new car purchase: any reason NOT to do 0% financing

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chrisam314
Posts: 89
Joined: Tue Jun 28, 2016 9:22 pm

Re: new car purchase: any reason NOT to do 0% financing

Post by chrisam314 »

Bastiat wrote: Sat Aug 15, 2020 10:28 pm
chrisam314 wrote: Sat Aug 15, 2020 1:34 pm "I'm no expert on new car shopping but isn't 0% 0%, no matter who is providing it? Yes, I've had a number of dealers say that "Oh that price on the Internet, that's the finance price. You have cash? It's actually $2500 more."

That said, my hope/strategy is to get them to give me price, in writing (via email) for cash and THEN tell them I want the 0% financing."

No. It doesn't exist. Refer to my above post. Money isn't free and finance arms of manufacturers are not in the business of operating at a loss. In fact they are a major profit engine for them. What they are doing is a simple negotiating tactic with you to hold margin. You're response to that should be: I'm not interested in what the 'internet price' or 'finance price' or 'cash price'. I want to know if you want to sell me the car or not because I'm going to get the best price possible. Whether it's with you or not is really up to you. Then walk away, hang up, or offer to work with another sales rep at the dealer.

These people don't get paid unless they move cars. Don't ever feel like what they are telling you is in your best interest. Make them work for it.
This is bad advice. [OT comment removed by moderator oldcomputerguy]

You negotiate the OTD price. That’s all you should care about, and it’s pretty much all the dealer cares about.

The only difference between 0% and cash or getting a “3%” loan (this would be dumb when you have 0% available, obviously) is the manufacturer’s discount. The dealer is not the auto maker, even though the name is the same. The dealer has to buy the car just like you buy the car. You are buying from the dealer, not the auto maker.

[OT comment removed by moderator oldcomputerguy]
Not sure what you replied to me to warrant getting moderated.  Let me just focus on the learning points here for others.

The original question posed by the OP is: Is there any reason NOT to do 0% financing.

The answer is yes and I think I pretty clearly explained why above.  I used 3% as an example (no idea what market rates are and its not really relevant).  The point is that 0% is not real.  You might think it is, but its not.

For educational purposes, let me just make sure you (and anyone reading this) understand how this process actually works.  I see more people on this forum believe that 0% financing = 0% financing and since I have worked in corporate finance for megacorps on the other side of this equation it pains me to hear that. Its akin to other people on this forum getting antsy about overpaying for mutual funds.

VP of car manufacturer X suggests running a 0% 'marketing' promotion for strategic reasons.  This is loaded along with other initiatives into the annual operating plan that is presented to the board of directors in the form of an EPS target. The board of directors accepts the proposal and management rolls out the initiative.  This plan has now been communicated to the financial markets.  

The dealerships in this industry are part of what is called 'distribution costs' on an income statement.  Part of the distribution costs associated with this promotion are incentives the manufacturer agrees to provide to dealers to drive margin (think of it as profit sharing based on volume or rate or ideally both) through this and other promotions.  Another part of the distribution cost is getting a banking institution to underwrite the promotion - said another way a large bank (think Goldman, Chase, etc) will wholesale finance the actual loans for the auto company (GM financial, Toyota, whoever).  The real interest rate is typically bench marked on an index, typically something like libor, treasury yields etc.  And the car company pays a nice fee to Wall Street to originate these loans.  The finance arm of the corporation will embed the price of the loan that they charge the customer into the price of the car.  They will pocket the difference between what the wholesale rate is (offered by Wallstreet) and what they charged the consumer (the retail rate in the form of prepaid interest).  If you can pocket that difference and convince consumers, like you, to buy into the promotion because it doesn't cost anything you have effectively created what is called arbitrage.

At the end of the month/qtr/year/other measurement date depending on the company, the dealers and corporation have a true-up mechanism that rewards dealers for meeting quotas based on a convoluted formula designed to incentive behavior within their distribution network.  Let's say a dealership group really excelled in pushing cars through this promotion.  They'll get a nice kick back after the fact to bring down their cost of goods sold on the back end.

This behavior, when combined with other initiatives, helps senior management hit the EPS target that was communicated to Wall Street. Senior management A) Keeps their job, B) hits bonus + stock option target and buys vacation home C) Keeps activist investors out of stock and lives happily ever after.

TL;DR? All I want you to understand is that anytime an entity with no fiduciary duty to you tells you there's just a great deal out there for you ask yourself who was the corporate finance person behind the curtain who modeled out the initiative value it will create for the company and its shareholders.  

You don't have to like it, but its how it works.  It's not even a conspiracy theory. It's just very lucrative and consumers don't realize how it actually works.

Feel free to take 0% financing deals.  If it makes the transaction more painless or gives you a good feeling about it thats fine.  That's what its designed to do.  But you simply didn't get the best price.  Its just one variable in the overall scope of a large capital transaction like this so don't lose too much sleep over it.
Topic Author
Admiral
Posts: 3092
Joined: Mon Oct 27, 2014 12:35 pm

Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

chrisam314 wrote: Mon Aug 17, 2020 2:25 pm
Bastiat wrote: Sat Aug 15, 2020 10:28 pm
chrisam314 wrote: Sat Aug 15, 2020 1:34 pm "I'm no expert on new car shopping but isn't 0% 0%, no matter who is providing it? Yes, I've had a number of dealers say that "Oh that price on the Internet, that's the finance price. You have cash? It's actually $2500 more."

That said, my hope/strategy is to get them to give me price, in writing (via email) for cash and THEN tell them I want the 0% financing."

