Paying in cash vs. financing?

[Rinzler]

I paid with cash, borrowed money from my parents, paying it back over 2 years. Already have a mortgage, getting chunks removed from your paycheck is felt!

[suaveflooder]

Originally Posted by mav1178

There's a huge difference between rich and wealthy.

Anyone that is adverse towards the word "debt" needs to evaluate his/her (mis)conception in the proper context. If you take on debt to finance a future growth improvement/potential (student loans are a good personal example), then that is a good debt.


-alex

I've evaluated it....it a lot actually. I personally believe that debt is negative. I understand that I go against the norm, but I have some great examples, some near to me, of people doing very well with bad credit score because they have no debt. I personally have committed to being wealthy.

[Rinzler]

Originally Posted by suaveflooder

I've evaluated it....it a lot actually. I personally believe that debt is negative. I understand that I go against the norm, but I have some great examples, some near to me, of people doing very well with bad credit score because they have no debt. I personally have committed to being wealthy.

This is a lifestyle choice, and there is no answer. Whatever brings you the most peace and happiness is the right choice in every decision in life. :happy0180:

[suaveflooder]

Originally Posted by Rinzler

This is a lifestyle choice, and there is no answer. Whatever brings you the most peace and happiness is the right choice in every decision in life. :happy0180:

:happy0180:

[mav1178]

Originally Posted by shirker

Duly noted to all above points, I appreciate the advice guys. I already took into consideration/planned everything from maxing out my roth IRA and making 401k contributions when I start work, to growing my stock portfolio, to aiming for an 800+ fico (which the auto loan directly helps with). BUT, it absolutely never hurts to hear others reaffirm those points, especially when it could benefit others too.

The better question is, do you even have work now?

There's so many ways to go look at this, but if you have no job lined up (or your work is contract and unstable), then you're assuming future cash flow.

Any type of finance (obviously) involves monthly payments, and that may be a problem down the road. I'm paying for the car up front, not because it's the best use of my current funds, but because I will have more money month to month for what I want to do over the next 3-5 years.

To each their own.

-alex

[thill]

There are lot of variables to this. It really depends on your assets and other debts. If you already have a number of outstanding debts (credit cards, personal loans, mortgage on a house you have little equity on, etc) and few assets to cover those debts if you were to get injured, lose your job, be forced to take a pay cut, etc then financing a $25K+ vehicle over 4-7 years is probably foolish.

If you have assets/money to cover your debts for an extended period of time should you lose you job, get injured, take a paycut, etc then taking out a low interest loan for 24-48 months is not a bad thing if you invest the money and make more than 3-5% or so on your return.

The problem is that many Americans don't invest the money vs paying cash for things. They go out and buy more things (like boats, motorcycles, electronics, trips, etc).

There is no such thing as a sure thing on the stock market anymore (the market can turn overnigh, see 2006). And, unfortunately, real estate is no longer a sure thing either (as many people in the US have seen their home values plummet 10-50%+ not that long ago). In 2002-2006 I watched a lot of people (co-workers, friends, family, neighbors, etc) take out loans and second mortgages on their homes to buy boats, cars, electronics, etc because "money was cheap" and homes were great investments.. Well fast forward to late 2006-2009 and many of those people lost their house, other assets, declared bankruptcy, etc.

So yeah, lots of other factors. Getting a low interest loan on a vehicle is not a bad thing if you have the means to absorb the unexpected and pay the vehicle off quickly at any time. I personally never get a loan over 48 months, and I almost always payoff a vehicle within 12-24 months. I also never have more than one auto loan out at a time (we are a two car family and will eventually be a three car).

[swaq]

I could have paid cash but with interest rates so low it made more sense to keep the capital around for investments.

~$28k at 2.9% interest = $68 per month in interest (which will become less as the loan is paid off)

I have a $22k investment at about 11.5% which is $210 per month. $210 - $68 = $142 gain per month, and I didn't even have to invest the full $28k...

