Pay Cash or Finance?

Discussion in 'Business, Investing & Finance' started by bradgator2, Jul 30, 2020.

  1. bradgator2

    bradgator2 Rioting
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    So, lets say you wanted to buy a brand new vehicle and you had the ability to pay cash for it. But the dealership is offering 1.9% financing. Do you finance or pay cash? If it was 0.0 or 0.9%... then I say you absolutely finance.
     
  2. Gator By Marriage

    Gator By Marriage A convert to Gatorism
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    I'm probably in the minority here, but I just don't believe in financing a car. Had no choice when I was first starting out (and foolishly bought a more expensive car than I needed), but have always payed cash since. And yes @ 0% it certainly makes sense; but I just won't do it.
     
    • Fodderwing

      Fodderwing Well-Known Member
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      Does the 1.9% rate through the dealer come at the exclusion of a rebate or other manufacturer incentive?

      Many times it is better to take the dealer's lowest price and finance through your credit union, bank, etc.

      You just have to crunch all of the numbers.

      A $25K vehicle with $2500 down financed 4 years @ 1.9% will have total interest of ~$880.
       
    • CGgater

      CGgater Gainesville Native
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      The key is: If (for example) you borrow at 1% but can invest the cash at a 3% ROI, get the financing. If you’re confident in the stock market, you could be talking about a much larger ROI.
       
      • Detroitgator

        Detroitgator Well-Known Member
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        Incorrect! You'd be dumb not to buy the house." - GGG

        ;)
         
        • LagoonGator68

          LagoonGator68 mostly peaceful protester
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          0.0% is costing you elsewhere....if you can’t pay cash you don’t really need it.
           
        • CGgater

          CGgater Gainesville Native
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          Ahhhhhh, ya got me!
           
        • Detroitgator

          Detroitgator Well-Known Member
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          Well, at least you understand ROI and making the best use possible of yer moolah! We're working on some others. ;)
           
          • BMF

            BMF Bad Mother....
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            I'm in that same boat, and haven't had a car payment since 1999...until 2 months ago. My wife crashed her car in March, we didn't need a 2nd vehicle because of the lockdown so we shopped around. Bought her a Honda HRV for $21,500 (out the door). I went to 5 different dealers and got the absolute best price of any of the dealers, by far, where I purchased. They offered an additional $500 off if we financed, at 0.9%. So I put $11,500 down and financed $10k. I plan to pay it off within one year and will pay less than $90 interest. I think it was a smart move.
             
            • FireFoley

              FireFoley Senior Member
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              Well done Sir. Now if your BA can find some juice you can sell it and pay off the car with the profits. Just bustin your chops. That BA had you ticked off after you took your cost out and it went up to 230, but what if you had not sold and it came back to where it is now.? You did the right thing and have not had to watch it. Instead you watched for car prices and scored a good deal. 90 Bux interest toyal. That is about what you would get in total if you buy a 10 year Treasury and hold it to maturity :lmao2:
               
              • BMF

                BMF Bad Mother....
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                I might get back in BA if it gets below $150!!

                One thing I've done recently that I've never done also: is credit cards. I got a United Airlines business card a few months ago - had to spend $10K to get 100k points. I just added an American Airlines business card, have to spend $4k to get 65,000 points. So I now have 4 credit cards. I've rarely carried more than 1, but the last three of four years I've been carrying two to three, now I just added a 4th (I have a Marriott card also - and have the other two but non-business...and closed the non-business United card....will close the non-business AA card soon, for a total of 3 cards). Anyhow, I know there's "rules" that you're supposed to follow to "get wealthy"...but since I'm disciplined enough I like getting the points.
                 
              • bradgator2

                bradgator2 Rioting
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                ok, forget the car example. Or still use it, but it really doesnt matter "what" the item is. Let's go with the assumption that price of the item is the same regardless if you pay cash or finance.

                Let's also ignore fact that it doesnt matter that you already have a perfectly fine example of one of these items that is 100% paid for. (translation: the Mrs wants a new one)

                For the sake of easy numbers, let's say you have $100,000 cash in the bank. And this item will cost you $20,000. Do you have a threshold level of what % of your "cash pile" you are willing to spend on an item that is not an emergency?

                If you are at 0, or 0.9% financing... do you consider that your $500 payment that your are making 4-5 years from now is "less" of a payment due to inflation? Does that still hold true at 1.9% financing? Or I guess the real question is: is there a inflection point where financing simply doesnt make sense? I would guesstimate it is somewhere in that ~2% range.

                Obviously, since you had to ability to pay cash, you can hopefully have that money in a spot where you can some sort of return.
                 
              • bradgator2

                bradgator2 Rioting
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                The CC points is an interesting point. I'm all about CC points. Depending on the situation, I find that these points usually fall in the 1-2% range when the rubber hits the road.

                I do have the ability to charge the entire item and pay the entire bill next month.
                 
