By on June 10, 2015

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You have worked hard to save the $20,000 you need to purchase the car of your dreams. You’re ready to step into the dealership, walk straight to the manager in the back, plunk down those greenbacks, and say, “I have cash! Give me your best price!”

This may have worked in the days before electronic banking and factory rebates, but paying cash today will likely cost you more.

Friends and family members often come to me for advice when they’re looking to purchase a car. If they have some money saved up, their first negotiating tactic is to tell the dealer they have cash and are ready to deal. This thought process comes from a time when dealers preferred cash as they received their money right away and didn’t have to send someone to the bank across town to attempt to secure financing.

With the advent of electronic banking and easy access to online loan information, this sneakernet financing task has gone away. Instead, an additional layer of profit has become accessible for the dealer if they persuade a customer to finance their purchase.

In my time selling cars and making friends with other dealers and salespeople, I have seen the cash buyer become a sort of punishment in many showrooms. When buyers bring in cash or a check for a large purchase, the dealer may be required to file additional paperwork for federal and state reporting purposes, taking time away from other sales.

Cash buyers also take finance and accessory profit away from the dealership. In most cases, salespeople are rewarded if they are able to sell financing from one of their partner banks. If they are able to sell an increased interest rate, they can make out even better.

If a buyer is approved for a 2.9% interest rate for a $20,000 car, that buyer will end up paying about $1,500 in interest on a 60 month note. However, if the dealer is able to add 2 points and sell a 4.9% rate, the interest jumps to $2,900. In that case, the bank will usually kick back half of that additional $1,400 profit to the dealer.

The last piece of potential profit for the dealer rears its head in the finance office when the buyer goes in to sign off on the finance paperwork. The finance office is where extended warranties, rust proofing and other added services are usually marketed as small add-ons to the monthly payment in an attempt to get the buyer to sign up.

Suckers at the Stock Photo Dealership with a Credit Card

Knowing about the potential profit for the dealer is helpful to know what you are getting into. However, given the scenario above, financing that $20,000 car still ends up costing you a total of $21,500 after interest. How does knowing where profit is made save you money?

The first portion of the savings comes from knowing the dealer will get a reward from the bank just for financing the sale. If they get $500 back on that $20,000 car, it gives you some negotiation room. You can tell them you’ll pay $19,750 instead of $20,000 and finance with their bank, saving you $250 off the sale price.

The second portion comes from factory rebates. Many current new car deals offer a special interest rate or a factory rebate if you finance through the dealer and, in many cases, this can be thousands of dollars. Some of these rebates are not available for cash or check buyers. However, if you’re financing, you can take the $1,000 factory rebate and bring the price of the $20,000 car down to $18,750. When manufacturers offer special interest rates on certain new cars, you can usually take a rebate instead. In most cases, the rebate will save you more money.

Let’s say you sign up for the loan to get the discounts and you still have that large wad of cash in your pocket. If you keep the 60 month loan, that $18,750 car will end up at $20,160, costing you more money. Instead, once the loan is initiated, request the payoff amount and pay all the money owed. If you wish to stay on good terms with the dealer that sold you the car, you should wait until the 3rd payment is sent in to request the payoff amount. Most of the rewards dealers get are pending until 90 days have passed and if a car is paid off before that window the dealer can lose the reward or commission from the bank.

The interest for 3 payments on our example car adds up to $133. Assuming the car is paid off after the 3rd payment, the total cost ends up at $18,883, saving you $1,117 over paying upfront with cash. Most of the larger banks will not have a pre-payment penalty, so you are fine to pay it off after the 3rd payment without incurring additional cost. Some smaller subprime banks build in an additional fee to cover pre-payment situations. They often call it a deposit and keep a portion of it if the loan is paid off early.

Although it does require a little extra work and may not give the instant gratification of making it rain in the showroom like a nouveau riche rapper, financing for a short time will often save you money and even benefit your credit score in some cases.

Still want to pay cash? Don’t advertise it right away. Cash buyers are becoming known for being … difficult … to work with and many sales managers will be less flexible when they know you have a stack in your pocket.

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233 Comments on “Should I Pay Cash for a New Car? Probably Not....”


  • avatar
    eggsalad

    What you seem to be telling us is that car dealers don’t make money selling cars, car dealers make money selling loans. Further proof that the dealership model is obsolete.

    All other car-buying articles say to secure a loan from your bank or credit union before entering the showroom – but that’s the same as paying cash (from the dealers’ perspective) no?

    Another point you seem to have neglected is that manufacturers often offer low percentage rates. Take your $20k, invest it in something that pays 2-3%, and take the loan at 0.9% – you come out ahead.

    • 0 avatar

      Bringing financing from your own source is equal to cash in the dealers eyes. Manufacturers do often offer low interest rates but usually if you take the interest offer you give up some of the rebates so it’s more cost effective to take the rebates and the non-manufacturer financing that the dealer is selling. You can always refinance through a credit union afterwards and still get rates in the 1-2% range. Your point about investing is a good one. If you can invest the 20k at a higher percentage than what your loan costs you will come out ahead.

      • 0 avatar
        Rod Panhard

        That’s a great write-up. Some things haven’t changed in 30 years. It’s just that now, there are more options with loans and leasing. I look forward to more of your articles.

      • 0 avatar
        krhodes1

        Bring your own financing and let them try to beat it. Has worked for me twice in the past 6 years – they beat it. Then put the cash to work making you money.

        Ultimately the calculus is fairly easy – can you invest the cash and make more than the interest will cost you. If you have decent credit, the answer right now is very much yes. It was certainly usually not true in the past, and it may not be true in the future, but with the current ridiculously low interest rates paying cash for anything you can get free money on is stupid. It’s not debt if you have the money to pay it off any time you want.

    • 0 avatar
      S2k Chris

      You’re encouraged to bring your own financing in case you need to use it to avoid dealer shadiness. Not necessarily because you should use it.

      What I’ve never understood is why dealers want to finance you at low/no interest and what’s in it for them. Last couple cars I bought were at 1.9% and .9%, there’s a little bit of “profit” in there, but it’s a terrible return over 60 months. I think CDs are about the same with no risk profile. Yeah, I get they want the return of financing someone at 5%+, but .9%? Really? You’re (financing arm) going to give a kickback to earn that business? Why?

      Also, some companies may still offer the “0% or $5000 cash back!” type deals, but with the Acuras I’ve bought, it’s always been “you can get $XXXX off MSRP and a low finance rate, there is no other offer.” You don’t give up anything to get the .9% interest.

      • 0 avatar
        ScarecrowRepair

        I am very close to buying a new car and one dealer told me that he gets $750 if I sign up for the 0 down/0% dealer loan. I told him I’d split that with him.

      • 0 avatar
        ajla

        You’re encouraged to bring your own financing in case you need to use it to avoid dealer shadiness. Not necessarily because you should use it.”

        Dealer initially offered me like 15%. I was pre-approved at 1.6%.

      • 0 avatar
        krhodes1

        @S2K Chris

        It is all about moving the metal. Better to give the free money interest rate (or subvented lease) than to put more cash on the hood. Usually, the super low rates are from the captive finance arms, though oddly the .9% I got on my ’13 Abarth was from a bank the dealer found while trying to beat my credit union’s rate. What surprised me is that they did not mark it up. The credit union was 1.9%, so they could have gone 1.5% and I would have taken it!

        And for the type of customer who actually qualifies for this type of loan, I have to think the risk of default is almost zero.

      • 0 avatar
        vtnoah

        @S2k Chris, oftentimes dealers are willing to finance you at those rates because they get kickbacks from the OEM’s on the volume of cars sold. So even if they barely make a profit or even just break even on an individual car, if they hit their sales goal the OEM gives them a huge wad of cash that makes it all worth it.

    • 0 avatar
      beastpilot

      Can you please point me to the place where I can get 3% guaranteed on a $20K investment? Or even 2%?

      The difference between a 0.9% loan and 2% in the bank over a 5 year loan is less than $500. Yeah, that’s not nothing, but it’s hardly big money. And that assumes you can find a 2% bank account (which you can’t). So to get the 2% right now, you’re going to be putting your money at some risk.

      • 0 avatar
        Crosley

        You can easily get a 2%+ “risk free” return, it’s just not going to be instantly liquid. All sorts of banks have over 2% CDs like Barclays, CIT, Synchrony, etc it’s just for 60 months like many of these car loans.

        But there’s nowhere near the risk of a car loan. What is the default rate of CDs vs car loans?

        • 0 avatar
          beastpilot

          Which is a problem, since you need that cash in the bank to pay off your monthly car payments, since the argument here was to take a 0.9% loan and put the cash you would have had in the bank to earn “2-3%”.

      • 0 avatar
        timhood

        If you want guarantees, you’re not going to get much return on your investment. But if you invest, you will *easily* trounce 2-3% returns. My personal example:

        In October, 2013, we chose to purchase a new vehicle. In advance of the purchase, I researched and secured a 1.9% loan from a local credit union. At the dealership, when asked if I would finance through them, I said, “If you can be competitive on the interest rate.” 100% truthful. If they could have beaten the rate I got, or matched it and given me some other incentive, I would have financed through them.

        I took the rebates offered on the car in lieu of the factory financing offer, which was no better than what I’d secured. So, in essence, I got both.

        Rather than use my money, I decided to finance, keep the money in case of an emergency, and invest the money. As of today, my investment is up 84%. In other words, I could pay off the car today and still have as much money as when I bought the car.

        Your results may vary, but there’s no reason why you couldn’t just plunk your money down in an index fund. If you’d picked the NASDAQ index fund, you’d be up 35% in the same period. Short of a Great Recession, over a 5 year period (typical loan length for a new car), you’ll virtually be assured of coming out much further ahead. Yes, there’s risk, but if you don’t want any risk, you get no reward. That’s why all the “safe” investments are paying <1%. What do you think the bank is doing with your money? They're *investing* it and getting those big returns! What a great deal! I wish I could convince people to give me their piles of cash in exchange for 1 or 2%. I'd be retired right now.

    • 0 avatar
      duffman13

      Those articles are generally catering to the lowest common denominator – the person with average credit buying a lightly used car.

      If it’s a used car, rebates and incentives no longer apply, so you’re better off giving yourself an interest ceiling and forcing the dealer to beat it with their own financing sources if they want that kickback.