[shirker]

Originally Posted by mav1178

The better question is, do you even have work now?

There's so many ways to go look at this, but if you have no job lined up (or your work is contract and unstable), then you're assuming future cash flow

Of course! It would be utterly moronic to even consider buying a new car like a BRZ without a stable, steady income, financing or not. But yes, I have a well-paying job secured.

[mav1178]

Originally Posted by shirker

Of course! It would be utterly moronic to even consider buying a new car like a BRZ without a stable, steady income, financing or not. But yes, I have a well-paying job secured.

Sorry, your last post was "investing into 401k when I start work..." which implies you having future employment.

Ultimately everyone's situation is unique. If you can afford to take out that much money out of savings/investment to buy a car outright, so be it. No two people are alike.

-alex

[Norkoastal]

Great points mentioned all over this thread..

Forward paying your car note is another trick some use to free up cashflow for higher interest debt.. While it doesn't offer the same principal reduction speed as a P only payment, it does push out your required payments into future dates.. I prefer to pay my car off in 3k-4k chunks (typically using tax returns or other accumulated savings), so this helps me focus on paying off higher interest debt throughout the year, and shifting more funds into to retirement accounts and mortgage principal which offer better returns or long term cost reductions.

We are all truly lucky to have such great rates for these cars!

[Whitigir]

I think it is all Personal preference. But if you do pay in cash though, dont tell the sale man up front.

In my Personal Opinion, I rather use that 27k to put into my mortgage. Because over the 5 years, the bank will usually make the most of 2-3k from your interests rate. But over this 5 years on your mortgage, the Bank will be charging you probably around 10-20k in interest rate. Depend on how much your mortgage is.

Breaking it down.

Car finance = 10-30$ a month = 1800 over 60 months ?

27k into Mortgage reduce 50-80$ a month, or even more, depend on you mortgage condition. The younger your mortgage is = the better (Young mortgage = within 7 years). This is 3k-5k. You are saving a few thousands here.

[zc06_kisstherain]

stay in topic. I paid $10K down + 1.49% Financed.
back to debate on debt vs pay cash blah blah, it's all depends on person's style.
I have home mortgage but thinking that as investment and i have BRZ to pay off. I probably pay it off in 2-3 years then back to Home mortgage to pay it off. hoping i can do that in 15 years. (i probably move to new house lol)

[soulstice]

Originally Posted by Whitigir

I think it is all Personal preference. But if you do pay in cash though, dont tell the sale man up front.

In my Personal Opinion, I rather use that 27k to put into my mortgage. Because over the 5 years, the bank will usually make the most of 2-3k from your interests rate. But over this 5 years on your mortgage, the Bank will be charging you probably around 10-20k in interest rate. Depend on how much your mortgage is.

Breaking it down.

Car finance = 10-30$ a month = 1800 over 60 months ?

27k into Mortgage reduce 50-80$ a month, or even more, depend on you mortgage condition. The younger your mortgage is = the better (Young mortgage = within 7 years). This is 3k-5k. You are saving a few thousands here.

Here we go! Whitigir has the right idea.

If you're enterprising in your investments or having things like a mortgage that are at a higher rate, it's better to put your money elsewhere then paying cash up front for a car. I just got 2.19% financing on my BRZ and as far as I'm concerned, that's a very small fee to pay for giving me the flexibility to put my money in places that will give me a better return for my dollar.

[marky]

Originally Posted by forzajuve

I put 10 down and financed the rest over 6 years, however, I am planning on paying it off in 3-4 years. Making it 6 years just made my monthly payments dramatically lower. I know some people finance over 7-10 years, but over 6 years seems a little much.

Yeah I'm 6 years but I'll have it paid off in 4/5 years.. Didn't know you can finance 7-10 years that's long time payment.. By time 5/6 years hits my 86 would be all fixed up the way I want it..

But everyone has plans