Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
New Car - Pay Cash or Finance?
Old 05-03-2019, 08:50 AM   #1
Dryer sheet wannabe
 
Join Date: Oct 2018
Location: San Antonio
Posts: 20
New Car - Pay Cash or Finance?

I'm retired and will be in the market for a new car this year. I've always assumed that my next car purchase would be cash but am having second thoughts.

I have the resources readily available in after tax accounts to pay cash. Ally Bank savings accounts currently yield 2.2%, and a 3 year CD yields 2.65%. I also know that I'm pre-qualified at my current bank for a 3 year car loan at 2.75% (the longest I'd want to finance for). I haven't searched for rates elsewhere at this point but can possibly do better on either or both.

Anyway, back to my question about financing versus paying cash. I of course don't like making car payments, but I also don't like the thought of taking a big one-time chunk out of retirement savings.

Is it simply an "interest rate math question" of calculating earnings on savings versus the cost of financing? Or is it a little more complicated than that? How have those of you in similar situations made car purchasing decisions?
__________________

popntx is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-03-2019, 08:57 AM   #2
Thinks s/he gets paid by the post
flintnational's Avatar
 
Join Date: Mar 2008
Location: Atlanta Suburb
Posts: 1,350
We bought a car about a year ago. We wrote a check for the purchase price. They did let us put part of the total on a cash rewards credit card (maybe $5k?). We did that just to get the 2% back on the credit card. The card was paid at the next billing cycle.
__________________

__________________
"Oh, twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees" - John Mayer
flintnational is offline   Reply With Quote
Old 05-03-2019, 09:00 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Jun 2003
Location: Historic Florida
Posts: 3,275
Lease, While money is still relatively cheap.
__________________
"Arguing with an Engineer is like rolling in the mud with a pig. Just remember that the pig likes it."
ShokWaveRider is online now   Reply With Quote
Old 05-03-2019, 09:03 AM   #4
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 1,998
Dealers make money on the financing. Negotiate hard on the price and offer them the opportunity to beat your financing.

2.75 percent is good in the current market. Most banks are above 3 percent now.
Another Reader is offline   Reply With Quote
Old 05-03-2019, 09:13 AM   #5
Thinks s/he gets paid by the post
Rianne's Avatar
 
Join Date: Aug 2017
Location: Champaign
Posts: 1,698
APR or APY? For CD and for car.
__________________
"If you want to go fast, go alone. If you want to go far, go together.
Rianne is offline   Reply With Quote
Old 05-03-2019, 09:14 AM   #6
Confused about dryer sheets
 
Join Date: Feb 2014
Location: Livonia
Posts: 6
When I need a new car, I only purchase one when the manufacturer offers zero percent financing. That way I am not taking a chunk of money out of my savings, nor am I paying interest. I only buy Fords. Currently , they have some zero percent financing incentives. Check out their web site.
https://www.ford.com/
Magoo30 is offline   Reply With Quote
Old 05-03-2019, 09:16 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Big_Hitter's Avatar
 
Join Date: May 2013
Location: In the fairway
Posts: 5,004
the difference in interest rates typically makes very little impact on a car payment
__________________
Swing hard, look up
Big_Hitter is offline   Reply With Quote
Old 05-03-2019, 09:17 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Big_Hitter's Avatar
 
Join Date: May 2013
Location: In the fairway
Posts: 5,004
Quote:
Originally Posted by Magoo30 View Post
. I only buy Fords.
sweet!

i have 3 fast cars and a ford myself
__________________
Swing hard, look up
Big_Hitter is offline   Reply With Quote
Old 05-03-2019, 09:22 AM   #9
Recycles dryer sheets
lemming's Avatar
 
