Whether it is cash or 0% is irrelevant - it is a small difference.

however, if you buy a car every 3 years instead of every 6-8 years, you will lose alot more money
Lot of truth there, though I opt for more like 12 years rather than 6-8.

Wife and I have two cars and try to buy one new about every 6 years, that way we always have one "nice" and reliable car for road trips, and one older car which is mostly driven around town. When one ages out at year 12, the "new" car becomes the "old car" and we repeat the cycle.

Others of course keep cars longer, but for us that is about the sweet spot.

And if you wait a while to get a new car, even a base model is a noticeable "upgrade". :)

I think you save quite a bit by skipping the bells and whistles, as well as reduce future repair costs.

YMMV
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