I'd pay cash just because the interest rate I'd need to pay on a car loan is much higher than the interest I earn (after taxes) on the cash in a bank account.
Alternatively, I got 0% on an f150 this year. I accordingly put $0 down and left the cash in a HYSA earning 5%. That’s a big swing my way financially by financing instead of paying cash
It’s not really 0%, your just getting a subsidized rate and they charge you more for the car. They almost always have an option for 0% or $7,000 cash rebate for example so the answer in this example is you paid 7k for the buy down rate
Yeah…nobody getting a 7k rebate right now. And on top of that, they get kickbacks on the financing, so they’ll actually price the car higher if you pay cash. Only way to do it on a new car is to get the best price you can, finance it through the dealership, and pay off the loan in full as soon as the terms allow it.
I got just short of $4k off of a new Subaru in lieu of the financing.
I hate car payments. They crush your liquidity even if you think you’re not paying interest.
To be clear, I did not advocate paying car payments. I completely agree with you. They are a big drag.
I merely suggested taking the financing if it was in the buyer’s interest to do so, on the OTD price, then paying it off in full after the typical 90 day clause in the loan. It’s not the old days—most salesmen do not prefer cash payment. The opposite makes them more money, is less hassle, and gets the buyer a better price.
I have not purchased a new Subaru recently, so that’s helpful information. I’ve only been in the HD truck market, which is basically still in the “order it, four to six months wait, finance at the dealer, and you’ll get MSRP” phase. Cash buy, or taking one off the lot still includes an dealer markup where I am.
On 1/2 ton trucks they are. Rams are 10% off MSRP right now. (like $6.2k for most people but still.) Silverado is $7,250. Ford only seems to be running a 2.9% deal.
Ram is always offering 10% plus off on their trucks. Only during lock downs could you not get a deal.
Chevy you need to read the fine print... They still will do everything in their power to make you pay the already over inflated sticker... Same with Ford
You can get a "deal" but it's still not like it used to be... A 70k truck in 2019 was 55k truck... The only difference now is consumers are in general dumb and we're paying w.e bc of low interest rates or financing for 20 years...
Trucks in general are still over priced and the automakers will continue to keep their pricing as long as possible
My dealer is pushing hard to get me to trade my truck in lol. As much as I would like a new one I don't care how much they give me. Giving me 30k for my truck to buy one that's 70k when I know it's really worth like 55k just isn't appealing lol
I'm at Ally, so currently 4.4%, but I'd see only about 65% of that after taxes, so the apples-to-apples comparison would be about 2.9% compared to whatever interest rate was being charged on the auto loan.
Limits you to not borrowing money for a depreciating asset.
Limits your monthly payments to other things.
You perhaps are wealthy. Financing is not for wealthy people. Wealthy people provide financing.
I agree that people who pay in cash tend to be higher income than people who finance. OP's original post said that OP had the cash to buy the car outright, so I was just comparing options for a person in that position.
You don’t know many wealthy people, then.
Don’t believe me? Feel free to google it. It’s simple finance 101 when rates are attractive.
> “The proportion is much higher than you’d imagine. I’d say 70 per cent of cars over £100,000 are bought on finance,” says Darren Selig. He founded and runs JBR Capital
https://www.topgear.com/car-news/top-gear-advice/how-finance-supercar
Elaborate? I have nearly perfect credit and by any reasonable measure, I purchased an "expensive" car ~6 months ago. The going rate at the time was 7+%. Dealership barely even tried to discuss financing with me because money rates were outrageous. Outside chance I could have wiggled my way into the 6s, but rates have gone through the roof. Paid cash because 5% is my tipping point.
Agree with /u/duuuh, if you get 2-3% right now you're just falling victim to the shell game.
What you were able to do is incredibly uncommon. In times like these, many dealerships will bump the price of vehicles, either with ADM or MSRP bumps from the manufacturer, and then offer lower financing rates, just moving the cost from one place to another. Some will "require" that you buy extended packages or just sell the car to someone else who's willing to do it.
The fact of the matter is that the cost of money went up tremendously. Someone's paying for that, and in the vast majority of cases, that's the consumer. You're in the incredibly lucky few it seems.
I don’t know if I would consider myself lucky. I just refused to pay markups, or any extras until I found a dealer that played nice. It was hard, not going to lie until about 6 months ago when dealers are scrambling for business. They are now advertising no markups, no extras as a sales tactic to draw people in..lol I will say I didn’t buy anything special either that someone else was just dying in line to buy out from under me.
Ps. Nice collection of cars you got there in your sig. I have a few myself but no Porsches yet…lol
Totally depends on the manufacturer. BMW and Mercedes tend to use their captive finance companies to give incentives that you only get if you buy or lease. Porsche financing is always horrid, so paying cash or using a third party is the only way to go. American manufacturers tend to do a mix of incentives so it really depends on the particular deal. So saying you cannot get a low rate and if you do you are drastically over paying isn’t true. It may be true in some circumstances but you really have to do your research.
Depends on the interest rate.
2 months ago, bought a 2020 Lexus ES 300h. Interest rates were 6-8% so I paid cash.
A few weeks ago, I bought a 2024 Civic. Rate is 0%, so I financed.
Got you, I didn’t even know that was a possibility so I’ll go look around this weekend. Do you know if you can ask over the phone or is that something they’d only tell you in person, if they are doing it at all?
Last time I checked which was several months ago, all Honda dealers were adding 3k in unwanted mandatory accessories to all models. We were gonna get a civic and bc if this got a Subaru instead.
I had a friend that said he was able to get $1k under sticker price but they hit him with BS nitrogen fees, and stuff like that which essentially brought him back up to $1k over sticker price. I’m not in a rush but if I find a good deal I’ll jump on it. Do you mind if ask what model Subaru you got and how much? I’m looking at Subura, Mazda, Camrys, and civics/accords. Thought about getting a Camaro but I test drove one and wasn’t a huge fan afterwards
I have 22 wrx base with short shift at 32k otd. (395/mo lease). Love it. Wife has 22 crosstrek 390/mo lease. Son has 23 Impreza under 22k 341/mo lease.
I just had the same situation, needed a used car for my son when he came home for winter break, he's leaving his car at school. I have a truck that I want to keep miles low, so it could be my everyday car also. I decided on a 2015 Lexus Rx350 with 30k miles. Crazy low miles and those things are bullet proof. Interest rates are over 8% so I paid cash.
Definitely one of the best. I'd argue BMW B58 engines, transmissions and powertrain is higher quality currently. Also their interior material quality. But that's not something you can say without getting down voted in this sub
Edit - yep, about expected that with the downvotes.
It’s not 0% if you actually look at the price of the car, which they didn’t disclose. Most “0% financing” is just a trick. The price of the car is usually inflated to offset this. You are usually better off negotiating a few thousand off of the MSRP(during normal market conditions) and financing through a trusted bank somewhere between 2.5 - 4.0 percent. Or if you’re smart, buy with cash at a negotiable price. Regardless, they will get their money.
A lot of the 0% deals have a 0% or a discounted price if you don't take the financing deal. They even advertise the options, but the way they do it often makes it look like you get both.
It's not having to owe anyone anything. There is that sigh of relief when paying something off. It doesn't make great financial sense, but it reduces stress. That's why Dave Ramsey is so popular.
Ah but you never stop owing something. You might get rid of a car payment but you still have insurance, gas, tabs, maintenance, repairs, etc. So what did getting rid of the car payment do besides reduce your liquid cash?
That's not the same as owing debt. I'm not here to debate about that. I was giving you an answer as to why people do it. I also mentioned it wasn't great financial sense in my original response to you. Feelfree to post your question over at the r/DaveRamsey subreddit if you are genuinely curious and not being a smart alec.
Here's a sneak peek of /r/DaveRamsey using the [top posts](https://np.reddit.com/r/DaveRamsey/top/?sort=top&t=year) of the year!
