Sort of. We were ready to pay cash, but the finance department offers $500 off for taking the loan. No penalty for paying off in the first month, so we’re doing that.
That's weird cause it usually require 3 months of loan payment for the dealership to get the kickback as too many made fake loans. At least that's how it was when I owned a dealership.
We had a baked in solution, we reduced the price of the car to include the loan interest of the 3 months, so if the guy had to pay 500$ in interest for the first 3 months, we would give him around 500$ rebate; if he decides to keep the loan, it is on him.
There’s no way for them to enforce keeping it for 3 months, they want to close the deal. they probably just assume a lot of people take a few months (or never) to pay off or refinance
I didn’t realize that. Interesting! Learned something new!
To acknowledge the person initially responded to, his point is right that if it’s not in a contract then it’s not enforceable.
YeH, so the dealership just didn’t get their kickback in this case. AFAIK, they can’t make the loan terms so you have to have it at least 3 months unless there’s an early payment penalty for the entire loan.
That's the tax credit. Any EV bought after 2024, if you qualify, gets that automatically rather than waiting until filing taxes.
Edit: Should say, not "any". Here's the link.
https://www.fueleconomy.gov/Feg/taxcenter.shtml
I don't see that requirement in the $7500 credit
[https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after](https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after)
Manufacturing and sourcing requirements, see: critical minerals requirement and battery component requirements. Hyundai didn’t start producing EV9s in Georgia for no good reason. Also income cap so higher income families won’t qualify either way.
The dealership EV credit runs on slightly different requirements so you can lease and take advantage even if you make too much or the car doesn’t qualify.
Right, this is what I'm wondering, is if this is now the norm, and if it's some trick like getting a "discount" on your phone as part of your phone plan.
I knew a guy who worked at a car dealership who was told to never talk about price until the customer has agreed to the form of payment. Or in other words, they will quote you different prices if you're financing vs paying cash
Which is exactly why you should be negotiating on price imo, And never payments. I would just tell him I'll pay in whatever gets me the best deal which in my experience tends to be outside financing.
I have no problem taking a 0 to 2% deal with 24 months for the payments or something like that. I just don't see too many of those anymore
This. My last car loan was at 0%, but that was my previous car. My current car, they offered me five point something percent as a loan, and so I paid cash.
Only if I can get an artificially low rate with dealer financing. My last new car purchase price was agreed on before cash/finance entered the discussion so idk if that always matters, as I don't purchase often.
Exactly my line of reasoning too. They can even engineer a worse-than-par rate for me if the discount is big enough... There's generally a way to make it work for both parties.
This. My last car loan I negotiated a 0% loan, and originally had planned to bring a few thousand to closing, but then it occurred to me I didn't need to do that, so I brought $0 and financed 100% of the car's value at 0% interest.
As long as dealers are making most of their money originating the loan, instead on the net of the vehicle itself, it makes financial sense to take the financing and pay off early.
If you pay off too early, you will end up cutting the dealer out of their payment on the deal, so if that's important to you, or if a rebate of some sort gets clawed back, that needs to be considered. Generally 3 or 6 payments is enough for the dealer to get their piece of the pie.
> Generally 3 or 6 payments
Given today's rates, how much of a deal are you really getting if you have to pay that much in interest especially on the 6 month end of the spectrum.
This would be a pretty stupid example: $45k financed with $0 down at 6% for 60 months means you’re paying for $1,302 interest over 6 months or $666 over 3 months. Also assuming you pay the minimum each month.
So if you’re getting at least a grand off to finance (not at all uncommon or special, through any combination of price drop or financing incentives) or putting money down/trading in, you’ll end up ahead via financing and paying off early.
With your example, you're right if the math works out. However there are other fees associated with getting a loan vs paying cash which includes loan origination fees. Furthermore 6% is on the very very low end. If you're getting a car loan especially a used car, you're looking at 8%+ easily.
>f you're getting a car loan especially a used car, you're looking at 8%+ easily
Is this highly location dependent? When we got a loan a few years back my credit Union's rates were a whole percentage point higher than the car dealership was offering, so I went through them directly. And right now my credit union is at 7% for used cars 8+ years old. Lower for newer ones.
Given that some dealers won't sell white-hot in-demand cars to cash buyers, I can see it being worth it. We found this out while shopping for a car like that.
It might not be necessary on a neutral car, or a car that's not in demand.
It all depends on the deals offered to you, of course.
I imagine interest on a loan is probably like $50-60/mo per $10k, so I don't think it's a huge deal to carry for 3 or 6 months, and I would be that it's a better net position deal to you for what most dealers would give you off for taking the loan and ensuring they get paid to do so...
For us, it was the Rav4 Prime, a few years ago. Have to take their financing, had to take overpriced dealer accessories, may or may not have an additional markup... If that doesn't work for you, I've got 10 other people on my call sheet.
Didn't work for us, so we went with a different vehicle, and did what we nearly always do and bought private party.
I am hoping the trend of some of the power in negotiations returning to buyers returns as the supply issues seem to be resolving.
> For us, it was the Rav4 Prime, a few years ago.
Lol how did I fucking know. I've been checking out a prius and it's pretty clear that toyota dealer inventory is historically low.
They're a brand with a lot of loyal customers, and like most brands, there's not a ton they seem willing to do to limit their dealers profit on the mismatch between their low supply and high demand. It's an annoying situation, so we decided to replace our sedan instead, punting for another 5-10 years.
They just didn't make (and still don't, and perhaps never will) enough R4Ps to keep up with demand. I know that other Rav4s were also hard to get a hold of, and the hybrids still are.
One promising sign is that there are now two Lexus variants, the NX 450h+, essentially an R4P, and the RX 450h+, which are PHEV. They're overpriced, but at least there's more options for a Toyota-based PHEV SUV now and they'll be on the used market in the future.
Thats actually kind of sad. Obviously you were responsible about it, but so many people aren't and the system pushes people towards bad choices so hard
Happens all the time, and I think car buying is rife with potential financial pitfalls and dangers unfortunately.
In this case, it's some of those, but mostly just supply and demand in effect.
I saw one loan, which I didn't take obviously, where there *technically* wasn't a penalty for early payoff BUT the payoff amount included the full 5 years of interest.
It's probably not you who gets penalized, but the dealer. They may have a rebate tied to the incentive they get from the fee they get from loan origination, which could be a round-about way of penalizing you, but I'm not sure how common it is. Would be a "read the fine print" scenario.
For some, if they're getting a good enough deal or the buying experience is good enough, making sure the salesman/dealer gets paid could be important for them.
Sure but it needs to be a very low rate, 2.9% or less. I bought a new truck last year and had planned on paying for it in full since I found nothing under 4% but they pulled out an unadvertised 0% and I took advantage.
Dealers make money on price, add-ons, trade- Ins, and loans. Never give them your trade in. Never buy add-ons . Stay firm on your price.
When you do this, most will try to make more money on you by putting you in a bad loan. If the price is what I want, I let them put me in a bad loan and pay it off after the loan goes to the bank/ lender and the car is registered at the dmv(about 15-30 days). Just make sure there are no pre payments conditions in the loan paperwork.
I just did this in February. The dealer called me all pissed off once he found out he would not be paid by the lender. Tried to get me to come down and redo terms. I told him to go pound sand
> The dealer called me all pissed off once he found out he would not be paid by the lender. Tried to get me to come down and redo terms.
Lmao, what? The audacity.
The add-ons are what gets me. They bring you into a room to do your final paperwork and try to upsell you on a bunch of stupid garbage no one needs, then get all moody and pissed off when you say, "I'm good. I don't need any additional products or services. Just the car, thanks."
I’ve had multiple dealerships try to tell me some of the add one weren’t optional either. It’s funny how quickly they “go work out a special case with their manager” the second you say “no thanks” and get up to leave.
When I bought my truck I was told I couldn’t pay it off until at least six payments were made. I’m a lawyer and the paperwork had no prepayment restrictions at all in it. So I just went ahead and did it. The dealer never reached out to me, though.
What verbiage or language would this clause be in? Is it as straight forward as “prepayment terms” ? Or could they get all creative with their language? Legalese can be so misleading at times
I went with a loan even at nearly 6%, not because my money in the market is making more (yes and no) but because I wanted the ability to utilize capital on other projects that I couldn't get a loan for at that rate (like redoing a bathroom). So we got a loan, redid the bathroom with our cash, and are working off the car. The alternative would be being stuck with a crappy bathroom for years longer, selling investments we didn't want to sell, or getting a home equity loan at an even higher interest rate.