      Our most recent purchase was exactly that – extremely lightly used, but over $10k off MSRP and $6k off average transaction prices at a year old with mileage around 20k. Since it was used, we secured a 60 month note from USAA at 2.25%. I walked into the dealer, negotiated price, and told them I had my own financing, but I’d be open to using theirs if they could beat my rate. They told me the couldn’t, I signed the bank check, and we were out of the dealer with new wheels in under 2 hours.

    • 0 avatar
      vvk

      > invest it in something that pays 2-3%

      First, where do you invest in something that pays 2-3%? Just curious. I sure don’t know where.

      Second, if you get 2-3% on your investment, you have to pay tax. If you have to pay tax, you have to do extra paperwork. A LOT of extra paperwork. I live in PA and I HATE taxable interest income because that means that instead of nice, clean electronic filing of my PA tax return, I now have to print out a huge stack of paper, sign everything, review it to make sure everything is correct, put it in a large envelope (which I usually have to buy at a distant store,) drive to a post office, stand in line, pay postage, etc. It is extremely annoying.

      I would rather not have the money, it is not worth it for me. Too much work for way too little gain.

      • 0 avatar
        duffman13

        Inputting a 1099-INT is a stack of extra paperwork?

      • 0 avatar
        Sigivald

        Well, since we’re talking 5 year terms, a quick search finds that lots of banks [even ones that aren’t random no-names] will give you 2+% on a 5-year CD.

        (My credit union isn’t that good, but will give me 1.85% on a 5 year CD, which is close.)

        Also, on paperwork?

        Maybe PA is terrible, but here in OR and for Federal taxes, you just add in the 1099 amounts and go. 1099 investment income is not onerous in most jurisdictions.

        (Admittedly I share your opinion on the effort vs maybe 2% return, especially for the terms and amounts in question.)

      • 0 avatar
        timhood

        You’re doing it wrong. Basic taxable investment income is part of the electronic filing.

        As I posted previously, 2-3% is chicken feed. You’re not talking about “investing” at those rates of returns, you’re talking about “saving”–as in a CD. Investing is stocks, bonds, mutual funds, etc., and in less than 18 months since my last new car purchase, I could have been up 35% if I’d simply invested in an index fund. I picked a stock (one I’ve actually invested in for many years), and I’m up 85%. My point is that even the most unnecessarily fearful investment would soundly trounce a 3% return.

    • 0 avatar
      markf

      Where are you going to get 2-3%? Unless you take a chance in the stock market, no bank will pay you more than .25-.50% in interest.

      Of course this is by design, to punish savers and reward debt.

      Still for .9or 1.9% take the loan and use the cash on something they may yeild a decent discount for cash…..

  • avatar
    sirwired

    If incentive financing is NOT available for the particular car you want to buy, is there really any difference to the dealer between you financing through a 3rd-party vs. cash from your checking account?

    Absent financing incentives, it’s rather rare for dealers to offer the best financing deals since they usually want to bake in some profit for themselves as middlemen. (i.e. Pentagon FCU will currently write you a 4-yr new-car loan for all of 0.99%)

    • 0 avatar

      If incentives are not available you still may get some discount from the dealer if they are getting cash from the financing institution for selling you a loan. Credit unions have offered great rates recently and are a good option if you do need a loan or wish to refinance a vehicle you have already purchased

  • avatar
    Pch101

    “Many current new car deals offer a factory rebate if you finance through the dealer”

    Huh? Typically, there is a choice between a factory loan with a rate buydown and a rebate without the financing deal. You rarely get to choose both, and the rebate is often worth more than the cut-rate financing.

    • 0 avatar

      That is correct and there are many different combinations of these deals. If there is a choice of taking 0.9% financing by itself or 2.9% financing and a rebate, I recommend taking the rebate instead of the lower rate.

      • 0 avatar
        See 7 up

        How can you make this statement without knowing the amount financed, term length, or rebate amount. Not to mention financial status and security of the buyer.

        The article hints on financially literacy. Blanket statements like this fly in the face of that.

        • 0 avatar
          timhood

          Yeah, what he should have said is, “I recommend using a simple finance calculator, available as a free app on your smartphone or all over the internet on such sites as bankrate.com. Simply plug in the interest rate and loan term offered with the purchase price of the vehicle to determine the total interest that would be paid using the incentive financing. Then do the same for the best finance rate you can get on your own (credit union recommended). If the difference is greater than the rebate amount, take the financing. Otherwise, take the rebate. However, nearly 100% of the time, the rebate is the better deal. Keep in mind that if you don’t qualify for a bank/credit union’s best rate, you won’t qualify for the manufacturer’s best finance rate, either.”

      • 0 avatar
        dal20402

        A blanket recommendation isn’t possible. When I bought my Pontiac (in the middle of GM’s 2009 apocalypse) the available incentives were either $3000 on the hood or 0% at 72 months. The 0% at 72 months was by far the better deal, and I took it.

    • 0 avatar
      cdotson

      When I bought my Elantra GT at the end of the model year there were a couple mutually exclusive rebate/APR deals available. The popular big one was 0%/60mo but there was also a $2k rebate + 2.9%/60mo. At sticker, or even at TrueCar price, the $2k back didn’t quite cover interest costs. But since I was buying an end-of-model year base car with a stick that had none of the options packages on the last day of the month the dealer went to (what Edmunds said was) invoice price plus incentives and the $2k/2.9% was $800 cheaper overall than the 0% rate.

    • 0 avatar
      Domestic Hearse

      True, it’s one or the other: 1.9% APR for 60 months for well-qualified buyers* OR $2000 Factory Cash.**

      However, to encourage financing through captive finance arms, many manufacturers are throwing in Bank Cash Back. Like:

      1.9% APR for 60 months for well qualified buyers PLUS $1000 NMAC Bonus Cash when you finance through NMAC, OR $2000 Factory Cash.

      It makes the APR financing through the captive finance arm more attractive (and profitable for the OEM and its dealer base).

      *Not all buyers will qualify. NMAC must approve. Other finance rates available. In fact, most of you will end up with one of those other rates, which are much higher, but hey, you won’t find that out till you’re in the F&I office and anyways, you’re still getting the bank cash, right?

      **Cannot be combined with any other offers. Must take delivery from dealer stock. See dealer for details.

    • 0 avatar
      dal20402

      It really depends on the circumstances what is available. On one of my cars there was the choice between 0% and a rebate. On the other car I just got 0% with no alternative. No rebate was available, but a new model was coming in two months and the dealer price was very favorable.

  • avatar
    CoreyDL

    “Friends and family members often come to me for advice when they’re looking to purchase a car.”

    Why? Who are you? Cause you’ve sold cars, how long? For whom? You have car knowledge because you’re a shadetree mechanic?
    New writer needs intro or summary bio.

    • 0 avatar

      In relation to this article I have worked as a car salesman, owned a small used car lot, and have exported and sold vehicles to Europe. I have also consulted on new vehicle purchases for company fleets and as stated above often give advice to family and friends. I also have extensive technical experience due to refurbishing auction and repo vehicles as well as working on my personal projects and swaps. I will work up a short bio for the future.

      • 0 avatar
        CoreyDL

        Thanks, you’re like Steve Lang version 2. We enjoy auction type inside info articles here.

        And I can guarantee you – any articles you write about exporting things to Europe for whatever reason will get people talking. Especially if you share why the person wanted whatever it was from the US.

        • 0 avatar

          Great. I exported a few interesting cars but I also sent over things like PT Cruisers.

        • 0 avatar
          DenverMike

          It’s a fairly narrow window of what Europeans want from the US. Fullsize pickups, vans, SUVs, and pony/muscle cars. Corvettes may be. Anything else is somewhat redundant to their choices. Vintage US autos could be a wider target.

          • 0 avatar
            gtemnykh

            I think you’re generalizing Europe to Western Europe only, and a narrow part of it at that. For example I know that the demand was for absolutely everything under the sun in Russia: cheap older SUVs, sedans, luxury autos, you name it. Although that’s probably slowed down in the past few years with increasing import restrictions, not to mention the ruble collapse.

            Russians like domestic American cars for their comfy rides and (in the case of many 90s cars) simple drivetrains that run decently on poor quality gas and oil. However people are also weary of cars originating from the US (not just domestic US makes, all cars) due to the general tendency for US owners to ignore maintenance intervals on things like transmission fluid, differential lube, timing belts, etc. There’s also the issue of some differences in stuff like headlights and specifications compared to the same vehicles coming from Europe that makes parts harder to find.

          • 0 avatar
            Pch101

            Full-size pickups in Europe are practically nonexistent, and pickups are generally not that popular. I presume that you haven’t been there.

          • 0 avatar
            ItsMeMartin

            I can tell you that while it might be true for Western Europe, it is definitely not true for Eastern.
            In Poland, we import predominantly lightly used, accident-damaged models of expensive, European makes because after repairs they are 20-30% less expensive (and often better equipped and more powerful) than comparable euro-market examples, and our low costs of mechanic labor make it worthwhile to repair them locally rather than import undamaged ones.
            There is a small majority of people who import Japanese and American cars that are not available in Europe but is is much less common. In the past we imported many more USDM-only models but nowadays we bring the global stuff for the most part.
            In Poland almost nobody imports American pickup trucks and vintage cars.

            Some examples I personally know of:
            My own Volvo S40: produced in ’06, imported in ’08 after it took a hit to the front and rear;
            My father’s previous XC90: produced ’03, imported ’06, hit in the side.
            My uncle’s S80: produced ’06, imported ’08, accident damaged.
            My uncle’s Audi A8: produced ’06, imported ’09, accident damaged.

          • 0 avatar
            DenverMike

            @Pch – It’s like saying exotic cars are almost nonexistent in the US. But you’ll never see what you’re not looking for.

          • 0 avatar
            Pch101

            You’re like BAFO, except that the things that you get wrong are different.

            There is no large pickup truck market in Europe. If there was, Ford and Opel/Vauxhall would be building them right now.

            (As it turns out, $6-9 gas and narrow roads don’t provide an optimal market for gas guzzling pickups. The long history of taxes on displacement and the new taxes on CO2 emissions/ fuel economy don’t help, either.)

          • 0 avatar
            DenverMike

            When did I say there was a “large market” for them? But fullsize pickups could only be built in Europe from CKD kits, if there was a sudden bump in demand. I will say Europe is a huge market, so it would be the best place to start. From there spread to other markets, even if not like wildfire.

            Those that have never had the option, aren’t likely to ask for stuff not on their radar. Similar to small fwd work vans suddenly catching on in the US, when they’ve been around since forever over there.

