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I think the general rule is buy what you can afford. If you plan to finance, look for 0% deals. Otherwise, if you have a home and an equity line available, write a check and make the equity payments... which the interest is tax-deductible.
Paying cash for a vehicle more than $30k is a waste in my opinion. The depreciation will wash away all the time and effort made to save that amount. I can think of many more fun things to do with $30k then give it all up to "save" a thousand or so in interest over the next 5 years. It's not like the dealer is going to be impressed, you'll be a distant memory 2 hours after you drive off.
Depreciation occurs no matter how you pay for a vehicle. I don't really see how that affects your choice of payments at all. It should be considered in choosing the car because it can have a significant impact to TCO.
The interest cost of a four year loan on a $30K car is about $4K. That's a non-trivial amount of money to me.
The challenge to buying a car outright of course is gaining the cash. One way to be effective is to take advantage of depreciation by buying slightly used.
On the first point, dealers have a certain amount of fluff built into the list price of their cars so that they can put a higher value on the trade. When you negotiate an outright deal the dealer usually gives all of this up to make it look like they're giving you and even better deal than they actually are. If you introduce the trade after you've negotiated the price you are going to get less for it, simple as that. The difference you pay will be the same either way.
On the second point, the dealer doesn't give a whit what the NADA or KBB value of your trade in is. They're going to make their offer based on what they think they can sell the car for.
Exactly, this is why the only time I made a purchase and traded in my car was when I used the following approach. I had moved for a new job, started scoping out used car dealers lots on off hours to see which had the most choice within my parameters. Then waited to near end of month when a so called major sale was going on.
When a 'salesperson' approaches and I get a bad vibe, I tell him I already talked with someone before. I wait for the salesperson I want who exhibits character qualities I find least undesirable (or in this case someone I discovered was last in sales for the month and then outline my parameters i.e. I am looking for a 2 yr old used - [fill in blank]- with low miles, one owner in for about X dollars, What do you have for me to test drive? [Right away I know if this person tries steering me toward something else I am out of there since I've already walked the used lot on off or peak hours, to get a sense of what they have on hand. And most salespeople will greatly appreciate someone knowing what the heck they want - as it makes their job easier!]
Then if I like what I test drove, I say OK, here's my offer (mind you I've already got the estimated value of my trade in). I give you $XXX cash and my trade in, you can write it up however you want, but that's what I'm working with - do you want to sell me that car or not?
It worked for me the one time I used 'trade in' - I surmise being end of month and salesperson (and sales mgr) wanting to get their quota I think they appreciated it as he only had to "talk to his manager" once. Then when they try 'getting you' for any extraneous add ons as it is written up keep refusing them. If they pull that sh** I would have just left. I held firm and he wrote it up however it made most sense for them on the invoice for trade in value / used car value. Other times I line up a buyer for my used car. Note, I drove my cars until the potential replacement cost of a major item approaches overall replacement cost value of the car.
For the OP, the two times I've purchased new vehicles I did so with cash. As a depreciating asset, financing it is not financially wise except for a few extenuating circumstances: you're beginning a career, your income is guaranteed to increase and you need a certain level of vehicle for your work because it is a major part (image, reliability or utility wise) of your job responsibilities / activities. Good luck and do your due diligence on your new wheels.
I think the general rule is buy what you can afford. If you plan to finance, look for 0% deals. Otherwise, if you have a home and an equity line available, write a check and make the equity payments... which the interest is tax-deductible.
Paying cash for a vehicle more than $30k is a waste in my opinion. The depreciation will wash away all the time and effort made to save that amount. I can think of many more fun things to do with $30k then give it all up to "save" a thousand or so in interest over the next 5 years. It's not like the dealer is going to be impressed, you'll be a distant memory 2 hours after you drive off.
I am not sure what depreciation really has to do with this equation, unless you would rather be covered by gap insurance in a loan, than assume the risk of eating the depreciation in the event of an accident.
Otherwise, a car's principle cost over 5 years is going to remain constant, whether it is purchased or financed.
Then if I like what I test drove, I say OK, here's my offer (mind you I've already got the estimated value of my trade in). I give you $XXX cash and my trade in, you can write it up however you want, but that's what I'm working with - do you want to sell me that car or not?
