# Finance or pay cash? **URL:** \ **Category:** Factual Questions\ **Created:** [April 15, 2009, 5:04pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187 "2009-04-15T17:04:21Z")\ **Posts on this page:** 18\ **Page:** 2
**Author:** ![sweeteviljesus](https://avatars.discourse-cdn.com/v4/letter/s/898d66/32.png) [@sweeteviljesus](https://boards.straightdope.com/u/sweeteviljesus)\ **Post date:** [April 16, 2009, 5:11pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/21 "2009-04-16T17:11:22Z")
Just some particulars about myself in case it will modify any answers. I am a Java web developer living in Austin, TX. I have a wife who is a full-time mother to my two kids. I want to buy a Honda Fit. I have excellent credit and enough cash to live on for about a 9 months. My company is doing OK, but who knows what the future will bring. I was discussing financing (not through the dealer) versus purchasing with our CFO and she recommended financing if there were no prepayment penalty. That way, I wouldn’t be loosing a big chunk of cash right off the bat and if the economy turns around, I could just pay off the loan. Rob ---
**Author:** ![Northern\_Piper](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/northern_piper/32/5304_2.png) [@Northern\_Piper](https://boards.straightdope.com/u/Northern_Piper)\ **Post date:** [April 16, 2009, 5:35pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/22 "2009-04-16T17:35:34Z")
I’ve just got an anecdote to add. Mrs Piper’s father, Andy, was a farmer. Farming is one of the most uncertain businesses, since there are so many variables utterly beyond your control. In the late eighties and on through the nineties, lots of farmers in Saskatchewan were in trouble, with high foreclosure and bankruptcy rates. (One lawyer I know who specialised in acting for farmers against the banks mentioned that having boxes of kleenex in her office had become a necessary business expense, because of the number of clients in tears.) However, Andy was never in financial trouble. Money might have been tight from time to time, but the farm was never in jeopardy. I asked Mrs Piper how Andy did it, when so many other farmers were on the edge of financial disaster. Her answer was that Andy always paid cash as much as possible, especially for farm machinery. That usually meant buying second- or third-hand used machinery, rather than new, since the prices for used machinery were much lower. As well, new machinery had the highest depreciation rates, just like cars, so by buying used machinery, Andy reduced his depreciation costs if he wanted to sell a piece of nachinery. Andy avoided debt at all costs, because servicing the debt during downturns was usually what got most farmers into financial trouble. I remember taking a drive with Andy in the country around the family farm. As we drove past different plots of land, he would mention who used to own each one. It was depressing to hear all the changes and farmers who had been forced out. Andy, on the other hand, sold his farm as a going concern to his son, and moved into town. His son is still farming it, just like Andy did. ---
**Author:** ![FalconFinder](https://avatars.discourse-cdn.com/v4/letter/f/51bf81/32.png) [@FalconFinder](https://boards.straightdope.com/u/FalconFinder)\ **Post date:** [April 16, 2009, 5:42pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/23 "2009-04-16T17:42:06Z")
> [@sweeteviljesus](#): > > Just some particulars about myself in case it will modify any answers. I am a Java web developer living in Austin, TX. I have a wife who is a full-time mother to my two kids. I want to buy a Honda Fit. I have excellent credit and enough cash to live on for about a 9 months. My company is doing OK, but who knows what the future will bring. I was discussing financing (not through the dealer) versus purchasing with our CFO and she recommended financing if there were no prepayment penalty. That way, I wouldn’t be loosing a big chunk of cash right off the bat and if the economy turns around, I could just pay off the loan. > > Rob This is the advice I was going to give. Get the financing so that you can control your expenditures. You can tailor your car payment to what you think/feel you can afford if you were to lose your job. You can be taking advantage of all the offers the car companies are using and then, if things turn around or you don’t lose your job, you can just simply pay the car off. Best of both worlds. Every car loan(actually almost any loan, now that I think about it) I’ve had has had no issues with loan payoffs. In fact, you usually get money back on interest you’ve already paid. ---
**Author:** ![Bijou\_Drains](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bijou_drains/32/2814_2.png) [@Bijou\_Drains](https://boards.straightdope.com/u/Bijou_Drains)\ **Post date:** [April 16, 2009, 6:04pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/24 "2009-04-16T18:04:12Z")
It helps that Hondas keep their value so it’s much harder to get upside down on a loan for a Honda. ---
**Author:** ![Hampshire](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hampshire/32/4887_2.png) [@Hampshire](https://boards.straightdope.com/u/Hampshire)\ **Post date:** [April 16, 2009, 6:11pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/25 "2009-04-16T18:11:45Z")
Being it’s a Honda Fit I don’t believe you’re going to find any financing deals to be had. And with this economy an inexpensive fuel efficient japanese car is in high demand so the dealer won’t be that eager to get you a low rate. Bankrate lists typical 3-4 year new car loan rates going for a bit over 7% right now. Someone said upthread that credit unions have them under 4% but I don’t know anything about them. ---
