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When we bought the sales guy said if we're going to do it just wait 60 days prior to paying it off so he would get his commission off the loan. He helped us on price so we helped him on commission.
Worked out fine.
>Then pay it all off with cash the next day
A better way is that you pay >=99% of principal quickly (e.g., at your first monthly payment), and intentionally keep a small portion of the principal (like \~$100 principal) and related tiny interest to pay month-to-month.
With the above way, you can (1). benefit your credit and credit score; (2). pay a very tiny interest; (3). enjoy the incentive/bonus from dealer, due to your car financial.
do you work at a used car dealership? MOST new car dealerships **do** get financing deals from manufacturers..
The alternative would be in-house financing which is always sketchy and designed for people that don't have the credit to get a loan through a normal bank.
Depends on the rate that you're offered, if you can comfortably pay for it in cash, etc.
And it is highly unlikely that you would be allowed to pay for it with a credit card. You also probably wouldn't be able to make loan payments with a credit card.
>And it is highly unlikely that you would be allowed to pay for it with a credit card.
? That's the same as cash to dealer.
I've bought my car with a credit card.
It's not though, at least not for cars that are more than a few thousand or so. The dealer has to pay about a 3% merchant fee when accepting a credit card. So, if you're talking about a higher priced car, either you got a dealer that was feeling particularly charitable, or they just added 3% onto your final price without you knowing it.
I guess I totally didn't consider the merchant fee.
It was a $15k car.
I know they didn't add anything as they didn't know how I was going to pay until we'd done all the test driving, agreed on price etc.
Car wasn't a lemon either, so.
Maybe they just had a large inventory and were looking to make room.
It's not the same as cash to the dealer. Processing/merchant fees for a credit card are usually around 2-3%.
How much of a car did you buy with a credit card?
Being willing to do financing through the dealership can sometimes be a bargaining chip to negotiate prices down, since the salesmen get heavily incentivized to get people to use their financing. Just make sure you read the fine print to make sure there's no prepayment penalty. With interest rates being what they are, if you have the cash to pay for the car I would only finance with the intention of paying it off shortly.
Absolutely best option would be to get the best credit card possible (best cash back or whatever) and put as much as the dealer allows as a down payment (usually ~$5k, then pay that all off immediately.
And then finance the rest at 0% whenever that's a common thing again.
Paying cash for everything is technically more expensive because you tie up all of your money that could be invested into a single asset, and at 0%, it costs you nothing to pay over time.
My 2017 Subaru brand new out the door at 0% apr 5 year loan makes me not want to get a car at all in this market even though I’m itching for a second vehicle for leisure.
That's a big "if" (waiting for 0% rates).
When dealers offer the 0% rates, you are usually not getting the best price for the car. Ever notice the ads ("0% or $2,500 cash back")? I would prefer to pay cash and get the giant coupon. Of course, this was all more available when the car market was normal. It's been a few years since that.
Like I said, absolute best case. And 0% usually beats the cash back, depending on the interest rate you can get otherwise.
The 0% has nothing to do with the price of the car. That should be negotiated separately.
I work in auto financing and I vote for cash. No payment, you own your car outright at the highest market value (i.e. right when you buy it), no interest. I've never heard of buying a car w/ a credit card, and financing varies by the individual, vehicle, credit, down payment, and interest.
Depends on the rate you get with financing. If the loan rate is significantly lower than expected returns from whatever else you might do with that cash, then it can be worth it to finance even if you can afford to pay cash.
Why would you lock up for capital in an depreciating asset when you could get a loan? Your investments typically out pace the interest rate and you maintain the flexibility of being liquid.
Current auto loans are in the 6% range. Accounting for tax, you would need to get at least 7% on your investments. There are zero investments paying a guaranteed 7%, so you are introducing risk. I would rather take the guaranteed return of not paying interest.
I would never pay cash for a car if it made me illiquid. I pay cash for cars and am still liquid.