            Up to 2 million new fullsize pickups sell a year, just in the US. They/we can’t be that crazy. If just a tiny fraction sell overseas, that’s still a tidy sum. And obscenely profitable per pickup.

          • 0 avatar
            Pch101

            They don’t bother building large pickups, with or without CKD kits, because there is not enough demand to justify such a decision.

            Automakers figured out decades ago that Europeans respond to high fuel and engine taxes. That knowledge hasn’t reached everyone in TTAC’s comments section.

          • 0 avatar
            DenverMike

            When did I say there was “enough demand to justify”? What you state about EU fuel prices etc is a total given. And it’s clear cars like M-seres, Lamborghinis, Ferraris, etc are totally dependent on the US market for existence. There’s more M3s sold in so. California than the rest of the world combined, including Germany. So what?

            If any vehicles can absorb a loss while they saturate or not, into a niche market, it’s fullsize “Detroit 3” pickups.

          • 0 avatar
            Pch101

            You have claimed on many occasions that Europeans want full-size trucks. There is absolutely no reason at all that anyone should believe that to be true.

          • 0 avatar
            DenverMike

            When did I say simply “Europeans want full-size trucks.”? I would never suggest anything but a tiny niche market, except with the reminder the EU is an enormous, vast, diverse market, and there is not a more profitable set of cars in the world than the top 3, US pickups. If selling them in the EU would be a mistake by The Detroit Three, they’ve made bigger mistakes over there.

            But isn’t it better to attempt to sell a market what it lacks (but highly established in its home market) in a niche capacity, setting your prices where you want? Or an attempt at what they already have too much of (compacts, hatches, etc), at cut rate prices and with thin ‘margin’ to begin with?

          • 0 avatar
            Pch101

            “I’m not saying full-size trucks would conquer all of Europe, but I guarantee you, F-150 sales in Europe would easily eclipse Tacoma sales in the US.”

            https://www.thetruthaboutcars.com/2013/10/epas-top-mpg-and-emissions-cop-industry-ahead-of-schedule-to-meet-new-mpg-standards/#comment-2262793

            You can’t even remember your own comments.

          • 0 avatar
            28-Cars-Later

            I’m not terribly familiar with Europe, but I have been there. I don’t see Europeans clamoring for US trucks because they are 1. too big and 2. too thirsty by European standards. Even if you shrunk them a bit and went diesel, the waves of change are against diesel in Europe now with Euro 6. The amount of NOx emissions decreased from 0.018 to 0.080 -0.020 g/km above a petrol ICE. Think about it, diesels were allowed over double the NOx emissions prior to 2014 and now they are held to a near identical standard.

            Just look at the chart:

            DIESEL
            _____________________ CO NOx
            Euro 5a September 2009 0.50 0.180
            Euro 5b September 2011 0.50 0.180
            Euro 6 September 2014 0.50 0.080

            PETROL
            _____________________ CO NOx
            Euro 5 September 2009 1.0 0.060
            Euro 6 September 2014 1.0 0.060

            http://en.wikipedia.org/wiki/European_emission_standards

          • 0 avatar
            Pch101

            Henry Ford learned the differences with the Model A, which was a hit in the US but a flop in Europe. Even then, the Europeans discouraged gas guzzlers because they were dependent upon oil imports, and Ford responded by making European-specific models with better fuel economy and less displacement.

            Sloan discussed the differences between the US and Europe in his autobiography. The head of GM was well aware that the two markets were not alike.

            If there were 150,000 Europeans who wanted new F-150s every year, then you can rest assured that Ford would be building them there, right now. Selling that many units would place it in the Top 30.

          • 0 avatar
            DenverMike

            Actually I make a lot of sense there. We’re talking a huge market, that while it’s true, mostly sells small compacts, there’s a huge market for bigger/large vehicles when you include the commercial sector. Something Europeans aren’t used to, is a truck for work that’s also an all around vehicle, wearing many hats.

            Those hats include luxury to muscle cars, depending on how you order them. And something they’re definitely not used to is the ala carte system of ordering. Like cheap strippers with a big V8 engine if the want. Or not! What about a 2.7 engine in a full-size truck??

            You’re right. Maybe it’s time they knew!

          • 0 avatar
            Pch101

            In this case, I’m willing to bet that Ford and GM have a much better grasp of the European pickup truck market than does a tow truck driver from Colorado.

          • 0 avatar
            DenverMike

            You would think so. But just because they don’t, doesn’t mean they won’t nor haven’t seriously considered it for the near future. They’d be more crazy not to. Did I mention The Most Profitable Cars in The World? And would Pch get a memo either way?

            Things change/evolve over time. So if so, the rewards would be too juicy. Even at a tiny niche capacity.

          • 0 avatar
            dal20402

            There is a whole wide range of vehicles in Europe, which we don’t get in the US (although we are starting to get some vans from the biggest two classes, with different powertrains), that serves the commercial sector. They are narrow and slow and fuel-efficient and far less powerful than our pickups. In most of Europe, our pickups would be vastly more expensive for a business to run, and wouldn’t fit into a lot of the urban spaces. And there wouldn’t be any benefit: Europeans are far less into towing than we are, and trucks in most countries are subject to a hard and strictly enforced speed limit of either 50 or 62 mph. A U.S.-style pickup is strictly a recreational vehicle in Europe, and an expensive and impractical one.

          • 0 avatar
            markf

            I live in Europe (Germany) and the pickups I see are the VW Amorak and Ford Rangers. The folks I see driving them are fellow hunters (the Amorak is esp. popular with trackers, lots of space fr kennels)

            Can’t say what the demand is but I see lots of Americans here on the base I work at with F-150s/GMC Full size pickups and they can barely fit in parking spaces on bases, let alone out in town. I have a Sienna and Acura TL-S and sometimes have issue parking/driving is one of the tighter streets.

            Gas prices don’t seem to be an issue here in Stuttgart or the rest of Germany. I get passed on the autobahn by large cars doing 180+KM/h I can only imagine what how much juice is getting sucked up at sustained speeds like that, not to mention tire wear.

            I just think most Euros look at pickups like “what what I ever need that type of vehicle for”

          • 0 avatar
            Pch101

            “I get passed on the autobahn by large cars doing 180+KM/h”

            Most of those are company cars with the fuel paid for by the employer. The company car rules in Germany effectively serve as an indirect subsidy to the car industry, particularly for luxury cars.

          • 0 avatar
            markf

            @pch you seem to think you know a lot about Europe. 4 of my German neighbors have company subsidized cars (one works for Mercedes)none of them include fuel subsidies. Insurance subsidies, lease subsidies, even maint. but not fuel.

            So those folks blowing by at 180kn/h+ well most of them are paying for their own fuel.

            Fuel prices don’t bother them until I tell them what I pay through the tax free ration system under the SOFA…..

          • 0 avatar
            Pch101

            While untypical in many countries, the company car has a long tradition in Germany. Remember, Germany is definitely a “car country”! As a consequence we have found, that when recruiting in Germany, often the subject of the company car, what kind of car, what configuration it has etc. is a subject which requires more time in the negotiation of the package than the salary itself! In Germany, the company car is definitely a status symbol and is vigorously defended. Therefore a “car allowance”, while accepted by some, is nonetheless a very poor second to a fully expensed company car. By the way, with the company car it is expected that all fuel is paid for, including fuel for private trips (particularly including vacation trips). While the German employee who gets a company car will have to pay taxes on it, the taxes paid are far less than the costs of the car as such.

            http://www.cornerstone-group.com/2013/10/02/dont-offer-german-hire-car-allowance-hes-expecting-car/

  • avatar
    heavy handle

    last time I purchased a new car, the subject of financing didn’t come up until after we had signed-off on the price.

    The “financing-seat waxing-electronic mouse trap” guy was visibly upset that we weren’t going to buy any of his junk, but it didn’t affect the selling price.

    The “pay it off after 3 months” scheme sounds like a “no interest for 90 days” credit card. If you’re financially disciplined enough to take advantage, you probably don’t need it.

    • 0 avatar
      sirwired

      Well, it is a pretty common thing for the sales guy to ask you how you are paying for the car, but as long as you resist his attempts to try and turn you into a “payment shopper” (which would enable him to disguise the price of the car), you can just answer that you’ll be discussing how to pay for the car with the finance guy.

    • 0 avatar

      Many dealers are changing and the ones that are catching up with the times are taking a lot of the hassle on the front end of the purchase but the “financing-seat waxing-electronic mouse trap” guy is still there and trying to push his stuff in most cases and once you get there, the price is usually already tied down so you just have to resist any of the pushes from them.

      In some cases when there are large rebates it works out to quite a bit and if even you are disciplined it may save you a little extra money.

    • 0 avatar
      healthy skeptic

      When I last bought a car, it had been the first time in a while I bought from the dealer. I didn’t realize it’s now a two-part battle. The first part, with the salesman, went reasonably well. I had done my homework, knew the market value of the CPO car I was buying, and walked in with a loan in hand from my bank for 1.9%. I was tough but fair, and we hammered out a deal within about 45 mins. It was pretty straight-forward.

      I started relaxing and thinking “well, that wasn’t too bad.” Next I was sent to the F&I guy’s office. I couldn’t believe some of the things they were offering, which collectively would have nearly doubled(!!) the monthly payments. Things like gap insurance. In this case, what gap? It was a 3 yo 45k mi car. The gap was pretty much gone. Or windshield insurance for $720. I had just had a windshield replaced two months earlier for $190.

      When I said “no thanks” to all these things, the F&I guy looked like I was making him sick. He kept trying to push things. I was about 30 seconds away from turning unpleasant, when I’m usually a nice guy. Anyway, then point is that modern car buying is now a two-part battle–the sales guy followed by the F&I guy. Just say no to all that crap. If it was important to you, you would have walked in the door wanting it.

      • 0 avatar
        duffman13

        Our last new car purchase we were suckered into the GAP insurance. We were putting zero down and it seemed like a good idea to me. What i didn’t know is that you can add it to your own auto insurance policy, generally at 25-50% of what the dealer is offering it to you for.

      • 0 avatar
        joeaverage

        They did the same thing to us. When i got my fill my wife and I stood up, told him no thanks, and headed for the door. The finance guy and a salesman literally heckled us all the way to the door. You should have seen the wide eyes on the woman sitting in someone’s cubicle working out a deal with another salesman. I hope she left too.

