Finance cars or pay cash?

[azanon]

Do you guys who still by new cars pay cash for them or finance them.?

You always here that a key to being financially savy is to stay out of debt, but the ways its been for a few years, you get these 3.9%, 2.9%, 1.9% offers on financing rates, and its just hard not to take that even if you have the cash.

I've also been told by dealers its a myth that "paying cash" will get you a better deal, cause dealers often make a bulk of their money from the financing portion of the sale.

 

[unclemick]

I used to always finance - wait a while(6mo -1 yr) and pay off the loan. Been a long time since I ran the numbers so the idea may be bogus in todays market.

The last time 1999 - I would have had to sell stocks whose div growth was in the 10-17% yield on invested $ so I financed at 9% - a less than stellar example(don't do that).

 

[Nords]

You always here that a key to being financially savy is to stay out of debt, but the ways its been for a few years, you get these 3.9%, 2.9%, 1.9% offers on financing rates, and its just hard not to take that even if you have the cash.

Buy used, pay cash, drive 'em into the ground.

I understand that you're asking about a new car and that you don't necessarily care about used-car zeal, but cheap financing seems like buying a new house these days-- who cares how good the interest rates are if you're buying overpriced merchandise?

At least the land under the house appreciates. Eventually. Hard to say the same about a vehicle.

 

[lets-retire]

The general rule I use is if your making more on your investments considering inflation, than your spending on interest finance. If your spending more on interest than your making on investments pay cash.

 

[azanon]

I understand that you're asking about a new car and that you don't necessarily care about used-car zeal, but cheap financing seems like buying a new house these days-- who cares how good the interest rates are if you're buying overpriced merchandise?

I've never been much of a gambler Nords.  If someone's selling a relatively new car, then, naturally, there's a reason.  I would think in the top 5 lists of general reasons, one would be that the car has been problematic.

So, you cant afford to pay that extra 3-4 thousand premium.  I cant afford to eat a 10-15K dollar investment cause someone sold me a lemon.  Sure, you can have a mechanic check it out, but is that going to guarantee that he can find any and all problems?

My other comment is there's a reason those first 2 years costs a little more.  When is any car most enjoyable?  When its brand spakin new right, and when everything in it functions correctly.  It'd be unrealistic to think you dont have to pay a little more to own the car in its prime.

Also, i'm of the opinion used car prices are too high.  I'm literally insulted everytime I check our Arkansas classifieds and see that someone put the first 40K on their 2 year old new car, and just knock a few thousand off it.  These folks think they can drive 40K miles in a brand new car, then pass it off to someone else for the ownership cost of only 2-3thousand during that time?  Forget you, I mentally tell them.  Worse, they've eaten up 2/3rds of the warranty.  If you ask me, the sucker is the one buying these.

A car is not a piece of artwork. You may pay less for a 2 year old car, but you're getting a car with 2 years less of its life.... at best. At worst, you bought someone else's lemon.

 

[Hyperborea]

You always here that a key to being financially savy is to stay out of debt, but the ways its been for a few years, you get these 3.9%, 2.9%, 1.9% offers on financing rates, and its just hard not to take that even if you have the cash.

In many cases if you take the cheap financing deal then you don't get the rebates. What does losing $500 or $1000 (or more depending on the vehicle) do to the comparison?

 

[azanon]

In many cases if you take the cheap financing deal then you don't get the rebates. What does losing $500 or $1000 (or more depending on the vehicle) do to the comparison?

It just depends on the car. Sometimes both are offered, however sometimes you'll see just the low financing or the rebate. I agree, if a rebate is offered as an alternative, that should make up for or near make up for the loss of not taking the low financing.

 

[renferme]

Bought a car in Nov 2004. Financed thru Capital One, made 2 payments, Dec and Jan, then paid if off Feb 1.
Don't know what I'll do the next time, but, I hate debt.

 

[Rich]

azanon:

>>>If someone's selling a relatively new car, then, naturally, there's a reason. I would think in the top 5 lists of general reasons, one would be that the car has been problematic. <<<

Respectfully disagree. I like Toyotas. There's a place near me (excellent garage, especially for Toyotas and Hondas) that gets either off-lease or cars their owners can't afford. Low mileage, nice cars. Much less expensive then new. I hate to haggle, so I just asked them what a fair price would be and the number seemed within reason (a year or so back, $17,000 on a 2001 RAV-4 with 13,000 miles on her). I know you can do better, but this works for me.

