Buying Car - buy outright or finance?

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tarheel15
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Buying Car - buy outright or finance?

Post by tarheel15 »

Hi everyone
I’m looking to purchase a certified pre owned low mileage Mercedes SUV for $42k.

What’s the best way to purchase - buy outright or finance?
It’s been a while since I’ve bought a car.

Thanks for the advice.
livesoft
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Re: Buying Car - buy outright or finance?

Post by livesoft »

Both are good ways. Negotiate to lowest price suggesting you are going to pay cash. Have checkbook ready. Then get 0% loan at the end and the cash back for taking a loan.
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Trader Joe
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Re: Buying Car - buy outright or finance?

Post by Trader Joe »

tarheel15 wrote: Thu Jan 09, 2020 3:50 pm Hi everyone
I’m looking to purchase a certified pre owned low mileage Mercedes SUV for $42k.

What’s the best way to purchase - buy outright or finance?
It’s been a while since I’ve bought a car.

Thanks for the advice.
I always pay in full and I sleep well at night.
fyre4ce
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Re: Buying Car - buy outright or finance?

Post by fyre4ce »

What interest rate would you get on the loan?
ljford7
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Re: Buying Car - buy outright or finance?

Post by ljford7 »

It really depends on what interest rate you get. If it is really low one, then take the loan.

We bought a car about 4 years ago and got a 1% loan on it. The interest only adds up to $584 for the loan duration. We could have paid in cash, but for such a low interest rate, we are paying it month to month and the rest of the money we would have used is invested.

When the car loan interest rates is in the 2.5%+ range, then I would most likely pay in cash, but would really have to evaluate the situation.
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Watty
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Re: Buying Car - buy outright or finance?

Post by Watty »

One thing to watch out for is if the dealer offers low or 0% financing then the sales price will usually be higher. It was a little bit different but I was buying a new Corolla two years ago and Toyota had a 0% financing offer but they did not have any rebate that you had to give up to get that. I did a lot of dealing with several dealerships and the bottom line at each of them was that I could get the car for about $1,000 less if I paid cash or got my own financing. The reason was that if I used the 0% financing then the dealership had to pay some sort of "dealer participation" fee.

One thing to consider when getting a loan is that the person at the dealership or credit union that you are dealing with makes multiple car loans every day and has likely been doing this for years. It might not be impossible to get some great deal but the odds are that the lender is going to be making money on the transaction in one way or another.

Unless there is some special situation like for taxes then I would just pay cash.
HomeStretch
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Re: Buying Car - buy outright or finance?

Post by HomeStretch »

After negotiating new car price first, for last auto purchases, spouse and I each took a minimal loan ($10k) as the manufacturer was offering an additional $500 or $1,000 off on each car if financed. Car sales were at a low point so a few manufacturers were offering this. Paid off the loans a month later. Net savings after paying interest was good but had to spend an hour getting car loan lien off car titles and updating insurance.
Last edited by HomeStretch on Thu Jan 09, 2020 4:48 pm, edited 1 time in total.
Goal33
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Re: Buying Car - buy outright or finance?

Post by Goal33 »

I did a CPO MB loan: 1.99% for 36 months. Felt it was a low rate, would be paid off relatively fast (3 years). Didn't require me to liquidate any stocks / pay taxes on gains. I did put as much as they would let me on a credit card for points though - they gave me their max and I negotiated an additional 2500. In hindsight, I would have been better off just adding the down payment I made to the loan. Stock market significantly outperformed the points I got back.

I'll still take the same approach next time.
Miguelito
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Re: Buying Car - buy outright or finance?

Post by Miguelito »

Trader Joe wrote: Thu Jan 09, 2020 4:00 pm I always pay in full and I sleep well at night.
Why would financing affect your sleep if you can afford it?

Financing because that is the only way you can afford an expensive car is one thing. Financing because it is a better financial move is different.
Halicar
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Re: Buying Car - buy outright or finance?

Post by Halicar »

Miguelito wrote: Thu Jan 09, 2020 4:59 pm
Trader Joe wrote: Thu Jan 09, 2020 4:00 pm I always pay in full and I sleep well at night.
Why would financing affect your sleep if you can afford it?

Financing because that is the only way you can afford an expensive car is one thing. Financing because it is a better financial move is different.
The argument is that the amount of money you earn by arbitraging interest rates is pretty small and may not be worth the annoyance of a debt on your books and one more monthly payment. When I bought my car, I figured it was a no-brainer to take the 0.9% loan when my cash was earning 2.X%, but it's starting to bug me and I'm tempted to just pay it off and be done with it.
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danielc
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Re: Buying Car - buy outright or finance?

Post by danielc »

livesoft wrote: Thu Jan 09, 2020 3:59 pm Both are good ways. Negotiate to lowest price suggesting you are going to pay cash. Have checkbook ready. Then get 0% loan at the end and the cash back for taking a loan.
Why is that a good idea? If they know they won't make money financing the car, won't they be less willing to lower the price?
Admiral
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Re: Buying Car - buy outright or finance?

