Bigger purchases. Buy outright or finance?

[hiromizu]

I'm on the fence about this one.

I was wondering what most people would do assuming I have solid credit to get prime finance rates, have nothing else left in the horizon to buy and still have emergency cash leftover to cover a year's worth of living should I become unemployed and covering the costs of owning a car while I'm at it.

Would you rather keep most of that capital and put it towards investments while paying the finance charges or would you rather get it done and over with and have less capital to play with by buying it outright?

 

[her209]

Assuming you had the money to outright buy the car and you're deciding if you should buy it outright or not, it depends on how much you're getting charged on interest rate versus how much return you can get on the money left over.

 

[hiromizu]

Originally posted by: her209
Assuming you had the money to outright buy the car and you're deciding if you should buy it outright or not, it depends on how much you're getting charged on interest rate versus how much return you can get on the money left over.

It's a certified used car. I wonder if there are tax incentives or other trickery that could come in on this.

 

[HannibalX]

Without asking you to reveal your personal finances I'll try to answer this question.

Let's say you want to buy a used car for $20k, have $50k cash on hand and make $50k a year. With these figures I would definitely finance the car. The downside is you will have to commit a percent of your monthly income each month and pay (most likely) 6% or greater on top of the purchase price to the financier. The upside is you get to keep your cash and can use it for something else in the mean time. You could also invest the cash or place it in a high interest savings account and at the end of the loan you will maybe only be out 1% or 2% instead of 6-9%.

If you bump the numbers a little and say the car is $20k, you have $150k cash and make $75k a year I would probably pay cash for the car and be done with it.

 

[D1gger]

I have a personal aversion to debt, so I tend to pay for everything in cash if I can.

The correct answer is obviously if you can make more investing the money (after taxes) than the interest cost of the loan, you are better off financing the car. As this is a hard thing to guarantee I would pay cash.

 

[dullard]

Mathematically, it is best to find a good investment and put your money there. Then get a loan at a lower interest rate than the return on your investment. But, a mathematical ideal is far from reality. #1 Your "good" investment may turn out to be crap. #2 If you have this wad of cash to spend on a car, then you aren't investing. It doesn't matter if you had a guaranteed smash hit stock, since you aren't buying it, the investment idea is useless. The only time investing is the right answer is if your question was "should I sell my investments to buy this car?". If that was your question, then we'd know you are actually investing and not going to waste this money on hookers and blow.

So, in that case, I say buy the car outright. It is a good habit to be in. Learn to live a great life without car payments. Hopefully, that will keep you from making the mistake of paying car payments for the rest of your life like so many other people do. Learning to live within your means will give you a far better return than what you'd get if you invested it.

Loans should be used for 4 things: school, house, businesses, and emergencies. And only then if you do it properly. For example, a $200k loan to party and flunk out of a private school isn't a good loan.

No there aren't significant tax incentives to buy used. Sure, your sales tax and property tax will be a bit lower than if you bought new, but nothing that is make or break.

 

[CRXican]

It's always fun when this question gets asked. Since you're looking at a certified used car I'd guess it's pretty expensive.

If I knew the price that would help me help you. I hate car payments but if you get a good deal on a car and aren't upside down, you can sell it or trade it in at a later date without taking a hit. In that case it would be, use some cash for a good down payment and keep the rest. The payments will be low and you can ditch the car should you tire of the payments.

 

[hiromizu]

Originally posted by: dullard
Mathematically, it is best to find a good investment and put your money there. Then get a loan at a lower interest rate than the return on your investment. But, a mathematical ideal is far from reality. #1 Your "good" investment may turn out to be crap. #2 If you have this wad of cash to spend on a car, then you aren't investing. It doesn't matter if you had a guaranteed smash hit stock, since you aren't buying it, the investment idea is useless. The only time investing is the right answer is if your question was "should I sell my investments to buy this car?". If that was your question, then we'd know you are actually investing and not going to waste this money on hookers and blow.

So, in that case, I say buy the car outright. It is a good habit to be in. Learn to live a great life without car payments. Hopefully, that will keep you from making the mistake of paying car payments for the rest of your life like so many other people do. Learning to live within your means will give you a far better return than what you'd get if you invested it.

Loans should be used for 4 things: school, house, businesses, and emergencies. And only then if you do it properly. For example, a $200k loan to party and flunk out of a private school isn't a good loan.

No there aren't significant tax incentives to buy used. Sure, your sales tax and property tax will be a bit lower than if you bought new, but nothing that is make or break.