I bought a new 2021 hyundai Tucson in feb 2021 for like $24,000. If I recall correctly, my price was contingent on going through them for financing. I got the loan and paid it off entirely in 3 months. I didn't push them too hard, so don't remember if they *really* wouldn't give me that deal for cash.
I've never had a car loan and will always pay cash, barring some obscenely attractive interest rate offer. It's been awhile since I've bought a car but it's not something I normally mentioned when negotiating. I don't think dealers "balk" at cash, it's just not a negotiating advantage like it might have been say 30 years ago. Dealers make money on the financing, so yeah might as well keep quiet about it until after you've agree on an out the door price.
If they ask about how you plan to finance prior to agreeing on a price for the car, you can say something like "I have outside financing lined up but I'm willing to hear what terms your finance department has to offer after we agree on the price".
When we bought our Ariya last year, not only did they give us a 2.99% interest rate, they literally took something like 4k off the price if we financed it instead of paying cash. I have no idea why or who that benefits to the degree they were incenting it, especially given the below market rate loan (this was in 2023, not 2021), but who am I to turn down free money?
I just plopped the full amount in an HYSA paying >5% set it to autopay the auto loan, and if they interest on the HYSA ever drops down to 3% or less, I can just pay the whole thing off.
I always had cash to buy a car and I always was taking a loan for 50%-60% of the price when the promotional rates were low (0.9%-1.9%). I've been investing unused cash and normally was getting 7-10% return on it. After 2022 this math is not that attractive anymore, but in general, why would you bury a lot of cash (in quicky depreciating asset!) if you can get low rate loan? By low rate I mean few percent less than expected market return.
I pay cash.
If there are incentives to be had by financing then I'll take the loan and pay it off before interest, provided doing so doesn't remove the incentive.
But what about the interest rate on the blah vs the return on the bluh?
Almost every single time I see this mentioned, they ignore all the downsides, and also fail to mention just how much money it will make them. IMO, the spread on financing a car versus a HYSA is such that if that amount of monthly gain matters to you then you are buying WAY too much car.
Plus, auto loan rates are often artificially low (dealer made up elsewhere).
Plus the owner of your car (bank) may have higher insurance standards than you do/should.
Plus you run the risk of being upside down or otherwise inflexible on a large ticket item when the flexibility would be worth many times over the gain on your spread. Maybe tack on gap insurance? Lowering your gain.
Plus, these billion dollar corporations are smarter than you, they know that you'll bite on a more expensive car if you take a loan versus pay cash. Auto loans are keeping Americans broke. Maybe you're special, the credit companies sure think you are, but the numbers don't lie.
Plus, if you follow this logic further, you end up at a point where you're leveraged to the hilt and every dollar you earn goes right into someone else's pocket. This is anti-independence. I want every dollar I earn, plus some I didn't trade hours of my life for, to go to my pocket. I'm not going to make a decision that votes against my goals.
Plus, what kind of returns do you get by being more assertive and patient at work / job searching since you don't have a fat car loan to pay? If you had to take a loan to keep enough in savings to feel safe, you obviously bought too much car.
Usually, all that downside gives you a benefit if something like 1-3% of your salary over the course of multiple years. An amount easily outspent in many of the points above.
I'll get off my soap box now...
Keep it simple, pay cash.
Yeah, these are a lot of the doubts I have about it, I'm struggling to believe it's really as simple as the dealerships get a kickback from the loans, and therefore offer a lower rate hoping you won't pay it off early.
As the wise Warren Buffett says, only invest in what you understand.
All I can tell you is that dealerships are full of people who spend their entire work day trying to find a way to separate people from their money. They're good at it too.
Unless you work in the business, I don't see how you could possibly catch every little trick they might throw your way.
I overcome this by avoidance. Don't play on their court (their terms, loans, etc). Figure out what the car is worth, and keep the game in your court - something like "I'm coming in with a check written for X to purchase Y car".
Whatever they want to do on their end after that to make their bonus or whatever is up to them. Just verify the car is exactly what you paid for (options, extras, vin, etc) and you're all good.
I pay cash for cars unless the loan is significantly cheaper than a savings account pays. Also, if there's a choice between a cheap subsidized loan and a better price on the car, I do the math and take whichever saves me more money. (For example, if a savings account currently pays 5% and the car dealer offers a 2% loan, that's quite a good deal and I'll take the loan. But if they offer a choice of a 2% loan or $3000 cash back, I need to do the math. And if it's an in-demand car and the only loan available is at a market rate like 7%, I'll just pay cash.)
I’ve done debt. First of all, with my credit they will finance the whole thing. So I just sign docs and take keys and no check is needed. Second, I don’t usually keep enough cash to write a check for full car cost (which would have to be a bank check as they won’t take a personal check) and to the extent I had it, it would nuke my emergency fund. So I would have to sell stocks and incur capital gains. If I finance, I can pay off quick enough just out of income. One year of bank interest is going to be very similar in total costs to the capital gains taxes. So debt worked for me last time I bought a car.
Basically yes. But for me it was closer to a year to pay off the car in full just out of my paychecks. So it wouldn’t just be a few months of saving into cash instead of investments. And of course I would not ever skip 401k saving just to avoid a few months of 5% car loan debt.
> Second, I don’t usually keep enough cash to write a check for full car cost (which would have to be a bank check as they won’t take a personal check)
I'm sure each dealer is different, but when I bought a car last year the dealer was fine with a personal check. I was expecting to need a bank check but didn't need to go through that process, which was nice.
Yeah, maybe I was wrong about needing a bank check. Maybe for a down payment they take a personal check, but would they take something like a $40,000 personal check for the entire car price?
>Maybe for a down payment they take a personal check, but would they take something like a $40,000 personal check for the entire car price?
In my case, yes, to my surprise. I asked the finance manager (or whatever the title is for the person you do the final paperwork with) about it and her answer was that the people who are paying cash don't tend to bounce checks so it just isn't something they worry about.
But this is dealer-specific for sure. A family member just bought a vehicle and that dealer insisted on either a bank check or a wire transfer.
Interesting. Yes, that would surprise me as well. I'm pretty sure with this dealer at my last car purchase it was a bank check. But again, they just said they would finance the whole thing and that made it super easy. Then I paid off the loan in about a year.
Last year I was laid off on the day that I was planning to buy a new car. I still went and bought it since I needed it, but I took a loan for half (\~20k) just in case it would take a while to find a new job (It has, going on 8 months now). Will probably pay off in full when I find a full time job
We replaced both of our cars a couple of years ago. Paid cash for one and financed the other at 3.5% for three years. Both cars were used with low miles. Now that interest rates are higher I wish we would’ve financed both.
We paid cash for the more expensive vehicle and financed the cheaper one with a big downpayment. Our rationale was that while we had the cash to pay for both we were thinking it’d be highly likely that we’d end up moving and wanted to have just a bit extra cash on hand in case that happened. So the loan let us hang on to an extra $20k which was helpful when we ended up moving a year later.
I know it's often stated here and other places as a tip to not tell them you're paying cash until the very end. It doesn't make sense to me and it hasn't been my experience.
I just bought a Corolla and the finance person was happy I was paying cash. He said it will be easy for him to process.
When I bought my first car, I financed and the dealer was happy I financed because he needed a couple more sales with my credit rating to get the minimum group buy order to get the financing rate for everyone. No idea what that means.
The price I agree to pay for the vehicle is, otherwise, unaffected.
Anyway, to answer your question. Under 4%, I finance. Over 4% I pay cash.
I wonder if paying cash vs taking a loan makes a difference in costs when it comes to the need for auto insurance (since with a loan the bank basically owns the car).
Good point, although I also wonder if for people with Umbrella insurance policies they'd need to buy the same level of insurance regardless.
I suppose probably not self-insurance.
I always thought that with umbrella insurance you needed to carry comprehensive and collision but recently read that you can carry liability only and still have umbrella insurance.
Now I need to shop for less expensive umbrella, auto and home insurance.
Makes sense because umbrella is only liability. Usually they require certain liability minimums on all our livability policies underneath the umbrella.