Post by Admiral »

danielc wrote: Fri Jan 10, 2020 7:09 am
livesoft wrote: Thu Jan 09, 2020 3:59 pm Both are good ways. Negotiate to lowest price suggesting you are going to pay cash. Have checkbook ready. Then get 0% loan at the end and the cash back for taking a loan.
Why is that a good idea? If they know they won't make money financing the car, won't they be less willing to lower the price?
I don't know about 0% any longer. But, many dealers will offer a discount (or "cash back") if you use their financing (b/c the make even more money). Once the discount is secured, you pay off the loan. That's the savings.
jucor
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Re: Buying Car - buy outright or finance?

Post by jucor »

Admiral wrote: Fri Jan 10, 2020 7:27 am
danielc wrote: Fri Jan 10, 2020 7:09 am
livesoft wrote: Thu Jan 09, 2020 3:59 pm Both are good ways. Negotiate to lowest price suggesting you are going to pay cash. Have checkbook ready. Then get 0% loan at the end and the cash back for taking a loan.
Why is that a good idea? If they know they won't make money financing the car, won't they be less willing to lower the price?
I don't know about 0% any longer. But, many dealers will offer a discount (or "cash back") if you use their financing (b/c the make even more money). Once the discount is secured, you pay off the loan. That's the savings.
Although as the OP is buying a used car, the likelihood of really low rate loans is fairly low -- most of the super low rates are on new cars, partially underwritten by manufacturers looking to move units.
blackholescion
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Re: Buying Car - buy outright or finance?

Post by blackholescion »

Admiral wrote: Fri Jan 10, 2020 7:27 am
danielc wrote: Fri Jan 10, 2020 7:09 am
livesoft wrote: Thu Jan 09, 2020 3:59 pm Both are good ways. Negotiate to lowest price suggesting you are going to pay cash. Have checkbook ready. Then get 0% loan at the end and the cash back for taking a loan.
Why is that a good idea? If they know they won't make money financing the car, won't they be less willing to lower the price?
I don't know about 0% any longer. But, many dealers will offer a discount (or "cash back") if you use their financing (b/c the make even more money). Once the discount is secured, you pay off the loan. That's the savings.
Dealers make a kickback from the bank or financial service, depending on structure, when using their financing. Therefore they will be more apt to negotiate the price if they know they have $500 coming from the bank. With cash, they lose this so their overall sale price has to be higher to cover the difference.

Best plan is always take dealer financing during negotiations and then refinance or pay the loan off. The usual due diligence of early payoff penalties or refinancing fees applies.
frugalmama
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Re: Buying Car - buy outright or finance?

Post by frugalmama »

blackholescion wrote: Fri Jan 10, 2020 8:54 am
Admiral wrote: Fri Jan 10, 2020 7:27 am
danielc wrote: Fri Jan 10, 2020 7:09 am
livesoft wrote: Thu Jan 09, 2020 3:59 pm Both are good ways. Negotiate to lowest price suggesting you are going to pay cash. Have checkbook ready. Then get 0% loan at the end and the cash back for taking a loan.
Why is that a good idea? If they know they won't make money financing the car, won't they be less willing to lower the price?
I don't know about 0% any longer. But, many dealers will offer a discount (or "cash back") if you use their financing (b/c the make even more money). Once the discount is secured, you pay off the loan. That's the savings.
Dealers make a kickback from the bank or financial service, depending on structure, when using their financing. Therefore they will be more apt to negotiate the price if they know they have $500 coming from the bank. With cash, they lose this so their overall sale price has to be higher to cover the difference.

Best plan is always take dealer financing during negotiations and then refinance or pay the loan off. The usual due diligence of early payoff penalties or refinancing fees applies.
I agree that often dealer financing is the best but I would still encourage someone to still check out all their options before making a decision. With my last new purchase (bought new because new was actually coming in as cheaper than used for what I wanted) my credit union was able to offer me a lower rate than the dealer could get and I have excellent credit. I negotiated saying I would use the dealer financing and then when my credit union said they would give me a lower rate, I went with them. I then spent another 3 hours trying to keep my total low as they kept trying to add things to the purchase price. I try to avoid buying cars at all costs.
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mmmodem
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Re: Buying Car - buy outright or finance?

Post by mmmodem »

I would finance if the interest rate was under 4%. I would pay cash if it was over. It would be simpler for me to leave the car fund in my taxable account and not have to sell.

The amount I expect to make is neglible so it really doesn't matter whether I finance or pay cash. I prefer simplicity and liquidity. Having a loan that is automatically debited from my savings account every month doesn't bother me in the slightest. Paying off a 2% loan early is, however, mildly irritating due to FOMO.
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dm200
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Re: Buying Car - buy outright or finance?