        Months or a year later we bought our first house and discovered that the dealer ran our credit w/o our permission. Some time later we passed through that town (not our town) and got some satisfaction that the dealership was out of business… ;)

      • 0 avatar
        timhood

        It’s pretty amazing the crap that they will try to sell you. A major dealer around here always tries to sell a theft package, where the windows are etched with a number and registered with some company. On a previous car, I said I wasn’t going to get it. The salesman fessed up that the windows were already etched with the numbers. After purchase, I called the company and registered my car (not that I thought it was really worth anything, but hey…)

        A funnier story I just read online earlier this week was of a guy who got suckered by the dealer of a big 3 brand. Dealer told him that a new electronic key for his $25K car would cost him $600, so he bought some kind of key replacement plan for $250. Well, even the dealer’s full price to purchase and program a key isn’t that much, to say nothing of how easy it is to buy them online and just pay the dealer for the programming. He sure felt like an idiot when someone pointed that out to him. :)

        Just say “no” to EVERYTHING the F&I guy wants to sell you–extended warranty and all. It’s all a major ripoff and huge markup from what you could get on your own, if you even wanted any of that worthless crap, anyway.

    • 0 avatar
      Toad

      When I bought my 2014 Nissan a condition of getting the very substantial factory rebate was using Nissan financing. The F&I manager stated that I had to make at least 3 payments to Nissan before paying the car off/refinancing or the rebate would be retroactively revoked.

      I kept the (competitive) Nissan financing but wondered if there was actually a provision in the contract that allowed for a legally binding rebate “charge back” if I paid off the loan early. It was not worth a couple bucks in interest to pay the loan off early and find out.

      • 0 avatar
        S2k Chris

        What actual mechanism would they have to do that? If you pay off the loan and (presuming the rebate was paid at purchase) how would they get their money back? Try to hit you with a new bill? Yeah, good luck in collections, Nissan.

        • 0 avatar
          Toad

          If there is a legally binding charge back/early termination/prepayment penalty they can send me a bill and I am legally obligated to pay it.

          Collections would be fairly straightforward based on the finance contract.

          Just because I decide I don’t like a contract term does not negate my obligations, especially if it was both verbally explained and in writing.

          • 0 avatar
            S2k Chris

            Yeah, I get that that’s the THEORY. But I deal with this alllll the time, it’s not about what you can lay claim to, it’s about what you can use as leverage to collect. If I’ve got to take everyone to collections and explain to a judge my screwy “they had to pay 3 payments first” deal, I may be contractually RIGHT, but it’s going to be a MONSTER PITA to collect what I am legally owned, and likely cost me more to do so than it will to forefeit the rebate amount in the first place.

          • 0 avatar
            daviel

            If all is not paid, don’t release the title. Buyer won’t get the bank’s lien released and clear title without paying all that is obligated to pay. A deal’s a deal. Write in a clause that authorized a repo.

        • 0 avatar
          jmo

          You pay off the loan after 1 payment and your next statement shows a balance of $2500 from the revoked rebate. If you don’t pay the $2500 it goes on your credit report like you defaulted on your loan.

      • 0 avatar
        319583076

        So what you’re really saying is that you accepted a contract based on the F&I manager’s “word” and that you didn’t read the contract prior to signing it, i.e. – entering the contract. Furthermore, ex post facto, you *still* don’t know the terms of the contract that you signed.

        I read everything before signing. People act impatient and incredulous, but I know enough about contract law to know that I *refuse* to enter into a contract prior to reading and understanding the stipulations of said contract. I don’t understand the faith that some people have in other people and institutions.

        • 0 avatar
          Toad

          I read enough to know that there was no prepayment penalty on the loan but was not clear on the implication regarding the rebate. Rather than spend $300 an hour to have my attorney verify the provisions I spent about $6 in additional interest over 3 months.

          It seemed like a reasonable trade off. Your mileage may vary.

      • 0 avatar
        timhood

        Such a provision would have to be stated in writing in your loan agreement. Merely reading the agreement would determine that. More than likely, the 90 day thing is for the dealer to ensure they get their cut/kickback. It’s a great scare tactic that they use, knowing 99.9% of their customers aren’t going to bother reading the contract to look for that provision. Meanwhile, you wait 90 days and you might not be able to qualify for “new car” financing anymore, and get stuck with the used car rates, killing a chunk (or possibly all) of the money you might have saved.

    • 0 avatar

      Same here. The last car I bought I paid cash for, but I also bought from Carmax (one that also sells new cars), so it was fixed price. It also had a significant manufacturer’s rebate that was NOT tied to financing.

      Previous car was from a traditional dealer. I financed through my credit union that time – they basically gave me a blank check up to a certain amount. They briefly tried to get me to finance through them, which would have saved me something like $50 over the life of the loan. Since I planned on paying it off early, I declined. It may have helped that it was around closing time. And that I was buying a vehicle that had been sitting on their lot for over a year.

      • 0 avatar
        daviel

        Last two cars I bought, I paid cash. I did not tell them I was paying cash and negotiated a price OTD. I would have gone the dealer financed route if a next to nothing interest rate saved me money, as advised in the article, and paid off the loan after X months, depending on the deal. We stay debt free, save up for cars, like Dave Ramsey advises. Contra to his advice, however, I can’t get my wife to go for a used car.

    • 0 avatar
      jpolicke

      Without some clear language in the loan agreement stipulating a minimum of 3 payments, I don’t see how they could add back a rebate to the amount financed. Given the nature of F&I people it wouldn’t surprise me for it to be total made-up BS.

      Of course, the whole issue could go away if the dealer was honest enough to level with the customer: “Look, you have the right to pay off the loan early, but could you please wait until after the 3rd payment so we can get our commission from the bank?” If I’ve been treated well all along I’d probably play along so they can make some money.

  • avatar
    Prado

    “I have an 800 FICO! Give me your best price! … is the new “I have cash! Give me your best price!”

    • 0 avatar

      That is very true in many cases.

      • 0 avatar
        Domestic Hearse

        Erm, kinda. Someone swinging around his big 800 FICO will indeed guarantee there won’t be as many financing hassles as a get-me-done or a payment shopper. However, that 800 holder is also going to easily qualify for the loss-leader advertised 0% APR, and there will be no way to add points onto the back end. As in, “Hey, based on your non-prime credit score, best we can do is get you 7.9%.” Which the non-prime customer is totally fine with, and doesn’t know the dealer tacked on an additional 3 points FTW for himself.

        • 0 avatar
          timhood

          Absolutely correct. The idiot with the marginal credit is a much more profitable customer, even factoring the extra time and effort it may take to put something together. (Which it doesn’t, really, because the dealer already has subprime financing lenders it works with).

          However, given all the profit opportunities in the F&I office for even the A+ credit guy, dealer will still happily take a sale with no finance mark-up over no sale. Especially if said car is plentiful on the lot, or the dealer is looking to put up good numbers to meet manufacturer’s quotas for incentives, future allotments, etc.

  • avatar
    Zackman

    In my last three car purchases, the dealership secured a loan with a lower interest rate than we could get through our own bank in advance – and it was the same bank!

    For the life of me, we couldn’t find any sneakiness on the dealership end of the deal where we were paying more than we signed up for. Perhaps they get an additional cut somewhere along the line?

    Anyway, it works for us.

  • avatar
    See 7 up

    All this article needed to say is this:

    Pay for your car in the manner that makes the most financial sense, both in terms of total cost, opportunity cost (investing) , financial situation, risk tolerance.

    That may be cash, 3rd party loan, nothing down, etc.

    If you don’t know what your options are and the cost of those option before you walk into the dealer you are making an impulse buy. Stop.
    If you are not able to grasp these concepts, stop. You ate financially illiterate. Go home and give your self some free financial education via a book or the Internet before you plunk down your hard earned money.

  • avatar
    28-Cars-Later

    “I’ll take this girl right here, do you accept Amex?”

    • 0 avatar

      “Throws Black Card on the roof of the car”

    • 0 avatar

      I would love to buy a car on my Amex Blue. 1% cash back!

      Most dealers won’t take credit cards for more than a couple grand towards a down payment, though, because they don’t want to pay the processing fees… which fund my cash back.

      • 0 avatar
        Domestic Hearse

        Yep, most dealers cap the credit card down payment amount (or even the cash buyer, who wants to put as much of the deal on his “rewards” card as possible). Costs the dealer 2% or more when the credit card comes out, hence the credit card amount cap.

      • 0 avatar

        That’s not why (even if Bozi won’t tell). They could just add that 2% or whatever to the price. The problem, however, is that cards offer very good consumer protections nowadays, and they don’t want taking their junk back when you examine it closer in your garage.

      • 0 avatar
        timhood

        Yep, I tried that. Actually, I knew they wouldn’t do more than some small amount, but I wanted to enjoy the look on their faces when I asked if they could put the whole purchase on my card. :) I had the credit line for that car–somewhat above the average new car selling price.

  • avatar
    319583076

    “If you wish to stay on good terms with the dealer that sold you the car…”

    Is this a joke?

    • 0 avatar

      I know many dealers can be shady and it seems like a bad idea to be nice to them if they are not nice to you but if a dealer gets charged back for the loan getting refinanced immediately and loses money on your deal you may not have the best experience on the next car you try to buy from them.

      • 0 avatar
        S2k Chris

        “if a dealer gets charged back for the loan getting refinanced immediately and loses money on your deal you may not have the best experience on the next car you try to buy from them.”

        I’m a very calm, agreeable car shopper who doesn’t try and beat up the dealer for that last $250, etc, but the above ranks pretty high on my “don’t give a f^%&^%” list. If a dealer wants to screw with me because he doesn’t think he got a fair shake last time, well, there are plenty of other dealers.

      • 0 avatar
        duffman13

        Many people (not me) have a pretty good sense of brand/dealer loyalty. I move around for my job (military) and have owned a smattering of brands, bought private party, etc. I’ve never been to the same dealer twice to purchase something, and have never gone to a dealer I bought the car from for service, because my shopping radius is generally 150 miles and my service radius is generally around 5-10.

      • 0 avatar
        timhood

        I think the key here is that the dealer would need to make that clear to the customer. If I don’t know that, they shouldn’t feel shorted if I refinance.

    • 0 avatar
      See 7 up

      Thank you. This piece reads more like a dealer trainer than a buyers guide. I get many here are in the industry, but advice on buying a car should be in the best interest of the buyer.

      If the dealer is petty. Go to another. Nobody is forcing them to do anything for any price. If they accept a price for a service, they better provide good service regardless if it’s a repeat customer or a one time visit.