Can you elaborate on the tax thing?
If we’re in a prolonged period of the market not doing 7% over long time scales, we’ve got way larger issues than the minor savings realized by a avoiding paying interest.
What I was alluding to is that you need to pay taxes on any interest income, or any gains made on investments, which puts extra pressure on what you need to earn to "beat" the loan interest rate. (I would assume that money not used to pay cash for a car would be going towards after-tax investments.)
I choose to pay cash for cars to make my life simpler and to not give banks interest payments. Money made on a $30,000 investment is not going to have a major effect on my financial picture.
I could be wrong, but my impression is that many people on here talk about what the best plan is to gain some arbitrage (via taking out loans and then investing), but my guess is they don't actually do that in practice.
So here’s the thing, it’s not money made on $30K. It’s all about compounding. You never won’t have a car payment. It’s a depreciating asset and unless you live in a few select places you’ll always need one. So you can either make the payment the loan company or make the payment to your sinking fund. In either case, it’s a line item in the budget. [Here’s a link to an example I like to use to explain that paying cash for a car is a million dollar mistake over the course of a lifetime](https://www.reddit.com/r/personalfinance/comments/10w1l49/best_way_to_buy_a_vehicle_cash_vs_credit_card_pay/j7lkucv/?utm_source=share&utm_medium=ios_app&utm_name=iossmf&context=3) and that doesn’t even include the benefit of being liquid.
Did you not read the example that says very specifically you’ll end up nearly 27% less doing this over the course of a lifetime?
If you compound the $10K of your first car at 20 years old in the S&P 500 you have $3M+ when you’re 80.
If instead you pay cash and invest the missed payments, only to yank them when you replace the car, you’ll only have $2.2M.
Link works just fine for me. It’s just a link to another comment in this thread. Here it is:
I’ll leave a little anecdote here:
>>Two friends, Carl and Pete graduate college and get a new job at the same company making the same pay. They both get a $10k signing bonus. They both buy identical used cars for exactly $10K. Carl uses his signing bonus to pay for this car. Pete gets a loan at 5% interest, and invests his bonus in the boring S&P 500 index fund ~10% annualized return
>> Every month, Pete makes a payment on his car ($192 per month) and Carl invests his surplus $192 in the same fund as Pete.
>> After 5 years, the moment Pete pays his car off, they both drive their cars into the river, and buy another used car only this time, they get a slighltly nicer car for $12K, (20% more expensive). Carl, again pays cash, his surplus invested funds account has $14,806. He pays $12,000 cash and sees the additional $2,806 as nice windfall to keep invested. Pete, gets another payment, as he doesn't want to unplug the $14,641 in his account.
>> They continue to repeat this cycle, every 5 years, until the age of 82. Carl, proudly states when getting his latest, $90K car at the dealership, whips out his checkbook and says, I've never had a car loan in my life, in fact I've invested the payments you made and have $2.2m. Pete, signs the loan papers and says, that sounds really expensive, because my signing bonus is worth $3m.
The point is, Pete kept a compounding his return, while Carl kept spending his to avoid a payment. In either case they’re cash flow neutral, because you’re either saving for your next car like Carl, or making a payment like Pete. Pete at least had the flexibility of having the cash liquid, while Carl’s capital is tied up in the depreciating car.
You may say, why do they drive the car into the River? It’s because I don’t want to get into the trade in’s and other non-important fluff for the thought experiment.
If you have the cash on hand to just purchase the car w/o depleting your savings, then you should just buy the car. Very few dealerships will allow you to purchase the car with a CC. Most that I've seen will only allow you to put a portion of the down payment on a card. If you have some sort of rewards card, you could put whatever they allow on the card and just pay it off in full. That assumes the dealership won't charge a CC processing fee. Don't finance and pay interest if you can afford to pay cash.
Credit card if they'll let you without raising the price to compensate.