No. It doesn't exist. Refer to my above post. Money isn't free and finance arms of manufacturers are not in the business of operating at a loss. In fact they are a major profit engine for them. What they are doing is a simple negotiating tactic with you to hold margin. You're response to that should be: I'm not interested in what the 'internet price' or 'finance price' or 'cash price'. I want to know if you want to sell me the car or not because I'm going to get the best price possible. Whether it's with you or not is really up to you. Then walk away, hang up, or offer to work with another sales rep at the dealer.

These people don't get paid unless they move cars. Don't ever feel like what they are telling you is in your best interest. Make them work for it.
This is bad advice. [OT comment removed by moderator oldcomputerguy]

You negotiate the OTD price. That’s all you should care about, and it’s pretty much all the dealer cares about.

The only difference between 0% and cash or getting a “3%” loan (this would be dumb when you have 0% available, obviously) is the manufacturer’s discount. The dealer is not the auto maker, even though the name is the same. The dealer has to buy the car just like you buy the car. You are buying from the dealer, not the auto maker.

[OT comment removed by moderator oldcomputerguy]
Not sure what you replied to me to warrant getting moderated.  Let me just focus on the learning points here for others.

The original question posed by the OP is: Is there any reason NOT to do 0% financing.

The answer is yes and I think I pretty clearly explained why above.  I used 3% as an example (no idea what market rates are and its not really relevant).  The point is that 0% is not real.  You might think it is, but its not.

For educational purposes, let me just make sure you (and anyone reading this) understand how this process actually works.  I see more people on this forum believe that 0% financing = 0% financing and since I have worked in corporate finance for megacorps on the other side of this equation it pains me to hear that. Its akin to other people on this forum getting antsy about overpaying for mutual funds.

VP of car manufacturer X suggests running a 0% 'marketing' promotion for strategic reasons.  This is loaded along with other initiatives into the annual operating plan that is presented to the board of directors in the form of an EPS target. The board of directors accepts the proposal and management rolls out the initiative.  This plan has now been communicated to the financial markets.  

The dealerships in this industry are part of what is called 'distribution costs' on an income statement.  Part of the distribution costs associated with this promotion are incentives the manufacturer agrees to provide to dealers to drive margin (think of it as profit sharing based on volume or rate or ideally both) through this and other promotions.  Another part of the distribution cost is getting a banking institution to underwrite the promotion - said another way a large bank (think Goldman, Chase, etc) will wholesale finance the actual loans for the auto company (GM financial, Toyota, whoever).  The real interest rate is typically bench marked on an index, typically something like libor, treasury yields etc.  And the car company pays a nice fee to Wall Street to originate these loans.  The finance arm of the corporation will embed the price of the loan that they charge the customer into the price of the car.  They will pocket the difference between what the wholesale rate is (offered by Wallstreet) and what they charged the consumer (the retail rate in the form of prepaid interest).  If you can pocket that difference and convince consumers, like you, to buy into the promotion because it doesn't cost anything you have effectively created what is called arbitrage.

At the end of the month/qtr/year/other measurement date depending on the company, the dealers and corporation have a true-up mechanism that rewards dealers for meeting quotas based on a convoluted formula designed to incentive behavior within their distribution network.  Let's say a dealership group really excelled in pushing cars through this promotion.  They'll get a nice kick back after the fact to bring down their cost of goods sold on the back end.

This behavior, when combined with other initiatives, helps senior management hit the EPS target that was communicated to Wall Street. Senior management A) Keeps their job, B) hits bonus + stock option target and buys vacation home C) Keeps activist investors out of stock and lives happily ever after.

TL;DR? All I want you to understand is that anytime an entity with no fiduciary duty to you tells you there's just a great deal out there for you ask yourself who was the corporate finance person behind the curtain who modeled out the initiative value it will create for the company and its shareholders.  

You don't have to like it, but its how it works.  It's not even a conspiracy theory. It's just very lucrative and consumers don't realize how it actually works.

Feel free to take 0% financing deals.  If it makes the transaction more painless or gives you a good feeling about it thats fine.  That's what its designed to do.  But you simply didn't get the best price.  Its just one variable in the overall scope of a large capital transaction like this so don't lose too much sleep over it.
I think most can agree that the 0% financing is not the best (i.e. lowest) price. The original question was to finance at 0% (knowing that the car would cost more) or to SELL EQUITIES and pay LTCG in order to pay cash and get a lower price.

I don't have 30k in cash, so something's gotta give. It may make more sense to pay a bit more, finance with no interest, and leave the money in the market. Certainly in the long run it likely does.
chrisam314
Posts: 89
Joined: Tue Jun 28, 2016 9:22 pm

Re: new car purchase: any reason NOT to do 0% financing

Post by chrisam314 »

I gave you the formula in a previous post to calculate the trade off. Without you giving actual numbers (capital gains amount, tax bracket, how long you would finance) its impossible to calculate. You can do that yourself.

Let me give you the right answer. Get the lowest possible price (it sounds like thats 27ish from your previous post). You'll know its the best when no other dealer will match it. Go to a credit union or a bank that gives you a good rate with little or no fees. Put as much as you reasonably can down and finance the rest. Walk into the dealer with the check the credit union gives you and do the transaction in 15 minutes.

Pay off the loan faster to pay less interest. All that matters is the effective interest rate that you pay on any loan you take out.

The zero percent the dealer is offering you is baked into the price. You are never financing for free, ever.
Cash is King
Posts: 251
Joined: Sun Dec 10, 2017 9:04 am

Re: new car purchase: any reason NOT to do 0% financing

Post by Cash is King »

chrisam314 wrote: Mon Aug 17, 2020 2:50 pm I gave you the formula in a previous post to calculate the trade off. Without you giving actual numbers (capital gains amount, tax bracket, how long you would finance) its impossible to calculate. You can do that yourself.

