Why pay cash for a car?

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EZ James
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Re: Why pay cash for a car?

Post by EZ James » Mon Nov 13, 2017 5:38 am

In September my dealer was offering the choice of financing at over 5% or a discount and a factory incentive. The actual rate could have been higher or lower depending on term and amount financed but the details were too boring and tricky to pique my interest.

Last month I bought a 2017 Toyota from the same dealer for cash. I was never queried about financing and don't know what I could have found but I got >21% off MSRP and that suited me.

Eight years before that at the same dealer I was offered 1.9% financing or a factory incentive on a new Toyota. As near as I could estimate there was not likely to be much difference so I paid cash. Perhaps I would have saved a bit taking the financing but not having payments has substantial value to me.

misterno
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Re: Why pay cash for a car?

Post by misterno » Mon Nov 13, 2017 7:08 am

I paid all cash because

1) i did not need more than liability insurance

2) if you buy a car with financing you pay financing and other fees.

3) cash price will always be lower than financing price.

Ron
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Re: Why pay cash for a car?

Post by Ron » Mon Nov 13, 2017 8:03 am

Being retired (both me/wife) we don't purchase anything unless we can pay cash for it, be it a car, home improvement, or travel.

We've purchased three cars since retirement (for me, just over a decade ago); one CPO, two new. All were paid for upon delivery.

I/we don't play the "I can save X dollars by leaving it invested" game.

- Ron

smitcat
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Re: Why pay cash for a car?

Post by smitcat » Mon Nov 13, 2017 8:17 am

We always try and make every financial decision based upon numbers and not fear or the unknown. Last year we bout a new truck with cash but prior to that we have financed vehicles when the that has a financial incentive over cash. Each transaction requires a new look to see which direction has an advantage and by how much. I do agree that there is also an 'annoyance' factor whereby doing something complicated to save a small amount of funds is just not worth it.

alfaspider
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Re: Why pay cash for a car?

Post by alfaspider » Mon Nov 13, 2017 8:29 am

I've paid cash for all of my cars mostly for the no-hassle factor. An auto loan is one more monthly bill to manage, and paying cash makes the purchase process quicker.

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Toons
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Re: Why pay cash for a car?

Post by Toons » Mon Nov 13, 2017 8:33 am

Different strokes,
Different folks.
I pay cash.
One less thing to think about,
Free the mind.
Debt free ain't so Bad :mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Jack FFR1846
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Re: Why pay cash for a car?

Post by Jack FFR1846 » Mon Nov 13, 2017 8:42 am

It depends. If you are buying a Ford, you can see right on Ford's website when they offer loan incentives. When they clearly offer $1000 to finance with zero cash alternative, you bet I'm going to finance. Honda does the same kind of incentive but they are less obvious but the sales guy will tell you if you ask.
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JupiterJones
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Re: Why pay cash for a car?

Post by JupiterJones » Mon Nov 13, 2017 9:50 am

White Coat Investor wrote:
Sun Nov 12, 2017 6:01 pm
For the same reason I pay cash for refrigerators. Or groceries. Or a pack of gum.
This ^^^

When I buy things, I like to actually buy and own them, if that's financially feasible for me. I'm not so happy with having someone else buy the thing for me, with an agreement that I pay them back over several years until I eventually earn the right to own that thing myself. Seems needlessly complex and a bit silly.

I've also spent a portion of my life in jobs that didn't have steady income, so I like not being on the hook for a payment every month.

Could I theoretically make a wee bit of money with leverage? Sure. But I've never found it to be enough to be worth the trade-off in time, hassle, and financial comfort.
Stay on target...

LarryAllen
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Re: Why pay cash for a car?

Post by LarryAllen » Mon Nov 13, 2017 9:58 am

I pick the car I want first and then see what their best payment options are during negotiations. The dealer will let you know what they prefer.

If I save some bucks doing their financing, whatever the rate is, I'll do it and then pay it off in a month or two. The last car we bought they asked if we would wait 3 months as they lose their incentive otherwise. I agreed and stuck to my word.

Also, at last minute, once deal parameters are set I put $5k (or whatever max they will allow) down on credit card to get the 2% back. Not a big deal but it's something.

I prefer no debt and I also prefer no hassles so I really do have to save some money to mess with the financing.

overthought
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Re: Why pay cash for a car?