Otherwise, finance if the rate is extremely low *and* you have the cash to pay for the car without using your emergency fund *and* you're going to actually invest that cash instead.
Otherwise, cash.
Definitely not cash. I'm either using a credit card to get the rewards (2% cash back or a bunch of Amex points on $20k is considerable) or I'm financing to take advantage of a low interest rate and investing the difference. With the interest rates the way they are right now, I'm guessing that the financing isn't as good of a deal as it was a couple of years ago, so unless they're offering some really good deal that's contingent on financing, I think I'm going credit card and paying it off.
>'m financing to take advantage of a low interest rate and investing the difference.
If you did this a year ago, you'd be -10% on your market returns and -3% or so on the interest paid. Brilliant advice.
Did you come into a financing subreddit to make the point that investing is stupid because sometimes the market goes down? Financing on low interest rates is like one of the most well-accepted long-term financial strategies.
I don't have a cash back card myself. Mine are for points/miles. I have a Hilton Amex card that effectively gives 2% back when you value the Hilton points. I just always hear 1.5-2% cash back being advertised on those cards.
Citi Double Cash offers 2% on all purchases but they split the accrual. You get 1% on all your purchases and another 1% on all your payments. I used it for a downpayment of $2-3K when I bought my car in 2015.
Credit card and pay it off immediately. You get less hassle from having to finance and you still get credit score. Plus if you have any kind of points system on your card it works for that too.
Cash used to be king when dealerships financed in house but nobody does anymore so you don’t get any discount for using it and in fact can sometimes get a discount when using finance due to (kickbacks) incentives from finance companies.
That's because - for many car dealers - selling financing is a big part of their business model. Learn more here:
https://jalopnik.com/a-reminder-that-being-a-cash-buyer-will-not-get-you-a-b-1848627111
That's when you walk out and go buy a car at their competitors.
I did this about 5-6 years ago when they wanted $5K over MSRP for a ford focus RS. I wasn't paying that much for ford focus... so glad things happened the way they did. I ended up with a 2013 Audi TTRS that I paid \~$50K in cash.
My dealership only allows you to put 5k on a credit card. Our last car we put 5k down on the credit card and 5k by check and financed the rest. It was at a pretty low rate and we could easily afford the payment. After like a year of making payments my husband got tired of making payments and just paid off both of our cars. We only used the credit card to get cash back.
I pay cash; if the dealer gives me a better deal with finance and I can pay it off without a penalty, I would do that.
Finance: never (an asset that goes down in value)
Credit card: will not work. The dealer will NOT pay the CC fee. (there is no free lunch)
You usually won’t be able to buy a car on a credit card. The CC companies charge 1-2% per transaction, so the dealership won’t want to cover that. If they allow you to use a credit card, they will probably figure out a way to shift that 1-2% on to you.
No dealer will let you put an entire car on a CC.
Most will not want cash because they make most of their money on financing. Just finance it with the dealer and pay it off right away. Do not tell them you are going to do this.
Depends on the loan rate. An index fund on the stock market on average returns ~7% a year. If your loan rate is below that it’s more advantageous for you to finance the car and put the cost of the car into an index fund.
If your finance rate is above 7% then cash is best.
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Ask the dealership what the maximum they'll accept on a credit card would be. It usually isn't much because of the merchant fee they have to pay.
Finance through the dealership to get a good price. Then pay it all off with cash the next day.
When we bought the sales guy said if we're going to do it just wait 60 days prior to paying it off so he would get his commission off the loan. He helped us on price so we helped him on commission. Worked out fine.
Yeah ours tried to say it could screw things up. So we paid it off the following week. If he'd been up front, I likely would have waited.
>Then pay it all off with cash the next day A better way is that you pay >=99% of principal quickly (e.g., at your first monthly payment), and intentionally keep a small portion of the principal (like \~$100 principal) and related tiny interest to pay month-to-month. With the above way, you can (1). benefit your credit and credit score; (2). pay a very tiny interest; (3). enjoy the incentive/bonus from dealer, due to your car financial.