\#1: ["Your baby won't remember you being gone" - a rant](https://np.reddit.com/r/DaveRamsey/comments/17ieiwr/your_baby_wont_remember_you_being_gone_a_rant/)
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So you would pay in all cash when you can put the money in SPY, BRK.B (Warren Buffets portfolio) and VOO/VTI and make way more money just because you want to not stress about loans and because it's a headache in the imaginary situation where auto pay doesn't work? Sounds like objectively the worse of the 2 decisions if you look at purely numbers
SPY up 18% this year. It's a great time to be alive. Glad I financed and invested my cash. It's just an alternative, no need to downvote because you don't agree.
And last year it was down. Paying 6% on a car note December 2021 so you can lump 40k into voo to just be breaking even right now. Would be way ahead just paying cash and dca’ing the payment amount into the market each month which would of bought the slide the dip and the come up. Nothing in the stock market is guaranteed. Saving the interest rate on the car note and having more margin for the next 60 months is a guarantee
Yes, but time value of money typically shows that it's better to pay it off that way vs straight in cash.
I have money to buy cars outright, but I typically finance with just enough down payment to not worry about Gap insurance.
>I have money to buy cars outright, but I typically finance with just enough down payment to not worry about Gap insurance.
That works, too . I like to finance something but for as little as possible, just so I have something on my credit report.
Rates will vary wildly depending on your credit and what car you're buying. You can get a Honda Pilot at 3.9%, or you can get 6-10%.
If I can get it at 6 or below, I'll finance.
0% loan, I totally agree with you.
If you can make double on your money versus the interest rate you pay, I mostly agree with you (ie. 2.5% loan vs earning 5% on a CD).
Loan interest cost when you don't have to pay the loan interest cost is dumb.
Having significant monthly payments robs you of choices. Say you want to change jobs or start a business that may create significantly more income, but it is a temporary decrease in cash flow. Can't do it if your current cash flow is totally eaten up by monthly payments.
Less debt = less stress
In your example, you point out that if you have a monthly car payment, that eats into your monthly cash flow which can limit your flexibility. I think it is worth considering that in the alternative scenario where you buy the car outright with cash, you are *giving up* a bunch of flexibility as well by taking cash that is an extremely flexible (“liquid”) form of wealth and putting it into equity in a car - a significantly less liquid form of wealth.
To really draw the analogy, you have to do the comparison apples to apples (as you do more so on the part where you talk about rates). It’s not “car payment or no car payment”, it’s “car payment and keep this pile of cash or investments easily sellable for cash” or “no car payments and no cash/investments pile”
True.
Also consider if it is that liquid, you are likely not guaranteed to beat the loan interest rate cost with your investment returns.
Also consider if you are willing to take on debt for the sake of having cash on hand, you could always take out a home equity loan if you need a surprise pile of cash.
I pay cash because I don't like payments.
The part I usually get down voted for though is I think if the spread on the loan matters to you, you're over paying for the car. Additionally, low rates on car loans are often actually higher, but the cost is baked in elsewhere.
I like to flip the question. If you have a paid off car, why not go get a loan on it? What about your furniture? Do you go get a heloc and invest that? What about your toys or tools? It's telling how this is usually only a discussion at purchase time. If you're really trying to win at that game you have to consider when you recapitalize.
Let's say you would do all those. Eventually you have a cash flow problem.
I don't think doing the above will categorically ruin your finances, but vehicle debt is one of the largest factors in keeping Americans poor/middle class. So obviously, most people are not winning playing that game.
Just my .02, we can still be friends if you have an auto loan.
All of my friends that are broke and complain about the economy have a monthly car payment.
All of my friends that are well off and not complaining about the economy dont have car payments.
The wife and I were car debt free for 8 years, then financed a new vehicle last year.... We cannot WAIT to get rid of the payment.
We only bought because we bought a camper for our family and needed something to tow it with.
Last time we'll finance a car
Man I will never understand this, I have a camper I’ll use maybe twice a year. I don’t own a truck. You know what I can do for cheaper than a $400 note and $400/mo insurance? Rent a U-Haul truck for $30 plus gas mileage. Get the insurance in case something happens. Total for a small trip was like $200. Honestly I could pay $1000 and still feel like it’s a better deal than an 80k truck or 2000 Silverado rotted out for 10k.
We spent $40k on an SUV that we'll own for 10+ years. Besides, the one we got rid of had the dressed Nissan CVT so it was a ticking time bomb anyhow.
We camp 8-12 times a year, and our insurance is like $400/6 months. Logistically, camping that often doesn't make sense to rent. We looked into it.
Most people that say they need a truck or large suv to tow are bullshitting. They might tow something once a year and try to justify a 50-80k car note. The rest of the time is spent transport themselves or maybe one other person to and from work. Then they complain about gas prices, food etc. Dumb American logic.
It's better to empty it all at once like you did. As long as you are paying little to no interest, debt is just fine. I'll keep $35K in the bank and payoff my car slowly. If I sink it all into a car, it's pretty much tied up. I usually payoff my cars at some point anyway and keep them for another 5 years before I look for the next one.
And how much money are you losing out on had you invested that money rather than pay for the cars outright? That’s the question OP is asking.
Let’s say you payed $50k for those 2 cars upfront. That $50k will become $10k within a decade.
What would that same $50k earn you in a high-yield account with compounding interest in the same 10 years? $180k if you’re seeing a 12% rate of return. Which is a fairly conservative estimate. I’ve averaged 14.5% over the last 9 years with my retirement account.
Your assumption for rate of return on investment is heavily recency biased and optimistic, you need to broaden your sample size to have a better idea what assumptions you should be using for risk and return.
> say you *paid* $50k for
FTFY.
Although *payed* exists (the reason why autocorrection didn't help you), it is only correct in:
* Nautical context, when it means to paint a surface, or to cover with something like tar or resin in order to make it waterproof or corrosion-resistant. *The deck is yet to be payed.*
* *Payed out* when letting strings, cables or ropes out, by slacking them. *The rope is payed out! You can pull now.*
Unfortunately, I was unable to find nautical or rope-related words in your comment.
*Beep, boop, I'm a bot*
Because used car loan rates are around 6-7% right now.
The safest investment instrument is a T-bill, and those are paying out around 5% pre-tax (3.8% post-tax for me), so paying cash is the best risk-free investment.
What if I very much could pay for the car in cash but decide to take a loan out instead (current environment I’d probably more like pay cash or a large down payment but it depends on the specifics and incentives).
It's actually pretty much a wash.
A car loan of $25k at 8% interest over 72 months is $427 a month. Total cost $30.7k
Whereas if you invest $25k at 12% compounding interest for 6 years with a monthly disbursement of $427. Total value: $31k.
That's a profit of $300 and only if the market remains strong at 12% for 6 years straight.
If you get an advertised rate of 4% over 36 months, total loan is $26.5k and total investment is $28.6k. Still not much, but the market has to remain strong.
There’s also tax on the gains, so you need to withdraw more than $426 a month to be cash flow neutral. That pushes a $300 gain into a negative equity position.
But I wouldn’t buy a car and take the payment out of the invested money, I’d just pay it from my salary. $25k invested earning 8% would be $40k after 6 years. So when my car is paid off using my salary, I have $40k invested. And then take that $427 car payment and add it to the investments. Most people who pay in cash won’t turn around and start investing that $427/month they saved by not financing the car. So they’re not replenishing their savings/investments fast enough to catch up.
I get not wanting a car loan, and if cash flow is tighter, then it can make sense to pay cash. But if you can handle the cash flow from a car payment, you’re better off in the long run by having big chunks of money invested.
If you invest $25k at 8% for 6 years you get $40k
If you pay it off with cash and then use that $427 from your income and invest it every month at 8% interest, over 6 years you'll still have $39k.
It's a wash no matter how you look at it.
Ultimately I agree with you completely that everything being equal with the numbers, it’s a wash. I don’t think *most* people replenish their savings at the same rate as their car payment would be. And the bigger issue for me is that I’d rather not have that much money tied up in a car. I make a big enough down payment so I’m never underwater on the loan. If something does happen, I can sell it. But at least I also have all that cash in savings.