Let me give you the right answer. Get the lowest possible price (it sounds like thats 27ish from your previous post). You'll know its the best when no other dealer will match it. Go to a credit union or a bank that gives you a good rate with little or no fees. Put as much as you reasonably can down and finance the rest. Walk into the dealer with the check the credit union gives you and do the transaction in 15 minutes.

Pay off the loan faster to pay less interest. All that matters is the effective interest rate that you pay on any loan you take out.

The zero percent the dealer is offering you is baked into the price. You are never financing for free, ever.
This is 125% false.
Cash is King
Posts: 251
Joined: Sun Dec 10, 2017 9:04 am

Re: new car purchase: any reason NOT to do 0% financing

Post by Cash is King »

unstartable wrote: Sat Aug 15, 2020 1:37 pm The 0% is essentially the manufacture making a cash payment to the finance arm of their business instead of offering that directly to you. Usually you are taking 0% instead of a manufacture cash incentive, but the 0% is generally a much better deal. As long as you are disciplined, there is probably no downside, you may be able to use income that is already taxed on the payments instead of paying capital gains.

Edit: In my experience the dealer doesn't care and it has no effect on the price, except it be be instead of a manufacture incentive.
^ This is exactly how it works.
anoop
Posts: 1853
Joined: Tue Mar 04, 2014 1:33 am

Re: new car purchase: any reason NOT to do 0% financing

Post by anoop »

Admiral wrote: Mon Aug 17, 2020 9:56 am So the latest is one dealer was very clear:

Internet price is $28,495.
At 0% financing, the price goes up to $31,245
Difference: $2750

It is just very difficult to get a single price from these guys.
Complexity is how they thrive and eventually throw you a mess you can't unravel and that you fall for. (Same like health insurance and medical bills, just lower stakes and you have a choice before you buy. :D)

Stay sharp, because IME dealers play it dirty. Numbers can change right until the moment of signing. New fees can appear, new conditions can arise, boss may come in and say the deputy promised something by mistake, etc. At the end of it, when it's all done, just remember life's too short to worry about a few bucks.
Last edited by anoop on Mon Aug 17, 2020 3:16 pm, edited 4 times in total.
Carguy85
Posts: 261
Joined: Thu Mar 19, 2020 6:26 pm

Re: new car purchase: any reason NOT to do 0% financing

Post by Carguy85 »

“0% financing” is a very effective psychological marketing tool. It seems to work very well at getting people to spend more on a vehicle than they may otherwise. People want to think they are making a smart financial decision...why wouldn’t we? The “saving” of a few percent on financing on something new just to take a hit of many many times that in depreciation is a little silly. Not saying though that there aren't situations when the buyer wants a specific new model and is ready to pay cash but there aren’t any rebates advertised other than 0%. That would actually make me feel less good about the decision...However, I would imagine that cash buyers of new cars in general are exceedingly rare.
Cash is King
Posts: 251
Joined: Sun Dec 10, 2017 9:04 am

Re: new car purchase: any reason NOT to do 0% financing

Post by Cash is King »

Admiral wrote: Mon Aug 17, 2020 9:56 am So the latest is one dealer was very clear:

Internet price is $28,495.
At 0% financing, the price goes up to $31,245
Difference: $2750

It is just very difficult to get a single price from these guys.
I would suggest you keep negotiating. The dealer offering the higher price is counting on you wanting the 0% more than how much you pay for the car. It's possible to get zero percent and pay $28,495. Good luck.
Blackbird79
Posts: 8
Joined: Mon Aug 10, 2020 9:24 am

Re: new car purchase: any reason NOT to do 0% financing

Post by Blackbird79 »

I skimmed through the thread and saw this alluded to - often the 0% financing is in lieu of a rebate or other incentive (at least it was the last time I shopped for a car). In other words you can get $2000 off or the financing, not both. If you’re able to get both, then it would seem to make a lot more sense.

One thing to negotiate on is the dealer specific incentives. While the manufacturer may require an either/or scenario with the rebate/financing, the dealer often has extra “cash” from the manufacturer they can apply to the transaction that falls outside of the rebate scenario. They often get this by hitting certain sales volumes, etc.
Last edited by Blackbird79 on Mon Aug 17, 2020 3:24 pm, edited 3 times in total.
Walkure
Posts: 290
Joined: Tue Apr 11, 2017 9:59 pm

Re: new car purchase: any reason NOT to do 0% financing

Post by Walkure »

dratkinson wrote: Sun Aug 16, 2020 4:17 pm --The major component of bond fund total return comes from dividends...
dratkinson wrote: Sun Aug 16, 2020 4:17 pm (Was in ‘90s, things may have changed.)
There, fixed it for you :wink:
chrisam314
Posts: 89
Joined: Tue Jun 28, 2016 9:22 pm

Re: new car purchase: any reason NOT to do 0% financing

Post by chrisam314 »

Cash is King wrote: Mon Aug 17, 2020 2:57 pm
unstartable wrote: Sat Aug 15, 2020 1:37 pm The 0% is essentially the manufacture making a cash payment to the finance arm of their business instead of offering that directly to you. Usually you are taking 0% instead of a manufacture cash incentive, but the 0% is generally a much better deal. As long as you are disciplined, there is probably no downside, you may be able to use income that is already taxed on the payments instead of paying capital gains.

