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If the financing is truly 0%, if you would buy the same car and the same insurance anyway, and if you don't forgo any added discounts, then yes, take the 0% and hang on to your money as long as possible. If any reason arises to pay off the loan (for example to reduce DTI to get a home loan), you can stroke a check.
Of course this may not be suitable for those with lack of discipline.
The overall difference in insurance costs for most cars is negligible...now, if you are getting a souped up turbo charged car, that is different. It also depends on the state insurance laws and how your rates are determined. Our lest expensive car is our most expensive for insurance and license fees here are based on the weight of the car so our least expensive car is also our most expensive that way.
We also use a no-haggle dealership who's prices are almost always at the Edmund's private party price or less. I'm pretty sure I have WAY more experience buying cars and dealing with the ins and outs than some 20 year old college kid....
Financing a car is almost always the better way to go unless your credit is so crappy you have to pay 6% or higher on the loan. Paying cash is nice, but why would you want to put that much money down on a depreciating asset? I don't even put down payments on cars for that same reason. Why would you let the dealership earn the interest on those funds vs YOU getting that money in your account?
The overall difference in insurance costs for most cars is negligible...now, if you are getting a souped up turbo charged car, that is different. It also depends on the state insurance laws and how your rates are determined.
And deductibles, driving records, marital status, etc.
Many loans have restrictive deductible maximums, which you don't have to adhere to if you buy the car with cash.
Quote:
Originally Posted by Qwerty
Our lest expensive car is our most expensive for insurance and license fees here are based on the weight of the car so our least expensive car is also our most expensive that way.
We also use a no-haggle dealership who's prices are almost always at the Edmund's private party price or less. I'm pretty sure I have WAY more experience buying cars and dealing with the ins and outs than some 20 year old college kid....
There is no contradiction between anything here and what I said - what is your point?
Quote:
Originally Posted by Qwerty
Financing a car is almost always the better way to go unless your credit is so crappy you have to pay 6% or higher on the loan. Paying cash is nice, but why would you want to put that much money down on a depreciating asset? I don't even put down payments on cars for that same reason. Why would you let the dealership earn the interest on those funds vs YOU getting that money in your account?
The dealership is not earning more interest if you pay cash than if you finance. Either the dealership gets the lump sum up front from you, or it gets the lump sum up front from the finance company. The dealership's interest income is the same both ways.
And I think 6% is far too high of a cutoff - especially given that the vast majority of moderate to high net worth households likely have some bonds, CD's or other fixed income assets beyond a basic emergency fund, and these assets likely earn far less than 6%. If one liquidates $X in bonds (taxable) to pay for the car, the lost investment return is less than what interest would cost, not more, unless the loan rate is very very low (e.g. 0% or 0.9%).
If you have a taxable portfolio with bonds paying 2% and you have a car loan at 2.9%, you are giving the financial system your hard-earned money for, in essence, lending your own money back to you* and charging a fee for it. I don't see how that could possibly be a good deal unless either (a) you don't have adequate liquidity elsewhere or (b) your only bonds are in a retirement account.
*Strictly, of course, buying bonds is not "lending" money unless you're at the original auction of those bonds; but the basic math still applies.
......my other thought is that at the end, you'll still have a little change in the account from the little interest gained over the period of the loan.
I am financing a new car at 0.9% because I get more investing the cost of the car.
Sure, it might be better to just buy a used car but I don't mind the cost of the car and I don't really notice the money going either. And the emergency fund covers the cost of the car plus living in case I lose job or anything else :S (not using emergency fund as car payments either, it's just I keep that much in cash at all times)
OK but the same question applies. What if I finance the used car then pay off the loan first thing? Would that save me money?
Depends. And I'm not talking adult diapers here. The answer isn't as simple as am I gonna save money if I buy cash. Technically yes. You initially save the interest costs on the car loan. But if rates go up in the long run you lose interest you would be getting on the money if it was in a account collecting compound interest
What the interest rates are on savings, car loans, your credit, your debt and income and job now and future and what your cash was allocated for will dictate what you should do. The biggest positive of buying cash is you carry no debt. And it cleans up the dealer bs negotiating tactics. You need to look at the whole picture not just am I gonna save money. The average car loan is 5 years. Technically interest paid it's money you're "losing". Right now money is cheap to borrow at these rates. The backside is since it's cheap to borrow you in turn get squat in interest for your saved money either. What's the interest in a savings account today? .03%
If you can qualify and get 0% interest go that route.
There is no perfect answer because everyone's needs and finances are different.
And deductibles, driving records, marital status, etc.
Many loans have restrictive deductible maximums, which you don't have to adhere to if you buy the car with cash.
There is no contradiction between anything here and what I said - what is your point?
The dealership is not earning more interest if you pay cash than if you finance. Either the dealership gets the lump sum up front from you, or it gets the lump sum up front from the finance company. The dealership's interest income is the same both ways.
And I think 6% is far too high of a cutoff - especially given that the vast majority of moderate to high net worth households likely have some bonds, CD's or other fixed income assets beyond a basic emergency fund, and these assets likely earn far less than 6%. If one liquidates $X in bonds (taxable) to pay for the car, the lost investment return is less than what interest would cost, not more, unless the loan rate is very very low (e.g. 0% or 0.9%).