**Author:** ![Bijou\_Drains](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bijou_drains/32/2814_2.png) [@Bijou\_Drains](https://boards.straightdope.com/u/Bijou_Drains)\ **Post date:** [April 16, 2009, 6:16pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/26 "2009-04-16T18:16:35Z")
My credit union car loan is 3.6% because I chose a variable rate - their fixed rates are about 6%. ---
**Author:** ![HorseloverFat](https://avatars.discourse-cdn.com/v4/letter/h/8e8cbc/32.png) [@HorseloverFat](https://boards.straightdope.com/u/HorseloverFat)\ **Post date:** [April 16, 2009, 6:23pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/27 "2009-04-16T18:23:20Z")
New cars depreciate just way too fast. You might want to comprise and buy a 2 or 3 year old car, put half or so down, and get the rest on payments. You’ll still get a decent car and have money in the bank. If you can get 0% financing youre golden. ---
**Author:** ![Hampshire](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hampshire/32/4887_2.png) [@Hampshire](https://boards.straightdope.com/u/Hampshire)\ **Post date:** [April 16, 2009, 7:11pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/28 "2009-04-16T19:11:35Z")
> [@gazpacho](#): > > Car prices are not independent of the dealer financing. In a lot of cases the price if you pay cash right then is lower than if you take the 0% deal. True. When Toyota was running their 0% financing on select models (rare for tehm) they were also running instant rebates of $2-$3K. Of course you had to pick one or the other. ---
**Author:** ![Kalhoun](https://avatars.discourse-cdn.com/v4/letter/k/3bc359/32.png) [@Kalhoun](https://boards.straightdope.com/u/Kalhoun)\ **Post date:** [April 16, 2009, 7:44pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/29 "2009-04-16T19:44:22Z")
> [@sweeteviljesus](#): > > My car is getting pretty long in the tooth and I would like to get a new one. I have a good deal of cash right now and could easily pay in cash, but I am worried about the current economic climate. My job isn’t particularly in jeopardy, but one never knows. Would it make any sense to finance some or all of the car instead of paying cash? > > Thanks, > Rob We bought our used truck with a home equity loan. We have enough cash to pay it off should the shit hit the fan, but 1) we wanted to keep building our credit, and 2) we can write off the interest (as small as it is). ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [April 17, 2009, 4:42am UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/30 "2009-04-17T04:42:55Z")
> [@Kalhoun](#): > > We bought our used truck with a home equity loan. We have enough cash to pay it off should the shit hit the fan, but 1) we wanted to keep building our credit, and 2) we can write off the interest (as small as it is). Well… technically, you can’t write off the interest. You are only allowed to deduct interest on up to $1 million for construction, acquisition or remodeling of a house. Home equity used for other purchases or consolidating debt does not fit that definition. The fact that your mortgage company reports it all to you on a 1098 doesn’t make it deductible. That said, it seems to be impossible for the IRS to enforce the rules on this. They might catch it if they audit you, but they might not. As a tax preparer, I don’t even bring it up unless I have reason to believe the funds were not used for the home. ---
**Author:** ![bengangmo](https://avatars.discourse-cdn.com/v4/letter/b/50afbb/32.png) [@bengangmo](https://boards.straightdope.com/u/bengangmo)\ **Post date:** [April 17, 2009, 6:01am UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/31 "2009-04-17T06:01:22Z")
> [@ZipperJJ](#): > > A couple of points to ponder… > > - GM is offering a [payment protection plan](http://www.gm.com/total-confidence/payment-protection/?brandId=gm&src=gm_com&evar24=GMdotcom_hompage_image) now. They’ll cover your payments for 9 months if you lose your job. > > - In a recent appearance, financial guru Suze Orman said she changed up her advice about debt during this economic downturn. People were asking if they should take their severance packages and pay off debt and she actually said no. Cash on hand is more important right now. If you have cash you have room to keep yourself afloat for longer by being smart about how you are paying bills. If you put all your cash into paying off your debt now that’s good for now, and you have a car that you own, but you can’t eat a car or heat your home with a car. > > Just some thoughts. This would be my thoughts also - $15,000 over 4 years is going to be circa $400 per month - so you have a whole lot of emergency funds left over should things go belly up. If you pay cash - sure you’ve got a car free and clear, but no money. Also, a $15,000 lumpsum can make a useful investment, whether it be term deposit, mutual funds, equities or whatever, the return on which would offset (some) of your iterest - its a bit harder to do this when you are socking away money each month. ---