Edit: In my experience the dealer doesn't care and it has no effect on the price, except it be be instead of a manufacture incentive.
^ This is exactly how it works.
125% true. You can pay more now and pay over time. Or you pay less now and pay in cash. That is exactly what is stated right there. The difference between those two is called interest. Whether or not its upfront or over time it doesn't matter. Doesn't matter who you pay it to either. It's the cost of not paying cash.
chrisam314
Posts: 89
Joined: Tue Jun 28, 2016 9:22 pm

Re: new car purchase: any reason NOT to do 0% financing

Post by chrisam314 »

Carguy85 wrote: Mon Aug 17, 2020 3:13 pm “0% financing” is a very effective psychological marketing tool. It seems to work very well at getting people to spend more on a vehicle than they may otherwise. People want to think they are making a smart financial decision...why wouldn’t we? The “saving” of a few percent on financing on something new just to take a hit of many many times that in depreciation is a little silly. Not saying though that there aren't situations when the buyer wants a specific new model and is ready to pay cash but there aren’t any rebates advertised other than 0%. That would actually make me feel less good about the decision...However, I would imagine that cash buyers of new cars in general are exceedingly rare.
Bingo. Whether or not you pay cash from a cashiers check from your personal account, or if its a cashiers check from a credit union or bank that issued you a loan is irrelevant for the dealer though. As far as their concerned its one and the same and sometimes I don't even think they can tell.
rebellovw
Posts: 618
Joined: Tue Aug 16, 2016 4:30 pm

Re: new car purchase: any reason NOT to do 0% financing

Post by rebellovw »

I tried to get 0% on my new Mustang back in 2018 - but based on the price - 5K off MSRP from what I recall- they would not do 0%. Penfed would do 2% and that is what the dealership matched through their own search. I had it paid off in 6 months so I was only out a couple hundred bucks in interest.

0% is nice but it isn't everything - I haggle on price and shop all over.
Cash is King
Posts: 251
Joined: Sun Dec 10, 2017 9:04 am

Re: new car purchase: any reason NOT to do 0% financing

Post by Cash is King »

chrisam314 wrote: Mon Aug 17, 2020 3:30 pm
Cash is King wrote: Mon Aug 17, 2020 2:57 pm
unstartable wrote: Sat Aug 15, 2020 1:37 pm The 0% is essentially the manufacture making a cash payment to the finance arm of their business instead of offering that directly to you. Usually you are taking 0% instead of a manufacture cash incentive, but the 0% is generally a much better deal. As long as you are disciplined, there is probably no downside, you may be able to use income that is already taxed on the payments instead of paying capital gains.

Edit: In my experience the dealer doesn't care and it has no effect on the price, except it be be instead of a manufacture incentive.
^ This is exactly how it works.
125% true. You can pay more now and pay over time. Or you pay less now and pay in cash. That is exactly what is stated right there. The difference between those two is called interest. Whether or not its upfront or over time it doesn't matter. Doesn't matter who you pay it to either. It's the cost of not paying cash.
I'm not sure I follow what you are saying. The manufacture subsidizing the rate or offering cash incentives impacts their profits on each respective product line. It has nothing to do with the dealership or the customer.
Lee_WSP
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Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: new car purchase: any reason NOT to do 0% financing

Post by Lee_WSP »

Admiral wrote: Mon Aug 17, 2020 9:56 am So the latest is one dealer was very clear:

Internet price is $28,495.
At 0% financing, the price goes up to $31,245
Difference: $2750

It is just very difficult to get a single price from these guys.
It's because they make money from the financing charges.
Bastiat
Posts: 200
Joined: Thu May 26, 2016 11:07 am

Re: new car purchase: any reason NOT to do 0% financing

Post by Bastiat »

wootwoot wrote: Sun Aug 16, 2020 12:05 am
Bastiat wrote: Sat Aug 15, 2020 10:14 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Why would one get “thousands off” the OTD price by not financing?

The dealer doesn’t care at all that you’re paying cash. Every deal they do is cash, regardless if you bring it or not.

In fact, they would rather you finance.

Only way cash makes any difference is if the manufacturer offers a cash discount, but it’s not that common and I’ve never seen “thousands”.
Because financing costs something, please read the full thread for more details.
I have read the full thread. You haven’t answered my question or addressed my points, probably because you are wrong.

Financing may “cost” something, but that doesn’t mean it affects the OTD price.
Topic Author
Admiral
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Joined: Mon Oct 27, 2014 12:35 pm

Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

Bastiat wrote: Wed Aug 19, 2020 9:37 pm
wootwoot wrote: Sun Aug 16, 2020 12:05 am
Bastiat wrote: Sat Aug 15, 2020 10:14 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Why would one get “thousands off” the OTD price by not financing?

The dealer doesn’t care at all that you’re paying cash. Every deal they do is cash, regardless if you bring it or not.

In fact, they would rather you finance.

Only way cash makes any difference is if the manufacturer offers a cash discount, but it’s not that common and I’ve never seen “thousands”.
Because financing costs something, please read the full thread for more details.
I have read the full thread. You haven’t answered my question or addressed my points, probably because you are wrong.

Financing may “cost” something, but that doesn’t mean it affects the OTD price.
I think it depends what one means by “affects.” In my experience since I started this thread, there are two prices: OTD cash and OTD financing. This is especially true when loan rates are zero: if they cannot make their profit on interest, they will make it on the price of the car (which will be higher). So if you want the “low” rate financing it will cost you x amount.

Now one would think intuitively that this would mean that the cash price would be the same as the cost with zero financing. Because their profit would be identical. But, in fact, the cash price had ALWAYS been higher. And I think the reason, as someone stated, is payments from the manufacturer when buyers finance.
Bastiat
Posts: 200
Joined: Thu May 26, 2016 11:07 am

Re: new car purchase: any reason NOT to do 0% financing

Post by Bastiat »

Admiral wrote: Wed Aug 19, 2020 10:00 pm
Bastiat wrote: Wed Aug 19, 2020 9:37 pm
wootwoot wrote: Sun Aug 16, 2020 12:05 am
Bastiat wrote: Sat Aug 15, 2020 10:14 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Why would one get “thousands off” the OTD price by not financing?

