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Financing vs. cash
Posted on 7/7/12 at 8:12 pm
Posted on 7/7/12 at 8:12 pm
I am going to buy my wife a new car and thought about paying cash. My thoughts are they will drop the price quite a bit. However, I am still young (26) and want to build up my credit so I have thought about paying down a huge sum (hoping to get rid of the interest) and financing the rest. What is the best way to go in this situation?
Posted on 7/7/12 at 8:17 pm to EastTxTiger
I'd suggest cash if you can. There are easier ways to build credit.
Posted on 7/7/12 at 8:38 pm to EastTxTiger
This whole "I can pay cash but I'm gonna finance so I can build my credit score" thing is fricking stupid. If you have the bones, pay cash
pics?
quote:
...my wife...
pics?
Posted on 7/7/12 at 8:41 pm to EastTxTiger
You should ask this on the OT, you would fit right in
Posted on 7/7/12 at 8:41 pm to EastTxTiger
quote:
My thoughts are they will drop the price quite a bit.
You would be wrong. They make money on the financing. Pay cash and be done with it.
Posted on 7/7/12 at 8:52 pm to EastTxTiger
The biggest question I would have is what interest rate you qualify for. If you can borrow at a really low rate then I would do that and put your spare cash that you didn't use in a tax-advantaged account like a 401 or IRA. That gets you the best of both worlds. There's nothing wrong with borrowing money if you can invest what you have at a higher return, in fact that is exactly how bankers get rich.
That said, if you don't qualify for a low rate (you mentioned you're just getting started) then it may be better not to do this if you have the cash.
Another option is to go ahead and finance the car and next month pay off as much as you can. Dealers will sometimes knock money off the sticker price if you finance with them, just be sure there is no prepayment penalty in the financing contract.
That said, if you don't qualify for a low rate (you mentioned you're just getting started) then it may be better not to do this if you have the cash.
Another option is to go ahead and finance the car and next month pay off as much as you can. Dealers will sometimes knock money off the sticker price if you finance with them, just be sure there is no prepayment penalty in the financing contract.
Posted on 7/8/12 at 12:23 am to foshizzle
What's your interest rate?
Posted on 7/8/12 at 7:30 am to BallyHOO
Thanks for the help! I thought cash was a no brained but wife wanted me to look at other options.
Posted on 7/8/12 at 9:03 am to EastTxTiger
Agree with Foshizzel on this one. Here is my wife and my last experience.
In 2011 we bought a new car for the first time in a long time. Long story but I’ll stick to the financing side.
We didn’t tell them we wanted to pay in cash until we agreed on a price. At that time we said we wanted to put the entire purchase on a credit card. We have with a high enough limit on it to cover the purchase. They agreed. We had the cash to pay off the credit card in full when they bill came. We wanted the 2% cash back we get from the credit card. When it came time to swipe the card they told us that we could only put 5% of the purchase price on the card. We walked away. After a short time they contacted us and said they would give us 1% financing. We weren’t happy but decided to get the car because it was a good price on a car that had what my wife wanted and didn’t have what she didn’t want. We used the credit card for the 5% down which we paid off as soon as the bill arrives. I took half of the rest of the money we had in a money market account that we had used to save for the car and put it in Vanguard Wellesley mutual fund. From July of last year to June of this year it is up about 10%.
The bottom line, so far at least, is that low financing worked better for me than cash.
In 2011 we bought a new car for the first time in a long time. Long story but I’ll stick to the financing side.
We didn’t tell them we wanted to pay in cash until we agreed on a price. At that time we said we wanted to put the entire purchase on a credit card. We have with a high enough limit on it to cover the purchase. They agreed. We had the cash to pay off the credit card in full when they bill came. We wanted the 2% cash back we get from the credit card. When it came time to swipe the card they told us that we could only put 5% of the purchase price on the card. We walked away. After a short time they contacted us and said they would give us 1% financing. We weren’t happy but decided to get the car because it was a good price on a car that had what my wife wanted and didn’t have what she didn’t want. We used the credit card for the 5% down which we paid off as soon as the bill arrives. I took half of the rest of the money we had in a money market account that we had used to save for the car and put it in Vanguard Wellesley mutual fund. From July of last year to June of this year it is up about 10%.
The bottom line, so far at least, is that low financing worked better for me than cash.
Posted on 7/8/12 at 9:10 am to EastTxTiger
Like it was mentioned above, you sometimes get a worse deal by paying cash. They make money off financing and might not give the best selling price if you pay cash. My advice is to keep that information in your pocket while negotiating price. Drop the cash bomb on them after finalizing price.
Back 20 years ago cash was king. You would get a better deal because they got the money immediately instead of having to wait a few days to get the deal funded. Now with ACH transfers at the speed of light, they would rather finance it.
There is nothing wrong with building some credit, but you have to do the math to determine what is financially best. Paying a huge downpayment and financing the rest (usually a min of $7500 for car loan) would be a good idea if you got a great rate such as 3.99% or lower.
Best of luck!!
Back 20 years ago cash was king. You would get a better deal because they got the money immediately instead of having to wait a few days to get the deal funded. Now with ACH transfers at the speed of light, they would rather finance it.
There is nothing wrong with building some credit, but you have to do the math to determine what is financially best. Paying a huge downpayment and financing the rest (usually a min of $7500 for car loan) would be a good idea if you got a great rate such as 3.99% or lower.
Best of luck!!
Posted on 7/8/12 at 2:00 pm to EastTxTiger
penfed is doing 1.5% right now, no reason to pay with cash when you can get basically free money
Posted on 7/8/12 at 2:26 pm to EastTxTiger
quote:
my wife
quote:
i am still young(26)
I'm sorry
Posted on 7/8/12 at 3:58 pm to yellowfin
quote:
penfed is doing 1.5% right now, no reason to pay with cash when you can get basically free money
If he can qualify for that rate, I agree and that is what I would do so I could use the cash to invest rather than buy a depreciating asset like a car. In fact, I have my HELOC with Penfed and have generally been pleased with them, enough so that I just applied for a refi on the mortgage itself with them.
Again though the key is use the cash roductively, borrowed or not.
Posted on 7/8/12 at 5:53 pm to mglsu21
With the low interest rates, I'd imagine cash in hand helps a business more than financing. They could make the money work for them right away. That's why they are willing to drop the cost a bit.
Posted on 7/8/12 at 6:21 pm to NukemVol
quote:
With the low interest rates, I'd imagine cash in hand helps a business more than financing. They could make the money work for them right away. That's why they are willing to drop the cost a bit.
the dealership isn't financing it themselves, they have cash in hand either way
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