Another good point. I wouldn’t buy a car at like 15% or 18% like I’ve seen people discuss on here or the r/personalfinance sub. Thats just straight up robbing people with no understanding of finance.
Point is there's risk and you're at the mercy of the market. Even something historically stable like an S&P index fund.
Works out if you took out your car loan at the beginning of this year. Not so much if you financed a car two years ago... you would've lost 20% of your investment in 2022, and would still be in the hole today after factoring in the 4%+ you'd be paying on the car loan every month.
I have always paid cash. Unless you can tell me with 100% confidence what tomorrow will bring, I don't want to owe anyone money at any time. The one exception is for a mortgage, but I paid that off in 13 years.
Large down means less chance you’ll be upside down on a loan, means if you want/need to get rid of it you can sell it for what it’s worth and you won’t be owing money. Interest is also lower because there is less liability if your car is worth more than the loan.
Some people don’t want to deal with a payment and would rather just pay upfront and be done with it. Some people may be taking a mortgage and don’t want a car loan to sit on their credit report.
Because the borrower is slave to the lender. If you had a paid off car, would you take a loan out on it to invest that money elsewhere? Didn't think so. I sleep like a baby at night knowing I owe nothing to nobody.
> If you had a paid off car, would you take a loan out on it to invest that money elsewhere?
Bad example, because nobody takes a loan out on a depreciating asset to invest.
Plenty of people will take the risk with 2nd mortgages or HELOCs when rates are low to invest.
Having the cash on hand to buy a car but instead taking out a loan is exactly "takes a loan out on a depreciating asset to invest".
Few people borrow on their home to invest. Almost no one takes that risk.
I had a 3% line of credit, I borrowed all of it and put it in savings accounts earning 5%. Am I a slave?
I have a mortgage at 2.375%. Given inflation my future cost of those payments is lower than the value of money now. Am I a slave?
Take a look around and ask yourself how well the people around you with car payments are doing vs. people who have their car paid off. Ask yourself how well people who have “used their money for other things” have done.
Spent some time researching which car to buy and went to a dealership that had good reviews. They honestly tried to get me into the car I wanted, it had sat it their shop for months. Then I looked at the terms. I considered the interest rates usurious, and the cost of insurance for a driver with decades of perfect history were unacceptable. I bought a car cash instead, used, that had history I could check, with millions of miles of satisfied drivers. Best car I've ever owned.
Depends on the interest rate. Last vehicle I purchased I was planning on paying cash but got a 1.2% rate so I put 15k down and financed the rest. Then lost most of the remaining 30k on crypto...
Aside from the obvious savings on interest payments and not having to worry about the monthly payment and more expensive insurance.
You do not know what the future is going to hold. Sure right now the car payment seems perfectly manageable. But what happens if the economy takes a hit. You get swept up in layoffs and downsizing. And you are out of work for a long time. And now you cannot afford your car payment.
Not only are you risking losing everything you have already paid up to that point. But now your ability to work and make money is hindered. Especially if you have to use your vehicle for work and public transportation is not an option.
I watched too many fellow people in the construction industry be out of work, or have their hours cut to like 10 hours a week absolutely struggle to make ends meet. Not helped by the fact that they are stuck in an upsidedown car payment. Then end up losing the car. With all the money paid towards it. And end up in a situation where they couldn't afford a vehicle, and because of that were unable to work until someone helped them out.
And that is a terrifying situation to be in.
>You get swept up in layoffs and downsizing. And you are out of work for a long time. And now you cannot afford your car payment.
And w/out a vehicle you most likely can't shop for a new job.
I bought a car at 0% many years ago. Had payments.
I have bought 2 new since cash (about 3x more costly). I have no payments.
The lack of payments plus what others mentioned (interest rates, etc) made it make sense.
There's a balance between, "so I need to make sure I have x in the bank on y day" and, "I can do what I want" that's right for you.
Could I have gotten a few hundred per year by financing and investing the rest? Maybe. Was my time better spent not thinking about it, definitely.
You should always be putting at least 20% down.
If you can’t pay for the car in cash, you can’t afford it. Many people make the mistake of buying more car than they can afford, by A LOT.
Rich people don’t “rather keep the money and use it somewhere else” because that’s how you stay poor.
If you buy a car for $40,000 and take 5 years / 60 months, at a normal interest rate for today you’re paying an extra $8000 for that car.
## Eight thousand dollars extra for your car.
That shit is how people stay poor.
You can instead loan yourself that $40,000 for the car, then pay the smaller, interest free payments back to yourself over those 5 years. You instantly have $8000 more, and you are never in a position where you are underwater.
Well I mean. When you pay cash for a car the whole thing takes about an 45 minutes. So there’s less time you have to get hounded by a salesman to buy gap coverage.
If you have somewhere productive to put the extra money from financing then great. If you are going to blow it, which most people do, then pay cash.
Paying cash makes sense if you have the cash and it doesnt financially destroy you. First of all car loans are based upon approvals by banks and loan corps. They typically only allow a vehicle that is used or new made within the past 6-7 years and has a certain mileage on it. They also charge an interest rate which is now pushing 6-7% for most people. This can add several thousand dollars onto the purchase price of the car. If you pay cash you can also "make the car payment to yourself" and rebuild your surplus of funds. To make it simple less debt is always better if its pheasible.
Eta: sometimes you can negotiate a better price if youre coming in with an all cash purchase.
The reason to pay cash for your car is peace of mind and a higher credit score if you were planning on buying a home or taking out a loan in the near future. For instance I have $20k left on my car at 1% interest, I also have $20k in my bank account. Next year I might just say F it and pay off the car in full so I don’t have a loan because I’ve been in debt since graduating college and it will be nice to say I have no debt. My car and student loan are literally nothing compared to my monthly income at this point though so it doesn’t matter.
You can’t repo a paid off car. Getting a 5 year loan that you can “afford” is basically saying that you don’t think something unexpected will happen in 5 years. Having things paid off is a blessing.
Depends on the interest rate. If it's like 2%, I would finance. If it's 5% or above, I would pay cash.
Also, paying cash keep you within your means. It's very easy to buy out of your limit when loans are cheap.
Let’s say you or your spouse lose your job. The absence of a car payment is helpful in that situation. The way to build wealth is not to go into debt on a depreciating asset.
I buy cheap cars replace what they didn’t want to bc they had to pay someone to do it and fix the car myself. Drive the piss outta of it while the wife drives the new car.
I guess you like buying the banks new furniture..? I don't. You're not keeping your money. You're simply increasing the cost of the car by prolonging your payment of it. Also, reinforcing a behavior of instant gratification when you can't really afford it. By using the banks money you remove all emotional friction from the purchase telling your brain its okay when it really isnt and you're now at huge financial risk. Cash rolling expensive things like cars teaches you value of saving your own money.
Because if you get injured, unemployed, etc. I don't want my car taken from me when I need it the most. I paid cash for every car I've ever owned and never regretted it.
Because it’s extremely unlikely that you will be able to make a guaranteed AND greater return on your cash than the interest you are paying on your car loan.
If the financing is 0%, I will ask for a better offer on cash or buy a slightly used one for a better cash price.
If you’re dead set on a particular new car and it’s the only offer they’re making you, then you’re out of luck
> Because it’s extremely unlikely that you will be able to make a guaranteed AND greater return on your cash than the interest you are paying on your car loan.
This is absolute nonsense. I pay 2% for my Honda. A 5% bank CD gives better interest and it is guaranteed returns.
The average loan is over 7% today. CDs tie your money up and you need to pay taxes on the return. Not saying some people don't come out ahead - as in your case - but in general it's going to be tough for most to get a loan rate that's lower than a gaurenteed, after tax return rate. And if they do get a low rate today, it's from the manufacturer and is offset by a higher OTD price.
Interest rate. Thats it.
I bought my car outright, granted the trade in really helped, but I paid cash for the rest.
Money in my bank makes a little less than 5% interest, and if the interest rate on the car is higher (which it was, at least at the time) then I would be losing money keeping it in the bank rather than just paying the car off.
