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Finance or cash?
Old 03-23-2013, 02:33 PM   #1
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Finance or cash?

I'm buying a new car. I want to buy from the local dealer...don't ask...just do.

I'm not unhappy with the deal they presented me but I don't understand why they can offer me a better price if I finance it at .9% for 3 years over paying them cash.($1200 less) Now, I realize that if I paid monthly for 36 months, they would make some $$ off me, but...I would just pay monthly for a couple of months, then pay the whole thing off.

I think they even realize that's what I'm thinking about. They said I could pay it off any time I wanted. What they said was there were NO pre-payment penalties - pay if off any time. Does that mean that I would pay the entire interest charge AS WELL as the principle too if I paid it off early?

They listed even a smaller cost for the car for 5 years...course the interest was 1.9%...but again...I would pay if off before the ink was dry on the paperwork.

Am I nuts or are they? (Includes destination charge, floor mats and mud splash things and an assortment of services and treatments; windows, upholstery, etc. (I know, I know....overpriced stuff...but hey they let me have it half price. ) I really did want those extras tho.

PS: I am trying to get them down on the Extended Warranty. I did get a price quote online from another dealer that I'm hoping that might help. The mfg. warranty can be purchased from any dealer, any time within the 3 year standard warranty period. So, working on that a little.
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Old 03-23-2013, 02:46 PM   #2
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Could it be some special deal cooked up by the automaker? At any rate, if you can pay it off with no penalty, it sounds terrific! Good luck!
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Old 03-23-2013, 03:01 PM   #3
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There is probably a dealer holdback or incentive for financing with the manufacturer. What I did in one case was to take the financing discount and payed it off with the first payment. It was a $1500 discount just to finance through the manufactures credit unit.

Extended warranties are generally a waste of money, otherwise they wouldn't be pushing them.
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Old 03-23-2013, 03:06 PM   #4
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This car is loaded with new techie stuff and its the first year for CVT for this model so I would feel a little better with a longer warranty on this purchase.
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Old 03-23-2013, 03:07 PM   #5
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Quote:
don't understand why they can offer me a better price if I finance it at .9% for 3 years over paying them cash.($1200 less)
They must be getting some kind of incentive deal from the higher HQ. Sometime there is no obvious way to make sense of auto "deals". Have you asked them for a logical explanation as to why the cost is that way? Surely they understand why and probably have a logical (?) explanation as to why.

I bought a new car about 18 months ago and was prepared to pay cash for it. The salesman said that they had a 36 month, 0% interest deal available for "those who qualify". It was all about the FICO score, it turns out, and I am now paying off 1/36 of the price of the car each month and the cash is sitting in savings drawing 0.85% APY.

It does not make sense to me that they would just as soon have my full payment or finance over 3 years, but I calculated that it was in my favor to take the loan. Really a no-brainer.
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Old 03-23-2013, 03:22 PM   #6
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Yep...I think it's a special deal with the mfg... Just now looked at the dealers special offers online. You have to qualify (higher credit rating). I shouldn't have any problem with that due mine being in the mid 700s.

Yippee!! I need to stop fast forwarding thru television commercials -I could have missed this. It's just by chance I started looking this month.
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Old 03-23-2013, 04:13 PM   #7
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I recall on one car I bought there was a $500 rebate to finance with the carmaker's finance subsidiary. I did, made a couple payments and then paid off the loan. I imagine that over many, many loans many which go to full term they come out ahead.
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Old 03-23-2013, 04:16 PM   #8
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It's an incentive deal from the manufacturer or from the finance company. People who take such deals, even with the intent to pay it all off in a month or two, surprisingly often fail to follow through on that intention. You can be sure the financial models for the lender account for the percentage who will take the price incentive and pay it off nearly immediately, and it's a small number. You don't appear to have anything to lose if you are confident you will actually follow through on your intent. ER readers are probably an unusual bunch not common enough for the lender to worry about.
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Old 03-23-2013, 04:39 PM   #9
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If you want the extended warrantee, get it from Pentagon Fed CU, along with your financing. PenFed charges *half* what my dealer wanted, plus the dealer's warrantee had a per-claim surcharge, which PenFed's didn't.

