paying cash vs financing
 

If I pay cash do I bypass the finance department and their BS trying to sell options I don't need..

Do dealers actually prefer cash or finance to close the deal? I heard with financing they also make a bit of finders fee or something.

So if I say I am buying, I don't need financing, is this an advantage to get a better deal? (buying a car in general)

Dealerships make money one of four ways. MSRP, Financing, Trade-In, Add-ons (accessories, extended warranty, etc). By paying cash you're eliminating their ability to make money via financing. If you actually have thirty thousand dollars sitting in the bank, I highly suggest financing the car and paying the 1.9 or 2.9% that most banks will charge you (with good credit), and throwing all or most of that money into a mutual fund with Vanguard, Fidelity, etc. You can definitely earn more with that money working for you in the stock market with low-risk funds than the 2 or 3% you will pay to obtain financing. If you just pay cash for the car outright, will you still have an emergency fund to dip into in case something should happen? Just things to think about.

financing is just one way that you can pay the final agreed upon price of your vehicle.

"bullshit options" are handled before that. A salesperson might give you incentives such as "if you finance through us, we'll give you this cactus," but you're free to decline.

When purchasing a car, first agree on the options and final price, then sit down and figure out how you want to pay for it. (cash, lease or finance).

the two things should not have an impact on each other

Paying cash doesn't allow you to bypass the finance department, since you still need to go there to sign paperwork confirming the financial details of the vehicle purchase. It is during that process where they offer you other options, like anti-theft (usually Lo-Jack or something like that), extended warranty, extended maintenance, etc.

Dealerships in general don't always care, particularly when it's a large enough dealership to the point where they have their own financing available, like how Toyota has Toyota Financial, or how Acura/Honda has AHFC or whatever it's called since it's not hard to get it approved, plus they make money off of it. It contrasts to ten or twenty years ago where paying in cash may have been more appealing to dealerships.

I'm not sure if there are finders fees, but when doing in-house financing through the auto manufacturer, there is some back-end commission involved in the sale.

Again, it depends on the dealership and/or the manufacturer. Most deals that I've seen (as I have worked at a dealership before) will use the same purchase price regardless of your payment selection, though of course when paying cash, some people like to just ask for a nice round number.

I just bought mine a week ago and was in the exact same position. Was going to pay for car outright, but Bank of America offered me 2.44% loan over 48 months. That is essentially free money. With the market tanking this month, go throw that money at some depressed oil stocks and you'll make 20-30% in 9-12 months. Or have it as cash reserves.....

I came into dealership with this deal in hand and they couldn't offer me any lower. You just have to go through them trying to sell you the extended warranty for about 30-45 min and tell them you are financing yourself. Decline all accessories, MSRP is pure price. Boom, you are done.

What particular stocks are you buying that guarantee 20-30% in 9-12 months because I want some of that!

Its Vancouver real estate ;)

No kidding. I had no idea Warren Buffet posted here!

As others stated, you still have to deal with finance and will still get pitched all the add-ons.

As for paying cash, just do it. There are zero guarantees with any investment and instead of paying interest and having to deal with making payments, you will own the car outright and not have to worry.

I either pay cash for my cars or pay them off within 24 months and it is a liberating experience having no debt and knowing the car is yours and not the bank's whom you are indebted to.

It's opportunity cost whether or not to pay cash. If you don't mind dumping $25k into a less liquid asset than a stock or mutual fund and have extra money in case of emergency, then it's up to you! But like serith said, if you have the opportunity to finance the car at a low interest rate and keep your money invested in something that will generate more interest than the ~2% the bank is charging you, it makes a lot more sense; your money can work for you, rather than being invested in a car that will depreciate and take longer to sell than other investments.

if you have good credit, secure a low APR %, i think you can get around 2%, and pay it off in chunks while the rest of your cash is invested.

Cash is king though, and dealers most certainly will cut you a sweet deal, however if you already have your finances ready they should be equally as happy.

Buy some Facebook stock! I kid...i kid...:lol:

But yeah oil stocks are cheap right now....