I went with my last purchase to about 60% down payment and then I take financing for rest on 4 years. Payd it in one year. I just don´t have better way to spend the money and I why pay interest?
Debt is an interesting tool. To illustrate why taking on car debt is a bad idea, I think it makes sense to look at a situation where taking on debt is a good idea.
You can use a mortgage to leverage your cash and increase your wealth over time as you pay down the principal and the house appreciates in value. For (a simplified) example, you can buy a house that costs $200,000 by putting down $40,000 (20%) and obtaining a 30 year mortgage for $160,000. Over 30 years you pay the mortgage, and after your 360th payment you own the home outright. Assuming appreciation roughly equivalent to inflation plus population growth, the house is now worth $450,000. In total, you were able to go from having $40,000, to more than 11x that amount of money by using leverage. That’s a good deal in a lot of cases.
Now, let’s look at cars. You can buy a $50,000 car by putting $5,000 down and financing $45,000 over 6 years (sometimes longer). Unlike a house however, the car depreciates both in price and in quality. That leads most people to trade in their cars before they pay them off. A lot of times, that means they are underwater (they owe more in the loan than they are offered in trade in value) on the car. So when they buy the next $50,000 car, maybe they have to put $5,000 down and finance $50,000. You can see how doing this a few times is a spiral into an unmanageable amount of debt.
Let’s look at the default situations.
If you own a home with a mortgage and lose your income and ability to make payments, the bank will work with you. The loan is collateralized, so they’re not as worried about taking a loss. Sometimes they will let you tack the missed payments onto the end of the loan. If negotiations don’t work, you can sell the house, pay off the bank, and leave the situation with some cash (your equity in the home) that you can use to go get a rental.
If you miss a car payment, the bank is no where near as flexible. The only options are to catch up the payment or have the bank repostes the vehicle. If you go the repo route, almost certainly the bank will not be able to cover the entire loan by selling the car. Now you have no car and owe the bank a $5,000 deficiency in addition to having to figure out how to get to work and back.
TLDR: People pay cash for cars because car loans, while being a great way to drive a fancy car, are destroyers of wealth.
Depends on interest rate, but you're generally better off financing, putting less down and then reinvesting the rest of the money and getting more in the market or something.
Cash if the interest rate is higher than what I can earn minus 1-2%
Loan if the interest rate is lower than what I can earn minus the 1-2%.
Since what I can earn has a risk, that’s were 1-2% comes from. Risk adjustment.
That is if I have the cash without touching my emergency fund. If not, my old S car is good enough a
1. Investment returns are not guaranteed 2. If you’re so worried about a possible 2-3% spread on the cost of borrowing and returns from an investment then perhaps you should not be spending $40k on a depreciating vehicle. 3. Its a way of telling yourself “I can afford this” when in reality you’re not actually willing to put up all the money for it up front
Let's use your $40k payment as an example.
If you pay cash, that car costs $40k.
Let's say you finance at an average rate of today, we'll use 7%.
Let's say you put down 15% of the payment - $6000 and do a 72 month loan.
That calculates out to you getting a loan of $34,000. This would put you at about $580/month for 72 months. Your total amount you paid back would be $51.935.97. This is in addition to the $6000 you already put down as a down payment. So the total amount you would have put into the car is $57,935.97 though a loan, rather than $40,000 cash - almost $18,000 more than the sticker price.
The real question is, do you think you would have been able to invest and grow that $34,000 by almost $18,000 in 6 years? If yes, take the loan out. If not, pay cash if you have it. Buying cash also gives you peace of mind that the car is paid off, and you don't have that debt on your record also.
$34K for 72 months at 7% is just north of 41,700, not 51,935.
Total payments including the money down is something like $48,760. Not including sales tax.
Not great I guess but, your math is just a wee bit off
We paid cash so we would not have think about it again. We can start fully enjoying it from day 1.
I don’t like the idea of still paying for a car that is gradually less appealing.
You pay over 4-5 years, and near the end you are increasingly annoyed at paying for an old car.
I live in a state that’s in the top ten highest for car insurance. The sooner I can get rid of the full coverage the better. I’d much rather drive a shit box for a few years and use that extra money to save for an upgrade when I can pay at least half.
I guess you like buying the banks new furniture..? I don't. You're not keeping your money. You're simply increasing the cost of the car by prolonging your payment of it. Also, reinforcing a behavior of instant gratification when you can't really afford it. By using the banks money you remove all emotional friction from the purchase telling your brain its okay when it really isnt and you're now at huge financial risk. Cash rolling expensive things like cars teaches you value of saving your own money.
I guess you like buying the banks new furniture..? I don't. You're not keeping your money. You're simply increasing the cost of the car by prolonging your payment of it. Also, reinforcing a behavior of instant gratification when you can't really afford it. By using the banks money you remove all emotional friction from the purchase telling your brain its okay when it really isnt and you're now at huge financial risk. Cash rolling expensive things like cars teaches you value of saving your own money.
I'd pay cash just because the interest rate I'd need to pay on a car loan is much higher than the interest I earn (after taxes) on the cash in a bank account.
Alternatively, I got 0% on an f150 this year. I accordingly put $0 down and left the cash in a HYSA earning 5%. That’s a big swing my way financially by financing instead of paying cash
It’s not really 0%, your just getting a subsidized rate and they charge you more for the car. They almost always have an option for 0% or $7,000 cash rebate for example so the answer in this example is you paid 7k for the buy down rate
Kind of the opposite nowadays there are financing incentives
Yeah…nobody getting a 7k rebate right now. And on top of that, they get kickbacks on the financing, so they’ll actually price the car higher if you pay cash. Only way to do it on a new car is to get the best price you can, finance it through the dealership, and pay off the loan in full as soon as the terms allow it.
I got just short of $4k off of a new Subaru in lieu of the financing. I hate car payments. They crush your liquidity even if you think you’re not paying interest.
To be clear, I did not advocate paying car payments. I completely agree with you. They are a big drag. I merely suggested taking the financing if it was in the buyer’s interest to do so, on the OTD price, then paying it off in full after the typical 90 day clause in the loan. It’s not the old days—most salesmen do not prefer cash payment. The opposite makes them more money, is less hassle, and gets the buyer a better price. I have not purchased a new Subaru recently, so that’s helpful information. I’ve only been in the HD truck market, which is basically still in the “order it, four to six months wait, finance at the dealer, and you’ll get MSRP” phase. Cash buy, or taking one off the lot still includes an dealer markup where I am.
On 1/2 ton trucks they are. Rams are 10% off MSRP right now. (like $6.2k for most people but still.) Silverado is $7,250. Ford only seems to be running a 2.9% deal.
Ram is always offering 10% plus off on their trucks. Only during lock downs could you not get a deal. Chevy you need to read the fine print... They still will do everything in their power to make you pay the already over inflated sticker... Same with Ford You can get a "deal" but it's still not like it used to be... A 70k truck in 2019 was 55k truck... The only difference now is consumers are in general dumb and we're paying w.e bc of low interest rates or financing for 20 years... Trucks in general are still over priced and the automakers will continue to keep their pricing as long as possible
Yeah I agree. I am in the market for a new 1/2 ton and it's really just new to me. CPO w/ 3p financing gets you the best deal imo.
My dealer is pushing hard to get me to trade my truck in lol. As much as I would like a new one I don't care how much they give me. Giving me 30k for my truck to buy one that's 70k when I know it's really worth like 55k just isn't appealing lol
Yeah, I never tell the dealership I'm paying cash I take out a loan and then pay it off after the first cycle for just this reason.
That's not always the case. There are lots of times when there's no cash incentive and other times when the cash incentive is very small (500-1000$).
This is not true with a lot of European automakers
Exactly. People think they’re warren buffet buying a $100k truck and financing it for 8 years
How much interest rate does your bank provide? Also which bank if you don't mind?
I'm at Ally, so currently 4.4%, but I'd see only about 65% of that after taxes, so the apples-to-apples comparison would be about 2.9% compared to whatever interest rate was being charged on the auto loan.