Post by overthought » Mon Nov 13, 2017 10:01 am

I'm quite leery about carrying debt on depreciating assets, and vehicles in particular scare me because we had a neighbor whose cashflow took a triple whammy. She had to quit work because ill, she generated massive medical bills because lousy insurance, and he suffered a pay cut at his work around the same time. They did what they could to reduce expenses but couldn't shake loose the hundreds of dollars a month they were paying toward his 18 month old truck---it was underwater due to depreciation and they would have owed a few thousand dollars after the sale.

Perhaps this says more about the folly of buying new trucks and SUVs than anything else, but no thanks.

That said, I'm definitely a fan of exploiting debt (over a short term) as a means to building up credit score, or even just bridging the gap so I can be more efficient in shaking loose the cash to pay the thing off a month or two later. The trick there is to only take on debt you can afford to pay off at any time.
TD2626 wrote:
Sun Nov 12, 2017 10:08 pm
I think that the people to whom the $500 in savings would be worth it for the hassle are also the same people for whom buying a $20k new car is not worth it when a $2k used car can provide reliable transportation from point A to point B with an $18k savings.
Maybe if you're a car expert you can find a reliable used car for $2k. My experience as a non-expert looking for minivans is that I can either buy a new one for ~$30k or buy a heavily used one for $10-15k and play car repair roulette on repair bills over the next several years. After losing that game (cost of repairs more than what I saved buying used) I decided I'd rather use the $10-15k up front to buy some "luxury" instead (if that's what you want to call lowest trim plus a backup camera). My wife deftly haggled in a 7 year bumper to bumper (I think salesman must get more commission off the insurance than the car), so we are fairly sure we'll avoid the roulette table for a good long while this time.

YMMV.

BW1985
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Re: Why pay cash for a car?

Post by BW1985 » Mon Nov 13, 2017 10:14 am

Jack FFR1846 wrote:
Mon Nov 13, 2017 8:42 am
It depends. If you are buying a Ford, you can see right on Ford's website when they offer loan incentives. When they clearly offer $1000 to finance with zero cash alternative, you bet I'm going to finance. Honda does the same kind of incentive but they are less obvious but the sales guy will tell you if you ask.
I got the financing rebate by taking out the lowest possible loan ($2k I think) and paying cash for the rest, then paying it off on the first statement.

I value keeping my finances as simple and clean as possible. I'm not keeping loans around to make a couple hundred bucks on interest, but I'll take out the loan to get a $1500 rebate sure.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

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flamesabers
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Re: Why pay cash for a car?

Post by flamesabers » Mon Nov 13, 2017 10:27 am

I prefer to pay cash for cars due to simplicity. When paying cash I'll know exactly how much I'll be paying for the car and I won't have to deal with paying a new creditor every month for the next few years.

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midareff
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Re: Why pay cash for a car?

Post by midareff » Mon Nov 13, 2017 10:55 am

RDHlooking4FIRE wrote:
Sun Nov 12, 2017 5:16 pm
I can understand paying off a mortgage, because rates are higher than car loans. And you wouldnt take a new loan out to invest in the market now.

I am saving cash for my next car purchse. But why? Car loans are cheap. My current car is paid off and i like being debt free. Is that the best method?
PenFed still has 1.49% money available to $100K for new car loans over 3 years. I ordered a car November 3rd with expected delivery end of Fed 2018.... I'll take some of that for sure since I reasonably and historically expect to do better than 1.49% annual return for three years in the market.

furikake
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Re: Why pay cash for a car?

Post by furikake » Mon Nov 13, 2017 11:18 am

I've never bought cars with a loan, is there closing cost on a loan like a mortgage?

To me, it's time. I don't want to have to keep track on when my car is paid off, just like buying groceries, I don't just keep the balance on a credit card if it has 0% interest. It's too time consuming to remember when I'm supposed to pay it off. I'm not good at paying payments, I know I'd forget. So to make it easier on me, I'd rather just pay cash, it's not worth my time to mess with the interest.

Spirit Rider
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Re: Why pay cash for a car?

Post by Spirit Rider » Mon Nov 13, 2017 1:18 pm

Suman wrote:
Sun Nov 12, 2017 6:25 pm
Many car owners do not carry collision type coverage. Car finance companies usually require you to carry these additional coverages. One can avoid it by paying cash.
Just because you can do something, doesn't necessarily mean that you should do something.

