I am going to get myself a new car soon. I’m an analyst in Chicago so driving is still a possibility. I can’t decide whether to buy a car in full or to downplay a large sum and then pay off the rest of the car with credit. I have the cash saved up to buy either a newer Acura ~25k or a Lexus ~30k (the two cars I am deciding upon) but I know that my credit score has potential to raise if I open a line of credit on a car. I currently have zero debt either.
Has anyone bought their car in full with cold hard cash? and would you do it if you had the money? or is it still a good idea to use a credit to pay it off?
if you’re set on buying a car, suggest looking at hertz car sales (can be found on google). hertz will be trying to quickly sell off a large portion of their portfolio so could look for barely used cars.
leasing a car still provides a lot of good benefits and can get a pretty competitive rate. its always nice to switch out for an upgraded model at lease end.
I don't think it would be a bad idea to pay off over time and increase your credit score, especially since it'll probably be an easy monthly payment to make. But also think leasing could be a good option, especially with how quickly new technology is incorporated into cars, it could be nice to have the option to upgrade to better features in the future without having to worry about selling your current car?
If you can get a low rate, I would take a loan on the thing and put the rest of the money to work, I would recommend like 20-30% down. The car is going to depreciate, so if you throw $30k into it, that money is basically gone.
First car I bought, I got a shit interest rate (~5%) because I hadn't ever had a car payment in the past despite a ~800 credit score and ~100k/year income. Vehicle was ~35k for reference. Was able to quickly refinance within a year to a more market rate, but the experience taught me that lenders care a lot about your "first". Would recommend getting a loan for at least a portion.
Lot of dealerships are doing 0% financing right now. If you're considering a new car, might as well save the money and put it to work.
0% is a great offer, just make sure you don't go under water on the thing, buying used will probably help avoid this.
With a 0% rate you could be tempted to put down the minimal amount ($0 usually) and stretch your loan for as long as possible, which can be great when looking at TVM. You just need to be weary that you're paying down the equity faster than the car depreciates, otherwise you could be driving around in an underwater car for a period of the loan, and a car crash or selling it could put you in a position where you would have to pay to get rid of it.
The concept of being underwater doesn't mean much if you're financially responsible and don't plan to trade in soon
Don't take 0% interest because then you'll owe more than what the cars worth! Oh no!
Big Brain Time / 1 Trick Financial Advice-rs Don't Want You To Know
Pay more for the car now, than what the car will be worth when you drive it of the lot. With this simple trick, you'll ever be underwater on a car payment.
If you can get 0 or near 0 terms - I would go ahead and finance it. Only exception would be if you find a fantastic deal, way below Kelly Blue Book on something because of distress or similar scenario... then you might just buy it and, at worse, flip it later.
Cars are mostly a preference thing at this point - sure you may come out slightly ahead buy leasing vs. buying, or financing vs. cash buying - but at the end of the day, first owner or lessor eats the worst of the depreciation, the second buyer eats a slow bleed and every few years your value is cut in half. Thus - unless you have fuck off money - don't overspend on a car.
I’m probably going to get shit for this given the uncertain nature of stocks rn and pending recession, but I’d say definitely finance if you can get a decent rate. If you finance it over 5 years for like 3% and the average yearly return on stocks turns out to be 4% after inflation (historical S&P real return averages to 6%), you’ve come out ahead. Securing a deal with 0% financing on top of that is gravy.
Plus, your car payment will be a set amount. That means inflation each year eats away at the real value of the fixed amount you’re paying so you’re giving up less and less of your paycheck every time with moderate wage growth.
Personally, as long as I get a decent rate, I’d always prefer to finance and put the rest of my cash to work. You’ll come out financially ahead and your assets remain more liquid in case you need them in an emergency.
With the economic uncertainty and dealers offering 0%, using credit seems like the right play.
0% is the way to go.
True to this, got a good deal on my car, and after owning it for 6 months, it was worth about $500 more than I paid. (I negotiate almost 15% off though)
You are right about the 50% but you are underestimating the hit it takes. I also agree you get a car, but in the pricing it is much more of a hit than you think.
Imagine you are buying a car and there are two options (exactly the same) except one is at the dealer brand new and the other is being sold by a third party. The first thing you are going to do is expect a discount because of the uncertainty around how the car was treated (even if it was just 5 miles), you start getting to the point of at what price will someone consider the diff big enough to buy it from you instead of at the dealer, I can tell you it isn’t $20 (unless you somehow got a great deal way below msrp and below invoice).
Now you get into a more realistic scenario, one of the reasons cars depreciate so quickly (especially at the mid to luxury market) is that options become mostly worthless. If you are buying a new car you can get exactly what you want (color, features, etc). If you are buying from a third party you are stuck with what they have, so you may have valued your midnight blue paint job at $3,000 but it just looks like blue to me, or the ventilated back seats at $2,000 but I don’t have friends so no one will be sitting back there, etc. So the price difference has to account for that, in almost all used car purchases the buyer is compromising because the price incentive is good enough.