Post by dm200 »

tarheel15 wrote: Thu Jan 09, 2020 3:50 pm Hi everyone
I’m looking to purchase a certified pre owned low mileage Mercedes SUV for $42k.
What’s the best way to purchase - buy outright or finance?
It’s been a while since I’ve bought a car.
Thanks for the advice.
For those with good credit, car loan rates are generally so low that it can make a lot of sense to finance the purchase. To get the best loan interest rate:

1. Make application or inquiry at a credit union (or several credit unions)
2. Find out the rate dealer financing offers
3. Credit unions often match or beat dealer rates and dealers often match or beat other lenders

Unless you really want/need "extras" - pushed by credit unions - do not purchase an extra warranty, GAP insurance, credit life insurance, credit disability insurance, paint protection (as from bird poop), and so on!
Unladen_Swallow
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Re: Buying Car - buy outright or finance?

Post by Unladen_Swallow »

Miguelito wrote: Thu Jan 09, 2020 4:59 pm
Trader Joe wrote: Thu Jan 09, 2020 4:00 pm I always pay in full and I sleep well at night.
Why would financing affect your sleep if you can afford it?

Financing because that is the only way you can afford an expensive car is one thing. Financing because it is a better financial move is different.
The "sleep well at night" factor is not a mathematical construct. Life isn't lived by formula. Different folks have different preferences.

I am exactly like Trader Joe. I would much rather buy in cash than even a 0% loan.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
Admiral
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Re: Buying Car - buy outright or finance?

Post by Admiral »

Unladen_Swallow wrote: Fri Jan 10, 2020 10:53 am
Miguelito wrote: Thu Jan 09, 2020 4:59 pm
Trader Joe wrote: Thu Jan 09, 2020 4:00 pm I always pay in full and I sleep well at night.
Why would financing affect your sleep if you can afford it?

Financing because that is the only way you can afford an expensive car is one thing. Financing because it is a better financial move is different.
The "sleep well at night" factor is not a mathematical construct. Life isn't lived by formula. Different folks have different preferences.

I am exactly like Trader Joe. I would much rather buy in cash than even a 0% loan.
Would you rather pay in cash than have a negative interest rate loan? i.e. the bank pays you? Assuming any inflation at all, you make money on a 0% loan. I don't understand the logic of not taking it. If you have the money anyway, there should be no stress: you can pay off the loan tomorrow, but simply choose not to do so.
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8foot7
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Re: Buying Car - buy outright or finance?

Post by 8foot7 »

I would pay cash unless (a) the loan is 2% or under or (b) you get a better price financing, in which case I'd take the loan and pay it off the next month -- the dealer will tell you you have to hold the loan for longer but there is no mechanism for them to come back and unwind the deal with you if you don't.

I don't mind financing a depreciating asset at less than inflation.
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Re: Buying Car - buy outright or finance?

Post by Unladen_Swallow »

Admiral wrote: Fri Jan 10, 2020 11:13 am
Unladen_Swallow wrote: Fri Jan 10, 2020 10:53 am
Miguelito wrote: Thu Jan 09, 2020 4:59 pm
Trader Joe wrote: Thu Jan 09, 2020 4:00 pm I always pay in full and I sleep well at night.
Why would financing affect your sleep if you can afford it?

Financing because that is the only way you can afford an expensive car is one thing. Financing because it is a better financial move is different.
The "sleep well at night" factor is not a mathematical construct. Life isn't lived by formula. Different folks have different preferences.

I am exactly like Trader Joe. I would much rather buy in cash than even a 0% loan.
Would you rather pay in cash than have a negative interest rate loan? i.e. the bank pays you?
Are we talking random hypotheticals for the sake of argument?

Assuming any inflation at all, you make money on a 0% loan. I don't understand the logic of not taking it. If you have the money anyway, there should be no stress: you can pay off the loan tomorrow, but simply choose not to do so.

This is an odd assertion. You don't need to understand the logic at all. It is what I choose to do, because I want to. My daily decisions are not all based on maximizing return. I have not made a claim that buying in cash will make you money or come out ahead of loaning at 0%. You are arguing a point I didn't make, quite the contrary. Everyone has different ticks. You seem surprised.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
Admiral
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Re: Buying Car - buy outright or finance?

Post by Admiral »

Unladen_Swallow wrote: Fri Jan 10, 2020 12:11 pm
Admiral wrote: Fri Jan 10, 2020 11:13 am
Unladen_Swallow wrote: Fri Jan 10, 2020 10:53 am
Miguelito wrote: Thu Jan 09, 2020 4:59 pm
Trader Joe wrote: Thu Jan 09, 2020 4:00 pm I always pay in full and I sleep well at night.
Why would financing affect your sleep if you can afford it?

Financing because that is the only way you can afford an expensive car is one thing. Financing because it is a better financial move is different.
The "sleep well at night" factor is not a mathematical construct. Life isn't lived by formula. Different folks have different preferences.