      I’ve never seen so much support for such a horrible skewed sales model as that done at car dealerships.

    • 0 avatar
      danio3834

      I don’t think so. There are many customers out there who have very good relationships with their dealers. In many cases, they’ve bought multiple vehicles there, get their service done there and have good relationships with the staff. Dealers go to bat for these customers with the manufacturers when it comes to out of warranty repairs and customer service issues, so there are benefits for the customer.

      I realize they may seem like a proverbial green dog, but they’re out there.

      • 0 avatar
        See 7 up

        IMO, dealers that are good do this for all customers hoping to make the repeat ones and is probably why they have repeat customers.

        If your business only treats repeat customers well, it will have a hard time getting new ones. Ie – if I have to go through bs to eventually become a “valued customer”, on principle that dealer will never see much business from me.

        • 0 avatar
          danio3834

          Goodwill is a 2 way street.

          • 0 avatar
            See 7 up

            Yes. But it is also a business transaction.
            I won’t be petty nor will I try to make the dealer pay for things I caused.
            At the same time, when they agree to a service for a price I also agree to, I expect good service. I don’t expect to have to buddy up in some eastern European bribe – like deal to get good service.
            Your comment kind of alludes to the broken model that is many a car dealership.

      • 0 avatar

        My parents used to buy cars from a small-town Chrysler dealer. One car showroom, family owned since the 1920’s, my dad went to high school with one of the owners. They were always fair, and once gave us a loaner car for 3+ months while my parent’s custom-ordered stripper Voyager was being assembled.

        Sadly, they lost their franchise during the Chrysler bankruptcy, despite being a 5-star award winner pretty much every year.

        • 0 avatar
          CoreyDL

          In my town, Kidd Dodge was also a 5-star dealer, and it was absolutely terrible in every way. They handed out that designation like Tootsie Rolls at Halloween.

          • 0 avatar
            CincyDavid

            Kidd in Lawrenceburg IN? I think Jeff Wyler has that franchise now.

          • 0 avatar
            CoreyDL

            Yes, correct! I haven’t looked when I drove by lately (not my town any more, just where I grew up), dunno when that change occurred. Everyone still calls it Kidd, I’m sure.

            (Internet says name changed in 9/2011 with change in ownership.)

      • 0 avatar

        That’s a 1 in 1000 example that the same dealer uses to deceive the remaining 999 customers. It’s like telling ghetto kids to try and become pro athletes.

      • 0 avatar
        krhodes1

        @danio

        I feel like I have that sort of relationship with my BMW dealer. I’ve now bought two cars from them, and referred two friends to them. I really feel like if I needed them to back me up, they would be there. But hope I never need it.

    • 0 avatar
      WheelMcCoy

      >>“If you wish to stay on good terms with the dealer that sold you the car…”

      Like S2K, I’m a calm buyer looking for a good price, not a rock bottom price. If the dealer was low pressure, and spent time with me on a test drive, I’m ok with waiting past 3 payments to pay off a loan. BTW, both Mazda and Acura dealers let me floor it when I asked. I also wanted to see the size of the turning circle so he let me test it in a parking lot.

      I would have asked to do donuts but the vehicles were FWD. :) Ok, not really.

    • 0 avatar
      S1L1SC

      If you plan on taking it to the same dealer for service during the warranty period, this might not be a bad idea…

  • avatar
    TrailerTrash

    My financial folks would kill me if I tried to take cash out of a plan working towards 5 to 6 percent and use it to purchase a car that is offering 0 to .9 percent…no matter how long the payment, 48, 60 to 72 months.
    The idea is to get a car YOU want, select the best deal from the brand’s dealers and then use the offered zero percent.
    If all the dealers selling the perfect car you want compete using the manufacturer’s offer…you win.

  • avatar
    DenverMike

    I’ll gladly take a hit somewhere else, for the sake of owning it outright. But when the dust settles, does paying cash really cost more? I know I’m saving with just straight liability insurance, and just knowing this makes me a better, if not paranoid, driver and more careful owner.

    But too, it’s a good reminder of what things really cost, when paying with actual paper cash, like pointless Nav, sunroof, leather, sport packs, etc. Some of those I can upgrade to later.

    And I may not want any more “investments”. The ‘paid for’ car is still a bank account I can draw from in a pinch. I mean hopefully I won’t need to, but I always have the option of ‘giving in’ to a new car loan if/when the situation changes.

    Besides, I just prefer the owning my stuff outright. All of it. No monkey on my back, etc.

    • 0 avatar
      Toad

      A couple thoughts:

      -a paid for car is not a bank account that you can “draw from in a pinch” unless you want to borrow money at exorbitant rates from a title loan shop or a loan shark. If your finances get bad enough that you need to borrow against a paid for car no legit bank will get anywhere near you.

      -driving a new car with liability only insurance is assuming the risk that you will never be found at fault in an accident and partly or completely losing your investment. Even nearly perfect drivers make mistakes, and/or if the person that hits you is a better liar, better looking, or better connected than you are you can be the innocent party but still be found at fault. Straight liability on a new(er) car is more like gambling than an investment strategy.

      -free or nearly free finance money in an environment with a growing consumer level inflation is a fairly easy investment decision. I would rather have better yielding investments or the liquidity of cash in the bank, and ultra low interest rate financing makes that easy to do. If TSHTF can always throw the car keys back to the finance company after I hide my cash :-)

      That said, to each their own.

      • 0 avatar
        DenverMike

        A title loan would be a desperate act, but I’m talking about cashing the thing out. Just peace of mind, money in the bank.

        Insurance bets on you, so I’m just betting on myself and cashing in. So I have to make sure everyone around me is driving right too. Trust your senses/instincts to manage risk around you. There’s worse obsessions.

        Early on, I did have to eat a total loss, newer Mustang GT, but I was really pushing my luck. Really really pushing my luck!

        • 0 avatar
          krhodes1

          How much do you save to take the risk of a total loss on the car? Even on my ’16 M235i, the difference between full coverage and liability only is ~$250/yr – on a $50K car. On my (paid for) ’11 328i wagon it is $150/yr – on a $25K car. That is too cheap to even think about not having in this day and age. I realize a lot of places are more expensive, but still…

        • 0 avatar
          timhood

          The insurance “bet on you” is the liability insurance you are paying. The bet you are taking is that no one else will hit you. Colorado likely requires minimal insurance coverage, as does my state, but that doesn’t mean everyone has it. And who are you mostly likely to get hit by? The uninsured driver, because his bad driving is why he couldn’t afford insurance.

          When I lived in California, I got rear-ended by three different drivers. All uninsured. It was like my rear bumper was a friggin’ magnet. That hasn’t happened since, unless you count the hit-and-run. But, call my case an extreme and it still doesn’t make sense. You already got burned once on a “total loss, newer Mustang GT” and you’re still gambling? Yet, you think that investing in the stock market is a gamble? In your insurance case, it’s not a matter of if, but when. At least in the stock market, history shows prices (and therefore your investment) will go up.

          • 0 avatar
            DenverMike

            It just became a habit. The last time I got quotes they were $5,000+ a year. This was ’88 on an ’89 Mustang GT conv, stickered $20,000+ and I was 19. Clean record too. When I totaled it in ’92 it as worth maybe $10K, but I had saved $20,000+ with straight liability. I was young, wild and drove too fast, but still came out way ahead.

            Insurance industry profits are astronomical for a reason.

            But it’s only an issue when cars or trucks are new. After a while, I don’t care if it’s totaled. Chances of that are slim and none anyway.

            I don’t have to be so careful when it’s just ‘used’, but I still am. So I’ll take that bet. And I’d have the highest possible deductible anyway. I just don’t need comprehensive.

            If you’ve been rear-ended multiple times, maybe it’s you. I defend the space behind me and bring cars to a stop behind me as gradual as I can. If there’s not a dedicated lane to slow and make a turn, I’ll drive to the next block if cars are on my A$$. I’ll check my mirror as the light turn yellow, and run the red if I don’t feel comfortable with what’s behind me.

            I’ve been rear ended exactly zero times in over a million miles.

      • 0 avatar
        bunkie

        +1 on this.

        If you have $20K in cash and use it all to buy the car, you gain the ability to not pay 1/48th (or so) of the transaction price per month. If you lose your job, other obligations will put a strain on you very quickly.

        Take the low-cost financing, however, and keep the $20K in the bank, a job loss would still leave you with time to get back on your feet (extended job hunt, relocation, etc.). In short, having the cash gives you more options.

      • 0 avatar
        timhood

        Thanks for saying everything I was thinking. That’s some unfortunate logic he was using. Most alarming is driving a vehicle worth any kind of money with liability-only insurance. Get plowed by somebody uninsured and what have you got?

        Take the cash and invest it. It’s there if you need it in a real emergency, and at these rates, you have to be almost colossally inept not to come out much further ahead. But, for those too afraid, they can watch their money work against them, not for them.

    • 0 avatar
      JuniperBug

      It goes back to what someone said above about being financially literate about your options, and choosing what works for you.

      I, too, think that people forget that in many cases they’re plunking down a year’s take-home pay on that transportation pod, because all we’ve been trained to see is the monthly payment, or what’s becoming even more common (at least in Canada): the biweekly payment. When you think about the cash payment, it brings home the true cost of what you’re buying, and can make you think harder about whether it’s worth it, or prudent.

      While I’m not against financing a car, and most likely will do it the next time I buy (a new) one, not owing any money to anyone sure is a nice feeling.

    • 0 avatar
      dal20402

      “But when the dust settles, does paying cash really cost more?”

      Yes. If I had paid cash for my Forester instead of taking out the 0% 60-month loan I would have been out at least several hundred dollars in investment income, probably a lot more, for no reason.

      If I want a title to sell the car, I can pay off the loan any time.

      • 0 avatar
        DenverMike

        You assume a lot of things. I refuse to invest all my income, all the time. So a big portion just lays around anyway, going nowhere. But I have full access to it with no penalty. I’ll rather make the big investments that require lots of cash and fast. Huge returns but manageable risk. Someone’s gotta do it.

    • 0 avatar
      joeaverage

      I totally get what you are saying DenverMike. I like owning stuff outright and not dealing with banks and even more so – dealers.

      That said I would never operate an expensive vehicle with liability only insurance. The difference in liability and comprehensive insurance with my driving record, my flyover state, my lack of filing claims and my mainstream brand insurance company just isn’t that much.