When you have the possibility of a five figure loss, a couple hundred dollars to insure that risk is not a bad thing.

gerntz
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Re: Why pay cash for a car?

Post by gerntz » Mon Nov 13, 2017 1:29 pm

Well, even tho it costs more, I lease now. I fear the rapid technology changes today will leave me stuck with an outdated car 3-4 years from now.

Rupert
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Re: Why pay cash for a car?

Post by Rupert » Mon Nov 13, 2017 1:39 pm

It doesn't make financial sense today to have a blanket policy against financing because sometimes manufacturers offer cash incentives to finance that would otherwise be unavailable. Last time I bought a car, for example, Honda offered a $1500 cash rebate but only if you financed through Honda Finance. So the price of the car would have been $1500 higher had I paid cash. There was no prepayment penalty on the loan (i.e., I could pay it off whenever I wanted), so it would have been rather stupid for me to leave that cash on the table. You really have to look at these things on a case-by-case basis.

bloom2708
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Re: Why pay cash for a car?

Post by bloom2708 » Mon Nov 13, 2017 1:43 pm

Part of the joy of paying cash for a car is knowing that you saved the funds and can use them.

Many know they can/could save for a car purchase (or other big purchase). They simply don't.

Where would one get this "saved" money? I'm trying to max my 401k, fill our Roths, HSA, save for college, etc. Is there more for "saved" money? For most the answer is no. Here, many have the money somewhere and choose to take the loan.

Steve Martin has trouble with it too...

https://vimeo.com/41152287
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Chuck
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Re: Why pay cash for a car?

Post by Chuck » Mon Nov 13, 2017 1:47 pm

fabis wrote:
Sun Nov 12, 2017 7:00 pm
if you can afford the car outright but choose to go with payments, why not just give them the 3 grand extra right then and there?
Because this is not the actual tradeoff.

thangngo
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Re: Why pay cash for a car?

Post by thangngo » Mon Nov 13, 2017 1:56 pm

White Coat Investor wrote:
Sun Nov 12, 2017 6:01 pm

For the same reason I pay cash for refrigerators. Or groceries. Or a pack of gum.

^ this.

I also DO NOT like paying interest expense. I do NOT like to pay high insurance premium than I need. If I'm offered a better deal for a car loan, I will take it and then immediately pay it off. So I won't pay a penny on interest expense and only pay minimum liability insurance.

In those situations, I always run the numbers and make sure my decision will have the most positive impact on my net worth than other alternatives.

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midareff
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Re: Why pay cash for a car?

Post by midareff » Mon Nov 13, 2017 2:24 pm

Spirit Rider wrote:
Mon Nov 13, 2017 1:18 pm
Suman wrote:
Sun Nov 12, 2017 6:25 pm
Many car owners do not carry collision type coverage. Car finance companies usually require you to carry these additional coverages. One can avoid it by paying cash.
Just because you can do something, doesn't necessarily mean that you should do something.

When you have the possibility of a five figure loss, a couple hundred dollars to insure that risk is not a bad thing.
For sure.......

kazper
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Re: Why pay cash for a car?

Post by kazper » Mon Nov 13, 2017 2:30 pm

bgf wrote:
Sun Nov 12, 2017 6:14 pm
can you get rates that low on used cars?
Possibly, but it is more difficult to find. Pentagon federal credit union sometimes offers rates around 1.5 to 2%. We actually bought a car through their true car program @ .99%. Truthfully, we found a car and later noticed it was also listed on the Penfed true car site :)

And no, we're not paying it off faster than necessary due to the low rate- although I did strongly consider that possibility.

Wakefield1
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Re: Why pay cash for a car?

Post by Wakefield1 » Mon Nov 13, 2017 6:16 pm

In most cases i think the dealer will charge a lower price on a car you buy with cash than a car that you buy with cheap or "zero percent" financing through the car company---but some bargaining might be needed.
You don't usually get the title or "Certificate of Origin" for the car unless you pay for it yourself-I think that goes to the note holder if the car is financed

TheAccountant
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Re: Why pay cash for a car?

Post by TheAccountant » Mon Nov 13, 2017 7:55 pm

There are several ways to look at this.

The problem with buying new is the depreciation expense in the first 3 years of ownership. Many people end up underwater because of this.

