Paying for next car- cash or finance?

[Zaphod]

Rogue Dad, M.D. wrote:

The White Coat Investor wrote:

I guess if crap and drool and piss bothered me I wouldn’t be in the line of work I’m in. 

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I work exclusively in a peds ER, so I see even more gross kids than you.  I’m fairly sure my kids are more gross than the ones I take care of in the ER.  First thing I did when we bought our 2014 Odyssey (last year) was buy high quality aftermarket floor covers for the entire van and durable seat ,overs for any seat that will have a child. I even put a cover on the back of the driver seat because our 3 year old constantly kicks and scuffs it.

I bought the van expecting it to be lived in, like the house, not to be an impeccable shrine.

Also the 2014 Odyssey is nice — we bought the Touring (the level above what we got has the central vacuum).  Adaptive cruise control and auto braking would’ve been really nice, but I’ve made it driven for 20 years without rear ending someone, so I am willing to take my chances.

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A central vac? Holy. Thats a bit wild. I have a portable shop vac that is pretty great.

[RogueDadMD]

Zaphod wrote:

A central vac? Holy. Thats a bit wild. I have a portable shop vac that is pretty great.

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Yes.  For the $3k or so it would've taken to get the vacuum I could buy 20 years worth of battery powered plug in ones plus a few shop vacs.  Since I already have a shop vac and handheld battery powered one, didn't seem worth it to pay for a vacuum.

[StarTrekDoc]

Save money and work the numbers of cash vs finance deal when you finalize the purchase.   It'll give you highest flexibility with the dealer.

Also go in with local credit union financing secured too to negotiate best deals.   Having options is key.

Likewise, it you're not set on a particular minivan, you can play pricing that way --- that's what's going to save you dollars compared to cash/finance/where to save in next months.

 

That said -- Pacifica PHEV is great price and hold;  Sienna drives insanely well for the size and Honda is all around great vehicle -- the latter two would be the leasing since hold value significantly better in short term than others --- kids + lease though?  eeek.  Our minivan is a disaster area.

[hightower]

A couple of things...I have done both options recently and can comment on what it feels like to buy with cash vs financing. My wife and I both were due for new rides recently.  I was going to be working a new job that required a lot of driving and my wife's car was needing expensive repairs and was already 10 years old and very bad with gas mileage.

First, if you're in the market for a Honda, DEFINITELY buy Certified Used.  They come with a better warranty and are significantly cheaper.  Pay cash for it.  I bought my wife a used 2016 Honda Fit with only 600 miles on it (yes, it was a dealer loaner car that never got used) and paid like 4k less than a brand new one with zero miles.  Got a 7 year/100k mile power train warranty which is better than the new car comes with (5 year/60k). Paid cash.  It feels great to have a car with no payment.

On another note...I also recently bought myself a brand new electric car and financed it (I really wanted electric due to all the driving I'd be doing and since and only bought new because finding a used one wasn't really an option where I live). This time I convinced myself it would be better in the long term to put more money into my taxable account now rather than pay cash for the new car.  Even though I am definitely padding my taxable account now and the math will ultimately work in my favor, it somehow feels bad having a car payment.  I want it to go away already and I've only been making payments for a few months.

I think a strong argument can be made that financing this purchase and taking $30-40k now and putting it in the stock market and letting it sit for 30 years will ultimately be smarter in terms of growing your wealth.  However, I also know from experience that you'll spend more financing a new car than you would paying cash for a used car.  If it were me, I would spend 30k on a certified used van and take the other 10k and invest it.  There's no advantage to a brand new van in this situation, unless you really desire a new car smell for a few months.

[StarTrekDoc]

--you know this is another variation on the theme of debt incur/payoff vs invest over time -   :P

[Donnie]

The general rule of personal finance is not to borrow money for buying consumables, but as I've said before, the car is the most leveragable asset most people will ever own. Can't get 100% financing at less than 1% rates on anything else.

The best financing is from the OEM. If it is a new car and you're getting OEM financing, the dealer doesn't care if you pay cash versus finance, so he's not going to give you any better price for that. Only used car dealers typically care about cash versus finance because usually they are forced to eat a discount from the lender, i.e. You buy a car for $10k, put $2k down and finance $8k. The Lender will typically buy the $8k loan from the dealer at something less than $8k depending on credit quality of the buyer.

My advice is to find a car you could pay cash for. If you can get 1-2%loan, take it and keep your cash invested. At 3-5%, it becomes a tougher call. At 6%+, you shouldn't take a loan in my view.

You also generally shouldn't buy new because the depreciation curve is steepest in the early years, but it's ok to buy new as long as you don't make it a habit.

[FIREshrink]

just bought a new vehicle and financed 100% over 4 years at 1.94%. sweet deal.

[Megalops]

Timely post for us as I just finished a spreadsheet of local (within 2 hours) inventory for the specific 2018 Odyssey we want. Time to start emailing dealers. We planned to pay cash but last night the thought to finance if we could get 1.5% or less did cross my mind. I don't think we would spend more by financing as we are pretty set on trim level and there doesn't seem to be much wiggle room with the prices, but that's why I'm emailing so many dealers. Will likely pay cash in the end and definitely drive it 8-10 years.

[Craigy]

Donnie wrote:

The general rule of personal finance is not to borrow money for buying consumables, but as I’ve said before, the car is the most leveragable asset most people will ever own. Can’t get 100% financing at less than 1% rates on anything else.