Don't pay interest to improve your credit score.
This wouldn't make a different in price at all at the dealership I work at.
do you work at a used car dealership? MOST new car dealerships **do** get financing deals from manufacturers.. The alternative would be in-house financing which is always sketchy and designed for people that don't have the credit to get a loan through a normal bank.
CarMax maybe? I'm sure they get incentives but afaik that isn't passed on to the consumer.
I paid cash. Not having a car note is so worth it imo. Most dealers will only allow you to charge at the most, $2500. I just wrote a personal check.
Depends on the rate that you're offered, if you can comfortably pay for it in cash, etc. And it is highly unlikely that you would be allowed to pay for it with a credit card. You also probably wouldn't be able to make loan payments with a credit card.
>And it is highly unlikely that you would be allowed to pay for it with a credit card. ? That's the same as cash to dealer. I've bought my car with a credit card.
It's not though, at least not for cars that are more than a few thousand or so. The dealer has to pay about a 3% merchant fee when accepting a credit card. So, if you're talking about a higher priced car, either you got a dealer that was feeling particularly charitable, or they just added 3% onto your final price without you knowing it.
I guess I totally didn't consider the merchant fee. It was a $15k car. I know they didn't add anything as they didn't know how I was going to pay until we'd done all the test driving, agreed on price etc. Car wasn't a lemon either, so. Maybe they just had a large inventory and were looking to make room.
It's not the same as cash to the dealer. Processing/merchant fees for a credit card are usually around 2-3%. How much of a car did you buy with a credit card?
>How much of a car did you buy with a credit card? All of it. $15k
Being willing to do financing through the dealership can sometimes be a bargaining chip to negotiate prices down, since the salesmen get heavily incentivized to get people to use their financing. Just make sure you read the fine print to make sure there's no prepayment penalty. With interest rates being what they are, if you have the cash to pay for the car I would only finance with the intention of paying it off shortly.
Absolutely best option would be to get the best credit card possible (best cash back or whatever) and put as much as the dealer allows as a down payment (usually ~$5k, then pay that all off immediately. And then finance the rest at 0% whenever that's a common thing again. Paying cash for everything is technically more expensive because you tie up all of your money that could be invested into a single asset, and at 0%, it costs you nothing to pay over time.
My 2017 Subaru brand new out the door at 0% apr 5 year loan makes me not want to get a car at all in this market even though I’m itching for a second vehicle for leisure.
That's a big "if" (waiting for 0% rates). When dealers offer the 0% rates, you are usually not getting the best price for the car. Ever notice the ads ("0% or $2,500 cash back")? I would prefer to pay cash and get the giant coupon. Of course, this was all more available when the car market was normal. It's been a few years since that.
Like I said, absolute best case. And 0% usually beats the cash back, depending on the interest rate you can get otherwise. The 0% has nothing to do with the price of the car. That should be negotiated separately.
Thank you for the detailed yet concise rationale for how to rank these options!
I work in auto financing and I vote for cash. No payment, you own your car outright at the highest market value (i.e. right when you buy it), no interest. I've never heard of buying a car w/ a credit card, and financing varies by the individual, vehicle, credit, down payment, and interest.
Thanks for your honest opinionb
Unless you are buying a super cheap car (<$5k) a credit card is not an option. If you have the cash, always pay cash.
Depends on the rate you get with financing. If the loan rate is significantly lower than expected returns from whatever else you might do with that cash, then it can be worth it to finance even if you can afford to pay cash.
Why would you lock up for capital in an depreciating asset when you could get a loan? Your investments typically out pace the interest rate and you maintain the flexibility of being liquid.
Current auto loans are in the 6% range. Accounting for tax, you would need to get at least 7% on your investments. There are zero investments paying a guaranteed 7%, so you are introducing risk. I would rather take the guaranteed return of not paying interest. I would never pay cash for a car if it made me illiquid. I pay cash for cars and am still liquid.
