Financing vs Cash
01-10-2008, 09:24 AM
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Financing vs Cash
Seeing that most of you are car enthusiasts and at least some of you are good with your money, I was curious about what you all thought about paying for a car outright vs financing a car.
Let's say you currently had a beater, but wanted a car that cost $20,000 and you had 2 choices:
1. Save up for 3 years and get it (or a better car) at that time, but have the title in your name, save in finance charges, have no car payment, etc. or
2. Finance the car now (assuming it's within your means) and have a much more enjoyable for those 3 years instead of having to drive a beater and save money (keep in mind you are a car enthusiast and would hate to drive a beater POS)
Consider the extra cost you pay for the financing as an entertainment expense, such as TV, eating out, etc.
What would be the more preferable scenario to you guys?
Let's say you currently had a beater, but wanted a car that cost $20,000 and you had 2 choices:
1. Save up for 3 years and get it (or a better car) at that time, but have the title in your name, save in finance charges, have no car payment, etc. or
2. Finance the car now (assuming it's within your means) and have a much more enjoyable for those 3 years instead of having to drive a beater and save money (keep in mind you are a car enthusiast and would hate to drive a beater POS)
Consider the extra cost you pay for the financing as an entertainment expense, such as TV, eating out, etc.
What would be the more preferable scenario to you guys?
01-10-2008, 09:26 AM
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Given the current (potential) heading of the economy, it is time to go back to the old adage: CASH is KING.
Wait a bit....save up.....you'll be surprised the deals to be had with available cash in the next couple of years.
Wait a bit....save up.....you'll be surprised the deals to be had with available cash in the next couple of years.
01-10-2008, 09:33 AM
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Originally Posted by sparrow,Jan 10 2008, 01:31 PM
you keep using the words pos...in that case i would finance if it is clearly bothering u...but i don't hate my beater in the least bit, i actually like it...so then i would save up
01-10-2008, 09:40 AM
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The financially responsible thing is to buy the car outright and not pay interest. That being said, there are some manufacturers out there that are GIVING money away.
Case in point...my wife and I recently bought a 2007 Sienna and financed for 1.9%. There are offers out there for 0%!!! If you can find a ridiculously low rate like this, you take it under the premise that a dollar in your pocket is worth more than the same dollar in someone else's (opportunity cost of capital).
Case in point...my wife and I recently bought a 2007 Sienna and financed for 1.9%. There are offers out there for 0%!!! If you can find a ridiculously low rate like this, you take it under the premise that a dollar in your pocket is worth more than the same dollar in someone else's (opportunity cost of capital).
01-10-2008, 09:40 AM
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Just depends on whether the added enjoyment you get from driving the car you want now is worth the cost of the finance charges you will pay to do so. That's a decision only you can make.
If your job is relatively secure, your easy monthly payments under control and you can get your paper purchased at a reasonable rate, the cost may be palatable. Financially you are usually better off saving and paying cash. If you can get 0% (or something close to it), buy now. In most cases, depreciation will be your biggest expense anyway.
If your job is relatively secure, your easy monthly payments under control and you can get your paper purchased at a reasonable rate, the cost may be palatable. Financially you are usually better off saving and paying cash. If you can get 0% (or something close to it), buy now. In most cases, depreciation will be your biggest expense anyway.
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01-10-2008, 09:50 AM
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Here are my thoughts:
1) You want to make the most of your money. If you can get a finance rate that is less than what you could make by saving/investing the money, then it's best to go ahead and finance. E.g., I financed my S2000 at 3.9%. CDs were offering ~5% APR at the time. So, take the cash and put it in the CDs and you're actually still making a profit. It's better to use somebody else's money than your own. Alternatively, if you can only qualify for a loan at 8 or 9%, then you'd be better off paying all or most of it in cash.
2) You don't want to be caught without cash. It's good to have a cushion in case of emergency. If that cushion is going to be compromised when you pay cash for the car, then I wouldn't recommend doing it. Go ahead and finance.
1) You want to make the most of your money. If you can get a finance rate that is less than what you could make by saving/investing the money, then it's best to go ahead and finance. E.g., I financed my S2000 at 3.9%. CDs were offering ~5% APR at the time. So, take the cash and put it in the CDs and you're actually still making a profit. It's better to use somebody else's money than your own. Alternatively, if you can only qualify for a loan at 8 or 9%, then you'd be better off paying all or most of it in cash.
2) You don't want to be caught without cash. It's good to have a cushion in case of emergency. If that cushion is going to be compromised when you pay cash for the car, then I wouldn't recommend doing it. Go ahead and finance.