I am exactly like Trader Joe. I would much rather buy in cash than even a 0% loan.
Would you rather pay in cash than have a negative interest rate loan? i.e. the bank pays you?
Are we talking random hypotheticals for the sake of argument?

Assuming any inflation at all, you make money on a 0% loan. I don't understand the logic of not taking it. If you have the money anyway, there should be no stress: you can pay off the loan tomorrow, but simply choose not to do so.

This is an odd assertion. You don't need to understand the logic at all. It is what I choose to do, because I want to. My daily decisions are not all based on maximizing return. I have not made a claim that buying in cash will make you money or come out ahead of loaning at 0%. You are arguing a point I didn't make, quite the contrary. Everyone has different ticks. You seem surprised.
Well it's not a totally random hypothetical, since 0% loans exist and, in effect, result in the lender being paid in devalued dollars.

But, that aside, I did not intend to offend you (since you seem offended) I was just trying to understand the logic behind such a decision. I try to keep my emotions out of my investing and finance decisions (not always with success), which is clearly not what you do. Of course you will do what makes sense for you. I was simply pointing out that for others this choice may not be optimal financially.
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Re: Buying Car - buy outright or finance?

Post by Unladen_Swallow »

Admiral wrote: Fri Jan 10, 2020 12:49 pm
Unladen_Swallow wrote: Fri Jan 10, 2020 12:11 pm
Admiral wrote: Fri Jan 10, 2020 11:13 am
Unladen_Swallow wrote: Fri Jan 10, 2020 10:53 am
Miguelito wrote: Thu Jan 09, 2020 4:59 pm

Why would financing affect your sleep if you can afford it?

Financing because that is the only way you can afford an expensive car is one thing. Financing because it is a better financial move is different.
The "sleep well at night" factor is not a mathematical construct. Life isn't lived by formula. Different folks have different preferences.

I am exactly like Trader Joe. I would much rather buy in cash than even a 0% loan.
Would you rather pay in cash than have a negative interest rate loan? i.e. the bank pays you?
Are we talking random hypotheticals for the sake of argument?

Assuming any inflation at all, you make money on a 0% loan. I don't understand the logic of not taking it. If you have the money anyway, there should be no stress: you can pay off the loan tomorrow, but simply choose not to do so.

This is an odd assertion. You don't need to understand the logic at all. It is what I choose to do, because I want to. My daily decisions are not all based on maximizing return. I have not made a claim that buying in cash will make you money or come out ahead of loaning at 0%. You are arguing a point I didn't make, quite the contrary. Everyone has different ticks. You seem surprised.
Well it's not a totally random hypothetical, since 0% loans exist and, in effect, result in the lender being paid in devalued dollars.

But, that aside, I did not intend to offend you (since you seem offended) I was just trying to understand the logic behind such a decision. I try to keep my emotions out of my investing and finance decisions (not always with success), which is clearly not what you do. Of course you will do what makes sense for you. I was simply pointing out that for others this choice may not be optimal financially.
I'm not offended at all. No worries. :sharebeer

I agree, it may not be optimum for others. Hence I didn't make a recommendation to the OP. My response to the other post was simply to underscore that - "sleep at night" for some is not necessarily a mathematical construct.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
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Re: Buying Car - buy outright or finance?

Post by danielc »

mmmodem wrote: Fri Jan 10, 2020 10:21 am I would finance if the interest rate was under 4%. I would pay cash if it was over. It would be simpler for me to leave the car fund in my taxable account and not have to sell.

The amount I expect to make is neglible so it really doesn't matter whether I finance or pay cash. I prefer simplicity and liquidity. Having a loan that is automatically debited from my savings account every month doesn't bother me in the slightest. Paying off a 2% loan early is, however, mildly irritating due to FOMO.
What is FOMO? Personally I find debt stressful. I don't like having any kind of debt, besides the credit card debt that I pay off every month.
FrugalConservative
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Re: Buying Car - buy outright or finance?

Post by FrugalConservative »

In the fine print on most of these 0% loans, isnt there a dollar charge per $1000 borrowed, which usually amounts to a $1K added cost onto the life of the loan?
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Re: Buying Car - buy outright or finance?

Post by sergeant »

Admiral wrote: Fri Jan 10, 2020 11:13 am
Unladen_Swallow wrote: Fri Jan 10, 2020 10:53 am
Miguelito wrote: Thu Jan 09, 2020 4:59 pm
Trader Joe wrote: Thu Jan 09, 2020 4:00 pm I always pay in full and I sleep well at night.
Why would financing affect your sleep if you can afford it?

Financing because that is the only way you can afford an expensive car is one thing. Financing because it is a better financial move is different.
The "sleep well at night" factor is not a mathematical construct. Life isn't lived by formula. Different folks have different preferences.