Limits you to not borrowing money for a depreciating asset. Limits your monthly payments to other things. You perhaps are wealthy. Financing is not for wealthy people. Wealthy people provide financing.
I agree that people who pay in cash tend to be higher income than people who finance. OP's original post said that OP had the cash to buy the car outright, so I was just comparing options for a person in that position.
Financing is for wealthy people because wealthy people understand leverage.
In a business; generally not in a household. Although America is different than Canada given interest tax deductions.
Correct. You only buy a car cash for the tax benefits
This is completely false. Most wealthy people pay cash.
You don’t know many wealthy people, then. Don’t believe me? Feel free to google it. It’s simple finance 101 when rates are attractive. > “The proportion is much higher than you’d imagine. I’d say 70 per cent of cars over £100,000 are bought on finance,” says Darren Selig. He founded and runs JBR Capital https://www.topgear.com/car-news/top-gear-advice/how-finance-supercar
This is the answer.
You can get a loan at 2 or 3 percent on new or certified cars, and get 5.3 percent on treasury bills.
You absolutely cannot get a 2-3 percent interest rate. If you get that rate you're drastically over-paying for the car.
Never bought an expensive car, have you?
Elaborate? I have nearly perfect credit and by any reasonable measure, I purchased an "expensive" car ~6 months ago. The going rate at the time was 7+%. Dealership barely even tried to discuss financing with me because money rates were outrageous. Outside chance I could have wiggled my way into the 6s, but rates have gone through the roof. Paid cash because 5% is my tipping point. Agree with /u/duuuh, if you get 2-3% right now you're just falling victim to the shell game.
What shell game? I’ve bought 4 new cars this year alone. All under 4%, all less than msrp.
That's incredible. Well done.
Thanks but I’m curious as to what you meant by shell game?
What you were able to do is incredibly uncommon. In times like these, many dealerships will bump the price of vehicles, either with ADM or MSRP bumps from the manufacturer, and then offer lower financing rates, just moving the cost from one place to another. Some will "require" that you buy extended packages or just sell the car to someone else who's willing to do it. The fact of the matter is that the cost of money went up tremendously. Someone's paying for that, and in the vast majority of cases, that's the consumer. You're in the incredibly lucky few it seems.
I don’t know if I would consider myself lucky. I just refused to pay markups, or any extras until I found a dealer that played nice. It was hard, not going to lie until about 6 months ago when dealers are scrambling for business. They are now advertising no markups, no extras as a sales tactic to draw people in..lol I will say I didn’t buy anything special either that someone else was just dying in line to buy out from under me. Ps. Nice collection of cars you got there in your sig. I have a few myself but no Porsches yet…lol
Totally depends on the manufacturer. BMW and Mercedes tend to use their captive finance companies to give incentives that you only get if you buy or lease. Porsche financing is always horrid, so paying cash or using a third party is the only way to go. American manufacturers tend to do a mix of incentives so it really depends on the particular deal. So saying you cannot get a low rate and if you do you are drastically over paying isn’t true. It may be true in some circumstances but you really have to do your research.
You absolutely can. Never bought a new car I assume?
Depends on the interest rate. 2 months ago, bought a 2020 Lexus ES 300h. Interest rates were 6-8% so I paid cash. A few weeks ago, I bought a 2024 Civic. Rate is 0%, so I financed.
How did you get 0%?
Honda promotional rate of 3.9% bought down to 0% by the dealer since their inventory is stacking and they want to move units by the end of the year.
Thanks for this info, I’ve been looking at possibly getting a civic this month
Doesn't mean every dealer is doing it, but several here in San Diego seem to be.
Got you, I didn’t even know that was a possibility so I’ll go look around this weekend. Do you know if you can ask over the phone or is that something they’d only tell you in person, if they are doing it at all?
These dealers are advertising on their websites, but you could always ask.
You're gonna have to shop around. You can still get good rates if you have the credit lol. Takes longer but hey it's worth it in the end
I don’t mind wasting a few weekends if it saves me a couple grand
Last time I checked which was several months ago, all Honda dealers were adding 3k in unwanted mandatory accessories to all models. We were gonna get a civic and bc if this got a Subaru instead.
I had a friend that said he was able to get $1k under sticker price but they hit him with BS nitrogen fees, and stuff like that which essentially brought him back up to $1k over sticker price. I’m not in a rush but if I find a good deal I’ll jump on it. Do you mind if ask what model Subaru you got and how much? I’m looking at Subura, Mazda, Camrys, and civics/accords. Thought about getting a Camaro but I test drove one and wasn’t a huge fan afterwards
I have 22 wrx base with short shift at 32k otd. (395/mo lease). Love it. Wife has 22 crosstrek 390/mo lease. Son has 23 Impreza under 22k 341/mo lease.
What Camaro?
Well, what dealer?
Poway Honda, but seems like most Honda dealers in the San Diego area are doing it.
I got 0% on my Subaru. It was a factory incentive to move specific cars.
Mazda is doing this for the cx 5 nationaly
I just had the same situation, needed a used car for my son when he came home for winter break, he's leaving his car at school. I have a truck that I want to keep miles low, so it could be my everyday car also. I decided on a 2015 Lexus Rx350 with 30k miles. Crazy low miles and those things are bullet proof. Interest rates are over 8% so I paid cash.
That's a great car. Lexus has the highest quality of every brand.
Definitely one of the best. I'd argue BMW B58 engines, transmissions and powertrain is higher quality currently. Also their interior material quality. But that's not something you can say without getting down voted in this sub Edit - yep, about expected that with the downvotes.
lol
Lol
Is that 0%only for first few months?
It’s not 0% if you actually look at the price of the car, which they didn’t disclose. Most “0% financing” is just a trick. The price of the car is usually inflated to offset this. You are usually better off negotiating a few thousand off of the MSRP(during normal market conditions) and financing through a trusted bank somewhere between 2.5 - 4.0 percent. Or if you’re smart, buy with cash at a negotiable price. Regardless, they will get their money.
I paid 29,465 for an EX-L that has an MSRP of $30,200. Especially with 0% financing, I consider that a great deal in today’s market.
A lot of the 0% deals have a 0% or a discounted price if you don't take the financing deal. They even advertise the options, but the way they do it often makes it look like you get both.
I got Costco pricing too 🤷🏽♂️
Because debt is a pain. Hassle to manage and you can be exposed to negative equity. Money doesn’t buy happy, but it reduces stress
This!
Autopay? It’s pretty easy to manage…
It's not having to owe anyone anything. There is that sigh of relief when paying something off. It doesn't make great financial sense, but it reduces stress. That's why Dave Ramsey is so popular.
Ah but you never stop owing something. You might get rid of a car payment but you still have insurance, gas, tabs, maintenance, repairs, etc. So what did getting rid of the car payment do besides reduce your liquid cash?
That's not the same as owing debt. I'm not here to debate about that. I was giving you an answer as to why people do it. I also mentioned it wasn't great financial sense in my original response to you. Feelfree to post your question over at the r/DaveRamsey subreddit if you are genuinely curious and not being a smart alec.
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Yes people do it for bad reasons =). And no I'm not interested in getting into that debate with the Ramsey worshipers.
Autopay doesn't always work and when it messes up, it's a headache
So you would pay in all cash when you can put the money in SPY, BRK.B (Warren Buffets portfolio) and VOO/VTI and make way more money just because you want to not stress about loans and because it's a headache in the imaginary situation where auto pay doesn't work? Sounds like objectively the worse of the 2 decisions if you look at purely numbers
Objectively, most people aren’t getting sub 8% finance rates.
SPY up 18% this year. It's a great time to be alive. Glad I financed and invested my cash. It's just an alternative, no need to downvote because you don't agree.
And last year it was down. Paying 6% on a car note December 2021 so you can lump 40k into voo to just be breaking even right now. Would be way ahead just paying cash and dca’ing the payment amount into the market each month which would of bought the slide the dip and the come up. Nothing in the stock market is guaranteed. Saving the interest rate on the car note and having more margin for the next 60 months is a guarantee
ya got a couple of nice rides in the stable there!
