Pay cash for a car?

Well check, really. Is there any reason if I have the money in the bank and I don’t live paycheck to paycheck not to plunk down the whole enchilada ($16,000 + or -) for a car in one shot and avoid interest payments? I wouldn’t otherwise be investing in stocks or anything.

Only one reason. If the interest the bank is paying you on your $16,000 is higher then the interest rate on your car loan. I have seen some really low car loan interest rates (like .9% or .5%). If you can get a rate like that then borrowing is probably a good idea.

If things are just as you say, then sure it is a good idea. The only exception is that there is a lot of very low or even zero percent financing available these days. If that is the case for the car you buy, it really is smarter to put the money in a very low risk investment like a money market fund and just make the payments out of that accont and earn a little money for yourself at the same time. It will help you build credit too but most people that can pay cash for a car don’t usually have bad credit.

It would generally make more sense than taking a loan and paying interest, but a better idea is to pay cash for a slightly used car that’s been broken in. You are less likely to have mechanical problems, and someone has already paid the steep depreciation that occurs when a new car gets driven off the lot.

My dad took out a loan for a car and then paid it off in a couple months, just so he could keep his credit rating current. He’s a geezer and always pays cash these days.

I have no idea how car insurance laws go in TX, but in PA, if you take out a loan, the bank will make you get liability and collision and the whole shebang. If you pay cash, you can usually get away with much less insurance. But of course, I suppose if you’ve got over $16000 in your bank account, you’re not too worried about your insurance payments…

Note that the low finance rates also come with a higher cost on the car. (That’s a really big “well duh” there.) I.e., the dealers get their money anyway. If you pay cash, you can get a lower price. Since most people can’t calculate the difference in costs+interest, they won’t know which is better. Clark Howard talks about this often on his radio program.

About the only consumer item where it is “not so bad” to take a loan is for a house. But it is a special case because of tax deductions and the chances of appreciation. (I.e., you have 10% down and your house goes up 10% in value, you’ve made a 100% gain on your investment. Cars usually don’t appreciate.)

Pay cash. Zero interest or not, peace of mind is invaluable. The car is yours free & clear. You don’t have to remember to mail off a payment. I agree with Skammer (who I suspect is a fellow Dave Ramsey listener), buy something slightly used, with cash.

I knew a guy in California would would research a car, get the cash together, and go to the dealer. “I have (say) $14,000, which I will give you for that car, right now.” I don’t think any dealers ever turned him down.

I figured it would be a much less stressful way of buying a car than what I’ve gone through.

We may be missing a key fact here: is the $16K anyway near the sum total of your liquidity?

If so, don’t trade all your liquid assets for a rapidly depreciating illiquid one. If you run into a cash emergency, you’re much better off with $16K in the bank and still having a car and a 60 month 0.0% monthly loan payment of $266.67 paid out of short term assets rather than having to sell your car at haste, most likely at a loss.

It depends.

If we’re talking about a buyer who is a credit risk and the only financing he can get requires the dealer to “participate” in the risk, then that guy can buy the car cheaper by paying cash.

With conventional dealer-provided financing, the dealer makes MORE money if you do finance, so a cash deal is actually less attractive to the dealer. No cash discounts in this case.

In the case of new car incentive financing, say 0.0% or $2,000 rebate, you make the call, but it doesn’t cost the dealer anything to participate in the incentive financing if you qualify so there is no reason to give you any extra discount for paying cash.

Then you have the “Buy Here Pay Here” style used car lots. Perhaps they’ll sell you the car “interest free” for $3,000 in 12 easy payments but you can buy it for $2,000 if you pay cash. Cash discount applies.

So, it all depends on the situation, but paying cash won’t always get you an extra discount on the vehicle selling price.

I would never recommend buying a used car for that kind of coin without having a trusted mechanic check it first.

I have about $25,000 liquid at the moment, and a CD ($10,000+) maturing in 2004. I’ve been toying with starting another CD lately, but at current rates I’d have to invest at least another 5 years and another 10 grand for a palpable return, and I’ve been avoiding doing so for just this reason - making a large purchase…either a house or a car.