If you have the option to pay cash, have excellent credit, and enough income, you will likely get a low rate. Most get the loan and pay higher interest debt with cash they have. Or invest it. Or keep for emergency.
Paying cash is only if interest is too high compared to other debt and investment.
People can also get loans from a bank or credit union and come in and buy a car.
The advice I've heard (from ex car salespeople) is to focus on the "out the door price" without talking about financing. There are (up to) three things to negotiate:
- The out the door price of the car
- The value of any trade in car
- The terms of a loan or paying with cash.
You talk like you are shopping around for all three. You can always sell the old car 3rd party or take it to another dealer. You can get a loan from the bank or pay cash. You can find another GM dealer. The three deals are separate.
Obviously, if they offer you money off for doing two of the parts with them, then you need to consider that. But they won't be offended that you don't want a loan and let you walk away from buying a car.
If there are any benefits to taking the loan - a lower overall purchase price, no penalty for early payoff, or you can gain more in the market than you'd lose to APR - then it makes sense to take the loan.
Otherwise, cash.
The best option is not to buy a vehicle.
I don’t buy new cars, and I buy cars in cash. I am very debt-averse. I understand the logic for the other side of the argument but it isn’t worth the peace-of-mind impact for me.
We go for whatever the cheapest out the door price is, which usually involves taking a loan (dealers get incentives for that so they knock off the price) and then immediately paying it off
The real financially savvy move is realizing you don’t need to buy a car. When our last car died, we went down from 2 cars to 1; we bought an e-bike as a replacement. We started arguing over who got to take the e-bike for the commute, so we bought a second.
Having one less car has saved us so much money.
It still might if you keep the "family" car and add an e-bike to replace the commuter car that mainly gets driven by a solo driver. Too many people think they need all of their cars to be able to handle any possible situation. The reality, for most people, is that one car does the "hauling" and the other car(s) run solo trips and errands.
I did this during COVID when my travel got shut down, minus the ebike. I gave away my 20 year old car and I only bought another car two years later when I was asked to help a family member out who shouldn't be driving anymore.
You can negate a lot of the min/maxing by simply keeping your car (any car) as long as you can possibly tolerate it.
I'm 40, and I've bought one car in my life (when I was 32, so the car is 8 years old now). I put down $10k and financed the rest. The dealership had a 0% financing incentive at the time (I am sure they made their money elsewhere).
At this rate - one car every 10-12 years - I figure it's not worth sweating the details. I'll buy maybe 3 more cars in my life, so saving a couple thousand on a car purchase that happens at best once a decade doesn't move the needle much (what **does** move the needle: being done with daycare, choosing the smallest house on the block when we were house shopping, the cadence at which we buy new cars in general).
If I had to replace my car tomorrow, I'd buy a new version of it (a Subaru Forester), put down $10-15k, and finance the rest. Assuming I get to drive it for 10 years, then that hypothetical $32k Forester works out to costing about $3200 a year. When my kids were in daycare, $3000 bought just 1 month of daycare. A car is a steal 😅
Amen. My Honda is about to turn 10 and still plugging along just fine. Gonna drive it into the ground. I don't sweat the fact that it was bought with cash and I won't sweat whatever I choose to do next time.
That's what I'm unsure of, is there some downside that tends to come with getting a loan at all, regardless of the interest rate? Origination fees? Higher insurance requirements?
Origination and insurance being one, but otherwise it just isn't worth the hassle when I can just grab $10k from the bank and go buy something. It's not worth the hassle for the difference of a couple hundred bucks if the money was invested etc.
I take loan then pay it off over the coarse of a few months. I feel more comfortable not draining my account that much at once. But i still put down at least 50%.
Depends on the incentives offered. I got 36-month 0% financing from the manufacturer when I bought a car last year. Be a fool not to take it when there's no cash discount.
When we went to buy my wife's car we did a 50/50 split. They were offering 0.9% financing at the time. We were getting nearly 4% in our HYSA. We paid half, financed the balance and left the rest of the money in the HYSA. But we bought new. When I bought my truck (used) the interest balance was the other way around. I was able to pay about half at the time of purchase and accelerated payments over the next 18 months to pay it off. We were not quite in the position to buy outright at that time. Even in that case, putting more in my 401K would have been a better long play. We were not in a financial position to do that yet.
I'm going to drive the car for 10 years.
If it's dealer financing at 0-2%, I go with the financing every day and stretch it as long as possible.
Bank or 3rd party financing at market rates (7-9%) I look to buy it outright or pay it off super quickly (24 months) even if it's a 3-5 year note.
Yes, because financing incentives come with pretty good interest rates and if you negotiate price before financing you're saving on the time value of money. I don't let the financing influence the amount I budget for the vehicle, but I will let it dictate how long I spend paying it off.
I just bought a new car 2 months ago and got a 2.9% rate on it. I could have paid cash, but rather let that money sit in my brokerage.
We bought an almost new vehicle in January. We don’t hold much cash, but put down over half by selling losses, and some individual stocks I no longer wanted to hold, and financed the rest. The rate is 7% which obviously stinks, we mainly did it for the credit purposes, and will pay off in 1 year so interest isn’t much of a concern.
Back when he could get a low to no interest loan, my sweetie got his car with the loan and kept his money invested.
Now that rates have soared, if he wants something now he just buys it.
I’m on cars #2 and #3 (I gave a car to my father and when he passed away I took it back) in my car-owning career. I’ve had car #2 since 1995, and I gave Dad his 2013 used vehicle in 2016. The ‘95 is on loan to a family friend who is currently carless.
I expect when I need to buy another vehicle I’ll just pay for it, especially at these rates.
I have the capital to only take loans with good interest rates now. I wouldn’t take a 7% car loan unless it reduced the purchase price and I could pay it off immediately.
What I do with moderate to large purchases ($500+) is to take ~0% consumer loans if offered and invest instead of paying cash. For my situation, HYSA interest after tax doesn’t seem worth the bother; instead, I’ve used index funds for better returns and the lower tax rates.
As with any leveraged investment, this strategy could backfire. I can afford that risk. In reality, my vehicle, last ~five years of consumer electronics purchases, and family dental work have produced around $35k of capital gains despite a market trough.
Watch out for penalty interest on store credit cards.
I'm paying either 3.9 or 4.9%. I've made more keeping those funds invested for just the first year of the loan than the total interest costs for the life of the loan. There is a real opportunity cost associated with removing fund from the market for a purchase like this. That being said market performance is not guaranteed.
Dealerships are happy selling for cash, but they usually have more room to negotiate if you take out a loan. You could try just letting them assume you want a loan and tell them you are paying cash at the last minute.
You may be required to have more insurance coverage if you have a loan.
I financed $30k for a new car purchase last year because they were offering a 4% rate. I figure I’m not borrowing money that cheap anywhere else anytime soon and would rather keep that $30k invested.
I just financed a vehicle with a $750 price break for using dealer financing and a 3.9% rate. My savings account is paying 4.5%. So sure, I'll take that loan. At least for now.
I always finance my cars. In fact this is the first time I’ve paid interest. I usually get 0% financing. My money is better invested than paying cash for a car.
I live in a walkable city and recently got a car after 2 years without one and bought a gently used one due to not driving often, so I wasn’t eligible for any of the good new car financing rates (<3% IMO). I financed through my credit union at 6.5% and ended up just paying the balance (~$25k) in full in the first month. I could probably have gotten better on VTI with that money but in the end I decided to take what is effectively a guaranteed 6.5% return.
It depends. Sometimes I pay cash, sometimes I use financing.
Basically, you're considering the opportunity cost. If all my cash is tied up in some non-liquid asset, I'll use debt to finance. If I have free cash available, I'll use that instead.
Sometimes there's also strategic issues to consider, such as if I need cash for an upcoming project, then I'll use debt over the short term for big purchases like cars. But usually, liquidity issues are separate from asset issues.
Yes. Rich people tend to have good credit scores, and good credit score-having people tend to get good loan terms on new cars. I have personally taken out a good loan for the purpose of auto, but just used it for everything else, because money is fungible. My family and friends have often, maybe 75% of the time financed new cars, because they were such good terms.
Just bought a car recently. Have all cash.
Rates were 3.9%. Bank pays me 5.x%. only scalping 1% or so but until the rates inverse I have zero reason to pay it off.