Soon the Spanish bond will get up there :D

heard mexico is actually buying spain and have the name changed to OLD MEXICO

i GUARANTEE you that you will be much better off paying it off 100% on the same day. you will get a better deal because dealers want the money really bad. they will rip you off BIG time if you finance or lease. dealers are struggling in this economy because people are jobless and they arent going to buy a new car. here is what you should do: find a good dealership online, and take your checkbook with you too. when you find the car, calculate the invoice price, and demand that you have the cash on hand and that you are going to pay it off. dont even move your price target even if the salesman said he cant do it. simply walk up and leave. tell them: good luck finding someone in this economy who is going to pay it off in cash. i promise you they wont let you leave. however, there is a chance that you have to visit a couple dealerships in order to get the best deal. ive done this with ALL of my cars, parents too, and gotten invoice price.

Unless the dealership is offering an incentive like an extended warranty (doubtful), you get the same deal either way. Scion has pure pricing and the dealership gets $25k regardless of what you do. Financing is just a service they provide... unless it's a special incentive, it's probably not worth it IMO if you have the option to just pay it off.

They'll have a better soccer team then and could claim Euro12:happyanim:

What I would do if I had that much in the bank: I would take financing and pay it off in large amounts. If you take a 1.9% deal and pay it off in less than a year your credit will sky rocket. Just take 60mo loan and pay it off in 5mo with 5k each payment. That way you still have money in the bank for an emergency fund

Credit doesn't work like that. It doesn't care how much your payments are or how much extra you pay. It just cares if you made the payment this month or not. Meaning if you had a $250 payment, and paid $500 this month and nothing next month, your credit would tank and you would retroactively have to pay a higher penalty interest rate. This also means paying $250 for 5 years would have a better effect on your credit score than paying it all off in a few months.

You could always pay off a certain amount and renegotiate your payments to be lower though.

Thanks for the advice.


Can you tell me how do I pay cash exactly without running the the bank to get a cashiers check in the middle of the transaction?

The reason I need to pay cash is because I am in the middle of a mortage refi (looong process) and I do not want to start a new credit or even get a inquiry on my credit right now.

Most of the cash will come from the vehicle I just sold.

Most dealers will run an electronic check (they process your regular check while you are sitting there). Really, its no different than when they finance and let you drive off the lot with the car. They don't really have their money yet.

You can also just ask them how they would like to handle the transaction up front, as it may vary between dealers. For example, the dealer I bought mine through would not take cash for the down-payment to hold the car. They would only take a check or credit card because they didn't want to have that much cash on site.

That is not true. When you apply for a mortgage, or want to refinance your home, lenders 100% look at your loan history, whether you made payments on time, whether or not the loan was paid in full or is still outstanding, and how long your loan terms are. If you have a 72 month car loan and have only paid 6 months that is taken into consideration vs someone who has no car loan.

At least two years ago they scrutinized my loan history and I have excellent credit and lots of cash on hand and in investments.

I'd rather take a loan out on the car, put the rest into a home using FHA and rent it out... the profit right there is the car payment... and income after it's paid off in 72 months.

Not to mention the house would appreciate in value in this market.

If you come out on top over the interest rates offered to you by banks, then it's kind of a no brainer?

Either it makes sense, or it doesn't.

Banks make money on lending money away. In order for them to have money in the first place, they need to offer interest rates to people who deposit money into their banks.

If you don't want to worry about having to make payment (becoming a slave to the financial system), by all means, pay it off outright. You won't have to babysit your funds then.

In the past, I would have agreed with you. From 2007 to 2009 all bets are off. Looking at the current economy, I just don't think there are guarantees anymore for most traditional investments including housing, mutual funds, stock market, etc will generate a positive return.

I consider the majority of investments to be gambles. I can't tell you how many people I know over the past 6 years or so that took out home equity loans, big car loans, etc and invested in what was considered safe investments and lost their shirts. Look at places like Arizona, Florida, California, etc where people took out massive loans for rental properties or flips and lost everything.

I don't buy that we are completely out of the weeds. Europe is a mess. Unemployement is still high. Health insurance has some huge question marks. A huge percentage of Americans owe more on their house than it is worth. And our country seems to have no answer for the amount of debt we are taking on and how to pay it back. Hint. Taxing just the rich aint gonna even put a dent in our debt, so as usual, the middle class will carry the burden.

What you are not taking into account (or at least not mentioning) is Risk.

In your scenario you are doing two things that create risk. First, you are taking out a loan that requires repayment. At the same time, you are assuming that the home you purchase will appreciate (we all have learned in the past several years there is no guarantee of that at least over 5 years), and you are taking on a even larger amount of risk by taking a loan on the home since you mention FHA.