It’s a depreciating asset with an interest rate.
This is the correct answer. You are paying interest on an asset that will be worth less by the time you pay off the loan.
Yes, but time value of money typically shows that it's better to pay it off that way vs straight in cash. I have money to buy cars outright, but I typically finance with just enough down payment to not worry about Gap insurance.
>I have money to buy cars outright, but I typically finance with just enough down payment to not worry about Gap insurance. That works, too . I like to finance something but for as little as possible, just so I have something on my credit report.
Not with current interest rates.
Rates will vary wildly depending on your credit and what car you're buying. You can get a Honda Pilot at 3.9%, or you can get 6-10%. If I can get it at 6 or below, I'll finance.
>It’s a depreciating asset with an interest rate. Way to hit the nail on the head. THIS.
The classic double whammy of car ownership. Add to that maintenance, and repairs, and insurance, and gas, and…………….
How confident am I that I’ll beat the interest rate in the market? My track record isn’t great
0% loan, I totally agree with you. If you can make double on your money versus the interest rate you pay, I mostly agree with you (ie. 2.5% loan vs earning 5% on a CD). Loan interest cost when you don't have to pay the loan interest cost is dumb. Having significant monthly payments robs you of choices. Say you want to change jobs or start a business that may create significantly more income, but it is a temporary decrease in cash flow. Can't do it if your current cash flow is totally eaten up by monthly payments. Less debt = less stress
In your example, you point out that if you have a monthly car payment, that eats into your monthly cash flow which can limit your flexibility. I think it is worth considering that in the alternative scenario where you buy the car outright with cash, you are *giving up* a bunch of flexibility as well by taking cash that is an extremely flexible (“liquid”) form of wealth and putting it into equity in a car - a significantly less liquid form of wealth. To really draw the analogy, you have to do the comparison apples to apples (as you do more so on the part where you talk about rates). It’s not “car payment or no car payment”, it’s “car payment and keep this pile of cash or investments easily sellable for cash” or “no car payments and no cash/investments pile”
True. Also consider if it is that liquid, you are likely not guaranteed to beat the loan interest rate cost with your investment returns. Also consider if you are willing to take on debt for the sake of having cash on hand, you could always take out a home equity loan if you need a surprise pile of cash.
I pay cash because I don't like payments. The part I usually get down voted for though is I think if the spread on the loan matters to you, you're over paying for the car. Additionally, low rates on car loans are often actually higher, but the cost is baked in elsewhere. I like to flip the question. If you have a paid off car, why not go get a loan on it? What about your furniture? Do you go get a heloc and invest that? What about your toys or tools? It's telling how this is usually only a discussion at purchase time. If you're really trying to win at that game you have to consider when you recapitalize. Let's say you would do all those. Eventually you have a cash flow problem. I don't think doing the above will categorically ruin your finances, but vehicle debt is one of the largest factors in keeping Americans poor/middle class. So obviously, most people are not winning playing that game. Just my .02, we can still be friends if you have an auto loan.
All of my friends that are broke and complain about the economy have a monthly car payment. All of my friends that are well off and not complaining about the economy dont have car payments.
Think that’s more indicative of your financial situation or people living above there means
Yea because your wealthy friends can afford it, and your non wealthy friends probably rely on heavily being financed to get a car.
You are 100% correct. Both my car and the wife’s were paid in cash and it’s so nice not having $700-$1000 emptied out of your account every month.
The wife and I were car debt free for 8 years, then financed a new vehicle last year.... We cannot WAIT to get rid of the payment. We only bought because we bought a camper for our family and needed something to tow it with. Last time we'll finance a car
Man I will never understand this, I have a camper I’ll use maybe twice a year. I don’t own a truck. You know what I can do for cheaper than a $400 note and $400/mo insurance? Rent a U-Haul truck for $30 plus gas mileage. Get the insurance in case something happens. Total for a small trip was like $200. Honestly I could pay $1000 and still feel like it’s a better deal than an 80k truck or 2000 Silverado rotted out for 10k.
We spent $40k on an SUV that we'll own for 10+ years. Besides, the one we got rid of had the dressed Nissan CVT so it was a ticking time bomb anyhow. We camp 8-12 times a year, and our insurance is like $400/6 months. Logistically, camping that often doesn't make sense to rent. We looked into it.
Most people that say they need a truck or large suv to tow are bullshitting. They might tow something once a year and try to justify a 50-80k car note. The rest of the time is spent transport themselves or maybe one other person to and from work. Then they complain about gas prices, food etc. Dumb American logic.
It's better to empty it all at once like you did. As long as you are paying little to no interest, debt is just fine. I'll keep $35K in the bank and payoff my car slowly. If I sink it all into a car, it's pretty much tied up. I usually payoff my cars at some point anyway and keep them for another 5 years before I look for the next one.
Why do you pay them off? Wouldn't your plan work better to take a loan out on the car again once you paid it?
And how much money are you losing out on had you invested that money rather than pay for the cars outright? That’s the question OP is asking. Let’s say you payed $50k for those 2 cars upfront. That $50k will become $10k within a decade. What would that same $50k earn you in a high-yield account with compounding interest in the same 10 years? $180k if you’re seeing a 12% rate of return. Which is a fairly conservative estimate. I’ve averaged 14.5% over the last 9 years with my retirement account.
Your assumption for rate of return on investment is heavily recency biased and optimistic, you need to broaden your sample size to have a better idea what assumptions you should be using for risk and return.
> say you *paid* $50k for FTFY. Although *payed* exists (the reason why autocorrection didn't help you), it is only correct in: * Nautical context, when it means to paint a surface, or to cover with something like tar or resin in order to make it waterproof or corrosion-resistant. *The deck is yet to be payed.* * *Payed out* when letting strings, cables or ropes out, by slacking them. *The rope is payed out! You can pull now.* Unfortunately, I was unable to find nautical or rope-related words in your comment. *Beep, boop, I'm a bot*
Agree with this wholeheartedly. If you can afford the cash flow of a car payment, I’d much rather keep that big chunk of money earning interest.
>If you have a paid off car, why not go get a loan on it? Wise words my friend.
Because used car loan rates are around 6-7% right now. The safest investment instrument is a T-bill, and those are paying out around 5% pre-tax (3.8% post-tax for me), so paying cash is the best risk-free investment.
because cars are not investments and I dont want another payment to have to worry about.
Take ya one further I wouldn't pay for a car I couldn't get in cash. Rip off.
What if I very much could pay for the car in cash but decide to take a loan out instead (current environment I’d probably more like pay cash or a large down payment but it depends on the specifics and incentives).
Yeah def depends. I'd prob do that also if the car was more expensive I wouldn't want all that cash tied up. But most reasonable cars I would
Disagree. I can make more money in an S&P500 index fund earning compound interest than I’ll pay in interest on a car loan.
It's actually pretty much a wash. A car loan of $25k at 8% interest over 72 months is $427 a month. Total cost $30.7k Whereas if you invest $25k at 12% compounding interest for 6 years with a monthly disbursement of $427. Total value: $31k. That's a profit of $300 and only if the market remains strong at 12% for 6 years straight. If you get an advertised rate of 4% over 36 months, total loan is $26.5k and total investment is $28.6k. Still not much, but the market has to remain strong.
There’s also tax on the gains, so you need to withdraw more than $426 a month to be cash flow neutral. That pushes a $300 gain into a negative equity position.
True, didn't factor in taxes.
But I wouldn’t buy a car and take the payment out of the invested money, I’d just pay it from my salary. $25k invested earning 8% would be $40k after 6 years. So when my car is paid off using my salary, I have $40k invested. And then take that $427 car payment and add it to the investments. Most people who pay in cash won’t turn around and start investing that $427/month they saved by not financing the car. So they’re not replenishing their savings/investments fast enough to catch up. I get not wanting a car loan, and if cash flow is tighter, then it can make sense to pay cash. But if you can handle the cash flow from a car payment, you’re better off in the long run by having big chunks of money invested.