This is absolutely the most efficient, effective way to buy a car. Make your offer, stick to it, and be willing to walk away if they can't do it. And if they can do it, they will.
This is absolutely the most efficient, effective way to buy a car. Make your offer, stick to it, and be willing to walk away if they can't do it. And if they can do it, they will.
Definately!
I walk into the dealer ready with all the figures of what I feel my trade is worth, what the new car should sell for, all rebates, etc. I am prepared with what the final transaction price should be (in my estimation), and I always make it a rather aggressive target to get.
If a dealer will not get to my price, I walk out and try another. Sometimes they call back in a couple days and come to my price. Sometimes I have to try a few dealers. The last car I bought it took me 4 different dealers before I found one who would agree to my price (other three just refused). At least it left me confident I got the best deal out there.
If nobody agrees, I know I am asking for too much.
Depreciation occurs no matter how you pay for a vehicle. I don't really see how that affects your choice of payments at all. It should be considered in choosing the car because it can have a significant impact to TCO.
The interest cost of a four year loan on a $30K car is about $4K. That's a non-trivial amount of money to me.
The challenge to buying a car outright of course is gaining the cash. One way to be effective is to take advantage of depreciation by buying slightly used.
The average new car loan interest rate is about 2.5-3%, you'd have to have terrible credit to only get as low as 7% for a 4yr loan. The interest paid on a 4yr loan, $30k borrowed at 2.5% is only $1500.
Buying slightly used might not be that much better if the car is financed as rates are typically higher for older cars.
Paying cash for a vehicle more than $30k is a waste in my opinion. The depreciation will wash away all the time and effort made to save that amount. I can think of many more fun things to do with $30k then give it all up to "save" a thousand or so in interest over the next 5 years. It's not like the dealer is going to be impressed, you'll be a distant memory 2 hours after you drive off.
Depreciation is the same whether you pay out of previous, current or future income. You're thinking about it wrong. It's just another expense you factor in to total cost of ownership.
Everything in your life (practically) that you buy becomes worth much, much less than what you originally paid for it. In seconds!
AND the cheaper the item, the more likely you are paying a HUGE markup over what it cost to produce.
I don't see why the obsession at looking at cars as some kind of investment or whatever. Of course you don't want to make stupid financial decisions in terms of financing or paying MSRP or whatever, but this isn't an ASSET. This is a liability from day one.
Depreciation is the same whether you pay out of previous, current or future income. You're thinking about it wrong. It's just another expense you factor in to total cost of ownership.
Yes, I understand that, although the higher price of the car, the bigger the depreciation.
What I'm trying to say is that over the life of a 5 yr loan, the interest costs about $35-40/mo as part of the payment. Rather than pay for the vehicle up-front, I'm guessing that invested properly, a better than $40 per month return can be made with $30k. When interest rates are high, I can see where paying cash is definitely a big savings, but with low interest rates, maybe not such a good move.
Everything in your life (practically) that you buy becomes worth much, much less than what you originally paid for it. In seconds!
AND the cheaper the item, the more likely you are paying a HUGE markup over what it cost to produce.
I don't see why the obsession at looking at cars as some kind of investment or whatever. Of course you don't want to make stupid financial decisions in terms of financing or paying MSRP or whatever, but this isn't an ASSET. This is a liability from day one.
An automobile isn't always a liability. If you drive a classic car that appreciates, it most certainly is an asset. As far as an automobile being used to get from one place to another, it doesn't have to be a liability, that's the choice of the owner.
All I was trying to point out is that paying cash for a car, especially one priced $30k or more isn't going to save much with interest rates so low.
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and then outline my parameters i.e. I am looking for a 2 yr old used - [fill in blank]- with low miles, one owner in for about X dollars, What do you have for me to test drive? [Right away I know if this person tries steering me toward something else I am out of there since I've already walked the used lot on off or peak hours, to get a sense of what they have on hand. And most salespeople will greatly appreciate someone knowing what the heck they want - as it makes their job easier!]
. Then when they try 'getting you' for any extraneous add ons as it is written up keep refusing them. If they pull that sh** I would have just left. I held firm and he wrote it up however it made most sense for them on the invoice for trade in value / used car value. Other times I line up a buyer for my used car. Note, I drove my cars until the potential replacement cost of a major item approaches overall replacement cost value of the car. 
