Pay cash or finance ??

[whitex]

Risk free five year treasury yield is 4.34.

Assuming you are correct on the 4.34%, why would any bank or credit union offer anyone a sub 3% car loan? The only answer can be their term duration is different, or they have hidden fees in the loan somewhere which yield higher APR than a risk free investment they could make.

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[TDinDC]

Perhaps taxes. If you earn 3.5%, you will have to pay taxes on that gain, that's 2% gain or less after taxes for most people who can afford a $165K car. If you pay 3%, you're still 1% behind.

To be clear, I have been talking about 3.5% after taxes of course.

 

[friskygeek]

I would say do what you can manage and be happy with. Asking on a forum gives opinions without anyone knowing the true financial situation. Some things I finance, others I pay cash, but I do not take the opinion of others to make that decision. Enjoy the car once you get it, it is fantastic!

^^^ This. This is the only response worth reading in this thread.

f.

 

[TDinDC]

Because the 3.5% isn’t guaranteed, so you aren’t comparing like with like?

That's a great point. You definitely are not comparing like with like. If you buy, you have lost the ability to use that money for any other purpose until you sell your depreciating asset. If you finance, you are paying a fee (in this case 3%) for the benefit of being able to use the depreciating asset and keeping much more of your money, which you could use for any number of purposes, not just a risk free investment. You could also buy real estate, invest in your business, etc. . .

There is no single right or wrong answer, of course, but under the current circumstances, 3% sounds very inexpensive so it would be, at least for me, not too hard to find better ways to use the cash than merely buying a depreciating asset.

 

[Redhot2474]

That's a great point. You definitely are not comparing like with like. If you buy, you have lost the ability to use that money for any other purpose until you sell your depreciating asset. If you finance, you are paying a fee (in this case 3%) for the benefit of being able to use the depreciating asset and keeping much more of your money, which you could use for any number of purposes, not just a risk free investment. You could also buy real estate, invest in your business, etc. . .

There is no single right or wrong answer, of course, but under the current circumstances, 3% sounds very inexpensive so it would be, at least for me, not too hard to find better ways to use the cash than merely buying a depreciating asset.

This my current line of thinking and why there was a shift In mindset as I found a recent 3%, it’s simply nice to have some extra cash on ?

 

[TDinDC]

This my current line of thinking and why there was a shift In mindset as I found a recent 3%, it’s simply nice to have some extra cash on ?

And it looks like it is going to continue to get worse (sorry for paywall) https://www.wsj.com/articles/cash-r...-longer-11667075614?mod=itp_wsj&mod=djemITP_h

Strange and unusual times indeed.

 

[Christ0pherus]

I was going to pay cash for new Taycan (about 165k) given recent interest rate increase. I was able to find rates from local credit union in low 3’s. Seems foolish not to take advantage of that. Recent money market in US yields about 3% and 2 year CD’s yielding around 5%. I was thinking of putting 50-70k down and investing rest into different investment “buckets”. I’ll probably keep this car 3-4 years. Anyone in similar situation? Thoughts? I know everyone’s situation is different but just seems foolish to dump all that cash in a car. I don’t “need” the cash per se, might be nice to have extra cash on hand

OP, I went through the EXACT same internal debate when I took delivery of my GTS in July with basically the exact same price and rate as you. I had the option to pay cash and was planning to do so up until the very last minute when I realized that the unfavorable market conditions at the time were an opportunity to keep the extra cash invested. So far that decision has proven to be a good one to say the least. And if you ever get tired of the monthly payments, you can sell or pay off the loan later.

Maybe this is oversimplification, and everyone’s situation is different, but personally I felt there were reasonably good chances of getting >3% average annualized return on the money if I kept it invested, combined with the fact that inflation is so much higher at 8% YoY. The same applies to mortgaging a house. For the first time in 40 years, if you bought a house before the recent rate hikes, your rate is likely “negative” when adjusted for inflation.

 

[Chris8536]

Why the hell would you spend good cash on a car when there are far better assets to buy with it. I swear people here say the weirdest shit justifying their cash purchases.

leverage Your assets to buy it at a low rate like 2 pts. If you can’t do that, then why the are you buy a Taycan in cash.

buying in cash is for old retirees who hate their kids.

 

[Sidicks]

Why the hell would you spend good cash on a car when there are far better assets to buy with it. I swear people here say the weirdest shit justifying their cash purchases.

leverage Your assets to buy it at a low rate like 2 pts. If you can’t do that, then why the are you buy a Taycan in cash.

buying in cash is for old retirees who hate their kids.

What a load of nonsense!