01-10-2008, 09:52 AM
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I'm a big fan of financing everything as long as I have better places to put my cash. For example:
-If you have any tax-deferred investments available to you, you save you tax rate on that money, which will far exceed the interest you pay on a car. This one is a no brainer.
-if you have private school loans with high interest rates (higher than the car interest, beyond the amount you can deduct)
-if you have 2nd mortgages with relatively high interest rates (higher than the car interest, once deductibility is taken into consideration)
-if you feel that you can still return more than your car interest rate after taxes
For me, several of these apply, so it makes no financial sense to pay cash - it works harder for me in other places.
A lot of people value owning a car and making no payments--it's a fine strategy if you don't have other options to take better advantage of your money... but most people DO have better places to put their money, from what I've seen.
-If you have any tax-deferred investments available to you, you save you tax rate on that money, which will far exceed the interest you pay on a car. This one is a no brainer.
-if you have private school loans with high interest rates (higher than the car interest, beyond the amount you can deduct)
-if you have 2nd mortgages with relatively high interest rates (higher than the car interest, once deductibility is taken into consideration)
-if you feel that you can still return more than your car interest rate after taxes
For me, several of these apply, so it makes no financial sense to pay cash - it works harder for me in other places.
A lot of people value owning a car and making no payments--it's a fine strategy if you don't have other options to take better advantage of your money... but most people DO have better places to put their money, from what I've seen.
01-10-2008, 09:58 AM
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Lately (my last 2 cars) I have financed with 2.9% interest which is a lower rate than I can get on savings (5%), so in that case I do not mind taking a loan.
However a conventional loan 5.9% or more, I'd like to save up for a car. Maybe not the whole price but something like half down.
I am also thinking what would be better for me, for example (if) a STi costs $35K and a M3 costs $70K. in other words I could put half down on a M3 or own a STi with no loan.
in this example, I end up with a nice car, sure the M3 is a lot nicer but (?) is it worth another $35K (+tax +6% interest?) that would be really like $42K more.
It comes down to how much of a car I am willing to pay. I have ruled out cars such as the R8 or GT3 which are of twice a Cayman S (or 3x the cost of a Vette). I figure nice as they are no doubt I'd be pained to pay for them. With the Cayman or Vette being fine cars in their own right.
I also find that saving and investing is like eating potato chips, you can't eat just one. I mean every car I buy comes out of the pool of money (if not spent) that would be saved or invested. For example my wife has a new MDX which we pay $ xyz every month which if not for the car payment would be going into investments.
The richest guy I know personally is this 85 year old doc who still works full time. He's so rich he could buy half the town. But he didn't start out rich, he started out like me but invested more than he spent year after year till he's now insanely rich. He could buy an Enzo and not even blink. He boo-hoos when the market goes down, like he said he just lost $65K b/c Apple went down a few point. I wish I had that kind of problem.
I don't want to be like him, he doesn't enjoy his money, he is the end of the spectrum all work-no play. I'd like to be in the middle I realize how much investing is worth and how it's nice to have your money working. It's possible to make more from investment than from actual work, but you have to put one foot in front of the other you have to walk before you can run. And that means saving some time when you'd rather spend.
However a conventional loan 5.9% or more, I'd like to save up for a car. Maybe not the whole price but something like half down.
I am also thinking what would be better for me, for example (if) a STi costs $35K and a M3 costs $70K. in other words I could put half down on a M3 or own a STi with no loan.
in this example, I end up with a nice car, sure the M3 is a lot nicer but (?) is it worth another $35K (+tax +6% interest?) that would be really like $42K more.
It comes down to how much of a car I am willing to pay. I have ruled out cars such as the R8 or GT3 which are of twice a Cayman S (or 3x the cost of a Vette). I figure nice as they are no doubt I'd be pained to pay for them. With the Cayman or Vette being fine cars in their own right.
I also find that saving and investing is like eating potato chips, you can't eat just one. I mean every car I buy comes out of the pool of money (if not spent) that would be saved or invested. For example my wife has a new MDX which we pay $ xyz every month which if not for the car payment would be going into investments.
The richest guy I know personally is this 85 year old doc who still works full time. He's so rich he could buy half the town. But he didn't start out rich, he started out like me but invested more than he spent year after year till he's now insanely rich. He could buy an Enzo and not even blink. He boo-hoos when the market goes down, like he said he just lost $65K b/c Apple went down a few point. I wish I had that kind of problem.
I don't want to be like him, he doesn't enjoy his money, he is the end of the spectrum all work-no play. I'd like to be in the middle I realize how much investing is worth and how it's nice to have your money working. It's possible to make more from investment than from actual work, but you have to put one foot in front of the other you have to walk before you can run. And that means saving some time when you'd rather spend.