Also, if you crash the car a week later, your insurance is going to nickel and dime you over the market value of the vehicle (unless you buy GAP insurance, but you're going to pay for that too.)

If you can't pay cash, I would buy something used (2-3 years old, under 25k miles or so) and finance it below 3%. Many credit unions offer rates around 2.5% on used cars. Actually, some might qualify as new if they are 2 years old or less, but this depends on credit union.

Anyway, a loan is essentially a risk. You're reducing your risk (or loss, in this case) by buying used because unless you're paying 20% in interest, your payments are going to keep that liability right around what that car is worth on the market. Again, this varies by make and model, but that's the idea anyway.

With cash, you're not taking any risk, you're just moving your money from one asset account to another. Interest is an expense, and if it is so low, why take the risk?

dccboone
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Re: Why pay cash for a car?

Post by dccboone » Mon Nov 13, 2017 10:03 pm

To each his own. We do not buy new cars and do not borrow to buy a used one either. If we can afford to make the monthly payment, then we can afford to save the same amount each month until we've saved enough to pay cash. It's what works for us.

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whodidntante
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Re: Why pay cash for a car?

Post by whodidntante » Mon Nov 13, 2017 10:57 pm

I had the money and still took a loan.

DVMResident
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Re: Why pay cash for a car?

Post by DVMResident » Mon Nov 13, 2017 11:16 pm

Depends on the terms. These days, it's very tempting to take the loan.

We just got a 5 year at 0% with zero down. There were no incentives for paying cash (which we have).
You'd have to irrationally and fanatical anti-debt to turn that down.

FandangoDave5010
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Re: Why pay cash for a car?

Post by FandangoDave5010 » Tue Nov 14, 2017 12:20 am

If you have the cash and no plans on how to spend it, it is a good idea to just buy it. Last year my wife and I traded in our 2014 Subaru Forester XT plus $30,000 for an Acura RDX. The salesman begged us to take out a loan and SAVE money. Good feeling to tell him NO and drive the new car home.

Why? I earn .95% in interest on that money from my Ally Bank risk-adverse* savings account. There is more pleasure in spending it than letting Ally made money loaning it out.

* According to Edward Conard (Mitt Romney's former partner at Bain) this is money that finds equities risky enough to hide under the mattress.

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TinkerPDX
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Re: Why pay cash for a car?

Post by TinkerPDX » Tue Nov 14, 2017 1:03 am

White Coat Investor wrote:
Sun Nov 12, 2017 6:01 pm
RDHlooking4FIRE wrote:
Sun Nov 12, 2017 5:16 pm
I can understand paying off a mortgage, because rates are higher than car loans. And you wouldnt take a new loan out to invest in the market now.

I am saving cash for my next car purchse. But why? Car loans are cheap. My current car is paid off and i like being debt free. Is that the best method?
For the same reason I pay cash for refrigerators. Or groceries. Or a pack of gum.

If the arbitrage on what you're paying for the car loan and what you'd earn in tax-free muni bond fund is enough money to make a difference in your financial life, you're probably buying too much car.

Take the example above- earning 0.8% more than what the loan is costing. So let's say it's a 5 year note on a $20K car. 0.8% of $20K is $160 a year. So maybe $500 over the course of 5 years. No thanks. I'll just pay cash. It's not that the math is wrong, it's just that I'm not going to deal with being in debt for 5 more years and keeping track of all that for $500.
Agreed if there’s an administrative headache, or if for some reason the debt would have a negative impact of some sort.

But if your payments are on auto, this could be set up in a matter of minutes plus signing the loan docs along with the rest of the title/registration paperwork when you buy. And carrying a secured auto loan can actually be good for one’s credit.

I think the interest arbitrage can be worth it for some. Do it three times over your career and it’s $1,500, that may mean being FI a day or a week sooner. All those little decisions can add up to months and years.

With these nickel-and-dime things, I always ask if the hassle is worth it by comparing now much I could make spending that extra time working instead. For me, $500 is worth a little hassle.

Of course, as others have said, the bigger risk is being lured into spending more.

ncbill
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Re: Why pay cash for a car?

Post by ncbill » Tue Nov 14, 2017 3:28 pm

TheAccountant wrote:
Mon Nov 13, 2017 7:55 pm
There are several ways to look at this.

The problem with buying new is the depreciation expense in the first 3 years of ownership. Many people end up underwater because of this.