The dealer doesn’t care at all that you’re paying cash. Every deal they do is cash, regardless if you bring it or not.

In fact, they would rather you finance.

Only way cash makes any difference is if the manufacturer offers a cash discount, but it’s not that common and I’ve never seen “thousands”.
Because financing costs something, please read the full thread for more details.
I have read the full thread. You haven’t answered my question or addressed my points, probably because you are wrong.

Financing may “cost” something, but that doesn’t mean it affects the OTD price.
I think it depends what one means by “affects.” In my experience since I started this thread, there are two prices: OTD cash and OTD financing. This is especially true when loan rates are zero: if they cannot make their profit on interest, they will make it on the price of the car (which will be higher). So if you want the “low” rate financing it will cost you x amount.

Now one would think intuitively that this would mean that the cash price would be the same as the cost with zero financing. Because their profit would be identical. But, in fact, the cash price had ALWAYS been higher. And I think the reason, as someone stated, is payments from the manufacturer when buyers finance.
The only difference should be a cash incentive from manufacturer.

If you effectively negotiate an OTD price then talk about how you’re going to pay for it that specific amount, which you should already know, will be the only difference.

What no one has really mentioned is the inflation hedge/benefit 0% financing provides. Your real interest rate would ideally be -2% or better. But it’s not a big deal at the amount most of us are spending on a vehicle.
iamlucky13
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Location: Western Washington

Re: new car purchase: any reason NOT to do 0% financing

Post by iamlucky13 »

jabberwockOG wrote: Sat Aug 15, 2020 10:50 pm There is no such thing as free money and no such thing in the retail world as 0% financing. Somebody ALWAYS has to pay for the "market" interest cost and the only person paying money in a car transaction is the car buyer. So guess who actually pays the real interest cost in every car deal? - the buyer pays it either directly or it's buried somewhere in the total sales price.
Yes and no. You're applying basic zero sum math to car pricing. The manufacturers seem to work pretty hard to avoid zero sum math, even though sometimes it seems counterproductive for some sales.

Last time I bought a car, I negotiated the out the door price first. Once it was agreed on, I asked what discount they could offer if I paid cash. There was none. As noted by others, the manufacturer dictated when either cash price or below market finance offers are available, and that in turn is affected by overall demand. The dealer's leeway is the margin over invoice and the holdback, but they generally don't get to alter the finance offers from what I've seen.

I guess the manufacturer must have been willing to risk a minority of careful shoppers like me getting a good discount and taking the 0% deal in order to hook a larger number of buyers who jump at near MSRP
pricing because 0% versus market rate looked good on the 4 square monthly payment, and a pittance of a discount from MSRP sounded good enough.
wootwoot
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Joined: Tue Jan 27, 2009 7:37 pm

Re: new car purchase: any reason NOT to do 0% financing

Post by wootwoot »

Bastiat wrote: Wed Aug 19, 2020 9:37 pm
wootwoot wrote: Sun Aug 16, 2020 12:05 am
Bastiat wrote: Sat Aug 15, 2020 10:14 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Why would one get “thousands off” the OTD price by not financing?

The dealer doesn’t care at all that you’re paying cash. Every deal they do is cash, regardless if you bring it or not.

In fact, they would rather you finance.

Only way cash makes any difference is if the manufacturer offers a cash discount, but it’s not that common and I’ve never seen “thousands”.
Because financing costs something, please read the full thread for more details.
I have read the full thread. You haven’t answered my question or addressed my points, probably because you are wrong.

Financing may “cost” something, but that doesn’t mean it affects the OTD price.
Being abrasive doesn't make you right. It's been explained multiple times please read the thread. There is a cost to financing this cost can and should be negotiated. I'm sorry if this news has upset you. Here's an article from Edmunds that may help you understand:

https://www.edmunds.com/car-loan/what-y ... loans.html
JackoC
Posts: 1872
Joined: Sun Aug 12, 2018 11:14 am

Re: new car purchase: any reason NOT to do 0% financing

Post by JackoC »

Admiral wrote: Mon Aug 17, 2020 9:56 am So the latest is one dealer was very clear:
Internet price is $28,495.
At 0% financing, the price goes up to $31,245
Difference: $2750
It is just very difficult to get a single price from these guys.
As others mentioned, the conventional wisdom nowadays is to negotiate the price pretending you're open to financing regardless of how you actually intend to pay, drive it as low as possible, then admit you're paying cash (if so) only when in the finance office, and walk away if they renege on the price negotiated out in the showroom. Because they will want to charge you more to pay cash v market financing where they can make some money. However I'm not telling you that your dealer didn't tell you what they told you, or that the recommended method always works in real life generally, particularly on a special below market financing offer.

A 4 yr car loan at 0% has a 2 yr average life. On an apples to apples 'riskless' basis a generous assumption for a 2 year CD is 1.15%, you're earning .0115*2*$30k=$690 before tax on money you borrow at 0%, assuming you put very (maybe unrealistically) little down, but anyway clearly not worth $2,750 after tax. Although you have to tally up the actual capital gain tax, and consider if the depleted 'emergency fund' is a problem in your particular situation. Which could feed back in some people's opinion to questioning whether this car is actually affordable for you. I'm not opining on that, but $,2750 is a huge difference given how little below market 0% is now. Besides having to insure the car more if it's financed.
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Kenkat
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Re: new car purchase: any reason NOT to do 0% financing

Post by Kenkat »

wootwoot wrote: Wed Aug 19, 2020 11:19 pm
Bastiat wrote: Wed Aug 19, 2020 9:37 pm
wootwoot wrote: Sun Aug 16, 2020 12:05 am
Bastiat wrote: Sat Aug 15, 2020 10:14 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Why would one get “thousands off” the OTD price by not financing?