I am exactly like Trader Joe. I would much rather buy in cash than even a 0% loan.
Would you rather pay in cash than have a negative interest rate loan? i.e. the bank pays you? Assuming any inflation at all, you make money on a 0% loan. I don't understand the logic of not taking it. If you have the money anyway, there should be no stress: you can pay off the loan tomorrow, but simply choose not to do so.
I pay cash for our cars for the sake of simplicity and ease. I can buy a car in under 30 minutes. Financing adds an hour or two to the process. Saving a few hundred dollars doesn't move the needle for me.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
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Re: Buying Car - buy outright or finance?

Post by dm200 »

I pay cash for our cars for the sake of simplicity and ease. I can buy a car in under 30 minutes. Financing adds an hour or two to the process. Saving a few hundred dollars doesn't move the needle for me.
Even when I have paid cash for a car at a dealer, I have always had to go through "the process" with the F&I (Finance and Insurance guy/gal). How did you avoid that tortuous process?
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Re: Buying Car - buy outright or finance?

Post by bltn »

Knowing that very low rate loans may well be accompanied by higher purchase prices, I would think you should finance the car only if you really need the car and can t afford to pay cash. Otherwise pay cash, and make the car payments to yourself.
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mmmodem
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Re: Buying Car - buy outright or finance?

Post by mmmodem »

danielc wrote: Fri Jan 10, 2020 3:29 pm
mmmodem wrote: Fri Jan 10, 2020 10:21 am I would finance if the interest rate was under 4%. I would pay cash if it was over. It would be simpler for me to leave the car fund in my taxable account and not have to sell.

The amount I expect to make is neglible so it really doesn't matter whether I finance or pay cash. I prefer simplicity and liquidity. Having a loan that is automatically debited from my savings account every month doesn't bother me in the slightest. Paying off a 2% loan early is, however, mildly irritating due to FOMO.
What is FOMO? Personally I find debt stressful. I don't like having any kind of debt, besides the credit card debt that I pay off every month.
Fear of Missing Out on big gains in the stock market. DW is also find debt stressful. So while I don't feel the same way, I can see why someone would want to pay it off right away.
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Re: Buying Car - buy outright or finance?

Post by bltn »

dm200 wrote: Fri Jan 10, 2020 4:12 pm
I pay cash for our cars for the sake of simplicity and ease. I can buy a car in under 30 minutes. Financing adds an hour or two to the process. Saving a few hundred dollars doesn't move the needle for me.
Even when I have paid cash for a car at a dealer, I have always had to go through "the process" with the F&I (Finance and Insurance guy/gal). How did you avoid that tortuous process?
I ve always had the personal philosophy about money management that I would not buy a car I couldn t afford (buy outright). When I was in my 20 s and 30 s, the dealerships insisted I talk with the finance managers before selling me the car for cash. As I got older, they quit requiring that.

I bought a dealership demonstrator Mercedes sedan in my 30 s (for my wife who has always gotten the nice cars in the family). When sitting down with the finance manager to discuss possible financing, he told me 70% of their sales were financed. I was surprised to hear that about Mercedes customers.
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Re: Buying Car - buy outright or finance?

Post by wootwoot »

ljford7 wrote: Thu Jan 09, 2020 4:33 pm It really depends on what interest rate you get. If it is really low one, then take the loan.

We bought a car about 4 years ago and got a 1% loan on it. The interest only adds up to $584 for the loan duration. We could have paid in cash, but for such a low interest rate, we are paying it month to month and the rest of the money we would have used is invested.

When the car loan interest rates is in the 2.5%+ range, then I would most likely pay in cash, but would really have to evaluate the situation.
Wouldn't this limit you to new cars? Cars that are more than a year old never get rates that low.
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Re: Buying Car - buy outright or finance?

Post by whodidntante »

I don't and won't have nearly enough cash to buy a car so I took a five-year loan in December 2017 @1.89% from my credit union. I expect to pay it off in December 2022, but I might pay it early if a paycheck would kill it or I get annoyed. By doing this I:
- did not have to reduce my stock exposure (risky, but I got lucky)
- further deferred paying capital gains tax (just plain good)

The 1.89% interest rate is approximately the same as inflation, so it's approximately 0% real.

I put the down payment of $2,500 on my rewards credit card and paid it on the due date.
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Re: Buying Car - buy outright or finance?

Post by Unladen_Swallow »

dm200 wrote: Fri Jan 10, 2020 4:12 pm
I pay cash for our cars for the sake of simplicity and ease. I can buy a car in under 30 minutes. Financing adds an hour or two to the process. Saving a few hundred dollars doesn't move the needle for me.
Even when I have paid cash for a car at a dealer, I have always had to go through "the process" with the F&I (Finance and Insurance guy/gal). How did you avoid that tortuous process?
I am not dm200, but I bought my last car 3 years ago. I can't quite remember all the details, but I recall being in and out in about 45min.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
mortfree
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Re: Buying Car - buy outright or finance?