And finally, dealers can offer incentives that you as a third party can’t (free service for X years, etc) that don’t transfer. These things cost little to them.
There are a bunch of other things (depends on price you paid, if a new model of your car comes out or is coming out you take a huge hit, etc). The more expensive car you look at, the more people care (and can afford) that it is new.
First of all, some states offer a full return policy for cars within two days for full reimbursement. Some states like California require dealers to brief people that they can pay a $250 option or similar for a contract cancellation option agreement. So the best option would be to take the car back to the dealer and try to get full reimbursement, which they may not like, but could be required by law to take it back.
Secondly, I don't think you have done a very good job of purporting your skills of asset valuation. The asset has changed once it leaves the parking lot. The CarFax now lists 1 owner and if you sell it to another person, they will be listed as the 2nd owner. All of these are drivers of the decreasing value of the asset. If a car had 5 owners - you may ask why did this car have 5 owners? Why did the 1st owner decide to sell quickly? Does it have flood damage? The drop in price is also due to this uncertainty.
If you look at the CarFaxes of a lot of sports cars in the used market, you'll see a bunch of different owners. Why? The car was probably bought under a certain premise of the cost of maintenance and had too many issues or was too expensive to maintain. On to the next one.
The 2nd owner of your car has to consider these things. You could lie about the car and sell it to the 2nd owner and you don't have the credibility of a brick and mortar dealership. Maybe you puked in your car the first night and want to get rid of it. Or your baby shit on the seats. Who knows. But the 2nd buyer is already taking on these unknowns and the price conveys them.
The market is unwilling to bear the 'full price minus $20 for the 5 miles you drove' unless it is a collectors item or car that is difficult to obtain. If you think you could get $20 less than you paid after you drove it off the lot, passing it on to a 2nd owner, you're delusional.
Also, its a pretty good thing to have a 1 owner car and for only $20 less they are immediately the 2nd owner? Sounds like a shitty deal. Why wouldn't they just go to the dealer and buy a 1 owner car for $20 more? If they bought from you and sold it, it would already be the 3rd owner, which starts to look really bad and the price usually reflects this for more than $20.
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Go big or go home
On a present value basis, it's usually better to finance the car because the interest you'll pay on the asset-backed loan should be lower than the return on stocks.
However, I always pay for cars in cash. Given the volatility of my work, I'm worried I'll be out of a job and be stuck with car payments. Therefore, I'm choosing the less capital-efficient approach to reduce stress.
For a website catering to finance people...this is idiotic on 2 fronts
1 being out 30k now, vs 500/month for 5 years being "less stressful" is stupid
2 you don't use return in the stock market to compare vs interest rates....because the stock market in the short term (under 5-10 years) can be highly volatile (especially considering we are near all time highs going into a recession / depression).
You should use a safer asset combo, such as a 60/40 stocks and bonds portfolio, which will have more stable returns
Since you chose Jim Simons as your username, i would expect a more mathematical thought process. if you are an emotional little bitch, as your comment implies, then perhaps you should change your username to something like TrumpJunior.
Credit. Rates are low. Money is being printed left and right so you want to owe it, not hold it. Get your cash invested and do a fixed rate on the car.
cars are going super cheap right now and a lot are doing 0% apr for like 66 months. also don’t forget what someone said about hertz car sales. lots of luxury vehicles dated 2019 with under 15k miles for under 30k
I just bought a car and was considering an Acura or Lexus as well. Ended up going with the used '19 Lexus Ux250h. Primarily because it was hybrid and L Certified.
My suggestion, if you buy used a used car and finance make sure you find your own finance before you buy. Dealer will not find the best loan for you, but rather what bank will pay the most commission to them. I have a 780 fico and over six figure income, and they provided me with a 4.89% rate from BofA. After closing, I searched online and the rate should have been in the 3's. I wasn't too concerned with the rate, because the price was right. I too could've paid cash but would rather have cash in hand, but plan to pay it off next spring after this pandemic is over (concerned about a second wave).
Also a lot of these 0% interest loans do not apply to preowned vehicles. Lower rates may be model specific. Also if you plan to finance and not pay it off, consider buying new and take advantage of 0%. The payment difference would be nominal, maybe $30 a month in my case. But I wouldn't have the L certification. Which I find more valuable in this particular case, and I easily put 15K miles/yr.
I bought used. My car was a retired loaner vehicle with 1,944 miles (basically new). Since it was L Certfied which is Lexus's certified preowned vehicle, this provides me with the balance of the manf. warranty plus 2 years unlimited miles warranty and 2 years maintenance (4 oil changes and tire rotations). So I'm getting 5.25 year warranty with unlimited miles. I know warranties have a bad rap. But Lexus has one of the best CPO warranties compared to any other make.
Let me know if I can help in any way.
Fyi, I was considering the RDX and TLX and lexus NX and IS. There are a lot of deals on the TLX since they will be redesigning them. RDX was my first choice, but having ventilated seats, strong warranty, and hybrid at just under $30K I went with the UX.