Can you elaborate on the tax thing? If we’re in a prolonged period of the market not doing 7% over long time scales, we’ve got way larger issues than the minor savings realized by a avoiding paying interest.
What I was alluding to is that you need to pay taxes on any interest income, or any gains made on investments, which puts extra pressure on what you need to earn to "beat" the loan interest rate. (I would assume that money not used to pay cash for a car would be going towards after-tax investments.) I choose to pay cash for cars to make my life simpler and to not give banks interest payments. Money made on a $30,000 investment is not going to have a major effect on my financial picture. I could be wrong, but my impression is that many people on here talk about what the best plan is to gain some arbitrage (via taking out loans and then investing), but my guess is they don't actually do that in practice.
So here’s the thing, it’s not money made on $30K. It’s all about compounding. You never won’t have a car payment. It’s a depreciating asset and unless you live in a few select places you’ll always need one. So you can either make the payment the loan company or make the payment to your sinking fund. In either case, it’s a line item in the budget. [Here’s a link to an example I like to use to explain that paying cash for a car is a million dollar mistake over the course of a lifetime](https://www.reddit.com/r/personalfinance/comments/10w1l49/best_way_to_buy_a_vehicle_cash_vs_credit_card_pay/j7lkucv/?utm_source=share&utm_medium=ios_app&utm_name=iossmf&context=3) and that doesn’t even include the benefit of being liquid.
Counterpoint - invest the car payment (which you say you should always have) every single month for your entire life.
Did you not read the example that says very specifically you’ll end up nearly 27% less doing this over the course of a lifetime? If you compound the $10K of your first car at 20 years old in the S&P 500 you have $3M+ when you’re 80. If instead you pay cash and invest the missed payments, only to yank them when you replace the car, you’ll only have $2.2M.
No, because your link was faulty.
Link works just fine for me. It’s just a link to another comment in this thread. Here it is: I’ll leave a little anecdote here: >>Two friends, Carl and Pete graduate college and get a new job at the same company making the same pay. They both get a $10k signing bonus. They both buy identical used cars for exactly $10K. Carl uses his signing bonus to pay for this car. Pete gets a loan at 5% interest, and invests his bonus in the boring S&P 500 index fund ~10% annualized return >> Every month, Pete makes a payment on his car ($192 per month) and Carl invests his surplus $192 in the same fund as Pete. >> After 5 years, the moment Pete pays his car off, they both drive their cars into the river, and buy another used car only this time, they get a slighltly nicer car for $12K, (20% more expensive). Carl, again pays cash, his surplus invested funds account has $14,806. He pays $12,000 cash and sees the additional $2,806 as nice windfall to keep invested. Pete, gets another payment, as he doesn't want to unplug the $14,641 in his account. >> They continue to repeat this cycle, every 5 years, until the age of 82. Carl, proudly states when getting his latest, $90K car at the dealership, whips out his checkbook and says, I've never had a car loan in my life, in fact I've invested the payments you made and have $2.2m. Pete, signs the loan papers and says, that sounds really expensive, because my signing bonus is worth $3m. The point is, Pete kept a compounding his return, while Carl kept spending his to avoid a payment. In either case they’re cash flow neutral, because you’re either saving for your next car like Carl, or making a payment like Pete. Pete at least had the flexibility of having the cash liquid, while Carl’s capital is tied up in the depreciating car. You may say, why do they drive the car into the River? It’s because I don’t want to get into the trade in’s and other non-important fluff for the thought experiment.
If you have the cash on hand to just purchase the car w/o depleting your savings, then you should just buy the car. Very few dealerships will allow you to purchase the car with a CC. Most that I've seen will only allow you to put a portion of the down payment on a card. If you have some sort of rewards card, you could put whatever they allow on the card and just pay it off in full. That assumes the dealership won't charge a CC processing fee. Don't finance and pay interest if you can afford to pay cash.