Post by mortfree »

The last thing I want is a car dealership to know that I can write a check for 40k on a car.

They profile each buyer in case you become a repeat customer or have your car serviced there.
SDLinguist
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Re: Buying Car - buy outright or finance?

Post by SDLinguist »

Go online and look at the lowest rate your local CU is offering. It is probably for a 36-48 month loan. It is probably under 3% for a "new" used car, one less than 4-5 years old. For 40k, a 3 year loan at <3% will have you pay around 2k in interest. You want to pull 40k out of the market so you can save $55 a month?

Find THE car you want and know the value of THAT car. Two identical cars on a dealer lot can have wildly different prices a dealer might take for them. Check how long it has been at the dealer. A dealer is going to be most likely to make a deal on a car within the first week they have it (quick flip, little work in their part, bird in the hand situation) or any time it is close to crossing a multiple of 30 days because they want to avoid having to pay their own financing. Pretty much all cars on dealer lots are financed by the dealer, they need to pay the bank just like everyone else. Usually a dealer will send a car to auction after 90-120 days so if you come in at day 85 or 115 you can get them pretty close to wholesale usually.

Best bet is to email the internet sales person at the dealer and make a serious offer and set up a time to see it. Bring your own financing and don't trade in your old car at the dealer, go to CarMax if you don't want to private party sell it.

The only number you need to negotiate is the sales price. You have your own financing and you won't buy any finance products.

A good sales person will recognize a sale that fell in their lap and expedite it as much as they can.
Financologist
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Re: Buying Car - buy outright or finance?

Post by Financologist »

Some things to consider...

1. If you have higher rate debt outstanding you should consider taking the loan and using the cash you have to pay down "inferior" debt(s).


2. If you have insufficient emergency funds or reserves for anticipated expenditures consider holding onto your cash and taking the loan.

3. If you sleep better without debt, then pay cash and don't bother counting basis points.

4. If you're open to an entirely different path, consider buying a late-model low-mileage Toyota Highlander for $27,000, set aside $5,000 to cover fuel for 5 years, $3,500 to cover maintenance over the same period, give $1,500 to someone you love who can really use the cash and spend $5,000 on an unforgettable experience for your family and/or friends. Now you will have put up the same $42,000 you planned on but will have likely averted significantly higher ownership costs, covered fuel and maintenance for years to come, changed someone's life for the better and treated yourself and loved ones to a special experience together (love being magnanimous with other people's money :D )

Enjoy the new ride.
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Re: Buying Car - buy outright or finance?

Post by danielc »

mmmodem wrote: Fri Jan 10, 2020 8:37 pm Fear of Missing Out on big gains in the stock market. DW is also find debt stressful. So while I don't feel the same way, I can see why someone would want to pay it off right away.
My DW paid off a 0% student loan from Germany as quickly as she could because having the debt made her unhappy.
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Watty
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Re: Buying Car - buy outright or finance?

Post by Watty »

As I said earlier;
Watty wrote: Thu Jan 09, 2020 4:43 pm One thing to consider when getting a loan is that the person at the dealership or credit union that you are dealing with makes multiple car loans every day and has likely been doing this for years. It might not be impossible to get some great deal but the odds are that the lender is going to be making money on the transaction in one way or another.

Unless there is some special situation like for taxes then I would just pay cash.
You can sometimes come out ahead with a car loan but the same can be said about going to one of those free steak diners with a financial presentation or timeshare sales pitches to get a gift.

Few people go to those to actually buy an annuity or timeshare but there is a risk that you will.

You may be overconfident if you are so sure that you will be able to outsmart the dealership.
Helo80
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Re: Buying Car - buy outright or finance?

Post by Helo80 »

tarheel15 wrote: Thu Jan 09, 2020 3:50 pm What’s the best way to purchase - buy outright or finance?
It’s been a while since I’ve bought a car.

Which is worth more, $42,000 from your bank account on a Cashier's Check or $42,000 from a Credit Union or lender on a Cashier's Check?

Dealers generally do not give two cruds about paying in cash. It's something that decades ago (like, pre-90's) held weight when credit lending was not as easy as it is today. Now, with lending applications, the internet, and instant approval, dealers don't have to worry about getting paid.

As others have mentioned, it's worth checking out what MB Financial side can offer on a CPO MB and going from there. Then, it's up to you if the borrowing rate is worth paying for so that you can free up cash for your portfolio or other means. That's a 100% personal decision on your part as some people want no debt on their record... others don't mind having debt.
pennywise
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Re: Buying Car - buy outright or finance?

Post by pennywise »

Unladen_Swallow wrote: Fri Jan 10, 2020 10:53 am
The "sleep well at night" factor is not a mathematical construct. Life isn't lived by formula. Different folks have different preferences.