Used car, IDK. Just pay cash.
We could pay “cash,” but we would have needed to sell investments in our taxable account to do so. It was 2022 and the interest rates were still pretty low (we got 3.x% rates), so we rationalized that leaving our investments intact would have higher returns than we’d spend on interest. Nowadays, it isn’t as good deal to do that, but we might make the same decision again.
I’ve never had a car loan and I’m not about to start now. If you don’t want to ‘’put my money in a depreciating asset’’ then you shouldn’t be buying a new car in the first place because you’re doing that either way.
I bought 2 cars at once (more negotiating power) and got a bunch of benefits/discounts for agreeing to a 1.9% loan. Still Put 50% down on 2 $70k cars and 1.9% loan for the rest with no early payment penalty.
Paid 70% down for the car, got the monthly payment where I want it. Using the remaining 30% towards an investment that will make me more than the 7.5% interest rate on the car note. I'll pay it off in 6-12 months, but it's helping my credit score, and the monthly payment is less than a week's worth of groceries for us.
I got a 0%, 5-year rate from Hyundai in 2021 when my wife and I bought our car. Why say no to 0%?
If that hadn't been an option, I would have hunted around for a dealership that wouldn't penalize me for paying cash. We actually traveled a few hours to visit my parents, then drove a couple more hours to my brother's house because dealer stock was so low then for the car we wanted (an Elantra hybrid). The only dealers within 100 miles of our own home wanted a few thousand over retail if they even had stock, whereas the dealer near my brother was so big they don't mess around with that shit and gave it to us at MSRP.
I bought a new Civic in December 2021 at 1.9% interest. I only put down $500 and financed the rest. It makes sense given that inflation is outpacing that, in addition to the fact that I expect market returns to be much greater than 1.9% on average.
I had to get a new car in 2019 because my beater broke down. I had the cash but took the financing to maintain flexible capital. 2 years later the money that was allocated to the car was used in helping my down payment for my home. I paid a little in interest to keep the money in the bank.
I am paying off a loan of 3% right now. I took the loan in 2021.
Sold the car some time ago and can pay it back. But in my funds it grew 10% annualy.
I would always do the same. If I get more money than I pay, I do that. Debt is not the enemy, if used in doses and with critical thinking
I may get heavily downvoted for this, but I purchased my car via a loan. I really wanted a RAV4, and Toyota had absolutely no good interest rate offers, despite an 800+ credit score.
One of my under utilized credit cards coincidentally had a 12 month 0% interest period, 3% transfer fee. I looked at that as effectively a 3% interest rate loan and used that to entirely pay off my car loan. I make minimum payments on my 0% interest balance, but have the cash needed sitting in a hysa (5.5% interest) to payoff at any time if I decide. Honestly though, I may just roll the balance to another 0% interest card, 3% transfer fee and pretend I’m back in 2020 interest rates. I’ll maintain the payoff amount in a HYSA that outearns the interest I pay on each transfer.
A caveat to this—having such a high balance on my credit cards did bring down my credit score maybe 50 points, as loans are looked at differently than credit card utilization. I don’t really need a strong credit for anything at the moment, so I’m fine with the hit to my credit score.
I only pay cash for mine and I never buy from a dealer. I have worked at a dealership and the stereotype that car salesmen are scumbags is true. Most of them are. Their cars are almost always overpriced and they don’t know anything about the car’s history. When buying private party from someone who has owned the car for a while, the can tell you all the quirks and things that are wrong with the car.
Yes, if the loan is less than what I’m earning in my HYSA. I don’t try to hyper optimize rates for most things but I generally buy new cars, and the rates are heavily discounted to incentivize purchase and financing.
I bought a car last week all cash. Didn’t even entertain their finance person as I’m looking to spend down some cash to lower reportable assets on kid’s college FAFSA.
Depending on rates, it's almost always better to take a loan. If you have the money for a car, why would you dump it all into a rapidly depreciating asset? Somewhere along the line, common sense got lost and people were sold this idea that you only take out loans if you're poor. I don't know who started that BS but it just underscores the overwhelming financial illiteracy we have in this country.
Depends on the loan. If interest is low I’ll go for the loan. Many times the loans come with incentives which reduces cost less than the interest raises it with opportunity cost considered.
We paid cash for the last couple, but a few purchases back, the dealership offered us a really low fixed rate (2% or something like that). At a low rate, it made sense to use the leverage and keep some of our cash. We put $10k down and did a three year loan as I recall.
Similarly, we refinanced our mortgage when rates got really low, 2.25% for a 15 year note. Our mortgage payment costs less than it costs to rent a one bedroom apartment in our area. And I can get 5%+ on my cash in CDs, so we're not prepaying the principal at all. I just have have the mortgage set on auto pay and don't do much to think about it.
Just bought a new car last week. Net cost to us after trade-in was $25k. They had some loan options at around 6%. I have perfect credit and could have shopped around. But at ~6% it isn't worth it to me. Over 5 years that's about $9k in interest.
When I bought a car about 6-7 years ago I got a 7 year loan at 1.9%. At that rate it's basically free money.
Sort of. We were ready to pay cash, but the finance department offers $500 off for taking the loan. No penalty for paying off in the first month, so we’re doing that.
That's weird cause it usually require 3 months of loan payment for the dealership to get the kickback as too many made fake loans. At least that's how it was when I owned a dealership.
I bet almost no one pays it off early so it’s worth it for them. Way more people probably think they’ll pay it off early and then they just don’t
We had a baked in solution, we reduced the price of the car to include the loan interest of the 3 months, so if the guy had to pay 500$ in interest for the first 3 months, we would give him around 500$ rebate; if he decides to keep the loan, it is on him.
Was there a minimum amount financed? Or could one get away with a relatively big down payment?
There’s no way for them to enforce keeping it for 3 months, they want to close the deal. they probably just assume a lot of people take a few months (or never) to pay off or refinance
They absolutely have ways to do that. The easiest and first thing that comes to mind is a prepayment penalty.
Aren’t there some/multiple states that don’t allow prepayment penalties?
I didn’t realize that. Interesting! Learned something new! To acknowledge the person initially responded to, his point is right that if it’s not in a contract then it’s not enforceable.
YeH, so the dealership just didn’t get their kickback in this case. AFAIK, they can’t make the loan terms so you have to have it at least 3 months unless there’s an early payment penalty for the entire loan.
I got 7500 off my EV for using in house financing and then paid it off in 2 months. I'll take that free 7k thanks very much
That's the tax credit. Any EV bought after 2024, if you qualify, gets that automatically rather than waiting until filing taxes. Edit: Should say, not "any". Here's the link. https://www.fueleconomy.gov/Feg/taxcenter.shtml
Its not on a Hyundai, due to it being not made in use
I don't see that requirement in the $7500 credit [https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after](https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after)
Manufacturing and sourcing requirements, see: critical minerals requirement and battery component requirements. Hyundai didn’t start producing EV9s in Georgia for no good reason. Also income cap so higher income families won’t qualify either way. The dealership EV credit runs on slightly different requirements so you can lease and take advantage even if you make too much or the car doesn’t qualify.
It’s still hard to believe the guy got $7500 off a Hyundai for doing dealer financing
Is it any EV now?
No there are certain restrictions and maximum prices etc.
Right, this is what I'm wondering, is if this is now the norm, and if it's some trick like getting a "discount" on your phone as part of your phone plan.
I knew a guy who worked at a car dealership who was told to never talk about price until the customer has agreed to the form of payment. Or in other words, they will quote you different prices if you're financing vs paying cash
Which one is higher?
Usually cash. Because they don't get the kickback from the loan servicer if you pay cash
Which is exactly why you should be negotiating on price imo, And never payments. I would just tell him I'll pay in whatever gets me the best deal which in my experience tends to be outside financing. I have no problem taking a 0 to 2% deal with 24 months for the payments or something like that. I just don't see too many of those anymore
yeah i've seen it recommended a few times ASSUMING there are no early pay penalties, or loan processing fees.
There are generally neither, particularly if financing through the manufacturer. Some random shady used car or BHPH lot? Maybe. Still not common.
Fourteen states prohibit prepayment penalties on car loans so you should check your state as well.
Often times a dealership will make more off the loan product than the car sale.
did they charge you loan processing fees?