On the other hand, if you pay cash for your car, you are "out the money" and any differential you could have profited (note that is not the same as "earned") from the investment. Don't forget to include costs for such things as taxes, interest on both loans, etc in figuring out what you really "earned".

The only risk you have with the paid off car is that if you run into a situation where you need money from the car, you must sell it probably at a wholesale or slightly higher value for a quick sale.

Just food for thought.

Hopefully he's renting out a property that's cash-flow positive and not counting on the appreciation, which would just be a bonus.

Understand, but that in itself has several different facets of risk to it.

Again, I'm not saying its a "bad" idea, its just not a no-brainer.

Yeah, I would just count any appreciation as a bonus. Thanks for the different perspective, guys!

Ironically enough this just happened to a buddy of mine last year. He cashed in a bunch of stock options from work, invested all of the money in a "sure thing oil/gas investment" which tanked. Problem was he forgot that the profit he received from those stock options was taxable income at the end of the year and had to write the government a big check and he no longer had the money. He was forced to take out loans against his 401k and sell other investments to pay Uncle Sam back.

This is just an example of a bad move investment, and shouldn't deter anyone from making investments.

The issue is situational at best. If you have investments that are predicted to put you over the loan interest rate, it's your decision whether to take that risk or not.

As far as the car itself, I'm looking into it as somewhat of an investment in of itself. I'm looking to move up to Silicon Valley (hence SV, hence Ess Vee) and to get investors/programmers on board, what you drive is all part of the message you send. The message this car sends I think would be in line of what I'm trying to do.

I think the car says (I took an art class, so bare with me :P):
young
somewhat risky (which adds to the excitement)
refined aggression
well-rounded

Curious to as what your thoughts would be.

I wouldn't look at any car as an investment, it is just an expense. Yes, some times the type of car goes hand in hand with the job but it is always an expense.

Also, unfortunately, here in SV, the price of an FRS is no where near enough for a down payment for a decent house. Let along to make any money from the rent after paying the mortgage and taxes.

I'm sort of splitting the difference, I'm putting $15K down and financing the rest @2.59

I literally have zero debt and I don't feel like taking on a HUGE car loan.

I'm pretty young (26) and this is my first brand new car, so with my limited (but good) credit history I feel I did pretty good.

It's not a bad idea. With that much down and that little financed at that rate, your total interest paid won't be all that much, and it's likely that you can probably even pay it off earlier. It's good that you have a good credit history, but paying off a car really does help. When I bought my Evo when I was 23, I think my credit score was excellent at 768 (give or take), though it went to 800+ when I had paid the car off early in three years and change.

I was finding a new car over the phone and a dealer told me he can do 2.9% financing (seems a little high) or 3.9% financing if they took another $500 off.

That is like paying points for mortgage almost..
Is this shady practice or normal? That's why I thought financing affected my price.

Like others have said it really depends on the dealer.

Some dealers would rather have cash others would rather finance you. Which dealer are you working with? I am also in the Bay Area.

It might have been said already, but if you pay cash for the car, let's say you have 30k saved and pay 27500OTD.

You now have 2.5k sitting in your bank. Sure the car is paid off, but it's also not worth what you bought it for.

So now not only do you have less of a cushion if something goes wrong, you own a car that's worth less.

Basically if you finance it keeps your money liquid and able to do other things. If you have a LOT of cash saved then sure go ahead, but if you don't I would be very hesitant. Especially in the above scenario.

Credit isn't a bad thing. It just happens to be abused more than it should be. If you're smart you can use it to your advantage.

They may have in-house financing where they dictate the rates. Some places do that, but it's usually used car dealerships, from what I remember.

I am planning on paying them 100% OTD price with a cashier check.

Does the dealer ship have the title of each new car in a file cabinet somewhere? Do you receive the title of the vehicle right away?
I am buying a new car out of my state not sure if that complicates things, though.

It gets mailed to you, it comes from the DMV.

I aggree. I had close to enough between investment and cash to pay for the car. But ended up putting down 10k and financing the rest. my payment is still low enough that I can still make it if I ever happen to find myself on an unemployment check. I wanted to make sure I have a comfortable cushion in case a rainy day comes along and I need to money. Dont want to end up putting my car up for one of those stupid car title loans which charge you over 25% interest. So LEVERAGE your assets.