I am exactly like Trader Joe. I would much rather buy in cash than even a 0% loan.
+1

We always pay cash for our vehicles. Of course I don't tell the salesman that; I say I want to negotiate the best price possible then talk financing. Once the price is settled my financing method is to tell the dealer I"m paying in full then put as much as possible on my credit card to get the points (pay that off at end of month of course) followed by paying the dealer the remainder.

Especially given how many of the strategies involve POSSIBLE higher returns via investment of the purchase price amount, my outcome of incurring absolutely no financing cost + peace of mind FOR ME is far preferable to the benefits of leveraging the purchase funds for a potential gain, the inconvenience of servicing a loan and the psychological discomfort I feel being in debt when I don't need to be :wink:
Last edited by pennywise on Sun Jan 12, 2020 8:44 am, edited 1 time in total.
wootwoot
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Re: Buying Car - buy outright or finance?

Post by wootwoot »

SDLinguist wrote: Sat Jan 11, 2020 2:31 am Go online and look at the lowest rate your local CU is offering. It is probably for a 36-48 month loan. It is probably under 3% for a "new" used car, one less than 4-5 years old. For 40k, a 3 year loan at <3% will have you pay around 2k in interest. You want to pull 40k out of the market so you can save $55 a month?

Find THE car you want and know the value of THAT car. Two identical cars on a dealer lot can have wildly different prices a dealer might take for them. Check how long it has been at the dealer. A dealer is going to be most likely to make a deal on a car within the first week they have it (quick flip, little work in their part, bird in the hand situation) or any time it is close to crossing a multiple of 30 days because they want to avoid having to pay their own financing. Pretty much all cars on dealer lots are financed by the dealer, they need to pay the bank just like everyone else. Usually a dealer will send a car to auction after 90-120 days so if you come in at day 85 or 115 you can get them pretty close to wholesale usually.

Best bet is to email the internet sales person at the dealer and make a serious offer and set up a time to see it. Bring your own financing and don't trade in your old car at the dealer, go to CarMax if you don't want to private party sell it.

The only number you need to negotiate is the sales price. You have your own financing and you won't buy any finance products.

A good sales person will recognize a sale that fell in their lap and expedite it as much as they can.
Can you recommend a CU with rates this low for a used vehicle? Penfed is known for having low rates and the best they can do is 3.99%.
pennywise
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Re: Buying Car - buy outright or finance?

Post by pennywise »

dm200 wrote: Fri Jan 10, 2020 4:12 pm
Even when I have paid cash for a car at a dealer, I have always had to go through "the process" with the F&I (Finance and Insurance guy/gal). How did you avoid that tortuous process?
You avoid a tortuous process by declining to participate :happy

When I buy a car, from start to finish I limit the processes to reasonable time intervals. I tell the sales staff when I walk in that I plan to buy a car and that I don't plan to spend many hours there, I need to get going before [insert next daily event] lunch/rush hour/closing time, whatever is a couple of hours away.

If I find myself being manipulated via false delays I politely remind them that if they can't get the process moving, I will leave. I've walked into sales managers' offices while they are idly chatting with the salesman which is what actually happens when the sales guy has to go 'talk to my manager' to get approval for whatever killer deal they are offering. I tell them I am leaving unless they're ready to finalize. It tends to have a bracing effect on the process.

I always finish the transaction by sitting down with the finance person who shows me the sales sheet; we run through the numbers to confirm everything then I sign off. Takes 5-10 minutes tops.

Auto dealers have mastered the art of convincing customers they are being given the FAVOR of purchasing a car. However here is my mantra: the salesman needs to sell me the car, I don't need to buy it.

Once I'm done and drive off I don't worry about anything finance-related till it's time to buy the next vehicle. For those of us who value making life as easy as possible, that peace of mind is worth much more than whatever I'd save by niggling around with financing.
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Re: Buying Car - buy outright or finance?

Post by Unladen_Swallow »

pennywise wrote: Sat Jan 11, 2020 10:08 am
Unladen_Swallow wrote: Fri Jan 10, 2020 10:53 am
The "sleep well at night" factor is not a mathematical construct. Life isn't lived by formula. Different folks have different preferences.

I am exactly like Trader Joe. I would much rather buy in cash than even a 0% loan.
+1

We always pay cash for our vehicles. Of course I don't tell the salesman that; I say I want to negotiate the best price possible then talk financing. Once the price is settled my financing method is to tell the dealer I"m paying in full then put as much as possible on my credit card to get the points (pay that off at end of month of course) followed by paying the dealer the remainder.

Especially given how many of the strategies involve POSSIBLE higher returns via investment of the purchase price amount, my outcome of incurring absolutely no financing cost + peace of mind is far preferable to the benefits of leveraging the purchase funds for a potential gain, the inconvenience of servicing a loan and the psychological discomfort I feel being in debt when I don't need to be :wink:
To add:

I have learnt to agree on price before I ever go to the dealership. I loathe the entire process of buying a car that involves interaction with dealers and "negotiation theater". I know the price I intend to pay (I do my due diligence research), and it is one i consider fair to both parties. I go down and just pay and pick up the car.