The car will depreciate whether you buy it with cash or on finance. The fact that it is a depreciating asset is irrelevant to how you finance it. You have two choices.

1) buy on finance: the finance cost will (in normal circumstances) be higher than the (after tax) risk free rate, but you free up cash to do what you want with. This could include ‘investing’ but could just include having a bigger cushion in view of a deteriorating market environment.

2) buy with cash: should be cheaper than buying on finance, as the loss of interest will be lower than the finance cost. However you will have the opportunity cost of not being able to use the money elsewhere.

Of course you could do a bit of both, and purchase your car partly with cash and with the remainder on finance.

Which approach ultimately will turn out to be the best option will depend on your own circumstances and (if you go down option 1 above), the performance of your investments (which will only be known with the benefit of hindsight).

leverage Your assets to buy it at a low rate like 2 pts. If you can’t do that, then why the are you buy a Taycan in cash.

This makes absolutely zero sense. How does ‘leveraging your assets’ affect the rate you can borrow at?

Where can you get a loan at 2% (actually get the loan, not just marketing headline rates) when short-dated US Treasuries are at 4%+? Those companies won’t be in business long!

 

[whitex]

Why the hell would you spend good cash on a car when there are far better assets to buy with it. I swear people here say the weirdest shit justifying their cash purchases.

leverage Your assets to buy it at a low rate like 2 pts. If you can’t do that, then why the are you buy a Taycan in cash.

buying in cash is for old retirees who hate their kids.

Please point us to where we can get a loan at 2% APR, secured by assets (real-estate, stocks, bonds, whatever). Or by 2 points you did you mean 2% vig a week from a local loan shark?

 

[Andy0565]

I have the same dilemma. In the UK we have a finance option that includes a lump sum paid at the end of the agreement; roughly half the value of the car. (balloon payment).

You can choose to return the car instead, so if its value is below the balloon payment you receive an added benefit.

Whilst this scenario may be unlikely in a high inflation environment and with Taycan residuals, it has tipped the balance for me towards taking some finance on the vehicle.

To pay cash, I’d have had to realise some investments and it feels like there’s a lot of bad news in the economic environment right now although that’s not to say there’s not more to come.

 

[mutanthands]

I have the same dilemma. In the UK we have a finance option that includes a lump sum paid at the end of the agreement; roughly half the value of the car. (balloon payment).

You can choose to return the car instead, so if its value is below the balloon payment you receive an added benefit.

Whilst this scenario may be unlikely in a high inflation environment and with Taycan residuals, it has tipped the balance for me towards taking some finance on the vehicle.

To pay cash, I’d have had to realise some investments and it feels like there’s a lot of bad news in the economic environment right now although that’s not to say there’s not more to come.

The UK interest rates on the loan is vastly higher than the 2-3% mentioned in this thread.
I think the last quote we got from Porsche finance for a PCP was around 8% interest, at which point makes cash the better option (if your circumstances allow).

 

[whitex]

To pay cash, I’d have had to realise some investments and it feels like there’s a lot of bad news in the economic environment right now although that’s not to say there’s not more to come.

Those investments may be worth a lot less by the time the balloon payment comes due if the market keeps going the way it's going. The problem with investments is you don't know which way they are going to go. Imagine if you were buying a Taycan a year and half ago and decided to borrow money instead of cashing out some stocks to buy in in cash. Those investments would likely be ~30% down (or more) today, and you could have paid interest on the car.

So best decision boils down to being able to call the market, but if you really could do that, you should be rich enough to pay for a Taycan out of your petty cash.

 

[Andy0565]

Those investments may be worth a lot less by the time the balloon payment comes due if the market keeps going the way it's going. The problem with investments is you don't know which way they are going to go. Imagine if you were buying a Taycan a year and half ago and decided to borrow money instead of cashing out some stocks to buy in in cash. Those investments would likely be ~30% down (or more) today, and you could have paid interest on the car.

So best decision boils down to being able to call the market, but if you really could do that, you should be rich enough to pay for a Taycan out of your petty cash.

You’re right of course. But then again, if you can afford to buy the car outright, you can afford a punt on the markets too. ?

 

[Andy0565]

The UK interest rates on the loan is vastly higher than the 2-3% mentioned in this thread.
I think the last quote we got from Porsche finance for a PCP was around 8% interest, at which point makes cash the better option (if your circumstances allow).

I’m nearing delivery so my rate was fixed over a year ago at 5%. It’s still a marginal decision but there’s no penalty for repaying the loan early. I’ll know which was the right thing to do in 2027 but if I don’t take the offer now, I can’t change my mind later, so I’ll go with it for a while.

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