Also, if you crash the car a week later, your insurance is going to nickel and dime you over the market value of the vehicle (unless you buy GAP insurance, but you're going to pay for that too.)

If you can't pay cash, I would buy something used (2-3 years old, under 25k miles or so) and finance it below 3%. Many credit unions offer rates around 2.5% on used cars. Actually, some might qualify as new if they are 2 years old or less, but this depends on credit union.

Anyway, a loan is essentially a risk. You're reducing your risk (or loss, in this case) by buying used because unless you're paying 20% in interest, your payments are going to keep that liability right around what that car is worth on the market. Again, this varies by make and model, but that's the idea anyway.

With cash, you're not taking any risk, you're just moving your money from one asset account to another. Interest is an expense, and if it is so low, why take the risk?
Or, for those who really want a new vehicle, they can always lease.

Payment will be lower, term will be shorter, & GAP insurance is now included for most leases.

Simply treat it as another monthly expense.

N10sive
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Re: Why pay cash for a car?

Post by N10sive » Tue Nov 14, 2017 4:03 pm

ncbill wrote:
Tue Nov 14, 2017 3:28 pm
Or, for those who really want a new vehicle, they can always lease.

Payment will be lower, term will be shorter, & GAP insurance is now included for most leases.

Simply treat it as another monthly expense.
But then interest rates are typically 2-5%.

chicagoan23
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Re: Why pay cash for a car?

Post by chicagoan23 » Tue Nov 14, 2017 4:50 pm

I happily took a five-year 0% loan when I bought a new car in 2012. I got a great price; tried to negotiate further by offering cash and was told the price would go up if I didn't take the financing. I set up auto payments for the first month, and had 60 equal installments come out of my checking account. Got the title in the mail a few months ago. Never had one hassle.

The time value of money alone is worth 2-3% inflation per year; on a $35k car that adds up. Why wouldn't I want to pay for a car I started driving in 2012 with cheaper 2017 dollars?

For the very risk averse, do you think interest rates are going to go down significantly from here? If they go up instead, then your cash savings are making you money AND providing you with additional liquidity--if you find yourself needing cash, it's easier to spend actual cash that you didn't have to pay up front for the car, rather than selling or borrowing against the car for that same cash.

If you can get a car loan for under 2% over five years or so, it is a no-brainer to take the loan, 100% of the time. That said, be careful about not overextending yourself with either the price of the car or the monthly debt obligation.

andypanda
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Re: Why pay cash for a car?

Post by andypanda » Tue Nov 14, 2017 6:08 pm

"If you can get a car loan for under 2% over five years or so, it is a no-brainer to take the loan, 100% of the time."

But I don't want a loan. I haven't had a car payment since 1986 and have been completely debt free since 1997. I'm perfectly happy setting aside money for a vehicle, buying new at the end of the model year and selling my old vehicle to a friend or neighbor. I had one coworker wait a year until I was ready to sell my '06 Avalon XLS.

And I like negotiating with new car dealers. I'm strange.

John

chicagoan23
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Re: Why pay cash for a car?

Post by chicagoan23 » Tue Nov 14, 2017 6:34 pm

andypanda wrote:
Tue Nov 14, 2017 6:08 pm
"If you can get a car loan for under 2% over five years or so, it is a no-brainer to take the loan, 100% of the time."

But I don't want a loan. I haven't had a car payment since 1986 and have been completely debt free since 1997. I'm perfectly happy setting aside money for a vehicle, buying new at the end of the model year and selling my old vehicle to a friend or neighbor. I had one coworker wait a year until I was ready to sell my '06 Avalon XLS.
Important points, and if you're happy then that's what it's all about.

I just don't see how it makes sense from a strictly financial point of view to pay cash when you can get a zero or low interest loan, with no discount to the purchase price if you pay in a lump sum. Time value of money, extra liquidity, opportunity costs on the lump sum amount, better credit scores, no hassle. I suppose I should have said that from a financial optimization standpoint, it's a no-brainer.

sls239
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Re: Why pay cash for a car?

Post by sls239 » Tue Nov 14, 2017 6:35 pm

I paid cash for my last car because

1) It was used
2) I asked if there would be a finance fee and the salesperson said yes
3) We had a second 10+ year old car that could also end up needing replaced at any time
4) I don't want any more inquiries or debt on our credit report than we have to because it can affect things like if you can be approved to buy a house before selling a house if you end up relocating

SlowMovingInvestor
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Re: Why pay cash for a car?