I often look at the dollar per hour cost of negotiation. I shoot for a "fair price", rather than the "lowest or best" price. Negotiating for 4 hrs to save $300 is not my cup of tea.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
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Re: Buying Car - buy outright or finance?

Post by hudson »

tarheel15 wrote: Thu Jan 09, 2020 3:50 pm Hi everyone
I’m looking to purchase a certified pre owned low mileage Mercedes SUV for $42k.

What’s the best way to purchase - buy outright or finance?
It’s been a while since I’ve bought a car.

Thanks for the advice.
Outright is best...at least for my situation; finance is way to much trouble. Being debt free is good. Monthly payments are a drag.
I don't ever play the game where I can borrow at say 1% and make more with investments.

It's totally up to you; I've borrowed to buy many vehicles...but no more.
If I was going to borrow again, before I made a deal to buy, I would make a very short meeting with the "finance person" a requirement. I would request to do as much paperwork at home as possible. I would want a guarantee that they spent no more than 30 seconds on their extended warranty pitches. Finance sales pitches have turned into the worst part of buying a vehicle.
Last edited by hudson on Sun Jan 12, 2020 9:05 am, edited 1 time in total.
flyphotoguy
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Re: Buying Car - buy outright or finance?

Post by flyphotoguy »

I'd pay for it outright and forget about it. But it's really up to you, maybe if it's 0% you might want to finance and pay all at the end of the period? :sharebeer
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Re: Buying Car - buy outright or finance?

Post by watchnerd »

Unladen_Swallow wrote: Fri Jan 10, 2020 10:53 am

I am exactly like Trader Joe. I would much rather buy in cash than even a 0% loan.
Debt makes me feel dirty.

Even 0% debt.
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SagaciousTraveler
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Re: Buying Car - buy outright or finance?

Post by SagaciousTraveler »

Trader Joe wrote: Thu Jan 09, 2020 4:00 pm
tarheel15 wrote: Thu Jan 09, 2020 3:50 pm Hi everyone
I’m looking to purchase a certified pre owned low mileage Mercedes SUV for $42k.

What’s the best way to purchase - buy outright or finance?
It’s been a while since I’ve bought a car.

Thanks for the advice.
I always pay in full and I sleep well at night.
Same. We have always purchased certified pre owned vehicles coming out of a 36 month lease. You usually don’t find 0% or .9% rates with certified pre owned but I can see perhaps the allure when buying a new car, using very cheap rates to get a further discount on the purchase.
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Re: Buying Car - buy outright or finance?

Post by johnubc »

livesoft wrote: Thu Jan 09, 2020 3:59 pm Both are good ways. Negotiate to lowest price suggesting you are going to pay cash. Have checkbook ready. Then get 0% loan at the end and the cash back for taking a loan.
It is VERY unlikely to get a 0% loan and cash back on a used vehicle - where can i find one of those loans?
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Re: Buying Car - buy outright or finance?

Post by livesoft »

I got a 0% loan on a used Lexus. One can argue whether I got "cash back" by negotiating a lower price or not.
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SDLinguist
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Re: Buying Car - buy outright or finance?

Post by SDLinguist »

wootwoot wrote: Sat Jan 11, 2020 10:32 am
SDLinguist wrote: Sat Jan 11, 2020 2:31 am Go online and look at the lowest rate your local CU is offering. It is probably for a 36-48 month loan. It is probably under 3% for a "new" used car, one less than 4-5 years old. For 40k, a 3 year loan at <3% will have you pay around 2k in interest. You want to pull 40k out of the market so you can save $55 a month?

Find THE car you want and know the value of THAT car. Two identical cars on a dealer lot can have wildly different prices a dealer might take for them. Check how long it has been at the dealer. A dealer is going to be most likely to make a deal on a car within the first week they have it (quick flip, little work in their part, bird in the hand situation) or any time it is close to crossing a multiple of 30 days because they want to avoid having to pay their own financing. Pretty much all cars on dealer lots are financed by the dealer, they need to pay the bank just like everyone else. Usually a dealer will send a car to auction after 90-120 days so if you come in at day 85 or 115 you can get them pretty close to wholesale usually.

Best bet is to email the internet sales person at the dealer and make a serious offer and set up a time to see it. Bring your own financing and don't trade in your old car at the dealer, go to CarMax if you don't want to private party sell it.

The only number you need to negotiate is the sales price. You have your own financing and you won't buy any finance products.

A good sales person will recognize a sale that fell in their lap and expedite it as much as they can.
Can you recommend a CU with rates this low for a used vehicle? Penfed is known for having low rates and the best they can do is 3.99%.
Just check your local CU. In San Diego for instance:
https://www.missionfed.com/rates

And you can get a .25% cut in rates with their check program. Closed on a loan 2 months ago.
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