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Any reason not to pay cash?

KentState

KentState

Diamond Member
We have enough in savings to buy a new car for my wife. We haven't decided on what to do with her car, but will probably give it to a family member that needs reliable transportation. Here's my dilemma. We are in the very early stages, but I will be a father some time around Christmas. Would it be better to take a low interest loan and keep the money, or is a 1% loan over 3 years a bad idea? Personally, paying $400 in interest is fair trade off to keep an additional $30k on hand which can be put into a simple CD.
 
I would rather have more liquid cash given the ridiculous rates right now. But of course, I don't know your financial situation so if you still have lots of cash after buying the car then maybe it doesn't matter.
 
Given that you won't actually earn interest greater than the inflation rate out of a CD, there's no appreciable difference between the two choice except that one leaves you beholden to a lender for three years.
 
KentState said:
That was my feelings, but it seems to buck conventional wisdom.
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You could always pay the car off if you wanted to, but it's easier to turn cash into cash than a car into cash if for some reason you need it. Granted if you had to use it, you'd be stuck with a car/payment.

I chose payment over paying cash, which let me buy a house when the opportunity arose (down payment was available). I can now sell the car if I want, but had I paid cash in the first place I wouldn't have been able to flip the car fast enough to come up with the cash I needed (houses move fast out here).
 
jlee said:
At 1% I'd rather have cash on hand.
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jlee said:
You could always pay the car off if you wanted to, but it's easier to turn cash into cash than a car into cash if for some reason you need it. Granted if you had to use it, you'd be stuck with a car/payment.

I chose payment over paying cash, which let me buy a house when the opportunity arose (down payment was available). I can now sell the car if I want, but had I paid cash in the first place I wouldn't have been able to flip the car fast enough to come up with the cash I needed (houses move fast out here).
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These.

We were going to pay cash for my Camaro replacement but with 0% on the Jeep from the dealer, why burn up liquid assets when we get 0% financing? Now if something happens we have the cash to pay it off but using their money at 0%, we are further ahead by leaving our cash sit in savings generating interest for us.
 
KentState said:
That was my feelings, but it seems to buck conventional wisdom.
Click to expand...

If your responsible Its a smarter play to stay liquid. If you need Dave Ramsey and that chick with the whitest teeth on earth to keep your financial future afloat then ya pay cash.



Its funny how conventional wisdom has changed in the last few years. It seems like people being unable to plan was the exception not the rule.

On the other hand that is alot of H&B 😛
 
See how much you save by paying cash. At times it allows you to negotiate a better price, even compared to 0% loans.
If that sum is big enough, it might be worth to pay in cash, so that you don't get stuck with the added paperwork and overhead of the loan.

If the loan is free, and you don't get a cash bonus (you can use paying cash very well in negotiations - once that cheque is written, or bills are being counted, a dealer might want to close the deal then and there, giving you a better deal - you can apply slightly more pressure as a buyer) then go with the cheap rates, and put your money someplace it earns at a better rate. Make sure that that place offers sufficient insurance against bankruptcy. Most banks insure personal savings only up to a few 100k, so that's another risk to consider, that the bank that has your money goes broke, and you end up with no money, and a loan on a car....
 
Pay Cash - then finance through your Credit Union unless the dealership offers better financing.

That' what I've done on the last 3 car purchases.

I'd also make the dealer take the maximum amount of the purchase price on a credit card to earn points.
 
Interest rates are crap right now. You won't earn much off of it and I personally would rather have a car free and clear vs money in the bank. If worse comes to worst I don't have to worry about my transportation. I bought a new car in 2011 and paid cash - piece of mind counts for something.
 
if those are all your savings, I'd keep them and get the loan.
You should have cash on hand for sudden health expenses unless you have good medical insurance.

Personally I'm against loans for new cars so I'd just keep the old one until I have enough savings.
Also you could get all that cash stolen on your way to the dealership.
 