Post by SlowMovingInvestor » Tue Nov 14, 2017 7:10 pm

chicagoan23 wrote:
Tue Nov 14, 2017 6:34 pm

I just don't see how it makes sense from a strictly financial point of view to pay cash when you can get a zero or low interest loan, with no discount to the purchase price if you pay in a lump sum.
That's the rub though -- how do you know there is no discount to the cash price ? There may be some cases when the manufacturer has clearly presented an either/or choice, but in other cases you have to rely on the dealer's word (which to me at least is nearly worthless) that the price is the same. Also, I don't even trust dealers to present payments and interest rates properly -- I would want to verify everything (which wouldn't be easy if you're sitting in an F&I office).

TheAccountant
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Re: Why pay cash for a car?

Post by TheAccountant » Tue Nov 14, 2017 9:10 pm

ncbill wrote:
Tue Nov 14, 2017 3:28 pm
TheAccountant wrote:
Mon Nov 13, 2017 7:55 pm
There are several ways to look at this.

The problem with buying new is the depreciation expense in the first 3 years of ownership. Many people end up underwater because of this.

Also, if you crash the car a week later, your insurance is going to nickel and dime you over the market value of the vehicle (unless you buy GAP insurance, but you're going to pay for that too.)

If you can't pay cash, I would buy something used (2-3 years old, under 25k miles or so) and finance it below 3%. Many credit unions offer rates around 2.5% on used cars. Actually, some might qualify as new if they are 2 years old or less, but this depends on credit union.

Anyway, a loan is essentially a risk. You're reducing your risk (or loss, in this case) by buying used because unless you're paying 20% in interest, your payments are going to keep that liability right around what that car is worth on the market. Again, this varies by make and model, but that's the idea anyway.

With cash, you're not taking any risk, you're just moving your money from one asset account to another. Interest is an expense, and if it is so low, why take the risk?
Or, for those who really want a new vehicle, they can always lease.

Payment will be lower, term will be shorter, & GAP insurance is now included for most leases.

Simply treat it as another monthly expense.
Leasing is almost always more expensive when taking all costs into consideration.

Don't forget when you bring the car back and decide not to lease a new one. "Oh, that scratch wasn't there before. That'll be $ 500. Needs tires and brakes. That'll be another $ 1,000 in final disposition fees."

gnujoe2001
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Re: Why pay cash for a car?

Post by gnujoe2001 » Tue Nov 14, 2017 10:49 pm

negotiating tactic: after their song and dance "offer" with "the manager", you quote them a predetermined out-the-door lower ball on a handwritten check.

thangngo
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Re: Why pay cash for a car?

Post by thangngo » Wed Nov 15, 2017 12:28 am

chicagoan23 wrote:
Tue Nov 14, 2017 6:34 pm
I just don't see how it makes sense from a strictly financial point of view to pay cash when you can get a zero or low interest loan, with no discount to the purchase price if you pay in a lump sum. Time value of money, extra liquidity, opportunity costs on the lump sum amount, better credit scores, no hassle. I suppose I should have said that from a financial optimization standpoint, it's a no-brainer.
If you talk about financial optimization standpoint, you gotta run the numbers. It's not a no-brainer. More often than not, you'll find taking out a loan will end up costing you more. Think about the difference in insurance premium between full coverage and liability only coverage. Take it and times 5 years or the duration of the car loan to see how much money out of the door. And don't even bank on making money by investing the lump sum amount and taking out a car loan instead. A bear market will knock you out cold. Only invest the money you saved.

averageJoe576
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Re: Why pay cash for a car?

Post by averageJoe576 » Wed Nov 15, 2017 3:15 am

If you are acquiring a new car, you major cost is not loan interest, but depreciation.

In stead of spending $20k on a new compact, consider spending $15 on a used $25-30k car that is 3-5yrs old and has a great durability record reliability record. Search on auto-trader over a wide area, find a low priced offerings from individuals and offer 2k less than listed until you get someone to bite. Aim for getting the car at a premium moreso than a specific price, often times people will sell you their $3k options package for nothing.

The amount you'll save from doing this will make %1-2 seem silly.

scrabbler1
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Re: Why pay cash for a car?