 

[P.S.]

If someone's selling a relatively new car, then, naturally, there's a reason.  I would think in the top 5 lists of general reasons, one would be that the car has been problematic.


Also, i'm of the opinion used car prices are too high.  I'm literally insulted everytime I check our Arkansas classifieds and see that someone put the first 40K on their 2 year old new car, and just knock a few thousand off it.  

Yes there is a reason and in the case of my mom's 2 y old infiniti (don't know the model but a nice big one) the seller decided to give up his hedonistic L.A. lifestyle and move to the far East to become a Buddhist monk.  So he was happy to take my parents $12,000 for a car with <20k mi.  She's had it two years so far with nary a problem.  Don't think she's even had to change tires yet.  

In-laws bought a 2 y old Cadillac (again a nice big one)for %50 the original price, less than 15k mi.  No problem so far for 3 y.  And yes, it did and still does look new.

Think our car was the only new one in immediate family (on both sides) for decades. And even that one was showroom model x3 mo in the country it was made. Bought overseas, so we saved shipping, sales tax, and "showroom reduction."  Blue book value 3 years later is more than we paid (cash, like bennevis, do not like debt).

Azanon, think you were the one quoting TMND book awhile ago...remember the story of the couple who drove into the big city to get the good car deals?

 

[azanon]

Respectfully disagree. I like Toyotas. There's a place near me (excellent garage, especially for Toyotas and Hondas) that gets either off-lease or cars their owners can't afford. Low mileage, nice cars. Much less expensive then new.

You disagree with what; that sometimes an owner is selling a problematic car?   Please dont take this the wrong way, but that's pretty naive isnt it?  

Just FYI, my wife's previous car was a 96' Honda Civic we bought new.  I had all kinds of problems with it within the first two years.  

I'm not saying people dont sell relatively new cars for other reasons.  I did, though, say it was probably one of the top 5 reasons.  You listed another one of the top 5.  Again, it comes down to how lucky you feel.  

Had I sold my Civic to you at 2 years old for KBB price, I assue you you would have lost in that deal.  I know cause i owned it an additional 6 years.

Yes there is a reason and in the case of my mom's 2 y old infiniti (don't know the model but a nice big one) the seller decided to give up his hedonistic L.A. lifestyle and move to the far East to become a Buddhist monk.  So he was happy to take my parents $12,000 for a car with <20k mi.  She's had it two years so far with nary a problem.  Don't think she's even had to change tires yet.

Do people "living it up" in the moment pay for car maintenance?  hmmm, I would think it would be low priority for that kind of person.     But, glad that turned out good though!   I never said that choosing to roll the dice always means you're going to lose.  

In-laws bought a 2 y old Cadillac (again a nice big one)for %50 the original price, less than 15k mi.  No problem so far for 3 y.  And yes, it did and still does look new.

2 for 2.  That must mean this can never go wrong?  Or does it mean that?

Think our car was the only new one in immediate family (on both sides) for decades. And even that one was showroom model x3 mo in the country it was made. Bought overseas, so we saved shipping, sales tax, and "showroom reduction."  Blue book value 3 years later is more than we paid (cash, like bennevis, do not like debt)

Showroom models arn't driven around, so i guess i'm missing the point on this one.  My 240sx i own now was assembled in japan and I actually consider that a plus.  Call it racial stereotyping if you want, but the japanese pay particular attention to detail more than americans I think.

Azanon, think you were the one quoting TMND book awhile ago...remember the story of the couple who drove into the big city to get the good car deals?

I dont remember the story you speak of specifically, but i remember there was actually a good mix of millionairres who either bought new or bought used.  Seems like the more distinguishing issue amonst them was that they owned the cars they bought longer, and that they tended to buy large, american brands.  

They had a sort of dumb statistics that said only like 24% are driving cars less than one year old, as if to argue that makes them frugal.  24% have cars less than one year old??  Sounds like the majority of them are driving new rides to me if one-fouth have cars fresh off the lot.   My car is 10 years old.

When it comes to autos, i think the new vs used issue has a lot less impact on how much you spend on autos over a period of time than how long you own them.  I bought my 240sx loaded in 1995 for 24K dollars.   Yes that's a lot of money, but i'm going on 10 years+ now of ownership and i might just last another 10 years with her.  She only has 80K miles.  24K/240 months should come out to a very low cost i would think, despite me buying new.

 

[P.S.]