If you have a taxable portfolio with bonds paying 2% and you have a car loan at 2.9%, you are giving the financial system your hard-earned money for, in essence, lending your own money back to you* and charging a fee for it. I don't see how that could possibly be a good deal unless either (a) you don't have adequate liquidity elsewhere or (b) your only bonds are in a retirement account.
*Strictly, of course, buying bonds is not "lending" money unless you're at the original auction of those bonds; but the basic math still applies.
Yes, most finance companies won't allow more than $1000 deductible, but so what, the premium savings over that is minimal compared to what you would pay in the event of a claim. The rest that you listed applies no matter what car you buy or how you pay for the car....
Location: Stuck on the East Coast, hoping to head West
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Quote:
Originally Posted by kanhawk
By the end of this year I plan on buying a new car. I paid cash for my last car and will have the cash to buy this car.
I do not want to take on a car loan , however, do you think I can save money by going ahead and financing a car and maybe getting a slightly better price and then when my first payment on my car loan comes due, just pay off the entire loan? Are there some hidden fees or trap doors that I need to be aware of and does this seem like a good strategy?
Yes, I now agree to dealer financing to get the better price and then pay off the loan, usually within days so I don't pay any interest. If I'm buying new I negotiate online so that saves some time. Of course, the price they give you includes ALL incentives, and I doubt you'll qualify for each one. So ask the dealer to break down all of the incentives that they have definitely included in that sales price. I've always seen an incentive related to financing so I agree to it.
I don't know what's going on in my area, but dealers aren't even willing to discuss final price until they know how you're going to pay and if you have a trade-in.
Speaking of which, I always say I'm "probably" going to trade in my vehicle, too. Then I get the lowest price on the car, agree to financing (verifying on prepay penalty, and pay it off. I tell them I changed my mind on the trade in.
What I do is first research the heck out of the car I want - be familiar with what the different model packages have, all the options within them, their prices and what accessories you can get - a lot of times dealerships will throw that stuff in for free to do a deal. Ie: tint on the windows, cargo net, etc, etc...
If you have a trade in- also research what that is worth and be confident about it, don't take too much less for it.
Then figure out what what you're target numbers are. Ie: I have a trade-in that I know is worth at least $9000 in a private sale. Let's say I want a new Mazda 6. I'm going to go in, get the car I want or have them find it, then I'm going to tell them, there's my trade in, X is what I want my payment to be, so my "target numbers" are the interest rate (I want no more than 2.9%, preferably <2.0%, 0% if I can get it - you have to have credit score over 740 for that though and mine is like 710) and down payment. I keep my phone out to do quick calculations on whatever they say to get the total cost - I want to make sure I'm not paying more than official MSRP, then I say throw in tint, cargo nets, etc... and we have a deal.
Within reason, if they want to do a deal they will work with you on this.
Over 4% I would not finance a car and over 3.0% I would be wary. An expensive mortgage is 5% these days, & with decent credit you should get in the 4s. No way in hell am I going to finance a car for more than that.
Yes, I now agree to dealer financing to get the better price and then pay off the loan, usually within days so I don't pay any interest. If I'm buying new I negotiate online so that saves some time. Of course, the price they give you includes ALL incentives, and I doubt you'll qualify for each one. So ask the dealer to break down all of the incentives that they have definitely included in that sales price. I've always seen an incentive related to financing so I agree to it.
I don't know what's going on in my area, but dealers aren't even willing to discuss final price until they know how you're going to pay and if you have a trade-in.
Speaking of which, I always say I'm "probably" going to trade in my vehicle, too. Then I get the lowest price on the car, agree to financing (verifying on prepay penalty, and pay it off. I tell them I changed my mind on the trade in.
It's all a game.
That's what I was wondering. If I can get a bit better deal doing it that way, then pay off the loan and I still have my car paid for right from the beginning. If I can't get much off for financing then of course going through the whole process isn't worth the effort especially if it's only a couple of hundred dollars and then i will go ahead and pay cash.
I understand those who say take the low interest rate, which I could probably get because my FICO is over 800 now, but I am kind of a nut anymore about not taking out loans and just living debt free and keeping my finances simple. That may not be the best long term strategy, but it is more of a lifestyle choice for me now.
That's what I was wondering. If I can get a bit better deal doing it that way, then pay off the loan and I still have my car paid for right from the beginning. If I can't get much off for financing then of course going through the whole process isn't worth the effort especially if it's only a couple of hundred dollars and then i will go ahead and pay cash.
I understand those who say take the low interest rate, which I could probably get because my FICO is over 800 now, but I am kind of a nut anymore about not taking out loans and just living debt free and keeping my finances simple. That may not be the best long term strategy, but it is more of a lifestyle choice for me now.
If you have the cash in the bank to pay off that loan though, I guess I don't see a 0% loan as "debt". You could even have the payments for that loan taken from whatever account you have those funds with if you wanted. If your life changed tomorrow and you needed those funds to pay a huge medical bill or something, wouldn't you rather have access to the cash vs trying to have to sell your car to come up with the funds?
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