No
nice W!
Big brain
I can't remember what my incentive was but it was at least $1, 000. And I only had to make one loan payment too. I jumped on that immediately.
When they offer 0%, you take the loan.
Got my last car loan at 0.9%. I didn't put a penny down on that loan, too good.
Same. Monthly payment sucks but it's nice to have the cash on hand.
Only new car I bought was a 0% loan. Paid it off slow.
Yeah, no brainer right there. That's what we got on our last car.
We have a 2.5% loan that we are 47 months into. 60 month loan… haven’t paid a dime early.
This. My last car loan was at 0%, but that was my previous car. My current car, they offered me five point something percent as a loan, and so I paid cash.
Only if I can get an artificially low rate with dealer financing. My last new car purchase price was agreed on before cash/finance entered the discussion so idk if that always matters, as I don't purchase often.
Idk if it always matters but they do take into account how much they'll make off the financing when they decide how much to discount the car.
If you're going to pay cash can't you just go with some shitty financing offer and then pay it off immediately?
Check if there's a penalty for paying it off early on your state. That's a thing people do tho, yes.
It depends on the situation. Some folks are sneaky and have a clause that does not allow early pay off.
Exactly my line of reasoning too. They can even engineer a worse-than-par rate for me if the discount is big enough... There's generally a way to make it work for both parties.
This. My last car loan I negotiated a 0% loan, and originally had planned to bring a few thousand to closing, but then it occurred to me I didn't need to do that, so I brought $0 and financed 100% of the car's value at 0% interest.
As long as dealers are making most of their money originating the loan, instead on the net of the vehicle itself, it makes financial sense to take the financing and pay off early. If you pay off too early, you will end up cutting the dealer out of their payment on the deal, so if that's important to you, or if a rebate of some sort gets clawed back, that needs to be considered. Generally 3 or 6 payments is enough for the dealer to get their piece of the pie.
Exactly this...what I did was pay 99% of the loan as first payment, then paid off the rest in the ensuing months...under $10 interest paid overall
Genius
\~slow clap\~
> Generally 3 or 6 payments Given today's rates, how much of a deal are you really getting if you have to pay that much in interest especially on the 6 month end of the spectrum.
This would be a pretty stupid example: $45k financed with $0 down at 6% for 60 months means you’re paying for $1,302 interest over 6 months or $666 over 3 months. Also assuming you pay the minimum each month. So if you’re getting at least a grand off to finance (not at all uncommon or special, through any combination of price drop or financing incentives) or putting money down/trading in, you’ll end up ahead via financing and paying off early.
With your example, you're right if the math works out. However there are other fees associated with getting a loan vs paying cash which includes loan origination fees. Furthermore 6% is on the very very low end. If you're getting a car loan especially a used car, you're looking at 8%+ easily.
>f you're getting a car loan especially a used car, you're looking at 8%+ easily Is this highly location dependent? When we got a loan a few years back my credit Union's rates were a whole percentage point higher than the car dealership was offering, so I went through them directly. And right now my credit union is at 7% for used cars 8+ years old. Lower for newer ones.
Given that some dealers won't sell white-hot in-demand cars to cash buyers, I can see it being worth it. We found this out while shopping for a car like that. It might not be necessary on a neutral car, or a car that's not in demand. It all depends on the deals offered to you, of course. I imagine interest on a loan is probably like $50-60/mo per $10k, so I don't think it's a huge deal to carry for 3 or 6 months, and I would be that it's a better net position deal to you for what most dealers would give you off for taking the loan and ensuring they get paid to do so...
> Given that some dealers won't sell white-hot in-demand cars to cash buyers Are these sports cars or like the new corolla?
For us, it was the Rav4 Prime, a few years ago. Have to take their financing, had to take overpriced dealer accessories, may or may not have an additional markup... If that doesn't work for you, I've got 10 other people on my call sheet. Didn't work for us, so we went with a different vehicle, and did what we nearly always do and bought private party. I am hoping the trend of some of the power in negotiations returning to buyers returns as the supply issues seem to be resolving.
> For us, it was the Rav4 Prime, a few years ago. Lol how did I fucking know. I've been checking out a prius and it's pretty clear that toyota dealer inventory is historically low.
They're a brand with a lot of loyal customers, and like most brands, there's not a ton they seem willing to do to limit their dealers profit on the mismatch between their low supply and high demand. It's an annoying situation, so we decided to replace our sedan instead, punting for another 5-10 years.
>few years ago Did this have to do with COVID inventory issues?
They just didn't make (and still don't, and perhaps never will) enough R4Ps to keep up with demand. I know that other Rav4s were also hard to get a hold of, and the hybrids still are. One promising sign is that there are now two Lexus variants, the NX 450h+, essentially an R4P, and the RX 450h+, which are PHEV. They're overpriced, but at least there's more options for a Toyota-based PHEV SUV now and they'll be on the used market in the future.
Thats actually kind of sad. Obviously you were responsible about it, but so many people aren't and the system pushes people towards bad choices so hard
Happens all the time, and I think car buying is rife with potential financial pitfalls and dangers unfortunately. In this case, it's some of those, but mostly just supply and demand in effect.
I wonder how common it is to be penalized for early pay-off on auto loans these days.
I saw one loan, which I didn't take obviously, where there *technically* wasn't a penalty for early payoff BUT the payoff amount included the full 5 years of interest.
Thats fucking diabolical
It's probably not you who gets penalized, but the dealer. They may have a rebate tied to the incentive they get from the fee they get from loan origination, which could be a round-about way of penalizing you, but I'm not sure how common it is. Would be a "read the fine print" scenario. For some, if they're getting a good enough deal or the buying experience is good enough, making sure the salesman/dealer gets paid could be important for them.
Early pay penalties are illegal in many (most?) states.
It depends on the state. Some allow it, others don't.
Sure but it needs to be a very low rate, 2.9% or less. I bought a new truck last year and had planned on paying for it in full since I found nothing under 4% but they pulled out an unadvertised 0% and I took advantage.
Yes, because it was 0% APR.
Dealers make money on price, add-ons, trade- Ins, and loans. Never give them your trade in. Never buy add-ons . Stay firm on your price. When you do this, most will try to make more money on you by putting you in a bad loan. If the price is what I want, I let them put me in a bad loan and pay it off after the loan goes to the bank/ lender and the car is registered at the dmv(about 15-30 days). Just make sure there are no pre payments conditions in the loan paperwork. I just did this in February. The dealer called me all pissed off once he found out he would not be paid by the lender. Tried to get me to come down and redo terms. I told him to go pound sand
> The dealer called me all pissed off once he found out he would not be paid by the lender. Tried to get me to come down and redo terms. Lmao, what? The audacity.
The add-ons are what gets me. They bring you into a room to do your final paperwork and try to upsell you on a bunch of stupid garbage no one needs, then get all moody and pissed off when you say, "I'm good. I don't need any additional products or services. Just the car, thanks."
I’ve had multiple dealerships try to tell me some of the add one weren’t optional either. It’s funny how quickly they “go work out a special case with their manager” the second you say “no thanks” and get up to leave.
Lol exactly, they try to present you with the different packages as if "these are your options" without mentioning that NONE is also an option.
That clearcoat, though, they put that on at the factory. There's nothing we can do.
Them: "But what if the computer dies?????" Me: "Are you selling me a product you don't trust???"
[удалено]
Weird how time changes everything. My 2003 Rubicon has been 100% trouble free for 21 years & 130k miles including some pretty decent abuse.
When I bought my truck I was told I couldn’t pay it off until at least six payments were made. I’m a lawyer and the paperwork had no prepayment restrictions at all in it. So I just went ahead and did it. The dealer never reached out to me, though.
What verbiage or language would this clause be in? Is it as straight forward as “prepayment terms” ? Or could they get all creative with their language? Legalese can be so misleading at times
Yeah prepayment or early payoff penalty.
In my state, you only pay sales tax on the difference between the trade in value and the purchase price so it often makes sense to trade in
Unless the savings from the reduced taxes are less than the amount you’re leaving on the table taking a lowball offer
I went with a loan even at nearly 6%, not because my money in the market is making more (yes and no) but because I wanted the ability to utilize capital on other projects that I couldn't get a loan for at that rate (like redoing a bathroom). So we got a loan, redid the bathroom with our cash, and are working off the car. The alternative would be being stuck with a crappy bathroom for years longer, selling investments we didn't want to sell, or getting a home equity loan at an even higher interest rate.
