Is it always a good idea to buy car in cash if you can afford it?Mar 10
- No - it’s a bad idea. They depreciate - instead place the money in interest bearing investments and use those to pay off the car. I did so recently for a new car and will have paid for the vehicle mostly by earned interest leaving my principal in tact
- Goldman Sachs GDTN51It’s a good idea to not buy a brand new car buy one a year or two old and avoid the instant depreciation when you drive a new car off the lot. Get a low interest deal if you can (we wait for the 0% deals) and invest the cash.
- Just bought a car 2 weeks back for $3300 cash. I saved for it and pulled the trigger.
- Think about the liability in case your car gets crashed. Imagine you buy a 25k car. You’re likely going to pay something close to 28/30k (taxes, closing costs, dmv, etc). All of this can go into your loan. Then, 6 months from now you get into an accident, and your car is completely ruined. Your insurance will pay you for the value of the car (maybe closer to 21-22k or much less if later).
My advice is to take a low interest loan over a long period of time but pay it off faster. I.E. 1.9% over 5 years, and every month you pay an extra 50$ or 100$ towards your principal (not the interest). Then with your insurance, make sure that you have a gap protection (or similar) and let them take the risk in case something happens.
- I see people comparing stock investment returns with auto loan rates. This is apples and oranges. Auto loan is guaranteed 3.5%+ rate, but stock market can go -5% or+15% per year
I personally pay my cars cash wheneved I can afford and pocket some good discount in the negotiation. the transaction is much faster if you can pay cash and that can be factored in the negotiation
- Fair points. The dealership will want you to finance through them and would be willing to give a discount if you do so, but they can and will run your credit through several banks. They will want the commission from the bank at your credit inquiry expense.
I'm talking about going to your own credit union vs going cash. In that case, the dealer will want you to come with cash for a faster transaction . Also, private party is much easier w cash for the same reason
- New / MgmtVSwf01Always a great idea, but you must buy used. I've always gone used and made out far ahead than those buying new.
- Cars go down in value. Depending on what happens with the price of fuel, the economy, desirability of the model you choose, your purchase value can vary widely. Instead a lease has an agreed amount of depreciation in it. If the car is worth less the finance company eats it. If it’s worth significantly more, buy it at the agreed value and sell it for the profit. Just watch the rates. Have a quote from a credit union at 2-3% in your pocket. Right at the end, after all the negotiations, just before you hand over your credit card, show them and ask them to match or beat it.
- They don’t. There’s a ~$350 fee to get out at the end, but everything else is covered in the agreed value and the monthly payment. There’s calculators on leasehackr to determine how long it takes the finance company to break even. It’s pretty simple math that varies based on how much they incentivize the sticker price, and the agreed value and the money factor (APR effective).
- Yes. Gives you more negotiating leverage than if you are using their credit.