Post by scrabbler1 » Wed Nov 15, 2017 7:12 am

averageJoe576 wrote:
Wed Nov 15, 2017 3:15 am
If you are acquiring a new car, you major cost is not loan interest, but depreciation.

In stead of spending $20k on a new compact, consider spending $15 on a used $25-30k car that is 3-5yrs old and has a great durability record reliability record. Search on auto-trader over a wide area, find a low priced offerings from individuals and offer 2k less than listed until you get someone to bite. Aim for getting the car at a premium moreso than a specific price, often times people will sell you their $3k options package for nothing.

The amount you'll save from doing this will make %1-2 seem silly.
When I bought my previous car back in 1992, I bought a former rental car which had been bought back from the rental agency, reconditioned, and resold as a high quality used car backed with the balance of the factory warranty (2 1/2 of the 3 years), giving me some added security. I saved about $4k in the car's price, which back then was about 1/3 of the price, the first year's depreciation. I didn't have a lot of money back then, and I had to put aside a few thousand dollars for something else I was saving for at the time. It would have been doable but tougher to pay cash for a new car, and I didn't want to take a car loan. Buying this used car enabled me to accomplish all of my goas. And the car lasted me 15 years.

pennywise
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Re: Why pay cash for a car?

Post by pennywise » Wed Nov 15, 2017 8:09 am

andypanda wrote:
Tue Nov 14, 2017 6:08 pm
"If you can get a car loan for under 2% over five years or so, it is a no-brainer to take the loan, 100% of the time."

But I don't want a loan. I haven't had a car payment since 1986 and have been completely debt free since 1997. I'm perfectly happy setting aside money for a vehicle, buying new at the end of the model year and selling my old vehicle to a friend or neighbor. I had one coworker wait a year until I was ready to sell my '06 Avalon XLS.

And I like negotiating with new car dealers. I'm strange.

John
Same here, all the way through--I just shake my head when I'm in a car dealer's showroom listening to sales people work over suckers sitting in other cubicles getting hypnotized by a stream of patter about monthly costs and low down payments and great terms....yuck no thank you.

Buying for cash means negotiating with 100% of the power which I also enjoy. Paying cash or having having the means to do so makes life simpler, simple as that!

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knpstr
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Re: Why pay cash for a car?

Post by knpstr » Wed Nov 15, 2017 8:15 am

Many times paying cash "forces" one to buy a less expensive car than they otherwise would have when just looking at payment size; which is a good thing in my opinion.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

smitcat
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Re: Why pay cash for a car?

Post by smitcat » Wed Nov 15, 2017 9:04 am

knpstr wrote:
Wed Nov 15, 2017 8:15 am
Many times paying cash "forces" one to buy a less expensive car than they otherwise would have when just looking at payment size; which is a good thing in my opinion.
That sounds a lot like you need to pay cash because it serves as a replacement for planning and self control.

smitcat
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Re: Why pay cash for a car?

Post by smitcat » Wed Nov 15, 2017 9:07 am

pennywise wrote:
Wed Nov 15, 2017 8:09 am
andypanda wrote:
Tue Nov 14, 2017 6:08 pm
"If you can get a car loan for under 2% over five years or so, it is a no-brainer to take the loan, 100% of the time."

But I don't want a loan. I haven't had a car payment since 1986 and have been completely debt free since 1997. I'm perfectly happy setting aside money for a vehicle, buying new at the end of the model year and selling my old vehicle to a friend or neighbor. I had one coworker wait a year until I was ready to sell my '06 Avalon XLS.

And I like negotiating with new car dealers. I'm strange.

John
Same here, all the way through--I just shake my head when I'm in a car dealer's showroom listening to sales people work over suckers sitting in other cubicles getting hypnotized by a stream of patter about monthly costs and low down payments and great terms....yuck no thank you.

Buying for cash means negotiating with 100% of the power which I also enjoy. Paying cash or having having the means to do so makes life simpler, simple as that!
This also sounds like a situation where the assumption is that you cannot negotiate without a cash position. That used to be the case but time have changed and there are situations and opportunities where cash is not the best answer and having your eyes wide open to all of the options can be helpful.

alfaspider
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Re: Why pay cash for a car?

