Paying cash for a car
03-12-2015, 05:58 AM
#1
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Thread Starter
Paying cash for a car
I sold my S2000 this week and will be buying a brand new Cayman S in May. The deposit has been placed the car has been ordered. I'll be making financial arrangements on the car when it arrives. All along I planned on putting the money I got from my S2000, adding some money from savings, and ultimately financing the remaining $30k or so. This would give me payments of about $570/month for the next 5 years.
However... Not only did I get more than I expected for my S2000, but I was looking more closely at my savings cash on hand and I could reasonably pay cash for the entire purchase price of the car. This would reduce my savings vastly, but not completely. I'd have about $15k left for a rainy day emergency- not including my IRA.
Is this a decent idea? Bad idea?
Any new car loan I got would be right around 3%. I have the cash, so the only reason I would finance the car would be to keep the additional money in savings for security purposes. Paying for the car in cash and slowly replenishing savings would be effective to giving myself a 3% loan for the car. I haven't yet gotten completely on the investment train (except for the IRA), so the money I have in savings is just kind of sitting there right now and certainly returning FAR less than 3% (closer to 0.5%).
My wife and I are both financially secure and have no children - but plan to in the next 1-2 years.
What do you think? Sorry if this sounds stupid, but I've never bought anything this large with cash before.
However... Not only did I get more than I expected for my S2000, but I was looking more closely at my savings cash on hand and I could reasonably pay cash for the entire purchase price of the car. This would reduce my savings vastly, but not completely. I'd have about $15k left for a rainy day emergency- not including my IRA.
Is this a decent idea? Bad idea?
Any new car loan I got would be right around 3%. I have the cash, so the only reason I would finance the car would be to keep the additional money in savings for security purposes. Paying for the car in cash and slowly replenishing savings would be effective to giving myself a 3% loan for the car. I haven't yet gotten completely on the investment train (except for the IRA), so the money I have in savings is just kind of sitting there right now and certainly returning FAR less than 3% (closer to 0.5%).
My wife and I are both financially secure and have no children - but plan to in the next 1-2 years.
What do you think? Sorry if this sounds stupid, but I've never bought anything this large with cash before.
03-12-2015, 06:23 AM
#2
I bought my s2k straight cash homie. I personally like not having to worry about a car payment and also like that I have the title in hand. If you finance, the car is technically property of the bank. It really comes down to if you feel comfortable with your savings account taking that hit.
03-12-2015, 10:55 AM
#5
Moderator
Here's the kicker: the car, even though it is a Cayman S, will depreciate.
Here's the other kicker: you may be able to find an investment that yields more than 3%
If you're feeling aggressive, put the money on the market and see what happens. If you're feeling conservative, pay off the car.
Here's the other kicker: you may be able to find an investment that yields more than 3%
If you're feeling aggressive, put the money on the market and see what happens. If you're feeling conservative, pay off the car.
03-12-2015, 11:34 AM
#6
Depreciation is even more reason to pay cash. Otherwise you pay more for the car due to interest.
The only ways I see paying cash being worse is:
If it depletes your reserves too much and leaves you vulnerable in an emergency.
You are not sure if you really want that car long term (I will never be the 3 years and sell it guy. I buy cars I like and drive them until they are dead
I had no car payment on any of my cars for about 6 years until I bought the S and only financed part of that)
You have an investment opp that would return more than the interest you are paying for the car AND have enough cash to put into that investment to make it worth it over time. But you also in this case have to factor in the full car payment per month you could then put back into an investment over what would have been the life of the loan.
One thing to consider is that I tend to purchase Honda's and Toyota's a lot, so what tiny bit of repairs I have over a 5-10 year car life are cheap repairs (I have put less than $1,500 in actual repairs into my 01 4runner and 04 Scion tC combined). My German car owning friends spend WAY more than I do on repairs, parts and maintenance, hence they tend to trade in as soon as warranty has run out. In that case maybe financing is better for them.
The only ways I see paying cash being worse is:
If it depletes your reserves too much and leaves you vulnerable in an emergency.
You are not sure if you really want that car long term (I will never be the 3 years and sell it guy. I buy cars I like and drive them until they are dead
I had no car payment on any of my cars for about 6 years until I bought the S and only financed part of that) You have an investment opp that would return more than the interest you are paying for the car AND have enough cash to put into that investment to make it worth it over time. But you also in this case have to factor in the full car payment per month you could then put back into an investment over what would have been the life of the loan.
One thing to consider is that I tend to purchase Honda's and Toyota's a lot, so what tiny bit of repairs I have over a 5-10 year car life are cheap repairs (I have put less than $1,500 in actual repairs into my 01 4runner and 04 Scion tC combined). My German car owning friends spend WAY more than I do on repairs, parts and maintenance, hence they tend to trade in as soon as warranty has run out. In that case maybe financing is better for them.
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03-23-2015, 06:34 AM
#10
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Correct me if I am wrong here, but isn't it as a case of opportunity cost? I'm having this same debate myself.
Let's say I have $40,000 invested in a variety of ETFs, since January, this portfolio has grown nearly 5%.
By taking the money out of those investments to pay for a car (say $15,000), I am sacrificing a pretty large chunk of money that can grow over the next few years vs doing car payments at say 3.5% for 48 months.
Taking emergency funds and retirement completely out of the equation, which would be the better option?
Let's say I have $40,000 invested in a variety of ETFs, since January, this portfolio has grown nearly 5%.
By taking the money out of those investments to pay for a car (say $15,000), I am sacrificing a pretty large chunk of money that can grow over the next few years vs doing car payments at say 3.5% for 48 months.
Taking emergency funds and retirement completely out of the equation, which would be the better option?