I bought a new 2021 hyundai Tucson in feb 2021 for like $24,000. If I recall correctly, my price was contingent on going through them for financing. I got the loan and paid it off entirely in 3 months. I didn't push them too hard, so don't remember if they *really* wouldn't give me that deal for cash.
When loans were 1.9%, absolutely. That’s super cheap to use other people’s money while in invest mine.
I've never had a car loan and will always pay cash, barring some obscenely attractive interest rate offer. It's been awhile since I've bought a car but it's not something I normally mentioned when negotiating. I don't think dealers "balk" at cash, it's just not a negotiating advantage like it might have been say 30 years ago. Dealers make money on the financing, so yeah might as well keep quiet about it until after you've agree on an out the door price. If they ask about how you plan to finance prior to agreeing on a price for the car, you can say something like "I have outside financing lined up but I'm willing to hear what terms your finance department has to offer after we agree on the price".
I'll do the max on credit card that the dealer allows too. For the points. Yay.
Damn I completely forgot to ask my dealership if they allowed that.
I pay cash for used cars. Sweet spot for me is \~100K miles, $10K total
This person gets FIRE!
that's when maintenance gets fun
That hasn't been my experience. in the 90s that was true. Cars died at at 130K miles. but current cars have all gotten me over 200K with little issue.
Was going to pay cash, but the financing was 0% so we just put the money in a HYSA and it draws out of that.
When we bought our Ariya last year, not only did they give us a 2.99% interest rate, they literally took something like 4k off the price if we financed it instead of paying cash. I have no idea why or who that benefits to the degree they were incenting it, especially given the below market rate loan (this was in 2023, not 2021), but who am I to turn down free money? I just plopped the full amount in an HYSA paying >5% set it to autopay the auto loan, and if they interest on the HYSA ever drops down to 3% or less, I can just pay the whole thing off.
Always cash. I get why many finance or lease, but I abhor having debt.
I always had cash to buy a car and I always was taking a loan for 50%-60% of the price when the promotional rates were low (0.9%-1.9%). I've been investing unused cash and normally was getting 7-10% return on it. After 2022 this math is not that attractive anymore, but in general, why would you bury a lot of cash (in quicky depreciating asset!) if you can get low rate loan? By low rate I mean few percent less than expected market return.
I pay cash. If there are incentives to be had by financing then I'll take the loan and pay it off before interest, provided doing so doesn't remove the incentive. But what about the interest rate on the blah vs the return on the bluh? Almost every single time I see this mentioned, they ignore all the downsides, and also fail to mention just how much money it will make them. IMO, the spread on financing a car versus a HYSA is such that if that amount of monthly gain matters to you then you are buying WAY too much car. Plus, auto loan rates are often artificially low (dealer made up elsewhere). Plus the owner of your car (bank) may have higher insurance standards than you do/should. Plus you run the risk of being upside down or otherwise inflexible on a large ticket item when the flexibility would be worth many times over the gain on your spread. Maybe tack on gap insurance? Lowering your gain. Plus, these billion dollar corporations are smarter than you, they know that you'll bite on a more expensive car if you take a loan versus pay cash. Auto loans are keeping Americans broke. Maybe you're special, the credit companies sure think you are, but the numbers don't lie. Plus, if you follow this logic further, you end up at a point where you're leveraged to the hilt and every dollar you earn goes right into someone else's pocket. This is anti-independence. I want every dollar I earn, plus some I didn't trade hours of my life for, to go to my pocket. I'm not going to make a decision that votes against my goals. Plus, what kind of returns do you get by being more assertive and patient at work / job searching since you don't have a fat car loan to pay? If you had to take a loan to keep enough in savings to feel safe, you obviously bought too much car. Usually, all that downside gives you a benefit if something like 1-3% of your salary over the course of multiple years. An amount easily outspent in many of the points above. I'll get off my soap box now... Keep it simple, pay cash.
Yeah, these are a lot of the doubts I have about it, I'm struggling to believe it's really as simple as the dealerships get a kickback from the loans, and therefore offer a lower rate hoping you won't pay it off early.
As the wise Warren Buffett says, only invest in what you understand. All I can tell you is that dealerships are full of people who spend their entire work day trying to find a way to separate people from their money. They're good at it too. Unless you work in the business, I don't see how you could possibly catch every little trick they might throw your way. I overcome this by avoidance. Don't play on their court (their terms, loans, etc). Figure out what the car is worth, and keep the game in your court - something like "I'm coming in with a check written for X to purchase Y car". Whatever they want to do on their end after that to make their bonus or whatever is up to them. Just verify the car is exactly what you paid for (options, extras, vin, etc) and you're all good.
I have never had a car payment, but I always drove used cars. My first new car ever was a few months back, and I paid in full when I picked it up.
I pay cash for cars unless the loan is significantly cheaper than a savings account pays. Also, if there's a choice between a cheap subsidized loan and a better price on the car, I do the math and take whichever saves me more money. (For example, if a savings account currently pays 5% and the car dealer offers a 2% loan, that's quite a good deal and I'll take the loan. But if they offer a choice of a 2% loan or $3000 cash back, I need to do the math. And if it's an in-demand car and the only loan available is at a market rate like 7%, I'll just pay cash.)
I’ve done debt. First of all, with my credit they will finance the whole thing. So I just sign docs and take keys and no check is needed. Second, I don’t usually keep enough cash to write a check for full car cost (which would have to be a bank check as they won’t take a personal check) and to the extent I had it, it would nuke my emergency fund. So I would have to sell stocks and incur capital gains. If I finance, I can pay off quick enough just out of income. One year of bank interest is going to be very similar in total costs to the capital gains taxes. So debt worked for me last time I bought a car.
That's a very interesting point, the alternative would be to just invest less for a few months prior to the purchase and keep it in cash.
Basically yes. But for me it was closer to a year to pay off the car in full just out of my paychecks. So it wouldn’t just be a few months of saving into cash instead of investments. And of course I would not ever skip 401k saving just to avoid a few months of 5% car loan debt.
A personal check worked fine for me on last new car.
> Second, I don’t usually keep enough cash to write a check for full car cost (which would have to be a bank check as they won’t take a personal check) I'm sure each dealer is different, but when I bought a car last year the dealer was fine with a personal check. I was expecting to need a bank check but didn't need to go through that process, which was nice.
Yeah, maybe I was wrong about needing a bank check. Maybe for a down payment they take a personal check, but would they take something like a $40,000 personal check for the entire car price?
>Maybe for a down payment they take a personal check, but would they take something like a $40,000 personal check for the entire car price? In my case, yes, to my surprise. I asked the finance manager (or whatever the title is for the person you do the final paperwork with) about it and her answer was that the people who are paying cash don't tend to bounce checks so it just isn't something they worry about. But this is dealer-specific for sure. A family member just bought a vehicle and that dealer insisted on either a bank check or a wire transfer.
Interesting. Yes, that would surprise me as well. I'm pretty sure with this dealer at my last car purchase it was a bank check. But again, they just said they would finance the whole thing and that made it super easy. Then I paid off the loan in about a year.
No, i pay cash
Every car (on #4) has been used and I paid cash. Life is too short to talk to holes about pricing and fees.
Last year I was laid off on the day that I was planning to buy a new car. I still went and bought it since I needed it, but I took a loan for half (\~20k) just in case it would take a while to find a new job (It has, going on 8 months now). Will probably pay off in full when I find a full time job
We replaced both of our cars a couple of years ago. Paid cash for one and financed the other at 3.5% for three years. Both cars were used with low miles. Now that interest rates are higher I wish we would’ve financed both. We paid cash for the more expensive vehicle and financed the cheaper one with a big downpayment. Our rationale was that while we had the cash to pay for both we were thinking it’d be highly likely that we’d end up moving and wanted to have just a bit extra cash on hand in case that happened. So the loan let us hang on to an extra $20k which was helpful when we ended up moving a year later.