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Murloc said:
if those are all your savings, I'd keep them and get the loan.
You should have cash on hand for sudden health expenses unless you have good medical insurance.

Personally I'm against loans for new cars so I'd just keep the old one until I have enough savings.
Also you could get all that cash stolen on your way to the dealership.
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😱

Most wouldn't carry a stack of actual cash, but more like a certified bank check approved up to a certain amount that you sign and hand over.
 
Personally, paying $400 in interest is fair trade off to keep an additional $30k on hand which can be put into a simple CD.
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Then do that. With interest rates as low as they are it really makes no sense to buy with cash at the moment.
 
KentState said:
Would it be better to take a low interest loan and keep the money, or is a 1% loan over 3 years a bad idea?
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Not a bad idea at all. Do you have any other outstanding loans? Mortgage at a higher rate? You can get the 1% on your car, and then each month put extra principal on one of your higher interest loans.
 
Murloc said:
if those are all your savings, I'd keep them and get the loan.
You should have cash on hand for sudden health expenses unless you have good medical insurance.

Personally I'm against loans for new cars so I'd just keep the old one until I have enough savings.
Also you could get all that cash stolen on your way to the dealership.
Click to expand...

In the US, it's not typically a wise idea to pay cash for anything around 10k USD or more. You have to fill out extra paperwork to basically prove that the money was taxed and lawfully earned. It's funny, but I wrote a personal check for the Corvette and they let me drive it off the lot without hesitation. It's tougher to buy a pizza or get groceries with a personal check.

Thanks for the advice everyone. This would not wipe out savings, but with current loan rates through my credit union, it just seem silly to tie actual liquid assets into a vehicle.
 
KentState said:
In the US, it's not typically a wise idea to pay cash for anything around 10k USD or more. You have to fill out extra paperwork to basically prove that the money was taxed and lawfully earned. It's funny, but I wrote a personal check for the Corvette and they let me drive it off the lot without hesitation. It's tougher to buy a pizza or get groceries with a personal check.

Thanks for the advice everyone. This would not wipe out savings, but with current loan rates through my credit union, it just seem silly to tie actual liquid assets into a vehicle.
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There are no forms to fill out for paying $10K or more in cash. The transaction report is done by the bank when $10K or more in cash is moved.

Nearly all banks will verify a personal check over the phone. The dealer just calls the bank and asks if the check is good.
 
When Dave Ramsey gets calls simular to this he usually asks if you had a paid off car would you go take out a loan for $30k against it just to have that cash sitting in the bank?

However, with a child on the way, he usually suggests piling up cash until you know that everything goes ok and the child is healthy.

My initial thought would be to hold off on a new vehicle for now. After the child is born and healthy then go out and pay cash for a new vehicle. Keeping in mind that just because you've got $30k doesn't mean you need to buy a $30k car.
 
I agree with the masses here. If the interest rate is low enough, buy on a loan. Some life emergencies don't come with low interest loans, and having 30k liquid can easily knock out most of what comes at you.

Granted, if you have a new car, you probably won't have to worry about that much. But water heaters, air conditioners, delivery, etc. etc. etc.

Also, should you decide that enough is enough, and you're tired of paying the loan, you have the cash to wipe it out. Honestly, it makes sense, at least to me, to start it off as a loan and wait some things out and see where you're at after junior comes along. If everything goes well, knock out the loan.
 
Liquid money is king. You are getting a "free" 30k loan. Keep your money in the bank and pay down your car with your paycheck. Pretty soon you'll knock the loan down a good bit and if you get tired of it pay it off.
I paid 18.5 for a new Honda that could accommodate a small family very nicely. 30k is too much for any car IMO
 
Gillbot said:
😱

Most wouldn't carry a stack of actual cash, but more like a certified bank check approved up to a certain amount that you sign and hand over.
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I bought a car cash last summer. The dealership said if I used a certified check, I would have to wait for it to clear. Apparently there are a lot of counterfeiters. A personal check on the other hand was no problem. I thought it was strange they would take such a large personal check.
 
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