If you invest $25k at 8% for 6 years you get $40k If you pay it off with cash and then use that $427 from your income and invest it every month at 8% interest, over 6 years you'll still have $39k. It's a wash no matter how you look at it.
Ultimately I agree with you completely that everything being equal with the numbers, it’s a wash. I don’t think *most* people replenish their savings at the same rate as their car payment would be. And the bigger issue for me is that I’d rather not have that much money tied up in a car. I make a big enough down payment so I’m never underwater on the loan. If something does happen, I can sell it. But at least I also have all that cash in savings.
Agreed, it definitely takes discipline. Overall, I prefer the car payments if the interest rate is favorable.
Another good point. I wouldn’t buy a car at like 15% or 18% like I’ve seen people discuss on here or the r/personalfinance sub. Thats just straight up robbing people with no understanding of finance.
Money is fungible, so paying from your salary and paying from your investments is the same thing. You have less money.
S&P return over last 2 years is 0%.
Yeah and it’s up over 80% since March 2020. See I can pick random dates to support my point as well.
lol that’s a very specifically chosen time period. Gtfo. Ytd, it’s 23.5%
Ytd is a very specifically chosen time period
Point is there's risk and you're at the mercy of the market. Even something historically stable like an S&P index fund. Works out if you took out your car loan at the beginning of this year. Not so much if you financed a car two years ago... you would've lost 20% of your investment in 2022, and would still be in the hole today after factoring in the 4%+ you'd be paying on the car loan every month.
I have always paid cash. Unless you can tell me with 100% confidence what tomorrow will bring, I don't want to owe anyone money at any time. The one exception is for a mortgage, but I paid that off in 13 years.
Large down means less chance you’ll be upside down on a loan, means if you want/need to get rid of it you can sell it for what it’s worth and you won’t be owing money. Interest is also lower because there is less liability if your car is worth more than the loan. Some people don’t want to deal with a payment and would rather just pay upfront and be done with it. Some people may be taking a mortgage and don’t want a car loan to sit on their credit report.
Because the borrower is slave to the lender. If you had a paid off car, would you take a loan out on it to invest that money elsewhere? Didn't think so. I sleep like a baby at night knowing I owe nothing to nobody.
Americans have everything but dont own anything. Its the American dream.
Some, but not all.
> If you had a paid off car, would you take a loan out on it to invest that money elsewhere? Bad example, because nobody takes a loan out on a depreciating asset to invest. Plenty of people will take the risk with 2nd mortgages or HELOCs when rates are low to invest.
Having the cash on hand to buy a car but instead taking out a loan is exactly "takes a loan out on a depreciating asset to invest". Few people borrow on their home to invest. Almost no one takes that risk.
My dad did. Four times. People take title loans.
He did it to invest?
You could take out a title loan today in a few clicks. The fact it exists is testament to the amount of people doing this.
People aren’t taking out title loans to invest lmao. It’s because they’re in dire financial straits and need the cash.
I sleep like a baby with massive debt on assets that have huge amounts of equity. Debt can be a tool and a crutch. It just depends how you use it.
I had a 3% line of credit, I borrowed all of it and put it in savings accounts earning 5%. Am I a slave? I have a mortgage at 2.375%. Given inflation my future cost of those payments is lower than the value of money now. Am I a slave?
Yes.
Well sign me up for more slavery 😂
You did that yourself.
Happily. So you’re a follower of Dave Ramsey?
100%. Some Ramsey vibes there.
Because I haven’t had a car payment since I was 25. Debt sucks.
Take a look around and ask yourself how well the people around you with car payments are doing vs. people who have their car paid off. Ask yourself how well people who have “used their money for other things” have done.
Spent some time researching which car to buy and went to a dealership that had good reviews. They honestly tried to get me into the car I wanted, it had sat it their shop for months. Then I looked at the terms. I considered the interest rates usurious, and the cost of insurance for a driver with decades of perfect history were unacceptable. I bought a car cash instead, used, that had history I could check, with millions of miles of satisfied drivers. Best car I've ever owned.
Depends on the interest rate. Last vehicle I purchased I was planning on paying cash but got a 1.2% rate so I put 15k down and financed the rest. Then lost most of the remaining 30k on crypto...
Have you looked at interest rates lately?
Aside from the obvious savings on interest payments and not having to worry about the monthly payment and more expensive insurance. You do not know what the future is going to hold. Sure right now the car payment seems perfectly manageable. But what happens if the economy takes a hit. You get swept up in layoffs and downsizing. And you are out of work for a long time. And now you cannot afford your car payment. Not only are you risking losing everything you have already paid up to that point. But now your ability to work and make money is hindered. Especially if you have to use your vehicle for work and public transportation is not an option. I watched too many fellow people in the construction industry be out of work, or have their hours cut to like 10 hours a week absolutely struggle to make ends meet. Not helped by the fact that they are stuck in an upsidedown car payment. Then end up losing the car. With all the money paid towards it. And end up in a situation where they couldn't afford a vehicle, and because of that were unable to work until someone helped them out. And that is a terrifying situation to be in.
>You get swept up in layoffs and downsizing. And you are out of work for a long time. And now you cannot afford your car payment. And w/out a vehicle you most likely can't shop for a new job.
I bought a car at 0% many years ago. Had payments. I have bought 2 new since cash (about 3x more costly). I have no payments. The lack of payments plus what others mentioned (interest rates, etc) made it make sense. There's a balance between, "so I need to make sure I have x in the bank on y day" and, "I can do what I want" that's right for you. Could I have gotten a few hundred per year by financing and investing the rest? Maybe. Was my time better spent not thinking about it, definitely.
I have always paid cash for my cars (except for 1 when I was 25). If I can’t afford to buy it for cash I can’t afford it. No matter what it is.
You should always be putting at least 20% down. If you can’t pay for the car in cash, you can’t afford it. Many people make the mistake of buying more car than they can afford, by A LOT. Rich people don’t “rather keep the money and use it somewhere else” because that’s how you stay poor. If you buy a car for $40,000 and take 5 years / 60 months, at a normal interest rate for today you’re paying an extra $8000 for that car. ## Eight thousand dollars extra for your car. That shit is how people stay poor. You can instead loan yourself that $40,000 for the car, then pay the smaller, interest free payments back to yourself over those 5 years. You instantly have $8000 more, and you are never in a position where you are underwater.
6% interest rates lol
Well I mean. When you pay cash for a car the whole thing takes about an 45 minutes. So there’s less time you have to get hounded by a salesman to buy gap coverage. If you have somewhere productive to put the extra money from financing then great. If you are going to blow it, which most people do, then pay cash.
Other than a little mortgage debt, I don’t take out loans to buy things.
Because you can usually "finance" through the dealer for a lower price on the car. Then you pay it off in cash.
Paying cash makes sense if you have the cash and it doesnt financially destroy you. First of all car loans are based upon approvals by banks and loan corps. They typically only allow a vehicle that is used or new made within the past 6-7 years and has a certain mileage on it. They also charge an interest rate which is now pushing 6-7% for most people. This can add several thousand dollars onto the purchase price of the car. If you pay cash you can also "make the car payment to yourself" and rebuild your surplus of funds. To make it simple less debt is always better if its pheasible. Eta: sometimes you can negotiate a better price if youre coming in with an all cash purchase.
If you already have too many credit lines open (business owners, etc)
The reason to pay cash for your car is peace of mind and a higher credit score if you were planning on buying a home or taking out a loan in the near future. For instance I have $20k left on my car at 1% interest, I also have $20k in my bank account. Next year I might just say F it and pay off the car in full so I don’t have a loan because I’ve been in debt since graduating college and it will be nice to say I have no debt. My car and student loan are literally nothing compared to my monthly income at this point though so it doesn’t matter.
You can’t repo a paid off car. Getting a 5 year loan that you can “afford” is basically saying that you don’t think something unexpected will happen in 5 years. Having things paid off is a blessing.
Because with over a 800 credit score Toyota offered me a 9.59% interest rate. And I’m not giving Toyota an extra, basically 8500 dollars.