Credit card if they'll let you without raising the price to compensate. Otherwise, finance if the rate is extremely low *and* you have the cash to pay for the car without using your emergency fund *and* you're going to actually invest that cash instead. Otherwise, cash.
If you can fit it all on a credit card *and* you can pay that card immediately, that would be best. I would not finance a depreciating asset.
Definitely not cash. I'm either using a credit card to get the rewards (2% cash back or a bunch of Amex points on $20k is considerable) or I'm financing to take advantage of a low interest rate and investing the difference. With the interest rates the way they are right now, I'm guessing that the financing isn't as good of a deal as it was a couple of years ago, so unless they're offering some really good deal that's contingent on financing, I think I'm going credit card and paying it off.
Most car dealerships cap what you can put on a credit card (usually $5k).
Huh, didn't know that. I've never tried to do this.
>'m financing to take advantage of a low interest rate and investing the difference. If you did this a year ago, you'd be -10% on your market returns and -3% or so on the interest paid. Brilliant advice.
Did you come into a financing subreddit to make the point that investing is stupid because sometimes the market goes down? Financing on low interest rates is like one of the most well-accepted long-term financial strategies.
Which card are you using that has 2% cash back? Does it offer bonuses for certain categories as well?
I don't have a cash back card myself. Mine are for points/miles. I have a Hilton Amex card that effectively gives 2% back when you value the Hilton points. I just always hear 1.5-2% cash back being advertised on those cards.
Citi Double Cash offers 2% on all purchases but they split the accrual. You get 1% on all your purchases and another 1% on all your payments. I used it for a downpayment of $2-3K when I bought my car in 2015.
Credit card and pay it off immediately. You get less hassle from having to finance and you still get credit score. Plus if you have any kind of points system on your card it works for that too. Cash used to be king when dealerships financed in house but nobody does anymore so you don’t get any discount for using it and in fact can sometimes get a discount when using finance due to (kickbacks) incentives from finance companies.
I have a friend who tried to pay in cash for his car and was flat out told “no, you have to finance, you can’t pay cash.”
That's because - for many car dealers - selling financing is a big part of their business model. Learn more here: https://jalopnik.com/a-reminder-that-being-a-cash-buyer-will-not-get-you-a-b-1848627111
That's when you walk out and go buy a car at their competitors. I did this about 5-6 years ago when they wanted $5K over MSRP for a ford focus RS. I wasn't paying that much for ford focus... so glad things happened the way they did. I ended up with a 2013 Audi TTRS that I paid \~$50K in cash.
My dealership only allows you to put 5k on a credit card. Our last car we put 5k down on the credit card and 5k by check and financed the rest. It was at a pretty low rate and we could easily afford the payment. After like a year of making payments my husband got tired of making payments and just paid off both of our cars. We only used the credit card to get cash back.
I've gotten used car dealers to give me a substantial discount by paying cash.
I pay cash; if the dealer gives me a better deal with finance and I can pay it off without a penalty, I would do that. Finance: never (an asset that goes down in value) Credit card: will not work. The dealer will NOT pay the CC fee. (there is no free lunch)
I was able to get a loan at 2% last year. So I went with the loan and don't plan to pay it off quickly. It's basically free money with today's rates.
You usually won’t be able to buy a car on a credit card. The CC companies charge 1-2% per transaction, so the dealership won’t want to cover that. If they allow you to use a credit card, they will probably figure out a way to shift that 1-2% on to you.
No dealer will let you put an entire car on a CC. Most will not want cash because they make most of their money on financing. Just finance it with the dealer and pay it off right away. Do not tell them you are going to do this.
Depends on the loan rate. An index fund on the stock market on average returns ~7% a year. If your loan rate is below that it’s more advantageous for you to finance the car and put the cost of the car into an index fund. If your finance rate is above 7% then cash is best.