Admittedly I sold a small portion of my taxable account portfolio to fund part of the car (actually this will become my emergency fund that I'd like to keep as pure cash) but I will continue to invest and save, although not as aggressively with the newly added recurring costs ~$750/month (garage, gas, insurance, maintenance etc. in NYC which is on the low side!)

I guess it really doesn't matter??

 

[hiromizu]

Originally posted by: CRXican
It's always fun when this question gets asked. Since you're looking at a certified used car I'd guess it's pretty expensive.

If I knew the price that would help me help you. I hate car payments but if you get a good deal on a car and aren't upside down, you can sell it or trade it in at a later date without taking a hit. In that case it would be, use some cash for a good down payment and keep the rest. The payments will be low and you can ditch the car should you tire of the payments.

What the heck are you talking about?

 

[Lamont Burns]

Perhaps not in the current climate, and perhaps this was a thing of the distant past... but does walking onto the lot and saying I can buy this in cash right now if you knock XXX at the end of what they "give you off" in initial pricing work... at all? I'm guessing this is long gone.

I've been living off my 130k Malibu since 2000 and loving the no car payment, so my experience is HIGHLY limited.

 

[JS80]

Fixed rate loans are going to be money right now to hedge against inflation risk. I would finance. Rates are low too.

 

[hiromizu]

Originally posted by: Lamont Burns
Perhaps not in the current climate, and perhaps this was a thing of the distant past... but does walking onto the lot and saying I can buy this in cash right now if you knock XXX at the end of what they "give you off" in initial pricing work... at all? I'm guessing this is long gone.

I've been living off my 130k Malibu since 2000 and loving the no car payment, so my experience is HIGHLY limited.

Depends on the car but the g35 coupe is in good demand. I'm sure they can find someone who'll buy it for more. The easiest way to knock down the principal price at any dealership is to go through their own financing structure but that's a PITA. I think in the end my incentives for buying it outright is the fact that I don't have to deal with titling issues later down the road nor have the guilt of having paid financing premiums.

 

[hiromizu]

Originally posted by: JS80
Fixed rate loans are going to be money right now to hedge against inflation risk. I would finance. Rates are low too.

That's a good idea..haven't thought of that although the question begs, are we guaranteed headed towards a true inflationary period? That's another thread altogether.

 

[Tsaico]

I would finance a portion of it regardless. When you buy the car outright, you don't get anything for it. Finance the car, even for two year, then pay it off when you want. You get the credit bump up for paying on time and paying it off.

In regards to financing, the only thing i stick to is don't go over 4 year loan. If you can't make the monthly payments within four years, get a cheaper car or put more down.

Take the rest and toss it into your investments.

In regards to being able to pay cash and getting a lower price, usually only works for lower priced vehicles and more often with used ones. With the mid and higher ones (30k+) you generally pay the same, but get more for your money. Your bargaining only gets you free maintenance for a year, or you get Lojack without having ot pay for it, but your still paying 35k.

 

[BoomerD]

While the investment return/interest rate is something to be considered, as well as any credit bump from financing, (and paying on time) I prefer to pay in cash whenever I can. Obviously, we financed our house, put $35K on our 2005 Expedition when we bought it and financed $12K (for the finance bump) but used cars I've almost always paid cash for. It sux to have a car breakdown with no warranty...and you're still making payments. The couple of times I financed a used car, I also negotiated a deal on an extended warranty.

 

[hiromizu]

Originally posted by: Tsaico
I would finance a portion of it regardless. When you buy the car outright, you don't get anything for it. Finance the car, even for two year, then pay it off when you want. You get the credit bump up for paying on time and paying it off.

In regards to financing, the only thing i stick to is don't go over 4 year loan. If you can't make the monthly payments within four years, get a cheaper car or put more down.

Take the rest and toss it into your investments.

In regards to being able to pay cash and getting a lower price, usually only works for lower priced vehicles and more often with used ones. With the mid and higher ones (30k+) you generally pay the same, but get more for your money. Your bargaining only gets you free maintenance for a year, or you get Lojack without having ot pay for it, but your still paying 35k.

I don't think they report Amex to credit so I don't think I'd get any credit incentives. I already have decent credit so it'd be a moot point anyway. I'd rather get rewards points instead and with this purchase I'd rack up enough to take a short vacation. In my case, used car, $20k. I think we've zeroed in on buying it outright 😛

 

[hiromizu]

Originally posted by: BoomerD
It sux to have a car breakdown with no warranty...and you're still making payments.

Yea that's another concern I wasn't too thrilled with potentially having.

 

[BoomerD]

Originally posted by: hiromizu

Originally posted by: BoomerD
It sux to have a car breakdown with no warranty...and you're still making payments.