The best financing is from the OEM. If it is a new car and you’re getting OEM financing, the dealer doesn’t care if you pay cash versus finance, so he’s not going to give you any better price for that. Only used car dealers typically care about cash versus finance because usually they are forced to eat a discount from the lender, i.e. You buy a car for $10k, put $2k down and finance $8k. The Lender will typically buy the $8k loan from the dealer at something less than $8k depending on credit quality of the buyer.

My advice is to find a car you could pay cash for. If you can get 1-2%loan, take it and keep your cash invested. At 3-5%, it becomes a tougher call. At 6%+, you shouldn’t take a loan in my view.

You also generally shouldn’t buy new because the depreciation curve is steepest in the early years, but it’s ok to buy new as long as you don’t make it a habit.

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Manufacturer financing isn't always the best, for some brands depends on whatever special they're offering.  Some brands tend to offer low rates like 0% or 1.9% all the time, some don't.  E.g., my local credit union offers 1.99%, so if I was buying a new Lexus and Lexus Financial was only offering 3.9%, I shouldn't use the OEM financing.

But you're right, unless the dealer is lining up their own financing for you and making money off it, you are the same buyer if you're paying cash vs. financing with the manufacturer offer.  Virtually everyone on WCI forum is going to be a "well qualified buyer" or "well qualified lessee" and qualify for the best rates, so the old adage of "don't tell them you're paying cash until the last minute" and the like doesn't really help you out on price.

[Craigy]

Megalops wrote:

Timely post for us as I just finished a spreadsheet of local (within 2 hours) inventory for the specific 2018 Odyssey we want. Time to start emailing dealers. We planned to pay cash but last night the thought to finance if we could get 1.5% or less did cross my mind. I don’t think we would spend more by financing as we are pretty set on trim level and there doesn’t seem to be much wiggle room with the prices, but that’s why I’m emailing so many dealers. Will likely pay cash in the end and definitely drive it 8-10 years.

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That's a benefit of shopping a Honda.  It's super easy to compare prices at different dealers since Honda doesn't offer options, only different trim levels.  You can email 20 dealers for their out-the-door price on a '18 Odyssey EX and prices should be readily comparable.

Also, you should be able to shop these without knowing each dealer's inventory, although it might be nice info to have for test drives and whatnot.  Dealers can order you a car or will buy/trade inventory from other dealers, so they're not limited to what they have on the lot.  Plus they have new inventory coming in all the time (and are selling new cars everyday) so your spreadsheet might not give you the whole picture anyway.

[JWeb]

New Honda Odyssey's are $46k. We just bought a 2014 Honda Odyssey Touring for 28K with 66k miles on it.  And I bet that most of us couldn't tell the difference the new one and the old one if they just put a 2017 sticker on the 2014.

Also, you're paying more most of the time to have 0% financing (or 1-2%). They build that into the price.

Also, don't trade in your car. We were offered $5500 for our 2008 Honda CR-V from the dealer. We just sold it for $8500 ourselves. That's a $3000 difference for about 2 hours of work. WCI may not even make that much per hour.

[Megalops]

Honda has a nice inventory website that shows not only what's on the lot but also what that dealer has "in transit". Dealer websites are very hit and miss for current vehicles.

[LizOB]

JWeb wrote:

New Honda Odyssey’s are $46k. We just bought a 2014 Honda Odyssey Touring for 28K with 66k miles on it.  And I bet that most of us couldn’t tell the difference the new one and the old one if they just put a 2017 sticker on the 2014.

Also, you’re paying more most of the time to have 0% financing (or 1-2%). They build that into the price.

Also, don’t trade in your car. We were offered $5500 for our 2008 Honda CR-V from the dealer. We just sold it for $8500 ourselves. That’s a $3000 difference for about 2 hours of work. WCI may not even make that much per hour.

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The highest trim one is 46k, I'm thinking about doing one of the lower-tier trims.

Agree on no trade-in: a few years back when we replaced my husband's car the dealer offered something like $1500 and Carmax gave us $5000. Getting the appraisal from Carmax took about an hour, definitely time well-spent. (We did finance my husband's new car at 1.49% but we didn't have the cash at the time because all extra cash was being used to pay off my student loans at a higher interest rate)

[Donnie]

LizOB wrote:

JWeb wrote:

New Honda Odyssey’s are $46k. We just bought a 2014 Honda Odyssey Touring for 28K with 66k miles on it.  And I bet that most of us couldn’t tell the difference the new one and the old one if they just put a 2017 sticker on the 2014.

Also, you’re paying more most of the time to have 0% financing (or 1-2%). They build that into the price.

Also, don’t trade in your car. We were offered $5500 for our 2008 Honda CR-V from the dealer. We just sold it for $8500 ourselves. That’s a $3000 difference for about 2 hours of work. WCI may not even make that much per hour.

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The highest trim one is 46k, I’m thinking about doing one of the lower-tier trims.

Agree on no trade-in: a few years back when we replaced my husband’s car the dealer offered something like $1500 and Carmax gave us $5000. Getting the appraisal from Carmax took about an hour, definitely time well-spent. (We did finance my husband’s new car at 1.49% but we didn’t have the cash at the time because all extra cash was being used to pay off my student loans at a higher interest rate)

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I suggest going for the highest trim.  You deserve the world's most expensive vacuum cleaner  

[JWeb]

Donnie wrote:

I suggest going for the highest trim.  You deserve the world’s most expensive vacuum cleaner

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We didn't get the one with the vacuum cleaner. But thanks for telling me what I deserve.