Join Date: May 2008
Posts: 471
Ugh... I hate the thought of going through the process. I think, for the moment, that I am going to finance through my Penfed account and even use their car buying service to negotiate the price.
I am trying for a zero tax liability this year so if I buy this year I don't want to make any taxable withdrawals. Next year I intend to pay the balance of my mortgage which is a higher rate then Penfed is quoting for a car loan. The principal and interest is about what I expect a car payment to be.
I want the new Honda Insight which I have never seen so I am going to have to venture into a dealership before I start the process. I should really go now before I have money to keep me from an impulse buy.
__________________
.
lemming is offline   Reply With Quote
Old 05-03-2019, 09:25 AM   #10
Recycles dryer sheets
 
Join Date: Aug 2010
Location: Cedar Bluff
Posts: 449
The only debt we have now is the payment on my little John Deere tractor. We got some friends-and-family pricing plus they offered 5 years at 0%. I put the purchase price in a separate Ally savings account (currently 2.2%) and autopay the monthly payment out of it. I get a small pleasure watching the balance in the savings account slowly exceed the remaining balance due on the tractor.
__________________
"Time wounds all heels...." - Groucho Marx
LRDave is offline   Reply With Quote
Old 05-03-2019, 09:28 AM   #11
Thinks s/he gets paid by the post
Sojourner's Avatar
 
Join Date: Jan 2012
Posts: 1,063
Quote:
Originally Posted by popntx View Post
Is it simply an "interest rate math question" of calculating earnings on savings versus the cost of financing? Or is it a little more complicated than that? How have those of you in similar situations made car purchasing decisions?
I bought a new car several years ago and was prepared to pay for it fully in cash. At that time, the interest rate on my savings account was lower (around 1%, I think), so I was going to lose less by paying cash than with dealer financing at 2.5%. What changed my mind, though, was the $1,000 discount they offered on the already-negotiated sales price if I used dealer financing to pay for some portion of the sale. IIRC, I financed about $7,000 of the price, made monthly payments for about 4 months, then paid off the loan in full with no prepayment penalty. So I ended up paying a grand total of $65 in interest charges to get that $1,000 discount.

If I were you, I'd be prepared to pay for all (or most) of it with cash, but see if the dealer is offering any rebates or discounts for using their financing plan. These discounts can be substantial, and as long as you do the absolute minimum amount of financing allowed, you'll probably come out ahead. Just be sure to only bring this up when you go in to pay for the car. Up until that point, tell them you plan to pay fully in cash.
Sojourner is offline   Reply With Quote
Old 05-03-2019, 09:35 AM   #12
Full time employment: Posting here.
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 987
Unless you need the financing or it is cheaper than your cost of funds, why buy it?

Having said that, we did finance DWs new car in December because we received a$1000 incentive for doing so. And just paid it off. So incentives would be a reason.
Montecfo is offline   Reply With Quote
Old 05-03-2019, 09:35 AM   #13
Recycles dryer sheets
 
Join Date: Aug 2018
Posts: 184
The last time we bought a new car (2012), the dealer gave us an extra discount (about $700 or $800 if I recall correctly) if we financed through the dealer for some minimum amount - I think it was a couple of thousand dollars. And we had to keep the loan for at least 2 or 3 months.

After the 2 or 3 months, we paid off the loan entirely.
Lewis Clark is offline   Reply With Quote
Old 05-03-2019, 09:36 AM   #14
Full time employment: Posting here.
 
Join Date: Jan 2018
Location: NE Ohio
Posts: 726
Quote:
Originally Posted by popntx View Post
Is it simply an "interest rate math question" of calculating earnings on savings versus the cost of financing? Or is it a little more complicated than that? How have those of you in similar situations made car purchasing decisions?
We paid cash for several new cars without thought, until I'd read of the strategy of taking out a loan if the interest rate on the loan is lower than what you're earning with your investments. We financed our last car purchase because of that. You can usually pay off the loan early without penalty if you change your mind.