2 for 2.  That must mean this can never go wrong?  Or does it mean that?


Showroom models arn't driven around, so i guess i'm missing the point on this one.  My 240sx i own now was assembled in japan and I actually consider that a plus.  Call it racial stereotyping if you want, but the japanese pay particular attention to detail more than americans I think.

They had a sort of dumb statistics that said only like 24% are driving cars less than one year old, as if to argue that makes them frugal.  24% have cars less than one year old??  Sounds like the majority of them are driving new rides to me if one-fouth have cars fresh off the lot.   My car is 10 years old.

2 for 2?  No, actually for my immediate family, it's more like 9 for 10, with the chronology extending back to when parents first landed in the US for grad school.  The 1 lemon was an acura legend probably a drug dealer's car bought from police auction.  This car, bought for goood priiicee, nonetheless req. several thousand to make it acceptable (remember mom driving to some junk parts dealer to get door handle, etc).  This is not inc. my husband's family, or the experience of many friends.  

So azanon, yes you could get a lemon, but then again you might not.  And in my personal experience, it's rare to get the lemon.  I guess it's like anything in life, there are risks, you weight the pros cons, and make your best educated choice.

Regarding our car, my point was that although most people would consider it new, we "felt okay" in buying the three month old car because the discounts shaved off about 30% of what the US price would have been.

TMND recounts the experience of a small town couple that would scour the classifieds of a big city paper to find their used car.  They would drive >2h (if I remember correctly), since they saved much more than buying locally where the choices were more limited and more expensive.  I don't really know Arkansas' car population, but there are places in D.C. where every second or third car is a Mercedes/BMW.  Since the roads are chock full of these brands, I would guess the classifieds would have many more for sale, at lower prices than say rural Indiana.

Anyways, to answer your original question: these "guys" pay cash.

 

[azanon]

Anyways, to answer your original question: these "guys" pay cash.

Yeah. Its probalby a psychological issue, more than anything. You can run the math, and say, yeah get one of those 1.9% financing deals, and put the cash instead in a stock mutual fund. But I think what ends up happening is you finance the car, then dont have the discipline to keep the money invested and wind up buying something else with it. So you end up with 2 toys (car and something else), a car loan, and no cash left to offset it.

 

[brewer12345]

I think with new vs. used, it is a trade-off between risk and reward. Hondas and Toyotas generaly don't depreciate fast enough to make the risk of the lemon worth the relatively small reward. OTOH Buicks generally have excellent long term reliability, but depreciate like a used tissue. Depends on the car and the depreciation rate.

When I have bought new cars, I have always financed. When I was younger, it was because I didn't have any choice (didn't have the cash). A couple of years ago, I financed because the manufacturer was only offering below market interest rates as an incentive (no rebate option). Now, it would depend on what the cost of the loan was versus whether I felt I had attractive risk-adjusted investment options. With Pen Fed offering 3.9% money for up to 5 years, I might be inclined to take them up on that offer and stay fully invested. If rates were in the 7 or 8% region, I would be more inclined to pay cash.

 

[cute fuzzy bunny]

I've bought hondas and toyotas new, as mentioned they dont depreciate.

If you're NOT going to sell the vehicle, buying a lesser appreciated brand that is reliable and depreciates hard...for example Infiniti...bought off a 3 year lease...can be a good deal. I snagged a Q45 with 50k miles on it four years ago for well under $20k. A decent bargain if you want a luxo mobile and dont want to pay through the nose for it.

As far as financing vs buying...you need to know ALL of the incentives. If any of them are offset by charging you more for the car then they're not a deal. If you can get sub 4% financing thats manufacturer subsidized regardless of the vehicles price point then thats worth taking. If its more than 4-5%, then I'd cash a CD or a bond and buy it outright.

Also, without a loan you can drop your comprehensive and collision coverage when they're no longer worth it...a key point if you're buying a 3-4 year old car with a 3-4 year loan...after 5-6 years the comprehensive and collision dont pay squat.

I pay cash, but I dont tell them that until I'm ready to sit down with the finance manager...which is where most of the car dealers are making their money these days. Extra insurance, care plans, etched glass security numbers, alarms, etc. You think your deal is done...its not...

Thats where I tell them I've decided to pay cash, that I want no extras, and that if any extras have already been "applied", that I'm not interested in paying for them and will go buy another car if they insist.

 

[Spanky]

you get these 3.9%, 2.9%, 1.9% offers on financing rates, and its just hard not to take that even if you have the cash.