At 1.99% (or less) interest rate, it doesn't make much sense to pay cash. You can easily make more that 1.99% on your money.
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Old 03-23-2013, 05:07 PM   #10
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At 1.99% (or less) interest rate, it doesn't make much sense to pay cash. You can easily make more that 1.99% on your money.
After tax return of 2% with NO risk. Where?
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Old 03-23-2013, 05:21 PM   #11
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i bought my new Ford Explorer with the same incentive. . No prepayment penalty. I paid it off even before the payment book came, I just checked on line and when the loan was posted I paid it off. ( the interest accures daily)
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Old 03-23-2013, 05:28 PM   #12
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I bought my CRV with the same deal. Since I have a couple of (rental property) mortgages at ~4%, it makes sense to pay down principal on those rather than use the money to pay cash for the car, even if the mortgage interest is tax deductible.
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Old 03-23-2013, 05:50 PM   #13
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When I bought my CRV I fully intended to pay cash but they offered me 1% financing so I paid half and financed the other half . I gambled that my investments would pay more than 1% so I would be ahead .
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Old 03-23-2013, 08:17 PM   #14
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Back in ~2004, I was buying a new car and I wanted to pay cash. However, the dealer was so insistent that I finance the car through them that I finally walked out. (He even said I could pay it off in a few months if I wanted) Nothing like that has ever happen to me again and I've bought several new cars for cash since then.
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Old 03-23-2013, 08:40 PM   #15
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They're even trading with another dealer for the color I wanted. I've dealt with this dealer several times over the years and always have had my car serviced there too. Glad to know there times when cash isn't always the best deal. The other figures on the paper they showed me yesterday didn't even register in my brain until today...I was so focused on that cash line. My coffee this morning must have been extra strong to finally wake me up.
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Old 03-23-2013, 10:05 PM   #16
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We bought DW's last two cars with 1% financing. Both during big market dips (2002, 2009?), thanks to DW's impeccable timing. Paid just the minimum payments and made money on the deal using our normal portfolio AA. Not the same conditions now, but I'd easily take the lowest initial price and pay off the loan when you feel like it. The dealer undoubtedly has incentives to use financing. No problem with them if you pay it off early.
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Old 03-23-2013, 10:46 PM   #17
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Finance it.
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Old 03-24-2013, 06:23 AM   #18
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Originally Posted by HighRoller View Post
Back in ~2004, I was buying a new car and I wanted to pay cash. However, the dealer was so insistent that I finance the car through them that I finally walked out. (He even said I could pay it off in a few months if I wanted) Nothing like that has ever happen to me again and I've bought several new cars for cash since then.
Did they offer an incentive like they did for OP? I can't imagine not taking advantage of a deal like that - it is money sitting on the table. Same thing with a 0% finance deal as long as the price itself is as low as you can get there or elsewhere.
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Old 03-24-2013, 09:25 AM   #19
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[ At 1.99% (or less) interest rate, it doesn't make much sense to pay cash. You can easily make more than 1.99% on your money.]

After tax return of 2% with NO risk. Where?

No risk? Such thing does not exist. Asking for NO risk is asking for the impossible. Heck, there's a risk (small) that you'll be run over by a runaway 18-wheeler on your way to work the grocery store.

But low risk? Here's a few examples:
GE-A yield 6.08%
GGN-A 6.54%
PSA-O 6.39%
GSJ 5.84%
EMZ 5.61%
All the above rated top-tier,AA+ to A-

I just snagged some PBI-B 6.63%. Lower rated, but stll investment grade.

If those 6 companies go bankrupt, the car loan will be the least of your worries.
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