Post by alfaspider » Wed Nov 15, 2017 9:21 am

gnujoe2001 wrote:
Tue Nov 14, 2017 10:49 pm
negotiating tactic: after their song and dance "offer" with "the manager", you quote them a predetermined out-the-door lower ball on a handwritten check.
Likely not terribly effective. Paying cash is actually a negative for car dealers. They usually make more money writing loans- even very low interest loans. You are best off hiding the fact that you plan on paying cash until you have negotiated a price.

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knpstr
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Re: Why pay cash for a car?

Post by knpstr » Wed Nov 15, 2017 9:44 am

smitcat wrote:
Wed Nov 15, 2017 9:04 am
knpstr wrote:
Wed Nov 15, 2017 8:15 am
Many times paying cash "forces" one to buy a less expensive car than they otherwise would have when just looking at payment size; which is a good thing in my opinion.
That sounds a lot like you need to pay cash because it serves as a replacement for planning and self control.
Absolutely, when you survey the personal finances of the "average" U.S. citizen, financial planning and financial self-control are lacking.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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goodenyou
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Re: Why pay cash for a car?

Post by goodenyou » Wed Nov 15, 2017 9:44 am

White Coat Investor wrote:
Sun Nov 12, 2017 6:01 pm
RDHlooking4FIRE wrote:
Sun Nov 12, 2017 5:16 pm
I can understand paying off a mortgage, because rates are higher than car loans. And you wouldnt take a new loan out to invest in the market now.

I am saving cash for my next car purchse. But why? Car loans are cheap. My current car is paid off and i like being debt free. Is that the best method?
For the same reason I pay cash for refrigerators. Or groceries. Or a pack of gum.

If the arbitrage on what you're paying for the car loan and what you'd earn in tax-free muni bond fund is enough money to make a difference in your financial life, you're probably buying too much car.

Take the example above- earning 0.8% more than what the loan is costing. So let's say it's a 5 year note on a $20K car. 0.8% of $20K is $160 a year. So maybe $500 over the course of 5 years. No thanks. I'll just pay cash. It's not that the math is wrong, it's just that I'm not going to deal with being in debt for 5 more years and keeping track of all that for $500.

This logic has been troubling me for a while. I am a frugal person. I do not like overpaying for anything. I always try to find a cheaper price for anything I buy because I feel foolish for paying more for the same thing. It maybe OCD, but I am programmed that way. Why do I dismiss or ignore the ability to save in investing costs or transaction costs that I am unwilling to "overspend" when purchasing? I see this frequently. My FIL cuts coupons, but won't make a change that will save him thousands on expense fees in his investments. I know that I am guilty of putting more effort into trying to save a few bucks on a purchase than I am on trying to "perfect" my investing costs that could save me thousands. Do we discount the $500 saved in "aggravation" more than overpaying $500 on a purchase?
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

smitcat
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Re: Why pay cash for a car?

Post by smitcat » Wed Nov 15, 2017 9:56 am

knpstr wrote:
Wed Nov 15, 2017 9:44 am
smitcat wrote:
Wed Nov 15, 2017 9:04 am
knpstr wrote:
Wed Nov 15, 2017 8:15 am
Many times paying cash "forces" one to buy a less expensive car than they otherwise would have when just looking at payment size; which is a good thing in my opinion.
That sounds a lot like you need to pay cash because it serves as a replacement for planning and self control.
Absolutely, when you survey the personal finances of the "average" U.S. citizen, financial planning and financial self-control are lacking.
I am thankful that for the most part the average US citizen is not typically on this Bogle site.
Also thankful that I continue to learn as I age and apply as much as I can to the current situations that exist.

There was a time when using a dealer to finance a car was always a financial loser, similarly there was a time when leasing a vehicle was always a loser financially.
But then there was also a time when buying Sears tools/harware was almost a guarantee of quality and warrantee - I hope I remain flexible in my ability to keep up with the changes.

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Re: Why pay cash for a car?

Post by bloom2708 » Wed Nov 15, 2017 10:00 am

Someone should do a documentary like "Supersize Me" but instead of food, ANY time you are given the option to finance something, you have to do it.

Car, furniture, electronics. 0% for 3 years! Can't pass it up. Good deal! :shock:

I will pay $500 extra to not have a car loan for 4 or 5 years. I don't want a furniture loan. I don't want to pay for my phone for 3 years.

Everything is now just a "monthly payment". That is not good for most.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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