**Author:** ![Kalhoun](https://avatars.discourse-cdn.com/v4/letter/k/3bc359/32.png) [@Kalhoun](https://boards.straightdope.com/u/Kalhoun)\ **Post date:** [April 17, 2009, 10:09am UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/32 "2009-04-17T10:09:14Z")
> [@dracoi](#): > > Well… technically, you can’t write off the interest. You are only allowed to deduct interest on up to $1 million for construction, acquisition or remodeling of a house. Home equity used for other purchases or consolidating debt does not fit that definition. The fact that your mortgage company reports it all to you on a 1098 doesn’t make it deductible. > > That said, it seems to be impossible for the IRS to enforce the rules on this. They might catch it if they audit you, but they might not. > > As a tax preparer, I don’t even bring it up unless I have reason to believe the funds were not used for the home. That must be the standard, because no tax preparer has ever brought it up. I never knew! ---
**Author:** ![Dinsdale](https://avatars.discourse-cdn.com/v4/letter/d/97f17d/32.png) [@Dinsdale](https://boards.straightdope.com/u/Dinsdale)\ **Post date:** [April 17, 2009, 2:26pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/33 "2009-04-17T14:26:28Z")
I always pay cash for my cars, unless I am certain I would be able to earn more on the money through investments than the interest on the car loan. So in the past I financed a car at 0%. Even a genius investor such as myself was able to beat that rate of return! 😛 But, if you are only talking about a CD paying a couple of % on $10-15K for 3-5 years, you can judge whether or not that relatively small amount of savings is worth making payments. I think the appropriate comparison is a secure, fixed income investment. IMO you would be pretty silly to just assume that you will be able to beat your financing percentage in stocks over the relatively short term of an auto loan. ---
**Author:** ![Hello\_Again](https://avatars.discourse-cdn.com/v4/letter/h/85e7bf/32.png) [@Hello\_Again](https://boards.straightdope.com/u/Hello_Again)\ **Post date:** [April 17, 2009, 3:27pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/34 "2009-04-17T15:27:29Z")
> [@bengangmo](#): > > This would be my thoughts also - $15,000 over 4 years is going to be circa $400 per month - so you have a whole lot of emergency funds left over should things go belly up. If you pay cash - sure you’ve got a car free and clear, but no money. Or you pay $6,000 for a nice low mileage used car, like a 3yr old Hyundai with 2 years left on the bumper-to-bumper warranty\*, and have the car free and clear and $9,000 left in the bank. It’s certainly less fun, but more practical. I’m not convinced that buying a new car is ever a good deal from a purely financial perspective. \*a second owner gets the balance of 5yrs/50k. ---
**Author:** ![Bijou\_Drains](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bijou_drains/32/2814_2.png) [@Bijou\_Drains](https://boards.straightdope.com/u/Bijou_Drains)\ **Post date:** [April 17, 2009, 4:12pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/35 "2009-04-17T16:12:10Z")
Most people say if you buy a new car and keep it 8 or more years the cost is just as cheap as buying a used car. This assumes the car holds its value well like a Toyota or Honda and is reliable. If you want to buy a car every 2-4 years then buying used is the cheaper way to go. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [April 17, 2009, 4:12pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/36 "2009-04-17T16:12:10Z")
> [@Hello\_Again](#): > > Or you pay $6,000 for a nice low mileage used car, like a 3yr old Hyundai with 2 years left on the bumper-to-bumper warranty\*, and have the car free and clear and $9,000 left in the bank. > > It’s certainly less fun, but more practical. I’m not convinced that buying a new car is ever a good deal from a purely financial perspective. > > . Dealer retail, according to Edmunds, on a low end Hyundai Elantra is $9800, with a certified version running $11,235. So, you’d “buy the car free and clear” and have $4000 in the bank. And have a 3 yo Elantra. Buying a new car is often a good idea what with special incentives, such as 0% finacning. Note that the rate on a used car is often 3% higher than new. ---
**Author:** ![Hello\_Again](https://avatars.discourse-cdn.com/v4/letter/h/85e7bf/32.png) [@Hello\_Again](https://boards.straightdope.com/u/Hello_Again)\ **Post date:** [April 17, 2009, 4:18pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/37 "2009-04-17T16:18:56Z")
> [@DrDeth](#): > > Dealer retail, according to Edmunds, on a low end Hyundai Elantra is $9800, with a certified version running $11,235. > > So, you’d “buy the car free and clea” and have $4000 in the bank. And have a 3 yo Elantra. Why on EARTH would you buy from a dealer!? That’s just asking to pay too much. And what’s wrong with an elantra? Its an unsexy, practical car with 5-star crash test ratings. Oh, the horror. Is the Honda Fit possessing of more fun, hip, sexy, warm fuzzy brand-love intangibles? Sure, sure. But those are not _financial_ considerations. The op is “worried about the economic climate.” Perhaps he should respond to those worries by making the choice that is practical rather than emotional. > [@](#): > > Note that the rate on a used car is often 3% higher than new. The rate being irrelevant when you pay cash. ---
**Author:** ![Bijou\_Drains](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bijou_drains/32/2814_2.png) [@Bijou\_Drains](https://boards.straightdope.com/u/Bijou_Drains)\ **Post date:** [April 17, 2009, 4:24pm UTC](https://boards.straightdope.com/t/finance-or-pay-cash/493187/38 "2009-04-17T16:24:59Z")
For crash ratings check the [iihs.org](http://iihs.org) site , their tests are tougher than the government star ratings. [Previous page](https://boards.straightdope.com/t/finance-or-pay-cash/493187.md?page=1)