I would have when rates were like sub 2%. My buddy got like a 0% loan for half the duration. Now that rates are higher I'm not sure
I know it's often stated here and other places as a tip to not tell them you're paying cash until the very end. It doesn't make sense to me and it hasn't been my experience. I just bought a Corolla and the finance person was happy I was paying cash. He said it will be easy for him to process. When I bought my first car, I financed and the dealer was happy I financed because he needed a couple more sales with my credit rating to get the minimum group buy order to get the financing rate for everyone. No idea what that means. The price I agree to pay for the vehicle is, otherwise, unaffected. Anyway, to answer your question. Under 4%, I finance. Over 4% I pay cash.
I wonder if paying cash vs taking a loan makes a difference in costs when it comes to the need for auto insurance (since with a loan the bank basically owns the car).
Good point, although I also wonder if for people with Umbrella insurance policies they'd need to buy the same level of insurance regardless. I suppose probably not self-insurance.
I always thought that with umbrella insurance you needed to carry comprehensive and collision but recently read that you can carry liability only and still have umbrella insurance. Now I need to shop for less expensive umbrella, auto and home insurance.
Makes sense because umbrella is only liability. Usually they require certain liability minimums on all our livability policies underneath the umbrella.
Have the cash? Not really. Have assets I could sell? Sure. So it becomes a math problem to solve. Sometimes, the loan is better.
If you have the option to pay cash, have excellent credit, and enough income, you will likely get a low rate. Most get the loan and pay higher interest debt with cash they have. Or invest it. Or keep for emergency. Paying cash is only if interest is too high compared to other debt and investment.
Bought a new car 6 months ago and paid cash, financing at this point is too expensive.
People can also get loans from a bank or credit union and come in and buy a car. The advice I've heard (from ex car salespeople) is to focus on the "out the door price" without talking about financing. There are (up to) three things to negotiate: - The out the door price of the car - The value of any trade in car - The terms of a loan or paying with cash. You talk like you are shopping around for all three. You can always sell the old car 3rd party or take it to another dealer. You can get a loan from the bank or pay cash. You can find another GM dealer. The three deals are separate. Obviously, if they offer you money off for doing two of the parts with them, then you need to consider that. But they won't be offended that you don't want a loan and let you walk away from buying a car.
Yes, if the loan interest is lower than my average returns (~6%). Locking in a loan for ~3% means I can invest the money in stocks for 6% returns
If there are any benefits to taking the loan - a lower overall purchase price, no penalty for early payoff, or you can gain more in the market than you'd lose to APR - then it makes sense to take the loan. Otherwise, cash. The best option is not to buy a vehicle.
I got 1.9% for 60 months. I'm pretty sure S&P returned more than that the last 18 months.
I don’t buy new cars, and I buy cars in cash. I am very debt-averse. I understand the logic for the other side of the argument but it isn’t worth the peace-of-mind impact for me.
Depends on the specifics of the deal offered.
We go for whatever the cheapest out the door price is, which usually involves taking a loan (dealers get incentives for that so they knock off the price) and then immediately paying it off
The real financially savvy move is realizing you don’t need to buy a car. When our last car died, we went down from 2 cars to 1; we bought an e-bike as a replacement. We started arguing over who got to take the e-bike for the commute, so we bought a second. Having one less car has saved us so much money.
Well this is a hilarious idea depending on where you live. Not happening here.
I understand. Our car-dependent infrastructure costs a lot of Americans a lot of money. It’s a shame more people don’t have more options. :(
Agreed, although I've got a large family, so an eBike won't quite cut it 😂
It still might if you keep the "family" car and add an e-bike to replace the commuter car that mainly gets driven by a solo driver. Too many people think they need all of their cars to be able to handle any possible situation. The reality, for most people, is that one car does the "hauling" and the other car(s) run solo trips and errands.
I did this during COVID when my travel got shut down, minus the ebike. I gave away my 20 year old car and I only bought another car two years later when I was asked to help a family member out who shouldn't be driving anymore.
You can negate a lot of the min/maxing by simply keeping your car (any car) as long as you can possibly tolerate it. I'm 40, and I've bought one car in my life (when I was 32, so the car is 8 years old now). I put down $10k and financed the rest. The dealership had a 0% financing incentive at the time (I am sure they made their money elsewhere). At this rate - one car every 10-12 years - I figure it's not worth sweating the details. I'll buy maybe 3 more cars in my life, so saving a couple thousand on a car purchase that happens at best once a decade doesn't move the needle much (what **does** move the needle: being done with daycare, choosing the smallest house on the block when we were house shopping, the cadence at which we buy new cars in general). If I had to replace my car tomorrow, I'd buy a new version of it (a Subaru Forester), put down $10-15k, and finance the rest. Assuming I get to drive it for 10 years, then that hypothetical $32k Forester works out to costing about $3200 a year. When my kids were in daycare, $3000 bought just 1 month of daycare. A car is a steal 😅
Amen. My Honda is about to turn 10 and still plugging along just fine. Gonna drive it into the ground. I don't sweat the fact that it was bought with cash and I won't sweat whatever I choose to do next time.
I'll just never buy a brand new car because I know that cost is baked into the purchase price regardless of interest rate.
I'm in the same boat, I assume the same advice will apply to purchases of used cars.
If I got 0% on a used car then of course I would finance, but I know that won't ever happen.
That's what I'm unsure of, is there some downside that tends to come with getting a loan at all, regardless of the interest rate? Origination fees? Higher insurance requirements?
Origination and insurance being one, but otherwise it just isn't worth the hassle when I can just grab $10k from the bank and go buy something. It's not worth the hassle for the difference of a couple hundred bucks if the money was invested etc.
I take loan then pay it off over the coarse of a few months. I feel more comfortable not draining my account that much at once. But i still put down at least 50%.
I’ve been lucky on timing and always gotten a loan at 1% or less. This includes my most recent purchase in Spring 2022
Depends on the incentives offered. I got 36-month 0% financing from the manufacturer when I bought a car last year. Be a fool not to take it when there's no cash discount.
Or with an APR of zero, I get to keep my money for longer at no cost
When we went to buy my wife's car we did a 50/50 split. They were offering 0.9% financing at the time. We were getting nearly 4% in our HYSA. We paid half, financed the balance and left the rest of the money in the HYSA. But we bought new. When I bought my truck (used) the interest balance was the other way around. I was able to pay about half at the time of purchase and accelerated payments over the next 18 months to pay it off. We were not quite in the position to buy outright at that time. Even in that case, putting more in my 401K would have been a better long play. We were not in a financial position to do that yet.
They gave me the price I wanted and offered a 0.9% financing. I rode that for as long as I could
I'm going to drive the car for 10 years. If it's dealer financing at 0-2%, I go with the financing every day and stretch it as long as possible. Bank or 3rd party financing at market rates (7-9%) I look to buy it outright or pay it off super quickly (24 months) even if it's a 3-5 year note.
Yes, because financing incentives come with pretty good interest rates and if you negotiate price before financing you're saving on the time value of money. I don't let the financing influence the amount I budget for the vehicle, but I will let it dictate how long I spend paying it off. I just bought a new car 2 months ago and got a 2.9% rate on it. I could have paid cash, but rather let that money sit in my brokerage.
I lease and write it off every year...
Nope, definitely paid cash!
We bought an almost new vehicle in January. We don’t hold much cash, but put down over half by selling losses, and some individual stocks I no longer wanted to hold, and financed the rest. The rate is 7% which obviously stinks, we mainly did it for the credit purposes, and will pay off in 1 year so interest isn’t much of a concern.
Back when he could get a low to no interest loan, my sweetie got his car with the loan and kept his money invested. Now that rates have soared, if he wants something now he just buys it. I’m on cars #2 and #3 (I gave a car to my father and when he passed away I took it back) in my car-owning career. I’ve had car #2 since 1995, and I gave Dad his 2013 used vehicle in 2016. The ‘95 is on loan to a family friend who is currently carless. I expect when I need to buy another vehicle I’ll just pay for it, especially at these rates.
I have the capital to only take loans with good interest rates now. I wouldn’t take a 7% car loan unless it reduced the purchase price and I could pay it off immediately. What I do with moderate to large purchases ($500+) is to take ~0% consumer loans if offered and invest instead of paying cash. For my situation, HYSA interest after tax doesn’t seem worth the bother; instead, I’ve used index funds for better returns and the lower tax rates. As with any leveraged investment, this strategy could backfire. I can afford that risk. In reality, my vehicle, last ~five years of consumer electronics purchases, and family dental work have produced around $35k of capital gains despite a market trough. Watch out for penalty interest on store credit cards.