It is a used car I’m interested in, and I don’t know where for this particular car I can get a 0% loan payment. My credit union offers 4.25 for either a 48 or 60 month loan, and a 1.66% money market. I’ve paid off a car loan before and my credit rating is high. Anyone know where I’d get a <1.66% loan?

With the info provided, pay cash and be done with it. I did the same thing back in December. I’m rollin in a stylin’ ride, now!


Fagjunk Theology: Not just for sodomite propagandists anymore.

Okay, you need to ask yourself whether reducing your liquidity right now to $9,000 leaves you with enough.

Financing $16,000 for 60 months at 4.25% yields a monthly payment of roughly $300.00 netting an interest expense of roughly $1,800 for the term of the loan or roughly $30.00 per month. Less than a dollar a day!

If you can afford the $300 per month payment without touching the $16K, I would do just that because you still have the $16K in the bank which is a good thing, especially in these uncertain times.

If you cannot afford the $300 per month, maybe better to think about making a $3,000 down payment (or so) and chose a car such that you can finance the balance to an amount you can afford on a monthly basis: perhaps a serviceable $12,000 used car instead if the $300 per month is too heavy.

I don’t think right now is a good time to be trading 80% of your liquidity for a rapidly depreciating illiquid asset. I’m conservative financially with other’s money. YMMV.

If you’re in or near a city, I’d say take the cash and try to snag a deal on a loss leader (the new cars advertised in newspapers, e.g. 3 at this price). It’s usually hard to get these cars, especially at the advertised prices, without cash. However, it’s a good way to get a new car for a great price. Make sure you don’t allow a bait-and-switch. Call the dealer on the morning the ad comes out, ask specifically about whether they still have the car (the VIN or stock numbers should be in the ad) what color, options, etc. Also ask what other costs are incurred in the purchase (tax, title, license). If it’s the car you want, head to your bank and get a certified check for the exact amount, and the car should be yours.

A friend of mine bought a $16,000 Jeep this way for about $12,500, IIRC.

As far as the 0% interest deals, as mentioned above, there are usually incentives for cash buyers, too, such as $2,000 cash back, in lieu of the low interest rate. Those incentives would be ideal in your situation.

Last month I spent a little bit more than that on a used car ('99) and decided during the buying process that I did not need to pay my mechanic $100-150 to check it out. A close visual inspection, and a test drive, combined with operating every feature of the car (all of the lights and signals, air and heat, adjust the seats, do the sunroof, trunk, front end, engine, wiggle the mirrors, sit in the back seat) and a VIN history check that was clean made me feel that a solid appearing version of a mark known for quality, with the bumper to bumper warranty any decent used car dealer will offer nowadays, was a decent risk.

The process described above is what most conscientious used car managers do several times a day when they evaluate trade-ins. However, these guys are experienced trained professionals who do get burned from time to time. A mechanic’s inspection is not useful to them, however, because the used car manager on average misses less than $150 worth of damage per car and the typical car buyer will not wait for a mechanic’s inspection of his trade before purchasing a vehicle from a dealer.

The used car buyer, however, is generally not an experienced professional purchasing several cars a day where he can “average-out” his mistakes. The stakes are higher, then, for the typical used car buyer.

In this example, the cost of the typical inspection is less than 1% of the selling price of the vehicle. Used cars sold with warranties almost always carry a deductible and usually do not provide free alternate transportation while your car is in the shop. Breakdowns are costly, a hassle and can be dangerous.

It all boils down to your ability to evaluate a car’s short to mid-term reliability by the seat of your pants combined with your attitude toward risk. If it were a car I really liked and seemed like a solid car and a good deal, I’d spend the buck and a half and get it checked out. YMMV

Better yet, buy it using a credit card that kicks back a percentage of charges to you…when you get the bill, pay THAT off. You get to take advantage of the float on the card, and reduce the cost of the car by whatever kickback you get, too.

I’ve done this…the car dealer about $hit his pants when I told him I wanted to charge it…but they did it.

Well I don’t really need 25 grand in the bank making 1.5 percent or whatever it’s down to these days. If I had a > $9000 cash emergency couldn’t I get a loan then? Do banks loan money at low rates for emergencies?