If the price of the car is the same (cash or fianced) and no other fees or catches (e.g., early payoff penalties, you must pay it off in a short period, reduced rate is limited to certain models), this would be a good deal.

 

[unclemick]

I still have a paperback of John R. Olson's barnburning classic - 'Make Money Owning Your Car'.

The gist being - buy an 8-10 year old vehicle headed for antique stardom and keep it shape.

I ran out of patience with my 1967 XKE 2+2 coupe and later my 1968 Camero SS.

The itch has largely faded and I drive pickups.

 

[Nords]

I've never been much of a gambler Nords. If someone's selling a relatively new car, then, naturally, there's a reason. I would think in the top 5 lists of general reasons, one would be that the car has been problematic.

C'mon, Az, you're scaring the rest of the class. Of course lemon problems are one reason to sell a car, but those sellers aren't that hard to avoid. Spouse and I are able to afford the premium, but that and "new car smell" have as much value to us as using the premium cash to light our barbeque. That buys a lotta longboards.

You're so focused on the pitfalls that you might be missing the opportunities. I'm not going to try to change your mind, but for everyone else here's an approach that's worked for us.

Oahu doesn't get much selection via eBay or other auction sites (yet). All of our finds have been in the classifieds, and I believe that the best (not necessarily most aware or alert) sellers still use the classifieds.

The key is to not have a deadline. If your car dies alongside the highway and you can't handle a few weeks of bus/cab rides, then you're screwed. If your repair bills are mounting or if you can hear the car's impending death rattle, though, plan to make a purchase within 4-6 weeks.

Although Snively Whiplash may be trying to unload his lemons, usually the seller's reasons defy your bargain-hunting logic. Most sellers are buying bigger for their growing family, or "upgrading" (we LOVE these people), or trying to raise money. Usually they're pushing a deadline and counting on you to help them justify their next purchase with your cash.

We usually look for cars at least three years old-- they've accumulated a significant maintenance & reliability history. We've gone as old as seven years (cherries driven by little old ladies) but we usually try to stick to younger than five. Once you pick a flexible range of models & styles for your needs (Toyota or Nissan, four-door sedan or station wagon, not "red two-year old Lexus") then keep scanning the classifieds. Find what appeals to you and set up a test drive. If the ad has been placed by a dealer, then move on to the next one. There's no need to pay their markup.

Drive the car to get an impression. This is more valuable than any other research and can save you lots of wasted time if you discover something that you just can't live with. The one item of information you must obtain on this test drive is the VIN, but feel free to check maintenance records or body condition or whatever else is important to you. If the title says "Salvage" or has a different name than the person showing the car, then you probably want to shop elsewhere. If the title still has a bank lien on it then you'll need the bank to discuss clearing the lien as part of handing a check to the seller. (We've never bought a car with a lien but it may save even more during price negotiations.) Otherwise if these problems don't pop up, then you'll be driving the car again later anyway.

After the test drive, your next tool is the library's copy of the Consumer's Report Used Car Guide. If that model of car has a crappy mechanical history then move on to another choice. If you really liked the test drive, then think hard about why you'd go against their recommendation. You may be paying for it in a few years.

If CR thinks the car seems OK, then sign up for an unlimited 30-day CarFax account. Run the VIN and print it out for the owner to review during price negotiations. Again if CarFax says "Salvage" then you probably want to shop elsewhere.

Finally, check the car's value on Kelly Blue Book or Edmunds. Again keep a printout for negotiations.

When you have two or three candidates that you can live with, you're negotiation-bulletproof. Call the owners back, drive the car a second time, and discuss with them whether you want a mechanic to look over any funny sounds or other issues. (We've never had a mechanic look over our purchase, but it might scare the seller into lowering their price. Or it'll tell you if they're trying to pass off a lemon.) If title isn't clear (death, divorce, owner's "unexplained" absence) then move on-- you have other perfectly acceptable candidates on your list.

Discuss your printouts with them (if necessary) and make an offer. Don't bargain or get spooked into raising your offer, because you have the other perfectly acceptable candidates on your list.

If the owners accept your offer, try to write a personal check or obtain a cashier's check within the hour (before anyone has second thoughts). You must conclude this process with (1) the car, (2) as many car keys/remotes as they can find, (3) the title signed by all owners, and (4) the registration. Hopefully it occurs during daylight and with license plates, but both are optional. If you're worried that these people are holding back a key then you shouldn't be buying this car from them in the first place-- you have the other perfectly acceptable candidates, blah blah.

