New Car - Pay Cash or Finance?

[RE2Boys]

Gee, I can't comment since I've not had a car loan since I purchased a 1985 Chrysler.

Heck, haven't purchased a new car since my 1989 Pontiac. Have always been able to find a 1-4 year old car with less than 40K miles to meet all my needs, typically at about 40-60% of MSRP.

Best safety feature I've found is to finally admit to myself that I can't see crap if it's dark and raining....just gotta stay home (or get someone else to drive).

 

[msanniee]

Cash for me

I was able to pay cash for my car (and my forever home) when I sold my home and moved. I find it comforting to not have monthly payments. The money I would have been making on monthly payments, I put back for my next car so it too can be purchased with cash.

 

[Dalmore]

Always been pretty obvious that there is, especially with manufacture incentive. For me, I never step foot into a dealership until I've buttoned up the deal via email with all the details. I'll put dealer against dealer on pricing, so they'll keep each other honest.

I tried that with the last car I bought. Living in the Los Angeles area, there are lots of dealerships (Toyota) to choose from. During my negotiations/research, I did a business check on the dealerships around me and discovered that they all had the same owner and management. I still got a satisfying deal, but I wasn't able to put the screws to them.

 

[67walkon]

Here's a strategy I discovered by accident. We negotiated what I thought was a fair price and I was insistent on paying cash. Let's say it worked out to $35,000. The salesman wanted to sell me a lease. I said no. His finance guy came in and pitched the lease; I said no and then he mentioned a $7,000 lease incentive. My brain clicked back on. I asked him to run the lease numbers, using the incentive.

He came back with the lease deal; I didn't even bother trying to figure out what the financing cost would be. Instead, I asked him if I could pay the lease off at any time. He said of course. I asked him what it would cost to pay it off the next week. He ran the numbers and the next week payoff was a!most $5,000 less than buying the car for cash that day. It was the incentive! The manufacturer hadn't considered that possibility.

Check for lease incentives and run the numbers.

 

[aja8888]

Under a lease you only pay that on the payment amount. In a lease you only pay tax on the difference between cost (also known as the cap value) and the residual value (what you can by it for at the end of the lease).

Not in Texas. Those who lease pay sales tax on the agreed to Cap Value of of vehicle. I'm not sure if any other states operate like this.

 

[ACCD]

Last car Nissan Rogue.. Leased for the first time in my life. We drive less than 10K per year. I did a 3 year. Thinking technology is changing so fast the next version may be way more advanced. (Maybe self driving!) I don't think buying and holding for 10 years makes sense anymore. I just negotiated the best price and ignored any of the extended warr etc since it will be turned in month 36.. Than we go shopping again. I would prefer to have as many safety features as possible the older I get..

I'm thinking this is the best strategy flip every 3 years. No repairs, new tech...and based on some ideas from the other posts, just keep an eye on the incentives to lease...…..I'm slowly getting used to the idea of having a lease payment.....and KEEPING my CASH...

 

[Austin704]

I have historically financed used cars (3-4 years old, low miles) with a large down payment and short term note, trying to get the best rate with good credit. Invariably I pay these notes off early because I abhor debt. A few years ago I decided to go the cash route and have set aside funding to replace my 12 year old truck and 10 year old car in the next few years. What I have found is there is no greater financing incentive than paying cash to squeeze a few more miles/years from an existing vehicle and to keep new car fever in check. If you can live without the latest technology (and I can) then you can easily save money by just buying and holding cars for longer periods. The fact remains that cars are a rapidly depreciating asset and unless this changes the less we spend on them the better, no matter how they are financed.

 

[ACCD]

Isn't a depreciating asset really a " liability " ?

 

[Montecfo]

The lease is not really the vehicle depreciation. It's the estimated depreciation that manufacturer assigns through residual value. Have to watch as some residual values are too low, you then pay more depreciation. And there are some where residual value estimate is too high, part of incentive program that lowers the lease price. Those are the real gems to find. Case in point, my current vehicle is leased and has a residual value of $26,500. I have looked at what other vehicles like mine are selling for, they are selling for less. So I underpaid on what depreciation actually was, saved me money.

The lease also includes "interest" on the full purchase price. So even if residual estimate was correct there's more than just depreciation being paid.

You make a good point. Actually several.

I have never leased a vehicle as we tend to keep them a long time. I notice that given SUVs and trucks are so popular now, leases on them could be a decent value if leasing companies are assuming an unrealistically high resale value. But also have to assume you only want the vehicle for the lease term, mileage works, etc.

But as retiree, mileage seems less an issue. May have to look into that.

 

[Austin704]

Isn't a depreciating asset really a " liability " ?

Not on a balance sheet. Assets can appreciate or depreciate from year to year. Now a car loan is most certainly a liability.

 

[mickeyd]

I was out to buy a new car for cash a few years ago and the dealer offered me a 3 year 0% loan due to my FICO score. I kept my cash and took the 0% offer w/o hesitation. I hate loans, but I love free $.

 

[Camping]

I was out to buy a new car for cash a few years ago and the dealer offered me a 3 year 0% loan due to my FICO score. I kept my cash and took the 0% offer w/o hesitation. I hate loans, but I love free $.

You may have paid a higher sales price than you could have in order to subsidize that 0% loan.

 

[brucethebroker]

Really anguished over spending savings on a "new" (to us) car. Looked into new cars with low interest financing, but no dealer really wanted to play ball (mid-2018)-0% or low int. rates but no discounts on pricing. Finally just pulled the trigger and wrote the check on a low mileage used one.

Whew! Glad that is over! The whole process (spending big $) was emotionally draining. But in retro, not as bad spending the savings as I thought it would be-getting along just fine without it. And we only replace cars every 7 years or so, so not a huge deal in the big picture.

 

[WestUniversity]

Isn't a depreciating asset really a " liability " ?

A depreciating asset is actually a deferred expense...

 

[bobandsherry]

Isn't a depreciating asset really a " liability " ?

Outside of a home, and even then no guarantees, almost everything we buy is a depreciating asset. For me just simpler to recognize it at the time as an expense. [emoji39]

 

[Texas Proud]

You may have paid a higher sales price than you could have in order to subsidize that 0% loan.

Might have, but also might not... they get money back from the car company to finance and it has nothing to do with the price of the car...


If there is an option to have cash back or financing then it is best to calculate which is better... for my sister's last purchase it was better to take the low interest financing... she bought a nice car...

 

[mickeyd]

You may have paid a higher sales price than you could have in order to subsidize that 0% loan.

Nope, not in this case. Offer/acceptance was made long after price was agreed upon.

 

[Oakster]

I have historically financed used cars (3-4 years old, low miles) with a large down payment and short term note, trying to get the best rate with good credit. Invariably I pay these notes off early because I abhor debt. A few years ago I decided to go the cash route and have set aside funding to replace my 12 year old truck and 10 year old car in the next few years. What I have found is there is no greater financing incentive than paying cash to squeeze a few more miles/years from an existing vehicle and to keep new car fever in check. If you can live without the latest technology (and I can) then you can easily save money by just buying and holding cars for longer periods. The fact remains that cars are a rapidly depreciating asset and unless this changes the less we spend on them the better, no matter how they are financed.

This is very true. There is a fear, or worry, of repairs and the cost of repairs. Honestly, you can buy a new vehicle and run it for 200k miles and not have much for serious repairs. They are much more reliable. There is not a reason to have new vehicles, or trade before the warranty is out other than " I want to" which is a good enough reason on its own. The tech thing is picking up speed though. Bluetooth connectivity with the phone and some of the intelligent vehicle technology coming out in roadways are big deals.