ETA: As others have done, we once took advantage of a 4 figure discount for financing a minimum amount through the dealer and paid it off right away. There was no minimum amount of time to keep the loan outstanding.
gwraigty is offline   Reply With Quote
Old 05-03-2019, 09:58 AM   #15
Recycles dryer sheets
Kwirk's Avatar
 
Join Date: Mar 2006
Posts: 226
When comparing rates, consider that you may be taxed on the interest you receive but unable to deduct the interest you pay.
__________________
Prepare for the future. Everything changes.
Kwirk is online now   Reply With Quote
Old 05-03-2019, 10:01 AM   #16
gone traveling
 
Join Date: Dec 2018
Posts: 656
I pay cash then I sit thru the finance guy song and dance on extended this extended that warranties all of which I decline. And when I trade in my car I get a pretty good deal even though the fuel gauge reads empty when I trade the car in.
Nick12 is offline   Reply With Quote
Old 05-03-2019, 01:15 PM   #17
Recycles dryer sheets
Qs Laptop's Avatar
 
Join Date: Mar 2018
Posts: 245
Quote:
Originally Posted by ShokWaveRider View Post
Lease, While money is still relatively cheap.
I would second this suggestion assuming the OP drives at least 9,000 miles a year and less than 12,000. If so, a 10,000 or 12,000 miles per year lease would be a good idea. You pay only for the amount the vehicle depreciates and no huge outlay of cash.
__________________
"Until I land a job that pays me to surf the internet I'm going to have to keep doing it at this one."
Qs Laptop is online now   Reply With Quote
New Car - Pay Cash or Finance?
Old 05-03-2019, 01:26 PM   #18
Recycles dryer sheets
 
Join Date: Jun 2017
Location: Rural community
Posts: 111
New Car - Pay Cash or Finance?

Following - need to purchase a new car in the next few months. Pay cash or finance?

Not this topic but what do I buy? Criteria - small SUV, AWD, heated driver seat, long term reliability, $25k
nhcycling is offline   Reply With Quote
Old 05-03-2019, 01:40 PM   #19
Thinks s/he gets paid by the post
ExFlyBoy5's Avatar
 
Join Date: May 2013
Location: Country Living
Posts: 3,146
Not giving advice really, just my recent experience. About a year ago, I purchased a new (actually used, but less than 18 months old @ CarMax) vehicle and financed it through USAA w/ a 2.9%'ish rate (or something in that neighborhood). Kept the note for a month then paid it off since I don't like having debt. Well, today...I wish that I still had that note as I would have made more than that in returns had I still had the cash. Granted, it's not a huge amount of $ in the grand scheme of things, but nothing wrong w/ financing and then paying it off later if you want to.
__________________
Retired in 2014 at the Ripe Age of 40
Founder and Head Lounger @ The Life of Leisure Institute
ExFlyBoy5 is online now   Reply With Quote
Old 05-03-2019, 01:52 PM   #20
Full time employment: Posting here.
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 987
Quote:
Originally Posted by ExFlyBoy5 View Post
Not giving advice really, just my recent experience. About a year ago, I purchased a new (actually used, but less than 18 months old @ CarMax) vehicle and financed it through USAA w/ a 2.9%'ish rate (or something in that neighborhood). Kept the note for a month then paid it off since I don't like having debt. Well, today...I wish that I still had that note as I would have made more than that in returns had I still had the cash. Granted, it's not a huge amount of $ in the grand scheme of things, but nothing wrong w/ financing and then paying it off later if you want to.
Hindsight is always 20:20.
That's why you don't wear bifocals on your butt.

__________________

Montecfo is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Finance or pay cash for RV? aksteelhead FIRE and Money 9 09-04-2017 05:05 PM
Finance house or pay cash? soupcxan FIRE and Money 31 01-18-2013 09:12 PM
New car, old car, same car? cute fuzzy bunny Other topics 74 06-15-2006 04:27 PM
Finance cars or pay cash? azanon FIRE and Money 24 02-27-2005 11:40 AM

» Quick Links

 
All times are GMT -6. The time now is 11:38 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.