Finance vs. Cash?

[Brongo]

I know this is always a "fun" topic on this message board but I came upon this video from Doug DeMuro that he posted two days ago and thought it holds a lot of water. In case you don't follow Doug, his focus is on car reviews where he evaluates new cars as well as older, unique cars. I've always found his reviews pragmatic and interesting. Anyways, here's some solid advice for why you should finance your car vs. pay in cash (for most scenarios). *I have zero affiliation with Doug and am not trying to drive traffic to his channel.

*You can fast-forward to 4:50 in the video which is when he goes into specifics.

It’s a great thought, but I would bet money Ford won’t offer a low rate on a brand new vehicle like the Bronco.

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[Tricky Dick]

It’s a great thought, but I would bet money Ford won’t offer a low rate on a brand new vehicle like the Bronco.

Even if Ford doesn't, other lenders will. I was just quoted 2.74 by my CU earlier today, and they're usually a tad high.

 

[StaticAnalysis]

Unfortunately I’ve never financed any car because I’ve paid in cash so if I go to finance a Bronco I’m wondering if I’ll get a crappy rate for having no auto loan history despite a high credit score.

 

[TheWoo]

Unfortunately I’ve never financed any car because I’ve paid in cash so if I go to finance a Bronco I’m wondering if I’ll get a crappy rate for having no auto loan history despite a high credit score.

Do you have other credit history? Credit cards, mortgage? If so, lack of an auto loan won't mean anything. A high credit score and easily demonstrated income will get you 99% of the way there.

 

[Brongo]

Even if Ford doesn't, other lenders will. I was just quoted 2.74 by my CU earlier today, and they're usually a tad high.

True. We can do better with our local CUs for sure.

 

[MaverickMan]

I highly recomend financing. On a side note another thing I recomend is to loan me $46,815. I could pay you back over say the next 5 years or so for a financing fee of $250 annually. I am good for it. Coconut buisness is always good. Another thing to sweeten the deal is that since I live on Maui anytime you want to visit paradise you can scoop up my Bronco and crash in a RTT I recently mounted on a tree in my backyard, or we can put it on the Bronco if you just want to cruise. For any you wealthy folks out there it is a decent deal. Just let me know so I can reserve mine. Aloha!

 

[Gamecock]

It’s a great thought, but I would bet money Ford won’t offer a low rate on a brand new vehicle like the Bronco.

Then get money somewhere else…my CU has 2.29% for up to 72 months. Money is cheap right now….and I still would bet Ford is somewhat competitive with whatever rate you can get from your bank. They won’t offer the 0% deal, but probably under or around 3%. Still well worth it.

 

[PSUTE]

I highly recomend financing. On a side note another thing I recomend is to loan me $46,815. I could pay you back over say the next 5 years or so for a financing fee of $250 annually. I am good for it. Coconut buisness is always good. Another thing to sweeten the deal is that since I live on Maui anytime you want to visit paradise you can scoop up my Bronco and crash in a RTT I recently mounted on a tree in my backyard, or we can put it on the Bronco if you just want to cruise. For any you wealthy folks out there it is a decent deal. Just let me know so I can reserve mine. Aloha!

Ummmmm Hard no. Pineapples, on the other hand, seem to be a growth industry up in here...

 

[618TRVLWILD]

Credit was invented my Chevrolet. (Well kinda) 40s and 50s were wild times.
So they could compete with Ford selling cars.

Over Memorial Day. History channel was loaded with the Titans that built America. All fascinating.

 

[Yukon65006]

Even I bonds are paying higher interest than a 72month loan at my credit union. No way I will pull money out of other investment vehicles to pay cash.

 

[LarryZiegler]

Even if Ford doesn't, other lenders will. I was just quoted 2.74 by my CU earlier today, and they're usually a tad high.

Our credit union is 2.49 currently, but dealers also have traditional lenders like BofA, Chase, and non familiar names who provide dealers with low institutional rates they don’t market direct to the consumer. I’ll be in contact with the Finance Director a couple of weeks before we take delivery to see if any sub 2% rates exist. If not, I’ll use our credit union for financing. I’m not counting on Ford Credit to offer competitive rates. I’ll know in about 6 weeks.

 

[JohnG]

All the investment arguments make sense, but only if you assume that everyone listening to the financing advice is going to turn around and make equivalent payments into decent investments. I think it's safe to say most Americans jump at easy credit for consumer purchasing rather than invest. So the Dave Ramsey types who say "Cash or you can't afford it" aren't doing a math calculation, they're doing a human nature calculation. The cash-only plan helps many people focus down and not spread themselves thin on consumer purchases that could be made on easy credit and cheap money.

So whether financing>cash makes sense is very person dependent.

 

[DUSTYcazOREGON]

Me, I have the cash and paying in full. Some things to consider if you can; What interest would you pay on a loan? 2-5%? That will increase your overall purchase costs. If you saved your money and got a loan; what interest or investment funds could you actually receive by investing the money instead? Keep in mind that savings accounts are paying almost nothing, same with CD's. Easily under to 1/2 of 1%. Investing in stocks is always risky. LOOK FOR INCENTIVES: Sometimes you may get a $500.00 or $1,000.00 rebate by financing through (as an example) Ford Credit Corp. There is usually no penalty for early payoff. So get the loan, take the rebate (perk) and pay it off at the first payment. I have done this with both Ford and Chrysler.
One thing I have heard; do NOT tell your Dealer you will be paying in full. You may not get as good a deal as sometimes they get kick back funds from the lender if they set you up in a loan. Make your final purchase price and deal, sign it and then discuss how you are paying for the vehicle. Just some things to consider.

 

[da_jokker]

I find it interesting that these types of discussion seem to forget one key point. I'm sure there areany folks on this board that have money bursting from their pockets, buy for many, we had to save (and possibly for a long time)

My point being, that yes borrowing at 3% and investing at 9% the choice seems obvious. However where is that $1,000 per month payment clming from? Are you selling some of that investment each month, regardless if you are on the up or down curve to make that payment?

IF you can afford to swing the car payment and leave all that money invested for the 5 years... Chances are very high you would come out better. But if you are being forced to Continually cash out to subsidize the payment, then you risk of loss has gone up a ton.

Higher return is a good financial choice, but one time money vs 5 year liability does also has advantages.

 

[JT58Bronc]

If you have cash, why would you want to pay interest to the banks? Unless the loan is 0% financing of course. Then there are drawbacks to the 0%. It's usually the 0% OR Rebate, not both. In my experience the rebate almost always is a better deal than the 0% financing. Take the rebate and pay cash or finance. Do the math and see how much you pay for interest over the life of the loan.

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