The dealer doesn’t care at all that you’re paying cash. Every deal they do is cash, regardless if you bring it or not.

In fact, they would rather you finance.

Only way cash makes any difference is if the manufacturer offers a cash discount, but it’s not that common and I’ve never seen “thousands”.
Because financing costs something, please read the full thread for more details.
I have read the full thread. You haven’t answered my question or addressed my points, probably because you are wrong.

Financing may “cost” something, but that doesn’t mean it affects the OTD price.
Being abrasive doesn't make you right. It's been explained multiple times please read the thread. There is a cost to financing this cost can and should be negotiated. I'm sorry if this news has upset you. Here's an article from Edmunds that may help you understand:

https://www.edmunds.com/car-loan/what-y ... loans.html
From the article you linked:
In some cases, the dealerships may be getting an incentive from the automaker to promote a zero percent loan, so taking the dealer's financing may help you obtain a better price on the vehicle.
Sometimes you can get a better deal paying cash, sometimes you can’t. Almond Joy’s got nuts, Mounds don’t.
Last edited by Kenkat on Thu Aug 20, 2020 10:36 am, edited 1 time in total.
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

JackoC wrote: Thu Aug 20, 2020 9:06 am
Admiral wrote: Mon Aug 17, 2020 9:56 am So the latest is one dealer was very clear:
Internet price is $28,495.
At 0% financing, the price goes up to $31,245
Difference: $2750
It is just very difficult to get a single price from these guys.
As others mentioned, the conventional wisdom nowadays is to negotiate the price pretending you're open to financing regardless of how you actually intend to pay, drive it as low as possible, then admit you're paying cash (if so) only when in the finance office, and walk away if they renege on the price negotiated out in the showroom. Because they will want to charge you more to pay cash v market financing where they can make some money. However I'm not telling you that your dealer didn't tell you what they told you, or that the recommended method always works in real life generally, particularly on a special below market financing offer.

A 4 yr car loan at 0% has a 2 yr average life. On an apples to apples 'riskless' basis a generous assumption for a 2 year CD is 1.15%, you're earning .0115*2*$30k=$690 before tax on money you borrow at 0%, assuming you put very (maybe unrealistically) little down, but anyway clearly not worth $2,750 after tax. Although you have to tally up the actual capital gain tax, and consider if the depleted 'emergency fund' is a problem in your particular situation. Which could feed back in some people's opinion to questioning whether this car is actually affordable for you. I'm not opining on that, but $,2750 is a huge difference given how little below market 0% is now. Besides having to insure the car more if it's financed.
All good points. Knowing me, I will just get a loan thru PenFed at like 2% for 36 mos and pay it off after two years. So on some level the financing cost is moot. Or too little to stress about, anyway.
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Re: new car purchase: any reason NOT to do 0% financing

Post by hudson »

JackoC wrote: Thu Aug 20, 2020 9:06 am
As others mentioned, the conventional wisdom nowadays is to negotiate the price pretending you're open to financing regardless of how you actually intend to pay, drive it as low as possible, then admit you're paying cash (if so) only when in the finance office
JackoC,
I agree with what you said above; that is the optimal strategy in my opinion.

My goal when talking with a salesman or sales manager is to convince them that I am a serious buyer, that I'm honest, and that I plan to seal the deal on a car today or tomorrow.

On my last 2 purchases, I was seeking out the door quotes from a dealer. The salesperson asked me if I was paying cash. Because I wanted to show that I was honest and straightforward, I answered yes....knowing that I may have made an error. They gave me a straightforward no nonsense bid. They later dropped the bid 2 times and I bought one of the two cars from them. The salesperson was very happy. When I sat down in the finance office, they tried to get more money from me buy selling me on an extended warranty. I would have walked out except that after I sealed the deal, they allowed a fair price for the old truck that I drove to the dealership.

Bottom Line: When negotiating, sometimes, you have to wing it and not do everything perfectly.
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Re: new car purchase: any reason NOT to do 0% financing

Post by wfrobinette »

Admiral wrote: Sat Aug 15, 2020 12:49 pm
Goal33 wrote: Sat Aug 15, 2020 12:47 pm I’d finance the 28k and decide later.
hmm. I had not actually though about that. I think they make you put down something. But yes at 0% that is an option.
I just did a 0% with 500 down.
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Re: new car purchase: any reason NOT to do 0% financing

Post by wfrobinette »

Watty wrote: Sat Aug 15, 2020 1:16 pm One advantage of not having a car loan is that you can have a higher deductible on your car insurance.
Not sure I am following here?

I've had several of these 0% loans and have never had to provide deductible information. Plus once you get above $1000 the decrease in premium is not worth the risk.
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Re: new car purchase: any reason NOT to do 0% financing

Post by Bastiat »

wootwoot wrote: Wed Aug 19, 2020 11:19 pm
Bastiat wrote: Wed Aug 19, 2020 9:37 pm
wootwoot wrote: Sun Aug 16, 2020 12:05 am
Bastiat wrote: Sat Aug 15, 2020 10:14 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Why would one get “thousands off” the OTD price by not financing?

The dealer doesn’t care at all that you’re paying cash. Every deal they do is cash, regardless if you bring it or not.

In fact, they would rather you finance.