      Once the car is old and the value is low, then I’d switch to liability if there was a savings to be had. I run liability only on our two 17 year old daily drivers b/c their resale value is $1500. I value them much higher than that in my head b/c I know for $1500 I am unlikely to get vehicles I trust as well as these for that price.

  • avatar
    bikegoesbaa

    My favorite way to buy motorcycle is a variation of this.

    Come in and act like a complete turkey, agreeing to whatever ruinous no-money-down high-interest long-term loan they offer. Double-digit interest, whatever. You want to appear to be a desperate idiot who will sign up for the worst terms humanly possible. Just make sure there’s no early payoff penalty.

    The dealer will often then sell the machine for a big discount, planning to make up the difference with kickbacks from the finance weasel for closing such a sweet deal.

    Then just pay the bike off with cash after the first payment.

    Advanced course: Pay the bike loan off with a credit card to get the rewards points/cash for the vehicle purchase. Then pay the credit card off with cash the next month.

    • 0 avatar
      beastpilot

      You’ve found a bank that will take a credit card as payment for a loan? Do tell.

      (Credit card checks don’t count- the cash advance fees kill any points you could ever get from the transaction)

      • 0 avatar
        jpolicke

        I think he means pay the dealer for the bike with a credit card to get the rewards, then pay off the card balance with cash. Sounds like a good plan, especially since bike dealers generally seem to be far scummier than their auto counterparts.

      • 0 avatar
        bikegoesbaa

        As of ~5 years ago Suzuki finance was happy to accept payment via a credit card.

        Since I had signed up for “deadbeat goofball” terms (despite a tip-top credit score) I just assumed they were happy that I was paying them at all without getting collections and repo guys involved.

        • 0 avatar
          CoreyDL

          This is making me think about the probable good deal a tidy used Kizashi AWD would be. For the price of a more used up Focus, you can have premium features and AWD. I even like how they look.

          http://www.ebay.com/itm/Suzuki-Kizashi-SLS-Sport-/121655862537?forcerrptr=true&hash=item1c53412509&item=121655862537

          • 0 avatar
            bumpy ii

            Meh, I wouldn’t bother with any Suzuki unless it’s a SX4 5-speed AWD hatch. Kizashi auto? Who cares?

          • 0 avatar
            CoreyDL

            “Who cares?”

            The 97% of the population who doesn’t drive manuals? The 86% of people who wouldn’t want a hatch? The 99% of people who wouldn’t want a manual hatch?

            I said good buy, not “enthusiast choice for bumpy ii.”

          • 0 avatar
            bikegoesbaa

            I was talking about the real Suzukis. That is, the motorcycles.

          • 0 avatar
            bumpy ii

            Unless you’re getting it for half the price of a comparable Impreza, why bother with the hassles of recalls, maintenance, and parts for a brand that fled the country?

        • 0 avatar
          timhood

          I’ll bet that they would be willing to take a current payment via credit card, but not a payoff.

      • 0 avatar
        krhodes1

        @beastpilot

        I get 0% for 12-18mo with no transaction fee offers all the time. Monthly in fact from Bank of America, like closkwork. They are, of course, hoping you don’t pay it off so you get whacked with the 16%+ interest that is accruing from day 1. I have used them on occasion, always paid in full well before the interest comes due. But even the more usual 3-4% balance transfer fee is a pretty darned good deal over 18mo for an unsecured loan.

        I may be weird, but this is how I do it. I use the “pay myself first” method of saving/investing. A decent chunk comes off the top of my paycheck before it goes into my checking account. I then budget for the rest of my monthly expenses from there. I have a big home equity line of credit that I use for emergencies only (and I have not had to touch it for a long time). To the extent that I can, big purchases are made on these various free-money deals. I did $40K in home improvements on 3 different 1yr same as cash deals over the past 3 years for example. Worst case scenario, I have a couple levels of sources of funds that could pay those off – that heloc (at 3% tax deductible), liquidish savings (CDs and such), selling investments in order of painfulness. Car-wise, I always make a big enough downpayment that even at a fire-sale price I can get out of the car, and I always have the ability to pay off the car note even if it means using the heloc temporarily until I can sell the car. I WAS laid off for a spell in 2003, and I did exactly that – paid off the car I had a note on and sold it, along with a couple toy cars. Hindsight being 20/20, I paniced and sold off the cars too quickly, as I was only unemployed for a month. And I sure do wish I still had the mint ’79 Peugeot 504D I sold! My biggest automotive regret.

    • 0 avatar
      OneAlpha

      Good idea, even if it reeks of game-playing rather than the more respectable frontal assault.

    • 0 avatar
      JuniperBug

      I’m curious about this. When I bought my VFR in 2010, without even checking my credit, the sales guy told me that Honda Canada would charge about 8%. Instead, I put the balance of what I owed (after my trade-in and a down payment) on my personal line of credit at a lower rate, and at least that way I’d have the title in-hand and could pay off the balance in whatever time frame I wanted. Considering it was a last year’s model and I paid about 25% off of sticker, I felt it worked out pretty well. I wonder if I could’ve done better had I financed through Honda, but it didn’t look like the dealer was going to go any lower on price – I doubt they made much money on the deal as it was.

  • avatar
    beastpilot

    Checks are not subject to federal reporting rules.

    The $10,000 cash rule is there because the source of the cash isn’t possible to track, so you need to report it.

    A check is easy to track- it’s literally a document saying that the money came from a specific place.

    So, while showing up with a pile of bills could be a pain if the car is over $10K, a check of any kind isn’t a documentation issue at all.

  • avatar
    eggsalad

    One more thing to add… I have an 11-year-old Scion. It’s getting a bit long in the tooth, and I’m thinking of replacing it. However, dealers tick me off so badly that it just makes me want to keep my car.

    • 0 avatar
      S2k Chris

      “One more thing to add… I have an 11-year-old Scion. It’s getting a bit long in the tooth, and I’m thinking of replacing it. However, dealers tick me off so badly that it just makes me want to keep my car.”

      I’ll be honest, when I read something like this I immediately assume the person saying it is the kind who demands to buy something at a $5k loss to the dealer and expects to have the sales guy’s wife come around for a monthly after-sales BJ through the warranty period.

      Go ground your expecatations realistically (ie, go research Edmunds, TrueCar, and the owner’s forum “what did you pay” thread, and figure you’re not going to do much better than 1-2% off the average of those numbers) and then email a couple guys to find one that will play ball. It’s really not rocket science. But if you treat the deal where anything less than the sales guy crying at his desk is a loss, yes, you’re going to be “ticked off”.

      • 0 avatar
        duffman13

        Sounds a lot like this story:

        http://blogs.motortrend.com/car-salesman-confidential-someday-my-price-will-come-24359.html

      • 0 avatar
        28-Cars-Later

        “I immediately assume the person saying it is the kind who demands to buy something at a $5k loss to the dealer and expects to have the sales guy’s wife come around for a monthly after-sales BJ through the warranty period.”

        That comes standard with the BJX package.

      • 0 avatar
        eggsalad

        You might think that, but I live in Las Vegas. Look at a map – if I don’t like what the dealer here has to say, it’s a 4-5 hour drive to the next dealer in LA or Phoenix. Given the dealers around here, I’d be happy to buy a car at MSRP less rebates, plus sales tax.

        Not here. Every car on every lot has a $2,500-3k “Desert Protection Package”, plus a $4-500 DOC fee, plus, plus, plus. Yes, even a base $12k Versa has an ADM sticker of $3-4000 dollars!

        I walked into the Subaru dealer and offered full MSRP plus sales tax on a new Forester, and the salesman told me, “Why should I sell it to you for that, when the next customer will pay me $4000 more?”

        • 0 avatar
          dal20402

          Buy out of town. It’s less than $1000 to ship a car.

          • 0 avatar
            eggsalad

            Great article idea. I’d love to learn how to fly-n-buy without getting there to find out the price of the car has changed!

          • 0 avatar
            Toad

            Buy your car thru Costco. Their service will lock in the price, you just sign the paperwork and take delivery. 400,000 cars were sold thru Costco last year alone.

            I’m sure Costco and arrange for you to pick the car up in LA or wherever else if the deal is better and you are willing to travel.

            For more info: http://www.businessinsider.com/costco-is-a-huge-auto-dealer-2015-6

          • 0 avatar
            Scoutdude

            The way the Costco deal works is you call the number and the person asks you your zip code and the brand of vehicle you want to purchase. They then give you the name, email and phone number of the one person at that dealer that handles those transactions. You contact that person and they tell you they can’t give out the price on the phone, you’ll have to come there in person to get the price. Once you get there he’ll pull out the book with the price negotiated by the service that Costco contracts with and look up the price on the vehicle in question and the prices of the options. You then say either yay or nay. You still have to go sit down with the F&I guy to complete the deal where he will try to sell you on the trucoat, extended warranty and such as well as beat you up on the trade if applicable. All the mfg incentives still apply whether it is a cash off rebate or special financing rates. The price will be the same at any dealer that participates in the program. Note there are cars that are not eligible for example Corvettes and limited edition vehicles like the GT350. So no you won’t get a better deal on the car by going to other than the nearest dealer of that brand that participates however you will find some that aren’t willing to do a dealer trade/bring in the exact vehicle you want from a different dealer. All in all it is not a bad deal, I bought a new car that way. I did have to go to a different dealer because the first one was only willing to deal on the vehicles he had in stock and the dealer that had the exact one I wanted wasn’t a part of the program but I did find one that was willing to go and get the one that I wanted. Since it had an option that I didn’t want that was deducted from the price (only a $200 option).

        • 0 avatar
          SCE to AUX

          Hey egg – If you just bought another Scion, the only negotiation would be on the trade.

          Or go for a Tesla. :)

        • 0 avatar
          56BelAire

          FYI eggsalad, there are several new car dealers in St George and a few in Mesquite.

        • 0 avatar
          timhood

          Vegas has only one dealer of each brand in the entire metropolitan area? Crazy. Vegas is larger than where I live, and I can think of multiple dealers for every major brand, exotics notwithstanding.

  • avatar
    mmreeses

    ” Cash buyers are becoming known for being … difficult … to work with and many sales managers will be less flexible when they know you have a stack in your pocket.”

    jiminy crickets—-if you’re a cash/pre-approved buyer and you hit a road block, leave–walk away–say adios.

    by spending time with a ‘difficult buyer’ that just means that the sales manager still sees a glimmer of hope in closing the deal with the numbers working in the dealership’s favor.

    Unless you’re in a rural area, you tend to have multiple options within 1 hours drive. better yet, use something called e-mail and contact the internet sales manager before driving out.