Not to be a downer but have you considered buying a 7k used honda civic in cash, saving money on insurance, and targeting a 50% annual savings rate instead? At 22 you don't need to impress people with your car, and you will be stoked when you're 30 and are worth 500k-1mm
before everyone comes in saying I'm suggesting a total beater - go look what you can get for 7k - its not gonna be jealousy inspiring, sure, but its gonna be a totally modern looking, reliable car
This advice is gold. Buy a reasonable and reliable car, bank the rest. Max out your 401K, do a backdoor ROTH and if available use post-tax space in your 401k.
Appreciate the info! I’d be curious to know how you found your own finance. Completely ignorant to how that works. That 4.89% BoA recommendation they found for you, despite your high credit score/income, is definitely not the most ideal.
Brown line, this was my first time buying a car from a dealership, so I was ignorant to the gotchas as well.
When I purchased my car they asked if I needed financing. And i said yes. They phrased the conversation like they were going to shop multiple auto lenders for the best rate. But in actuality, it appears they shopped lithe lowest rate with the highest commission to them.
When I left I googled the bank, entered my criteria for used auto loan rates and it was just over a percent less.
To avoid this by contacting auto lenders in advance. But don't tell them. Let them believe they will get the commission on the backend, and once you agree on price, then you can see if they can beat the rate you can get.
In 2013 I had the choice to buy a new car for cash or finance it. I financed it with a 6-year loan at 4.1% with the goal of improving my credit score. In the distant past I had very poor credit and by 2013 it wasn't so hot -- 690 I think. Last November when the car was paid off, I looked up my credit score and it was 798.
So mission accomplished, except right now I don't want to buy a house for non-financial reasons, and I'm still happy with my 2013 car. At this time I seem to have paid all that interest for nothing, but of course my situation and goals could change.
Just depends on what you care more about. There is value to not having car debt but at the same time we are living in an absurdly low rate environment. Up to you.
I will say to not make the mistake in buying an Acura or a Lexus because you think it is more "reasonable" luxury than a Mercedes or another German car. Acura repairs are still hilarious when compared to say - Honda...which it still is. I learned that the hard way in my youth.
Just bought a car with cash, it wasn't brand new, with a bit of mileage on it. Cash gives you a lot of negotiating room, they practically gave me the car for half what it's worth because summer-fall is when dealerships are flush with inventory, but due to COVID nobody is buying. They bent over backwards to make it as easy as possible for me to buy it. What everyone else is saying is totally right on paper, but when people are involved cash means leverage, so make your own judgment depending on your situation.
I read that nowadays buying with cash actually takes away a lot of your leverage because the dealers have recently started making a huge portion of their profits on financing. Best to wait until after you’ve negotiated price to tell them you’re paying cash if you’re buying new.
This is true, for the most part dealerships don’t benefit if you pay cash as long as you are credit worthy. This isn’t like a condo deal where the seller is afraid you won’t get financing. Always negotiate first (without telling them the form of payment) then tell them it is all cash. Dealers WANT financing (especially through their financing arm) as they make money off of this.
just pay a large cash deposit (10-15k) and then finance the rest. will help your credit score get better and you can use the rest of the cash for other purposes.
Buying a new car now. Shopped around and basically got to 12% off MSRP for a new car. Hard not to take 0.9% financing rather than pay cash. If it was 3-4% I’d think differently.
Leasing is only advantageous if you want to pay premium to be long the put in 3 years (higher interest rate, extra fees, etc).
Big bank.
Wrong. Banks give the worst rates. Banks are only able to underwrite loans to individuals that captive finance companies don't want.
Bro cool your tits I'm reciting the YG song.
Just depends on the rate. I walked into the dealer planning to buy all cash but they offered me a 0.9% APR rate so i financed instead. The total interest I'll be paying over the life of the loan is only like $500 and I'll easily earn 1%+ in low risk investments. Same thing with my recent Peloton purchase (was about to pay all cash but then saw they do 0% interest plans). The general rule of thumb is that if you can comfortably out-earn the interest rate in the market (and a balanced index fund will typically earn 5-7%/year conservatively) then you should finance.
I will say its kind of annoying to have to account for a bunch of extra monthly payments when budgeting, so it may be better to go all cash if you don't want to have to deal with that.
FInance and use money for down payment on house
Would probably pay in all cash because you generally do not want to owe any non-mortgage debt.
I know you meant VIN check, but I can't stop laughing at the image in my head of looking over a Carfax report with a glass of crisp white in the hand. Gently swirling it around, going "mmmmm...I see a new owner registered it in MI. I need to make sure it didn't get salt rust..." It is good advice though that I wish more people followed. ALWAYS do a VIN check and take the vehicle to a specialist if you can for a pre-purchase inspection (PPI). Do not take it to a dealer if you can avoid them for the PPI purpose.
Hey! I advise you to take a Lexus. I love this car, I have had about 3 models in my life and have not regretted one.
But it seems to be the opposite. Why waste all your reserves. It is better to take a loan
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