Only way cash makes any difference is if the manufacturer offers a cash discount, but it’s not that common and I’ve never seen “thousands”.
Because financing costs something, please read the full thread for more details.
I have read the full thread. You haven’t answered my question or addressed my points, probably because you are wrong.

Financing may “cost” something, but that doesn’t mean it affects the OTD price.
Being abrasive doesn't make you right. It's been explained multiple times please read the thread. There is a cost to financing this cost can and should be negotiated. I'm sorry if this news has upset you. Here's an article from Edmunds that may help you understand:

https://www.edmunds.com/car-loan/what-y ... loans.html
Lol. So, a few things.

1. Did you read the article? The article pretty much makes my point: “In some cases, the dealerships may be getting an incentive from the automaker to promote a zero percent loan, so taking the dealer's financing may help you obtain a better price on the vehicle.” Sure, there are some common sense considerations, but overall you can save money on the OTD price, which is all that matters.

2. The article has nothing to do with your point I responded to, which was that paying cash would magically save thousands of dollars. Because it won’t. Normally the opposite is true. What I quoted above, from the article you posted, directly refutes your own point.
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Re: new car purchase: any reason NOT to do 0% financing

Post by Lee_WSP »

Admiral wrote: Mon Aug 17, 2020 9:56 am So the latest is one dealer was very clear:

Internet price is $28,495.
At 0% financing, the price goes up to $31,245
Difference: $2750

It is just very difficult to get a single price from these guys.
So at that dealer the cash price is actually lower? I hate car buying because of all the mind tricks they try to pull on us. Plus it's just mentally draining. I'm sure some people get a kick out of it though.

Anyway, if the financed price is better at a different dealer, I say take the financing; pay it for however many months you have to avoid the prepayment penalty, and then pay it off at that date if you don't want to keep the loan.
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Re: new car purchase: any reason NOT to do 0% financing

Post by jabberwockOG »

Some of this arguing about financing actually illustrates that even financially smart folks don't understand the car business and how to buy a car for a fair price.

When requesting the dealer's lowest price making them compete for your business, a smart buyer's position is "give me your best OTD price". If they say best price requires financing, or bringing in a dead cat, or whatever, simply request their best quote in writing on their "better" alternative as well. It is critical to negotiate on the phone or via email and always insist on the deal in writing. Request their best OTD written quote on cash purchase as well as best financing (if it results if it different price). It is easier once you realize buying a car is no different then buying a new server, network load balancer, or a forklift for your business. A savvy car buyer should not care what financial smoke and mirrors are going on behind the scenes - rebates, holdbacks, special financing, etc - it's all noise.

Make a calm objective decision based on multiple written OTD price quotes for the purchase options available, get a certified check cut for the exact agreed amount, and go pick up your car.
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Re: new car purchase: any reason NOT to do 0% financing

Post by hudson »

jabberwockOG wrote: Thu Aug 20, 2020 7:06 pm Some of this arguing about financing actually illustrates that even financially smart folks don't understand the car business and how to buy a car for a fair price.

When requesting the dealer's lowest price making them compete for your business, a smart buyer's position is "give me your best OTD price". If they say best price requires financing, or bringing in a dead cat, or whatever, simply request their best quote in writing on their "better" alternative as well. It is critical to negotiate on the phone or via email and always insist on the deal in writing. Request their best OTD written quote on cash purchase as well as best financing (if it results if it different price). It is easier once you realize buying a car is no different then buying a new server, network load balancer, or a forklift for your business. A savvy car buyer should not care what financial smoke and mirrors are going on behind the scenes - rebates, holdbacks, special financing, etc - it's all noise.

Make a calm objective decision based on multiple written OTD price quotes for the purchase options available, get a certified check cut for the exact agreed amount, and go pick up your car.
jabberwockOG, I agree with you.
When I'm negotiating with the OTD price, I'm ok with verbal, texts, or emails while I'm taking bids. I want to make it fast and easy. When I've got a finalist, before I agree and put down a deposit, then, I ask for some kind of document from the dealer that shows the detail. When I get that, I'll give them a $300-$500 deposit on a credit card.

I've never run into a dealer who didn't know exactly what the OTD price was. I've seen dealers come back with an OTD price in a few minutes. They know. I've had one out of may 40 dealers when buying my last 5 vehicles who fudged the OTD price....all the rest were straightforward. I like to deal by phone because it's much faster than email and you get quick feedback. You can also sell yourself better. Your more likely to get a quote if they know you're a serious buyer.

Bottom Line: I don't need a written quote from every dealer....just the "winning" dealer.
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Re: new car purchase: any reason NOT to do 0% financing

Post by IMO »

Admiral wrote: Mon Aug 17, 2020 9:56 am So the latest is one dealer was very clear:

Internet price is $28,495.
At 0% financing, the price goes up to $31,245
Difference: $2750

It is just very difficult to get a single price from these guys.
I've always thought the "0%" lending was BS. As you just shown that is consistent from my experience, the "0%" financing always has a price. In your case, the price is $2750. In fact, it seems a get around the Truth in Lending type of law(s). The truth is the 0% in your case costs $2750.

$2750 finance cost may be the best option, but you have to run the numbers individual to your situation.
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

UPDATE:

Ultimately, I have a deal for $30,575 OTD (actual car price is mid $27k range) with my own 2.14% financing from PenFed, $20k for 36 mos. Total interest $667 if held to completion (not likely but possible). So total price would be $31.2k and change.

The other good news is that PenFed has not sent the check yet (they need the purchase order) and I am going by the dealer today (I told them I don't have the check in hand). They are 2 hrs away but it's on my way to somewhere else. What I am hoping is that when I get there to inspect the car, they will want their money so they will offer me 0% financing on the $20k, thereby saving me the $667.

