Cash or loan

[pb4uski]

I hear you... and that is what I am weighing...but on the other hand that $540/year will pay for a good bunch of dinners for me and DW at our neighborhood watering hole and it could be more... or could be less.

[Animorph]

We financed DW's last two cars with 1% to 2% loans. No hassles that I remember. Once it was set up for auto-debit from a checking account there was nothing else to do. One loan started in 2001, I think that car was about 50% off or more when I subtract investment gains from the price. The second one I didn't track as carefully, but the loan started in 2009 so I'm sure that was a cheap car too. Got to break DW of that recession car buying habit!

As a one-time short-term thing I'd do what is easiest for you. If you have opportunities to do this more often your average results have a better chance of being positive.

[walkinwood]

Do the deal! Like you said, if your portfolio didn't return greater than 1.9% (it actually has to return less because of compounding), it won't be a big deal.

This way, if it works out, you'll feel great about it and have a good story to tell. And like you said, what's the point of pinching pennies if you let a big deal get away because of a little risk.

It seems to me that you're trying to get enough reasons NOT to get the loan. I believe that there comes a time when you've expended enough effort into a decision that you should just go with it. Sometimes it works, sometimes it doesn't, but you know the outcome.

[Jerry1]

Not sure of your retirement portfolio, but here's another consideration I've been considering. Let's say you were living pretty lean and are under the 28% tax bracket. It's possible that taking the entire amount from a tax deferred account will cause a 28% tax consequence. Where if you are about $6000 under the highest tax bracket ($30,000 car divided by 5 year loan), you could keep from having to pay the higher tax bracket on the money you need for the car.

Of course, this is probably not something that most will have to be concerned with but it's a possibility that's not too far fetched.

[walkinwood]

Can you put the car payment on a credit card and pay in full at the end of the month?

There's a citi card that gives you 2% cash back.

[48Fire]

I took out a similar loan. There was never any proof of insurance needed. The payments are on auto-pay, so it is transparent. We live in Florida, where title is electronic, so no impact there either. There is no hassle that I can see.

[Texas Proud]

Quote:

Originally Posted by pb4uski Why did you send them the claim payment... was the check made out to them as the lienholder? I guess you're right on the insurance. I was just messed up because I recently had a hoop to jump through with my mortgage company because my homeowner's insurance renewed.

Yes, it was made out in both our names.... I had a big one and a 'small' one (about $1800)... had them send me the big one back, but did not want to jump through the hoops of going to a dealer, having them look at the vehicle and write a letter saying it was fixed....

At first I deposited the check, but then it was returned as not endorsed properly...

[Texas Proud]

Quote:

Originally Posted by walkinwood Can you put the car payment on a credit card and pay in full at the end of the month? There's a citi card that gives you 2% cash back.

They will not take CC for purchase of a car... I would say you can make monthly payments with a CC and get the same rebate... but then you have to set it up...

I make our health insurance payments monthly... never thought about the car payments... but I am with Cap 1 at 1.5%.... but, it would get me an extra $100 per year back...

[walkinwood]

Quote:

Originally Posted by Texas Proud .....I would say you can make monthly payments with a CC and get the same rebate... but then you have to set it up...

Sorry I wasn't clear, but that's what I meant.

[Ronnieboy]

A number of years ago (decades) it seemed to be the common thought that paying cash would get you the best deal and a better negotiating stance. From what I have heard recently (no proof) is that car dealers get a little kick back from financing a car. If the financing is 1.9% the dealer gets .3% of that and they make a little more in back end money. So you might even be able to negotiate a better deal by saying you will finance and then pay it off a few months later if you desire.

[34rlsa]

We have found offering cash made no difference in negotiating a better price on our last 3 vehicle purchases. We actually got better deals by financing a small portion to qualify for the financing incentive ( $1000.00 rebate to finance our RAM ) We were then able to pay off the loan with a credit card and bag the airline miles as a bonus.

Without getting into all the details... I just bought my wife a new car and financed about 50% of the purchase through PenFed at 1.49%. I wasn't expecting to replace her car this soon but it made more sense to borrow a portion than to deplete our non taxable savings vs the taxes we would have owed to take funds from other sources. PenFed was really easy to work with and made the process very easy.

[Another Reader]

I generally buy the "commodity" product - Camry, Corolla, Accord - the high volume bread and butter cars. What I do is research the three or four cheapest dealerships in a 100 mile radius to get an idea how much I can get the car for with cash. I then conduct e-mail discussions to confirm the lowest price. That price will much less than the BS "dealer invoice."

Before I start negotiations, I check the banks and credit unions for the lowest cost financing. Right now you can get under 2 percent at several credit unions. When I'm asked if I want to pay cash or finance (I don't discuss financing or payments until I know what I'm going to pay for the car), I tell them what the credit unions and banks have offered me by name and tell the dealer if they can beat that I will take their financing. Last two cars they beat the credit union financing. I paid much less than sticker minus all the "incentives," and I got the lowest available financing rate.