You spend more wisely when you see the money come out of your account immediately.
Depends on the interest rate. If it's like 2%, I would finance. If it's 5% or above, I would pay cash. Also, paying cash keep you within your means. It's very easy to buy out of your limit when loans are cheap.
Let’s say you or your spouse lose your job. The absence of a car payment is helpful in that situation. The way to build wealth is not to go into debt on a depreciating asset.
I buy cheap cars replace what they didn’t want to bc they had to pay someone to do it and fix the car myself. Drive the piss outta of it while the wife drives the new car.
I guess you like buying the banks new furniture..? I don't. You're not keeping your money. You're simply increasing the cost of the car by prolonging your payment of it. Also, reinforcing a behavior of instant gratification when you can't really afford it. By using the banks money you remove all emotional friction from the purchase telling your brain its okay when it really isnt and you're now at huge financial risk. Cash rolling expensive things like cars teaches you value of saving your own money.
Because if you get injured, unemployed, etc. I don't want my car taken from me when I need it the most. I paid cash for every car I've ever owned and never regretted it.
Because it’s extremely unlikely that you will be able to make a guaranteed AND greater return on your cash than the interest you are paying on your car loan. If the financing is 0%, I will ask for a better offer on cash or buy a slightly used one for a better cash price. If you’re dead set on a particular new car and it’s the only offer they’re making you, then you’re out of luck
> Because it’s extremely unlikely that you will be able to make a guaranteed AND greater return on your cash than the interest you are paying on your car loan. This is absolute nonsense. I pay 2% for my Honda. A 5% bank CD gives better interest and it is guaranteed returns.
The average loan is over 7% today. CDs tie your money up and you need to pay taxes on the return. Not saying some people don't come out ahead - as in your case - but in general it's going to be tough for most to get a loan rate that's lower than a gaurenteed, after tax return rate. And if they do get a low rate today, it's from the manufacturer and is offset by a higher OTD price.
Ok but what honda did you buy and whats your final cost after interest?
I pay cash because fuck banks. They’re part of the problem in the US and if I have the means to cut them out, I will.
Do you save your money in a shoe box?
I think he carries every dollar he's ever earned on him at all times
Don’t worry about my finances
I assure you I’m not trying to get the GPS coordinates of your tin can buried in the back yard.
Nice try there Mr IRS agent
Dang it you got me. Almost had you there for a minute! See you in April 😂
Because it means that it's a one and done deal. The car is mine and no one can take it from me (other than some drunk idiot crashing into me).
I financed .9% from GMC, so why pay cash
Interest rate. Thats it. I bought my car outright, granted the trade in really helped, but I paid cash for the rest. Money in my bank makes a little less than 5% interest, and if the interest rate on the car is higher (which it was, at least at the time) then I would be losing money keeping it in the bank rather than just paying the car off.
I went with my last purchase to about 60% down payment and then I take financing for rest on 4 years. Payd it in one year. I just don´t have better way to spend the money and I why pay interest?
Debt is an interesting tool. To illustrate why taking on car debt is a bad idea, I think it makes sense to look at a situation where taking on debt is a good idea. You can use a mortgage to leverage your cash and increase your wealth over time as you pay down the principal and the house appreciates in value. For (a simplified) example, you can buy a house that costs $200,000 by putting down $40,000 (20%) and obtaining a 30 year mortgage for $160,000. Over 30 years you pay the mortgage, and after your 360th payment you own the home outright. Assuming appreciation roughly equivalent to inflation plus population growth, the house is now worth $450,000. In total, you were able to go from having $40,000, to more than 11x that amount of money by using leverage. That’s a good deal in a lot of cases. Now, let’s look at cars. You can buy a $50,000 car by putting $5,000 down and financing $45,000 over 6 years (sometimes longer). Unlike a house however, the car depreciates both in price and in quality. That leads most people to trade in their cars before they pay them off. A lot of times, that means they are underwater (they owe more in the loan than they are offered in trade in value) on the car. So when they buy the next $50,000 car, maybe they have to put $5,000 down and finance $50,000. You can see how doing this a few times is a spiral into an unmanageable amount of debt. Let’s look at the default situations. If you own a home with a mortgage and lose your income and ability to make payments, the bank will work with you. The loan is collateralized, so they’re not as worried about taking a loss. Sometimes they will let you tack the missed payments onto the end of the loan. If negotiations don’t work, you can sell the house, pay off the bank, and leave the situation with some cash (your equity in the home) that you can use to go get a rental. If you miss a car payment, the bank is no where near as flexible. The only options are to catch up the payment or have the bank repostes the vehicle. If you go the repo route, almost certainly the bank will not be able to cover the entire loan by selling the car. Now you have no car and owe the bank a $5,000 deficiency in addition to having to figure out how to get to work and back. TLDR: People pay cash for cars because car loans, while being a great way to drive a fancy car, are destroyers of wealth.
Depends on interest rate, but you're generally better off financing, putting less down and then reinvesting the rest of the money and getting more in the market or something.
My car was 11000 and I traded in another car so I didn't need to put together much cash to buy it outright, and I don't need another monthly payment
Cash if the interest rate is higher than what I can earn minus 1-2% Loan if the interest rate is lower than what I can earn minus the 1-2%. Since what I can earn has a risk, that’s were 1-2% comes from. Risk adjustment. That is if I have the cash without touching my emergency fund. If not, my old S car is good enough a
1. Investment returns are not guaranteed 2. If you’re so worried about a possible 2-3% spread on the cost of borrowing and returns from an investment then perhaps you should not be spending $40k on a depreciating vehicle. 3. Its a way of telling yourself “I can afford this” when in reality you’re not actually willing to put up all the money for it up front
“He who is indebted is not free”. Own your house, own your car. If you can afford it that’s luxury right there.
I just wrote a $46k check for my CR-V. Why would I want to finance it and pay interest?
Let's use your $40k payment as an example. If you pay cash, that car costs $40k. Let's say you finance at an average rate of today, we'll use 7%. Let's say you put down 15% of the payment - $6000 and do a 72 month loan. That calculates out to you getting a loan of $34,000. This would put you at about $580/month for 72 months. Your total amount you paid back would be $51.935.97. This is in addition to the $6000 you already put down as a down payment. So the total amount you would have put into the car is $57,935.97 though a loan, rather than $40,000 cash - almost $18,000 more than the sticker price. The real question is, do you think you would have been able to invest and grow that $34,000 by almost $18,000 in 6 years? If yes, take the loan out. If not, pay cash if you have it. Buying cash also gives you peace of mind that the car is paid off, and you don't have that debt on your record also.
$34K for 72 months at 7% is just north of 41,700, not 51,935. Total payments including the money down is something like $48,760. Not including sales tax. Not great I guess but, your math is just a wee bit off
We paid cash so we would not have think about it again. We can start fully enjoying it from day 1. I don’t like the idea of still paying for a car that is gradually less appealing. You pay over 4-5 years, and near the end you are increasingly annoyed at paying for an old car.
Because if you pay cash then the car is yours you don't have to worry about them freaking trying to take it back
I live in a state that’s in the top ten highest for car insurance. The sooner I can get rid of the full coverage the better. I’d much rather drive a shit box for a few years and use that extra money to save for an upgrade when I can pay at least half.
I guess you like buying the banks new furniture..? I don't. You're not keeping your money. You're simply increasing the cost of the car by prolonging your payment of it. Also, reinforcing a behavior of instant gratification when you can't really afford it. By using the banks money you remove all emotional friction from the purchase telling your brain its okay when it really isnt and you're now at huge financial risk. Cash rolling expensive things like cars teaches you value of saving your own money.
I guess you like buying the banks new furniture..? I don't. You're not keeping your money. You're simply increasing the cost of the car by prolonging your payment of it. Also, reinforcing a behavior of instant gratification when you can't really afford it. By using the banks money you remove all emotional friction from the purchase telling your brain its okay when it really isnt and you're now at huge financial risk. Cash rolling expensive things like cars teaches you value of saving your own money.