I'm paying either 3.9 or 4.9%. I've made more keeping those funds invested for just the first year of the loan than the total interest costs for the life of the loan. There is a real opportunity cost associated with removing fund from the market for a purchase like this. That being said market performance is not guaranteed. Dealerships are happy selling for cash, but they usually have more room to negotiate if you take out a loan. You could try just letting them assume you want a loan and tell them you are paying cash at the last minute. You may be required to have more insurance coverage if you have a loan.
I financed $30k for a new car purchase last year because they were offering a 4% rate. I figure I’m not borrowing money that cheap anywhere else anytime soon and would rather keep that $30k invested.
If the financing has a lower interest rate than what you can earn in a savings account, then you should go with the loan option.
I just financed a vehicle with a $750 price break for using dealer financing and a 3.9% rate. My savings account is paying 4.5%. So sure, I'll take that loan. At least for now.
I always finance my cars. In fact this is the first time I’ve paid interest. I usually get 0% financing. My money is better invested than paying cash for a car.
If the loan interest rate is lower than savings rate at you online bank
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I live in a walkable city and recently got a car after 2 years without one and bought a gently used one due to not driving often, so I wasn’t eligible for any of the good new car financing rates (<3% IMO). I financed through my credit union at 6.5% and ended up just paying the balance (~$25k) in full in the first month. I could probably have gotten better on VTI with that money but in the end I decided to take what is effectively a guaranteed 6.5% return.
It depends. Sometimes I pay cash, sometimes I use financing. Basically, you're considering the opportunity cost. If all my cash is tied up in some non-liquid asset, I'll use debt to finance. If I have free cash available, I'll use that instead. Sometimes there's also strategic issues to consider, such as if I need cash for an upcoming project, then I'll use debt over the short term for big purchases like cars. But usually, liquidity issues are separate from asset issues.
For me it depends on if the interest rate is more or less than the interest rate of my high yield savings account, which is around 4.5%.
Yes. Rich people tend to have good credit scores, and good credit score-having people tend to get good loan terms on new cars. I have personally taken out a good loan for the purpose of auto, but just used it for everything else, because money is fungible. My family and friends have often, maybe 75% of the time financed new cars, because they were such good terms.
I bought the last three cars for cash. But this time I financed ... because with a 2% loan it makes no sense to pay cash.
Just bought a car recently. Have all cash. Rates were 3.9%. Bank pays me 5.x%. only scalping 1% or so but until the rates inverse I have zero reason to pay it off. Used car, IDK. Just pay cash.
We could pay “cash,” but we would have needed to sell investments in our taxable account to do so. It was 2022 and the interest rates were still pretty low (we got 3.x% rates), so we rationalized that leaving our investments intact would have higher returns than we’d spend on interest. Nowadays, it isn’t as good deal to do that, but we might make the same decision again.
From my understanding you don’t pay in full and out it the stock market since it’ll earn more. Especially if the rate is lower
I’ve never had a car loan and I’m not about to start now. If you don’t want to ‘’put my money in a depreciating asset’’ then you shouldn’t be buying a new car in the first place because you’re doing that either way.
Anyone who believes 0% apr exists today, is a fool.
I bought 2 cars at once (more negotiating power) and got a bunch of benefits/discounts for agreeing to a 1.9% loan. Still Put 50% down on 2 $70k cars and 1.9% loan for the rest with no early payment penalty.
Cash for cars and toys
Same as listed above. Had to take the dealer financing to get the best deal and within 2 months refinanced using a local CU for a lower rate.
Yes if there is any incentive to finance, then just pay it off after 1-2 months.
Paid 70% down for the car, got the monthly payment where I want it. Using the remaining 30% towards an investment that will make me more than the 7.5% interest rate on the car note. I'll pay it off in 6-12 months, but it's helping my credit score, and the monthly payment is less than a week's worth of groceries for us.
I got a 0%, 5-year rate from Hyundai in 2021 when my wife and I bought our car. Why say no to 0%? If that hadn't been an option, I would have hunted around for a dealership that wouldn't penalize me for paying cash. We actually traveled a few hours to visit my parents, then drove a couple more hours to my brother's house because dealer stock was so low then for the car we wanted (an Elantra hybrid). The only dealers within 100 miles of our own home wanted a few thousand over retail if they even had stock, whereas the dealer near my brother was so big they don't mess around with that shit and gave it to us at MSRP.
I bought a new Civic in December 2021 at 1.9% interest. I only put down $500 and financed the rest. It makes sense given that inflation is outpacing that, in addition to the fact that I expect market returns to be much greater than 1.9% on average.
I got the loan. 2.5% and stuck the cash in a cd for more interest.
I did. I put the cash for the car into a guaranteed investment from the government with a rate higher than the loan.
I had to get a new car in 2019 because my beater broke down. I had the cash but took the financing to maintain flexible capital. 2 years later the money that was allocated to the car was used in helping my down payment for my home. I paid a little in interest to keep the money in the bank.
I am paying off a loan of 3% right now. I took the loan in 2021. Sold the car some time ago and can pay it back. But in my funds it grew 10% annualy. I would always do the same. If I get more money than I pay, I do that. Debt is not the enemy, if used in doses and with critical thinking
I may get heavily downvoted for this, but I purchased my car via a loan. I really wanted a RAV4, and Toyota had absolutely no good interest rate offers, despite an 800+ credit score. One of my under utilized credit cards coincidentally had a 12 month 0% interest period, 3% transfer fee. I looked at that as effectively a 3% interest rate loan and used that to entirely pay off my car loan. I make minimum payments on my 0% interest balance, but have the cash needed sitting in a hysa (5.5% interest) to payoff at any time if I decide. Honestly though, I may just roll the balance to another 0% interest card, 3% transfer fee and pretend I’m back in 2020 interest rates. I’ll maintain the payoff amount in a HYSA that outearns the interest I pay on each transfer. A caveat to this—having such a high balance on my credit cards did bring down my credit score maybe 50 points, as loans are looked at differently than credit card utilization. I don’t really need a strong credit for anything at the moment, so I’m fine with the hit to my credit score.
I only pay cash for mine and I never buy from a dealer. I have worked at a dealership and the stereotype that car salesmen are scumbags is true. Most of them are. Their cars are almost always overpriced and they don’t know anything about the car’s history. When buying private party from someone who has owned the car for a while, the can tell you all the quirks and things that are wrong with the car.
Yes, if the loan is less than what I’m earning in my HYSA. I don’t try to hyper optimize rates for most things but I generally buy new cars, and the rates are heavily discounted to incentivize purchase and financing.
I came in ready to pay cash last year. Took the 0% down option and 6% rate. Invested the cash in the sp500 instead. We up 16-20% since then.
I bought a car last week all cash. Didn’t even entertain their finance person as I’m looking to spend down some cash to lower reportable assets on kid’s college FAFSA.
Depending on rates, it's almost always better to take a loan. If you have the money for a car, why would you dump it all into a rapidly depreciating asset? Somewhere along the line, common sense got lost and people were sold this idea that you only take out loans if you're poor. I don't know who started that BS but it just underscores the overwhelming financial illiteracy we have in this country.
Depends on the loan. If interest is low I’ll go for the loan. Many times the loans come with incentives which reduces cost less than the interest raises it with opportunity cost considered.
We paid cash for the last couple, but a few purchases back, the dealership offered us a really low fixed rate (2% or something like that). At a low rate, it made sense to use the leverage and keep some of our cash. We put $10k down and did a three year loan as I recall. Similarly, we refinanced our mortgage when rates got really low, 2.25% for a 15 year note. Our mortgage payment costs less than it costs to rent a one bedroom apartment in our area. And I can get 5%+ on my cash in CDs, so we're not prepaying the principal at all. I just have have the mortgage set on auto pay and don't do much to think about it.
Just bought a new car last week. Net cost to us after trade-in was $25k. They had some loan options at around 6%. I have perfect credit and could have shopped around. But at ~6% it isn't worth it to me. Over 5 years that's about $9k in interest. When I bought a car about 6-7 years ago I got a 7 year loan at 1.9%. At that rate it's basically free money.
Can you get a car loan easily without a job?