Yea that's another concern I wasn't too thrilled with potentially having.

Certified Pre-Owned cars USUALLY come with a decent warranty. Of course, depending on the mileage, it may not last long...

The next time you get one of those "Your warranty is about to expire," just buy one...😛

(has anyone else noticed that those fuckers have FINALLY stopped calling after the court order a couple of weeks ago?) :thumbsup:

 

[hiromizu]

Originally posted by: BoomerD

Originally posted by: hiromizu

Originally posted by: BoomerD
It sux to have a car breakdown with no warranty...and you're still making payments.

Yea that's another concern I wasn't too thrilled with potentially having.

Certified Pre-Owned cars USUALLY come with a decent warranty. Of course, depending on the mileage, it may not last long...

The next time you get one of those "Your warranty is about to expire," just buy one...😛

(has anyone else noticed that those fuckers have FINALLY stopped calling after the court order a couple of weeks ago?) :thumbsup:

I'm looking at ~45k mileage with 100k 5yr warranty on top of the existing. What's with the:

"The next time you get one of those "Your warranty is about to expire," just buy one...😛

(has anyone else noticed that those fuckers have FINALLY stopped calling after the court order a couple of weeks ago?) :thumbsup:??

 

[BoomerD]

Originally posted by: hiromizu

Originally posted by: BoomerD

Originally posted by: hiromizu

Originally posted by: BoomerD
It sux to have a car breakdown with no warranty...and you're still making payments.

Yea that's another concern I wasn't too thrilled with potentially having.

Certified Pre-Owned cars USUALLY come with a decent warranty. Of course, depending on the mileage, it may not last long...

The next time you get one of those "Your warranty is about to expire," just buy one...😛

(has anyone else noticed that those fuckers have FINALLY stopped calling after the court order a couple of weeks ago?) :thumbsup:

I'm looking at ~45k mileage with 100k 5yr warranty on top of the existing. What's with the:

"The next time you get one of those "Your warranty is about to expire," just buy one...😛

(has anyone else noticed that those fuckers have FINALLY stopped calling after the court order a couple of weeks ago?) :thumbsup:??

You never got any of those "spam" calls? :shocked:

 

[hiromizu]

Originally posted by: BoomerD

Originally posted by: hiromizu

Originally posted by: BoomerD

Originally posted by: hiromizu

Originally posted by: BoomerD
It sux to have a car breakdown with no warranty...and you're still making payments.

Yea that's another concern I wasn't too thrilled with potentially having.

Certified Pre-Owned cars USUALLY come with a decent warranty. Of course, depending on the mileage, it may not last long...

The next time you get one of those "Your warranty is about to expire," just buy one...😛

(has anyone else noticed that those fuckers have FINALLY stopped calling after the court order a couple of weeks ago?) :thumbsup:

I'm looking at ~45k mileage with 100k 5yr warranty on top of the existing. What's with the:

"The next time you get one of those "Your warranty is about to expire," just buy one...😛

(has anyone else noticed that those fuckers have FINALLY stopped calling after the court order a couple of weeks ago?) :thumbsup:??

You never got any of those "spam" calls? :shocked:

nope.

 

[BoomerD]

Originally posted by: hiromizu
What's with the:

"The next time you get one of those "Your warranty is about to expire," just buy one...😛

(has anyone else noticed that those fuckers have FINALLY stopped calling after the court order a couple of weeks ago?) :thumbsup:??

You never got any of those "spam" calls? :shocked:[/quote]

nope.[/quote]

You must be the only person in America who didn't...

http://forums.anandtech.com/me...id=38&threadid=2301128

http://forums.anandtech.com/me...id=38&threadid=2297049

http://forums.anandtech.com/me...id=38&threadid=2301900

http://forums.anandtech.com/me...id=38&threadid=2207222

and on and on and on and....


Until FINALLY...

http://forums.anandtech.com/me...id=38&threadid=2303094

 

[hiromizu]

My number is unlisted. Maybe that's why?

 

[Viper GTS]

Originally posted by: hiromizu
My number is unlisted. Maybe that's why?

They were just dialing every number. Listed, unlisted, government agencies, etc. Didn't matter.

Viper GTS

 

[hiromizu]

Originally posted by: Viper GTS

Originally posted by: hiromizu
My number is unlisted. Maybe that's why?

They were just dialing every number. Listed, unlisted, government agencies, etc. Didn't matter.

Viper GTS

Well I did change my number three times in the last 2 years and have a mental spam block so maybe I did get them and not notice.