Get the car re-titled & re-registered ASAP. One of our purchases still had a bench warrant out on the old license plate...

We've owned seven cars over the last 20+ years and only one of them was bought new. The only times we've had "issues" has been when the car reached 13 years of age... after 100K miles over the previous decade.

 

[lets-retire]

I had a friend whos car ownership theory was "all cars are throw-aways." His philosophy was to buy the hunk of junk for about $1500 and drive it until it dies. He drove some real winners. If you think about it he actually saved a good amount of money. He said they normally lasted 1-2 years, so if you figure the cost they were right about 100 a month. The one I saw him driving he had for 4 years, and it only cost him $600. If something major broke, major to him was the cost of another car, he'd call the junk yard and have them tow it off. He'd get $50 for the scrape and pay another $1500 for the next car.

 

[JOhn Galt]

Hello lets-retire! From a purely economic point of view
I am in complete agreement with your friend, i.e.
treat cars as disposable and when they die, just call
the scrap man. But, most of us can't (won't) do it.
In my case, I retain some sense of "appearance"
or "style" and so we can't drive junkers. Absent this,
I think "drive 'em and dump 'em" is the way to go.

JG

 

[Shredder]

I had a friend whos car ownership theory was "all cars are throw-aways." .

Lets retire, I had a friend who had this down to an art form. We used to work on the road, away from home for months at a time, but drove home weekends. He would buy a junk car and run it into the ground. Not even looking at oil let alone changing it. On the rare occasion they puked he would sign the title leave it on the seat take his things out and leave it were it sat. Then bum a ride till he could find another junker. He claimed to make out like a bandit, since we were paid milage....Shredder

 

[John Galt]

Wow Shredder! That's takin' it to a whole higher
level.

When I was on an expense allowance, I traveled
first class, drove Cadillacs and lived (temporary
housing) in the toniest part of town. All made sense back then. If only the ER bug had bit me 5 years earlier.
I sure could use that money now. OTOH, I was running a company and couldn't very well show up in a 1952
DeSoto

JG

 

[VoyT]

I had a friend whos car ownership theory was "all cars are throw-aways." His philosophy was to buy the hunk of junk for about $1500 and drive it until it dies.

You must know my brother-in-law, that's his philosophy. He probably did save a lot of money, but then again, there was that one car that croaked on the New York Throughway .... I'm told he had a heck of a time getting home.

 

[Craig]

I've spent over 15 years working in automotive retailing, and ... pros in the business agree ... cheapest way to live is to buy them slightly used, keep them maintained, and ... drive them into the ground.

'Course, if everyone did that, none of us could have made a living in automotive retailing ...

There is the rare exception.  We try to buy Toyotas.  Like Southwest Airlines, they're cheap, and they get you there without fail.  But ... when shopping for a slightly used Camry, we found the used models were almost as expensive as new, and very tough to find on the privately owned market.  So, we bought new.  In that case (1 year ago), financed with a 4% credit union loan.  Paid off the loan anyway, but new was the way to go in this case.

Another cute trick, if you don't drive much ... buy a classic.  Buy the right, older car, and you may not make much money on the investment, but it will probably at least break even.  But don't pile on the miles, and baby that car.

Last piece of advice ... watch those old luxury cars.  For grins, call the Lexus dealer some time and tell them your power windows, seats, or some other hi-tech component has gone out, and ... the car is out of warranty.  The Lexus is one great car, but like all premium luxury models ... when they break, and it is out of warranty, those are some very big numbers.

By the way ... yes, car dealers do make a lot of money on the "back end" ... the F&I portion of the car deal. Old rule of thumb was to make $1K on the front (gross profit on the sale of the new or used car), and $1K on the back [finance reserve (dif between your interest rate and were we borrow money), and profit on extended service contracts, etch, gap insurance, etc.]. To be fair to the dealers, it is still a competitive business ... good domestic dealers only make 3 to 4% EBITDA.

Good luck ... fun subject.

 

[BUM]

Trying to get this thread back on the road... Debt is a nasty four letter word in ER. If you can afford a new car and you want a new car - get one. I bought a new truck in 2003 at 0% for 5 years. I'm agressively paying it down. Should be done in 12-18 months.

IMO no debt is better than debt. Even interest free debt.

BUM