  • avatar
    OneAlpha

    An economy that runs on debt is not an advanced one, but rather a fundamentally dysfunctional one, especially when you get to the point where the ability to buy something outright is viewed negatively.

    Do you realize how absurd this situation is?

    “We don’t want your cash – we want your pretend internet money!”

  • avatar
    7402

    This article completely misses the main reason to never buy a car with a loan: it makes it too easy to completely miss how much the car is costing.

    • 0 avatar
      JuniperBug

      While I agree above that a cash purchase makes the cost seem much more real, a halfway-educated person can see the true cost of the car even if financing. You can even bring a $10 financial calculator with you and run the numbers if you don’t trust the dealer’s spreadsheet.

      Personally I’d insist on settling on the price of the car before even talking about how it’s going to be financed.

    • 0 avatar
      slavuta

      This article misses a lot of stuff. First, it misses that your SSN gets a lot of exposure as soon as you start loan process. Second, in the end, dealer only cares to move a car. If he gets to finance it – even better. But no, they wouldn’t tell you, “what, cash? -no, we don’t take cash”. Last time I purchased a new car, I didn’t even go to dealer. I called and I asked – “do you have a car like this?” Then I asked how much they want? When I didn’t like the answer, I told them: “Look, I will pay you this much, including all taxes and fees. Call me back if this is ok with you. If you don’t like this, don’t even call because I will call other places. They called back, I wrote a check and picked up the car. And they still were giving me good service and all on the day I picked the car. Salesman was nice and so on. May be I saved them so much time so they didn’t feel that they need to pay for this time?

      • 0 avatar
        56BelAire

        +1…..I like the way you roll slavuta.

      • 0 avatar
        DeadWeight

        I’ve done what slavuta has stated above the last 5 purchases I’ve made.

        I’ve saved at least 18% off sticker and as much as 28% off sticker this way.

        I tell the F&I guy “whatever” as I don’t even feel compelled to hear his/her bullsh!t.

        I’m gone.

        The writer of this article is full of sh!t, offering HORRIBLE advice for anyone who is a potential cash buyer of a vehicle (all cash or mostly cash).

    • 0 avatar
      timhood

      This doesn’t work. Anyone not smart enough to see the federally-required line item that shows the total cost of financing isn’t going to be smart enough to save up to pay cash for a car.

      Conversely, those of us smart enough to know how to leverage our money will keep our emergency fund, get very low financing interest and invest our money and come out much further ahead than the mattress money people.

  • avatar
    AK

    Recently bought a Focus ST with cash. Ended up with $2250 in incentives on it.

    The one thing I didn’t prepare for and its obviously my error for not knowing this… You pay tax on the incentives. Not a huge deal in my case, but it was something I did not anticipate.

    • 0 avatar
      beastpilot

      This varies by state FYI. It’s like coupons- some states tax on the price before coupons, some after. An incentive is just a really big manufacturer coupon.

  • avatar
    APaGttH

    If a car maker is offering me 0% – I take the 0% – every single time.

    You can expect to make 6% ROI in equities annual – which is much better than throwing your cash away on an depreciating asset. Just don’t be upside down under the gate, try not finance longer than 48 months.

    Heck – my 15 year old daughter has been investing since 12, and she is 26% annualized since 2012 (we tease we should let her manage our money because she is WAY better at picking stock than me apparently)

    • 0 avatar
      pragmatic

      And if you bought a car in October 2007?

      • 0 avatar
        APaGttH

        So what, you buy a new car when you have no savings?

        Let’s see, what did I write, don’t be upside down, don’t go longer than 48 months. If you were SMART in late 2007 you saw the writing on the wall and moved out of equities – you still got 1/2% cash, which still trumps 0%.

        That’s what I did.

        Why burn up cash when you can have it work for you.

        • 0 avatar
          56BelAire

          It never ceases to amaze me how many brilliant(SMART) people you can find on the internet who sold in Oct 2007 and then jumped back into stocks in early 2009.

    • 0 avatar
      timhood

      You shouldn’t just take the 0%. You should do the loan calculations and compare the cost of financing with a bank/credit union and the rebate savings (I can’t think of any time when there’s a finance offer without a rebate alternative). Usually, taking the rebate nets more money than the finance.

      So, I would do the basic math and pick the option that cost me less overall.

      • 0 avatar
        S2k Chris

        “(I can’t think of any time when there’s a finance offer without a rebate alternative). ”

        Believe it. I’ve bought two Acuras with financing offers and no rebate, and here’s another one:

        http://m.acura.com/TLX/Offers/95175-UB3F7FKNW

        • 0 avatar
          krhodes1

          The “rebate or rate” game is generally not played by the premium makes. I have never seen BMW do it in the 6-7 years I have shopped them. They rarely do rebates either of course, they prefer to do “option credits”. And subvented leases.

          Question – does anyone ever actually take rebates as an actual rebate? As in, theoretically you could finance or pay full price and get a check from the car maker? Can you even do that or are they actually just discounts?

          For BMW, there IS an actual rebate through the BMW Club if you have been a member for more than a year and buy a new or CPO car. You get a check in the mail after delivery, and BMW does actually fund that for the club. I got $500 for my ’11, and will get another $500 for my ’16.

  • avatar
    Crosley

    I’m sure in certain situations, you can game the system to where you get a loan, grab the rebate, then pay off the loan and it’s cheaper vs walking in there with a bag of money. It’s good info to know.

    But I think the main reason many people push the “always cash, never finance” mantra is getting into the loan game tends to encourage behavior where people spend far beyond their means. It’s not the interest that kills you, it’s the fact you’re buying a $50k SUV when that your yearly salary before taxes.

    When someone buys with “cash”, it tends to have a self-regulating affect on living within their means. That is why it’s usually smarter financially.

    But if you’re the type where getting the loan is not going to make you buy more vehicle than you otherwise would, by all means, using the loan you don’t need to your advantage can be the smarter financial strategy.

  • avatar
    Lou_BC

    In my town all of the dealers with the exception of the Toyota dealer are owned by the same two dealer chains. Both have their own financing arms. I declined to even discuss financing on my F150. They weren’t happy but I had a much better interest rate and they weren’t budging on the price after factory rebates.
    Our Sienna was hassle free and they did not care where the money came from.
    The Grand Caravan we once had was a huge negotiation hassle. I had pre-arranged credit but they really pushed their financing over rebates and my finance. They kept saying that their interest rate was much better than my bank’s rate. I did the math right there in front of both the salesman and the finance guy. The loss of rebate was equivalent to a much higher interest rate. The finance dude knew I was right and shut up. The salesmoron kept yacking and almost lost the sale.

  • avatar
    Fred

    First of all you are assuming people are willing and able to do all that math. In my experience, they are not.

    Second, “Knowing about the potential profit for the dealer is helpful…” How would a normal guy even know what all the kickbacks are?

    Third, how is a cash buyer difficult to deal with? I paid cash for my last car and it went smoothly.

  • avatar
    Robbie

    I have a dream today, that one day the state legislatures, sweltering with the heat of dealership bribery, sweltering with the heat of dealership purchased legislation, will instead agree to transform car purchases into oases of convenience and mutual satisfaction.

    I have a dream, that one day, car buyers and sellers can sit down at the table, and be allowed to conduct sales and purchases in brotherhood!

    • 0 avatar
      Lou_BC

      Robbie – did that dream occur post ingestion of a hallucinogenic substance?

    • 0 avatar
      joeaverage

      You CAN do that. Do the deal online or on the phone. Make your offer and hang up the phone. If they want to do the deal they’ll call. Do your own financing so you don’t need their financing or their financing guy wheeling and dealing.

  • avatar
    TW5

    The dumbest thing you can possibly do is use credit to purchase a rapidly depreciating non-liquid asset that doesn’t qualify for loss deduction on your income taxes, and that you also need to access employment, which produces virtually all middle class income. Dumber still, you’d never want to buy this asset from people who have incentives to raise your interest rate, as if they were employees of a financial institution.

    This article was supposed to be car buying advice?!

    You’d be better off paying cash for a vehicle and then buying stocks on margin. At least stock has the potential to appreciate, and basis recovery is easier, if you can’t sustain servicing the debt. Furthermore, if you lose your stock, it’s tax deductible, and you don’t lose access to your career, if your stocks get repossessed.

    Is this really what America has come to? Middle class bots teaching other middle class bots how to achieve financial enslavement and absolute destitution? or is this what happens when journalists pass themselves off as financial experts?

    • 0 avatar
      Domestic Hearse

      So like, what if I take the money I was planning to use paying cash for my car, and instead make payments on my car and then take the money I was gonna use to buy my car outright and use it to buy even MAOR stocks on margin?

      I’ll be a millionaire, right?

    • 0 avatar
      Pch101

      “You’d be better off paying cash for a vehicle and then buying stocks on margin.”

      Er, no. Type “margin call” into your favorite search engine.

    • 0 avatar
      TW5

      I guess that answers my question. Yes, this is a nation of people who are willing to maximize risk and minimize gain.

      PCH is apparently terrified to have any basis at all. He’ll pay principle on an auto loan every month, which secures his ownership of a vehicle that will definitely be worthless, but he’d never run the risk of contributing basis to his stock portfolio, if regulations require a margin call.

    • 0 avatar
      dal20402

      Err… right. Great financial advice for everyday people. Sink your cash into a car, rather than getting the car with zero or near-zero financing cost and keeping the cash for the moment, and then leverage what little cash you have left to the hilt.

      I think not.

      This sort of advice applied to banks is what brought us the financial crisis. Capital requirements? Who wants to deal with those? We can do better by keeping less capital and leveraging it even harder!

      • 0 avatar
        TW5

        There is no such thing as 0% financing.

        The company is accruing interest revenue on their financial statements and tax return ergo you’re paying interest.

        • 0 avatar
          Pch101

          Do you actually believe this stuff?

          • 0 avatar
            TW5

            Children, I’m sorry to be blunt, but there is no Santa Claus. 0% financing means the net present value of the interest has been added to the contract price (usually by foregoing incentives). The seller recognizes interest income as the buyer makes payments. If the buyer is a business, the buyer also removes the npv of interest from the purchase price because prepaid interest is not eligible for depreciation in a normal car-buying transaction.

            Do I believe ASC 835? Yes. I tend to believe the economic substance of US GAAP.