              • Gator By Marriage

                Gator By Marriage A convert to Gatorism
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                Since I went first last time, I'll go first again. For us (and I include Mrs. G here - we always discuss any significant purchase; perhaps not everyone's philosophy but it seems to work for us), we try to stay out of debt as much as possible. We have also found that by talking things over we often end up not making a large impulse purchase. (My last one was buying 6 Peach Bowl tix that were pretty good seats; it was nice to take my 90+ in laws to their first Gator game in a long time, but not normally a purchase I would have made.) As a result we don't tend to buy stuff we don't really need. But to your question we did finance a new HVAC unit when offered 0.0%. We could have paid cash out of our emergency fund, but Mrs G. felt it was too good a deal to pass up. While she was probably right (she usually is), I hate seeing that payment every month. The only debt I am personally comfortable with is mortgage debt. At least in that case you are paying on some thing of value (that will hopefully maintain said value and hopefully increase). Clearly everyone's comfort level is different.
                 
                • bradgator2

                  bradgator2 Rioting
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                  Let's use your HVAC example. Personally, I think you might call by financing it at 0%. This question of this whole thread is: at what finance rate would it not make sense?
                   
                • BMF

                  BMF Bad Mother....
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                  To your question about paying interest: I'm in the same boat/thought as GbyM. Other than my mortgage (and this recent Honda purchase) I have no debt. I turn 50 in August, but I've been in this position since I was 30 years old (I paid off my car at 30 and have not had a car payment since - until the Honda two months ago). I've managed to save a sh*tton of cash over the last 20 years.

                  We talked about Dave Ramsey in an earlier thread on this board. That's where I got the "rich people don't have car payments" mantra: he says:

                  Say you are 25 years old and you finance a new car every 5 years - at 55 years old you will have just sold your 6th car and financed a brand new 7th car w/ a 5 year car payment ahead of you.

                  -or-

                  At 25 years old, you pay cash for a beater (and steadily upgrade over the years), you take the "car payment" and put it into a growth stock mutual fund every month (for 30 years, until you're 55). In 2000, when I first bought into this the average car payment in America was around $350 - so if you put that amount into the mutual fund for 30 years....you'll have ~$1.3 million. Or you could have 7 different car payments. I chose the $1.3 million (I was 30-ish when I started this, and I've tapped into the money over the years. But it's grown quite well over the last 19+ years).

                  Today, the average car payment in America is closer to $550-600/month - I heard him discussing this a couple of years ago. So if you put that amount in for 30 years you'd have somewhere in the $3 million range.

                  But, some people love buying a new car every 5 years.

                  Not sure if you've ever seen the website: The Points Guy

                  This site analyzes what credit card points (and other perks) are worth. Personally, I think the points are well worth it. Many people like the cash back credit cards - but honestly, for me, getting back a few hundred dollars will just end up in my bank account and blend in w/ all the money/funds. With points - I actually see the result; we went to Curacao in February - flew 1st class both ways, stayed oceanfront Marriott for 6 nights, all on points. We were supposed to go to Aruba in June, but had to cancel due to the China virus - but it was going to be the same deal.

                  And yes, I pay off the card every month. I try to spend every dollar I can on the credit card too. The only thing I regularly pay cash for is a haircut (on base at the military barber shop).
                   
                  • bradgator2

                    bradgator2 Rioting
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                    I get all that. I really do. And I am not in disagreement with any of it.

                    But at some point (finance interest rate), keeping your cash just makes more sense because you can make it work for you plus inflation is chipping at your payment "value". I think it would be foolish to pass up financing a large purchase if it was 0% interest. And if it was 0%, then I think it would be foolish to pay extra each month just because you have a "payment".
                     
                  • Gator By Marriage

                    Gator By Marriage A convert to Gatorism
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                    My larger point is ten different people are possibly going to give you ten different answers. Unless I have no choice, other than mortgage interest, no amount above zero is worth it to me. Our GCMB finance gurus will probably have a much more in depth and (probably) smarter answer.

                    Edit: Thinking back over my responses in this thread, I realize that they have been fairly useless to your original post. Moral of the story: GBM is not the man to talk to about maximizing your money. (He does hate being in debt tho.)
                     
                    • BMF

                      BMF Bad Mother....
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                      I'm with you: at ~2% or so (in today's market) is where I'd consider it. Over 2% I'd have to think hard about it. With my example above, I saved $500 by doing the financing, so it was a no-brainer for me.

                      I read an article today about "people are afraid they have too much in savings" - basically it said that due to the China virus people have saved a lot more this year vs. past years and most people are sitting on it. I don't like sitting on the cash, but I'm worried AF about the market right now.
                       
                      • bradgator2

                        bradgator2 Rioting
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                        There is no debate that "piece of mind" is a HUUGGGEEEE factor in letting you sleep well at night. But, I would categorize that in an "emotional" bucket. Not a "logical" bucket. If no payment of any kind gives you peace and happiness... well then that's the answer.

                        And I dont think the responses in this thread are useless at all. There are some really freaking smart people on here and it's interesting to read the brainstorming. I dont think there is really a wrong or right answer because I dont think you can remove that "emotional" piece from life's decision. Maybe DG. But that's because he's an arrogant cuuunt.
                         
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