There is really a wide range of attitudes/business models among new car dealers. By narrowing the dealership pool to the high volume ones that will sell for the lowest prices, I cut out most of the negotiation hassles. They get kickbacks on the financing, so they are incentivized to sell that to you at the same or lower price than you can get elsewhere. I have also paid cash when it made sense to do so.

Note that this applies to the Japanese manufacturers. I have no idea how to buy an American car, as no American manufacturer's product has been in the driveway for at least 40 years. Leopards don't change their spots.

[eta2020]

I tend to agree with Midpack that paying cash will result in better price. I email dealers with take home price (includes all fees, taxes, plates, inspection sticker) I want to pay telling them I can buy it today right now....

Then I get agreement via email and pay deposit with Credit Card. If I start shopping for car at 9:00 AM normally by 11:00 AM I bought it without going into any dealership.

Next I visit dealership and pick up color of car.

You will get a good price if dealers see that you can 100% buy it and you are ready to do business right now. Though some will shun idea of selling car over email.

[pb4uski]

Quote:

Originally Posted by Texas Proud They will not take CC for purchase of a car... I would say you can make monthly payments with a CC and get the same rebate... but then you have to set it up... I make our health insurance payments monthly... never thought about the car payments... but I am with Cap 1 at 1.5%.... but, it would get me an extra $100 per year back...

Huh, I never thought of putting loan payments or health insurance premiums on CC to get my 2%.. interesting idea.. I'll have to check that angle out.

[pb4uski]

Quote:

Originally Posted by eta2020 I tend to agree with Midpack that paying cash will result in better price. I email dealers with take home price (includes all fees, taxes, plates, inspection sticker) I want to pay telling them I can buy it today right now.... Then I get agreement via email and pay deposit with Credit Card. If I start shopping for car at 9:00 AM normally by 11:00 AM I bought it without going into any dealership. Next I visit dealership and pick up color of car. You will get a good price if dealers see that you can 100% buy it and you are ready to do business right now. Though some will shun idea of selling car over email.

That's pretty much what I did except it was by both email and phone and I had to focus on out the door price excluding taxes title and registration since I was dealing with out-of-state dealers and would have to register it myself if I bought it out-of-state (I could drive it home on a 20 day plate). I also knew the trim level, exterior and interior colors I wanted from visiting a dealership and test driving the car so all those were already defined. I found an out-of-state dealer that was far below everyone else I talked with and used their deal to negotiate a good deal with my local dealer. (see post #9 for details).

How do you determine the price that you are wiling to pay to which you then add taxes, title and registration? and how does it relate to dealer invoice?

[eta2020]

Quote:

Originally Posted by pb4uski How do you determine the price that you are wiling to pay to which you then add taxes, title and registration? and how does it relate to dealer invoice?

I spend lot of time researching TrueCar, edmunds, various groups etc etc trying to determine bare bone price . This usually takes me several days. I buy vanilla cars so that can be easily done....

Then I add to it taxes, 30 bucks for inspection sticker, 100 for processing fees. Thereafter I email every dealer in the area. I always buy Hondas and Boston area has probably more then 10 dealers.

I make sure that dealer has at least 10 plus cars of type I want and I have a right to choose one of them. I do not go to test drive anything or talk to anybody over a phone etc etc. They can either sell over email or I go somewhere else. Once dealer agrees I call him and give him credit card to make 3000 buck deposit on car and agree on date when I will stop by and select specific car from the lot.

That is it

[Dash man]

We had a 1.49% loan worked out with USAA when The Lexus dealer came back with $4500 off the sale price if we used their 2.38% financing. With no prepayment penalties it was a no brainier. Ended up getting the car for invoice minus this extra $4500. When they tried to lowball my trade in I nearly walked and they quickly brought it up to its realistic value. I love year end car shopping! We'll be debt free again soon.


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[Senator]

I would have the tendency to get the loan, and pay it off early to spread the large amount over a couple of years.

Even with my 0.9% auto loan, I paid it off over ~2.5 years. Why take the large portfolio hit all at once?

[Dash man]

Quote:

Originally Posted by Senator I would have the tendency to get the loan, and pay it off early to spread the large amount over a couple of years. Even with my 0.9% auto loan, I paid it off over ~2.5 years. Why take the large portfolio hit all at once?

In our case we have a lot if cash now and are unsure where to invest it right now, so paying off the car makes sense. Kids may benefit with a nice gift this year too...if they behave!


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[Looking4Ward]

I used to subscribe to the theory that it was better to pay cash for a depreciating asset.

But with loaned money being so cheap I've gone against that theory when it comes to vehicles. I recently purchased a new Jeep Wrangler with 1.9% financing for 60 months. Wellington or Wellesley pay more than that in dividends and Wranglers hold their value pretty well so the decision was easy for me. Besides, I can always pay it off if I change my mind.