          • 0 avatar
            Pch101

            If a manufacturer is offering exceptionally high incentives, then it usually means that the OEM is either (a) fighting to gain or maintain market share and/or (b) is stuck with excessive inventory. It may take little or no profit in order to address those larger concerns.

            For vehicles that perpetually have incentives such as full-size trucks, then the net price always includes some sort of spiff and the customary rebate should be compared to the customary financing option to determine which one results in the cheaper price.

            0% is 0%. The relevant question is whether the underlying purchase price is excessive or if there are other unacceptable terms, not to convince yourself that zero isn’t zero.

            My apologies if that’s too straightforward and not conspiratorial enough to suit some of you.

        • 0 avatar
          dal20402

          wut

    • 0 avatar
      timhood

      OMG, stocks on margin! Talk about high risk behavior! A declining stock price triggers a mandatory sell, which accelerates future mandatory sells with even less of a declining price!

      The simpler statement is that the dumbest thing you can do financially is to use your money in a way that costs you more than any other option.

      I’ll take the route of the low-cost loan and investing my money instead. I’ll forego the margin method because any investment that will provide big returns will likely be volatile enough to potentially trigger margin calls. Besides, the margin interest eats into the gains, and we’re talking about an investment time frame of up to 5 years.

      If you think paying someone else to have access to money to invest sounds odd, ask yourself what the banks are doing. They pay a measly <1% to take your money and invest it for far greater returns. So why is it so strange that the same formula shouldn't work for me, given that my financial situation is sound?

      • 0 avatar
        Domestic Hearse

        Cr*p!

        So Tim and PCH, I’m NOT going to be a millionaire?

        But he said…

        • 0 avatar
          Pch101

          This is what happens when some folks skim Investopedia and don’t understand half of what they read. We end up with earnest arguments that zero isn’t zero and a plethora of bad advice.

          Here’s some simple guidance: Don’t buy more car than you can afford.

      • 0 avatar
        TW5

        Consider the improving after-tax gains of carrying financing charges for over 1 year. Buying stocks on margin is absurdly risky in many instances, but there is possible upside. Buying a car on credit is guaranteed loss, with the potential that you may lose the car.

        One thing we can glean from most of these comments: auto marketers and financiers are underpaid. They’ve convinced people to put a lien on one of the most critical tools an American can own. A car is your access to food, work, family, etc. If you lose it, you’re screwed, and unlike other forms of property, the maintenance charges and losses are not deductible.

        • 0 avatar
          dal20402

          I could survive just fine without my car. Life would get a little more inconvenient, but there is a grocery store within easy walking distance and four bus lines less than a block from my condo, one of which takes me directly to my workplace. Not everyone is a slave to their car.

          At least now you are admitting that buying on margin brings outsize risk. You were acting before like anyone who didn’t do it was an idiot. It’s kind of hard to tell what else you are actually saying because there is an awful lot of… odd… usage of accounting terms in your comments.

  • avatar

    Yet another proof that dealer system must be abolished.

  • avatar
    SCE to AUX

    One advantage of paying cash for a car – you don’t have to insure it as much.

    This leaves you free to drive around in a $50k SUV with $5k state minimum coverage, saving $200/year in premiums! Then, when you’re in an accident, you can use all that insurance money you saved to pay cash for the other guy’s damages.

    • 0 avatar
      28-Cars-Later

      You’re going to ride around in a $50K vehicle financed with your savings and not carry collision? Seriously?

    • 0 avatar
      DenverMike

      It’s fairly risky behavior, this running around with just straight liability on a $50,000+ vehicles you kids do. Especially you if can’t really replace it if it’s total loss.

      It’s not for everyone and it has to remain on the back of the mind at all times.

      *Except* it would dramatically reduce accidents if everyone had to self-insure their liability to themselves.

      But a little paranoia goes a long ways toward the insurance industry’s profits.

  • avatar
    LectroByte

    This site is mostly OK when it sticks to cars, but boy howdy, the financial advice is brown and smelly. Seems like recent articles pushing leasing, including one on leasing a new car for a new teenage driver, What the WTF?

    Car payments are for chumps.

    If you can’t make a better deal with cash, or if you must, your own credit union financing, you’re doing it wrong.

    • 0 avatar
      dal20402

      Right, because it’s always better to give away money to someone else for no reason than to keep it and earn interest on it.

      It’s not as simple as “CASH GOOD DEBT BAD.” There’s math involved, and you have to do it.

      • 0 avatar
        LectroByte

        Did you not read the part about getting financing from a credit union? Reading comprehension, do you speak it?

        Seriously, if the dealer is offering “zero percent”, which usually really isn’t after you read the fine print, versus other discounts, then you are better off to take those discounts and go with your own financing, even if your credit union is not offering “zero percent”. Math. Not as simple as “free money”. Car dealers love you, I’m sure.

        • 0 avatar
          dal20402

          I own a car with a 0% loan on it that was not offered in lieu of any other discount. It was offered because the manufacturer wished to clear out inventory. I got that car for an absolute steal.

          I own another car which was bought with a 0% loan chosen instead of an incentive (the loan is paid off). In that case, the 0% loan was plainly and obviously the better offer.

          Do the math. There’s no substitute. A good financing offer may actually be better than the incentives it’s replacing (if any) or than BYO financing.

    • 0 avatar
      timhood

      .9% savings accounts are for chumps. Dumping all that money (cash) to purchase a car instead of using it to earn greater returns is for chumps. Hey, look, I own this car, but now I have no cash. But I was only earning .9% anyway, so I’m coming out ahead. Or, hey, I got a 1.9% loan, invested the money and have earned 10x what I spent in interest or 20x what I would have saved in a savings account. Invest, invest, invest! Saving at less than inflation rates is for chumps.

      • 0 avatar
        LectroByte

        LOL, who said anything about a .9% savings account? Strawman fighter!

        And if owning the car puts you in the position of having no cash, then you’re doing it wrong. But you probably know that.

        Zero percent is not zero percent. You will come out ahead negotiating the best price from the dealer and getting your own financing than taking the dealer “zero percent” loan.

        • 0 avatar
          dal20402

          I have two cars for which the contrary is true. I did the math, and the 0% was the best way to go. It’s not black and white like you are claiming.

  • avatar
    cornellier

    Those handing out financial advice might keep in mind that the depreciation on a brand new car is severe, no matter how it was financed. Just to take some round numbers: assuming a car has a 15 year life span then you can buy a one year old used car (which has 14/15s of its life left) for about 80 per cent of the new price.

    As for 0% financing, there is no such thing as a free lunch. Sales gimmicks like this are set up to be in the seller’s best interest, and the transaction is fraught with information asymmetry in favour of the seller. As is the case with insurance.

    • 0 avatar
      JuniperBug

      Paying 80% of the price for a car with 93% of its life left, assuming your numbers are accurate – I think for some models the depreciation can be less steep – is a nice little discount.

      On the other hand, when you factor in that you’re likely to pay more for the loan, and be in line to do scheduled maintenance (tires, brakes, the next oil change) sooner, it’s not unreasonable to decide to pay the premium to get the brand new car, where no one’s messed with it and you get to choose whatever you want for options and colours, etc.

      That first year depreciation hurts when you’re changing cars every 3 years. If you’re buying to keep for 10-15 years, sometimes it’s worth it to get the proverbial blank slate, especially if you’re someone who takes better care of their car than the typical first owner.

    • 0 avatar
      dal20402

      With financing costs and high residuals in the wake of the downturn this equation can change quite a lot.

      In January 2013 I planned to buy a slightly used Forester XT or Outback 3.6R. Between ridiculously high resale values in my area, the longer period of warranty coverage and likely flawless operation for a new car, very nice factory discounts on ’13 Foresters that were soon to be supplanted by the ’14s, and 0% financing without any strings attached (again to clear inventory), I found that buying a new Forester was more financially attractive than buying a gently used one.

      So I bought a new one. It’s now 2 1/2 years old with 22,000 miles, and so far so good. Not a single warranty repair needed.

      • 0 avatar
        krhodes1

        IMHO, nearly new cars are just not enough cheaper than new cars. I buy new, or I buy WELL used for pocket money.

        • 0 avatar
          bunkie

          I have to agree. My last few cars have been CPO, but I think, for the most part, the rising value of late-model used cars has eroded the advantage therein.

          My previous car was a screaming deal because it was a relatively unloved model that had depreciated 50% in less than two years. Purchased for half-price with a full warranty, it was hard to pass up. That it was actually a pretty great car was icing on the cake.

          For the life of me, I can’t find anything close to that in the current market.

    • 0 avatar
      timhood

      Maybe, but the sweet spot for buying a used car is more like a 2-3 year-old car with a decent amount of miles. Some 3-year old cars have depreciated near 50%.

      I like buying new, having total control and knowledge of how the car was driven and maintained. I keep my cars a long time, so the difference in cost is incremental. It may not be the very cheapest route to car ownership, but it’s not far off and pays off in other rewards. I keep my purchases within my budget, so that the overall cost is not substantial.

      • 0 avatar
        LectroByte

        I tend to keep cars for 10 to 12 years, unless they are stinkers, so why gamble on the previous owner’s abuse and maintenance when buying new isn’t that much more expensive, especially these days? I’m guessing if they traded it after 2 or 3 years, they didn’t maintain or use it like someone who was going to keep it 10 years.

      • 0 avatar
        krhodes1

        IMHO, any car that depreciates that much, #1, was likely not sold nowhere near MSRP and thus did NOT depreciate 50% based on original transaction cost, and #2, is likely not a car I have any interest in buying. See previous Impala for the poster child for this.

        I much prefer buying almost fully depreciated if not buying new. But I have the “privilege” of being equipped to deal with the foibles of older cars. My best buy ever has been my ’01 Range Rover – bought ~$75K less than original MSRP, and it has been a great truck. If it blows up I will buy another one just like it and have a parts truck.

  • avatar
    skeeter44

    You don’t represent the average buyer – the average buyer is vastly outgunned in the showroom. Opening the financing discussion is adding an angle that most people will have a hard time digesting. Financing allows the dealer to introduce/mislead the buyer in many, many ways. The devil is really in the details – can you pay off early, are there hidden financing costs, is the interest rate competitive, etc.Outside of contract managers/lawyers who is going to scrutinize the sales contract to that extent.

    • 0 avatar
      bikegoesbaa

      “Outside of contract managers/lawyers who is going to scrutinize the sales contract to that extent.”

      The financially literate?

      I have a hard time feeling bad for the buyer who does not bother to read the details of a contract for a 5-figure purchase before they sign it.

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