We shall see if my dastardly plan works out. I have a backup car locally that's $3400 more (all in) for a higher trim level. However it's not a color I want.
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Re: new car purchase: any reason NOT to do 0% financing

Post by BarbBrooklyn »

Did your credit score take any kind of hit with taking out the PenFed loan? Following your strategy...
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

BarbBrooklyn wrote: Fri Aug 21, 2020 7:19 am Did your credit score take any kind of hit with taking out the PenFed loan? Following your strategy...
Not sure. I doubt it. Immaterial to me however. I will say they are GREAT to work with. I did the app online and had not heard anything the next day so I called. They said my credit had a freeze on it, which it did, but I had unlocked only Experian and they needed Equifax unlocked. I was on the phone for 30 mins with them while I unlocked it, and they approved the loan on the phone with that rate.

You do need to open a PenFed account for $5. So there's that.
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Re: new car purchase: any reason NOT to do 0% financing

Post by BarbBrooklyn »

Admiral wrote: Fri Aug 21, 2020 7:23 am
BarbBrooklyn wrote: Fri Aug 21, 2020 7:19 am Did your credit score take any kind of hit with taking out the PenFed loan? Following your strategy...
Not sure. I doubt it. Immaterial to me however. I will say they are GREAT to work with. I did the app online and had not heard anything the next day so I called. They said my credit had a freeze on it, which it did, but I had unlocked only Experian and they needed Equifax unlocked. I was on the phone for 30 mins with them while I unlocked it, and they approved the loan on the phone with that rate.

You do need to open a PenFed account for $5. So there's that.
Thanks!
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Re: new car purchase: any reason NOT to do 0% financing

Post by Jack FFR1846 »

Whether you can convert a manufacturer's offer of 0% into a cash discount depends.

If the dealer pays to participate in the 0% offer (dealer puts in money), then yes, you can get a better price.

If the manufacturer is offering a 0% rate and does not require dealer participation, then there may be no better price available.

Sometimes a dealer will simply tell you. Sometimes they won't. It's all in the negotiating if they won't tell you. Ford and Honda very often have "no option" financing where you get a good rate AND a discount for financing with them. If you don't finance with them, it costs you more. These tend to be easily searched offers. I've had a Honda deal going where the dealer told me that they are clear if I make 3 payments. Otherwise, they get a charge on the sale.

Don't discount Doc Fees. What are doc fees? They are NOT fees to prepare documents. They are the new term for "profit". So when figuring out what you're paying, always include the doc fee. One dealer charging $199 probably will have a higher advertised price than a dealer charging $1299. This is part of why dealers can sell you a car for below invoice. There are of course other kick backs from the manufacturer and regional distributor. You're not going to be told that your sale will make the 1000'th explorer this year, giving the dealer an added $100 per explorer sold in the year and the sales staff all expense paid vacations to Hawaii. (A friend of mine bought an explorer and exactly this occurred....the sales guy confided with him after the deal was done).
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Re: new car purchase: any reason NOT to do 0% financing

Post by SmileyFace »

Admiral wrote: Sat Aug 15, 2020 12:45 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Well that's why I always tell them I am paying all cash when I get the OTD price. Then when I get the price I want, I see if they will do the financing at 0%. Just depends on how much profit they are making on the OTD price.

In one case the offer is "MSRP $35,859. Sale price $27,859."

This is before 8% tax and their various bs doc fees.
I've had the opposite happen - I have gotten offered additional discounts to take the 0% financing. Oftentimes the dealerships get paid incentives for the number of folks they put through the financing (even at 0%). It seems counter intuitive but don't be surprised if they offer you additional incentive to take the loan (likely in hundreds but not thousands).
I have always taken the 0% - no downside - sometimes an upside. Put the money you were going to pay in the bank earning some interest and put the payments on autopay from it. You will make extra money and help your credit score by doing so.
Last edited by SmileyFace on Fri Aug 21, 2020 8:54 am, edited 1 time in total.
tibbitts
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Re: new car purchase: any reason NOT to do 0% financing

Post by tibbitts »

Admiral wrote: Sat Aug 15, 2020 2:16 pm There is a number I am willing to pay and someone will get there.
Maybe, but not necessarily. I've felt that way a couple of times but no dealer has gotten there.
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Re: new car purchase: any reason NOT to do 0% financing

Post by tibbitts »

DaftInvestor wrote: Fri Aug 21, 2020 8:53 am
Admiral wrote: Sat Aug 15, 2020 12:45 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Well that's why I always tell them I am paying all cash when I get the OTD price. Then when I get the price I want, I see if they will do the financing at 0%. Just depends on how much profit they are making on the OTD price.

In one case the offer is "MSRP $35,859. Sale price $27,859."

This is before 8% tax and their various bs doc fees.
I've had the opposite happen - I have gotten offered additional discounts to take the 0% financing. Oftentimes the dealerships get paid incentives for the number of folks they put through the financing (even at 0%). It seems counter intuitive but don't be surprised if they offer you additional incentive to take the loan (likely in hundreds but not thousands).
I have always taken the 0% - no downside - sometimes an upside. Put the money you were going to pay in the bank earning some interest and put the payments on autopay from it. You will make extra money and help your credit score by doing so.
Yes, I think Bogleheads are too quick to apply logic that would work in most business transactions, but doesn't always when buying cars. There's just too much information that consumers don't know, and it can change quickly.
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Re: new car purchase: any reason NOT to do 0% financing

Post by ClevrChico »

Reasons to pay cash:

- $0 in loan fees.
- Simpler transaction, less chances to get taken advantage of.
- Choose insurance deductible, switch to liability only whenever you want.
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Re: new car purchase: any reason NOT to do 0% financing

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