Pay cash or finance ??

[Sidicks]

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. ?

But in that case people need to recognise that’s exactly what it is - a punt on the markets, it’s not necessarily an optimal economic decision!

And you could choose to borrow to punt on the markets without a car being involved!

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[mutanthands]

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.

Interesting. We have our delivery pretty imminent, they only gave us a quote at the start of Sept which was way above 5%.
The interest rate, plus current inflation, compounded our decision to pay cash.

 

[TDinDC]

Setting aside all of the customary disclaimers that should not be necessary for a discussion amongst intelligent adults (e.g., everyone's financial position is different, returns on markets are not guaranteed, past performance is no indicator of future results, emotions tied to events in one's personal history can be a strong influence on thinking . . . ), I'm just surprised this topic has generated so much disagreement.

I don't know where OP got an interest rate of 3%. I also do not think that it should be too controversial that, under the current financial conditions (and continued constraint on supply), any rate between 0% and 3% is extremely attractive, very unusual, and likely will not be around for long.

I mean, I think it is too easy to get wrapped up in theory when you are thinking in terms of rates.

But, at 3%, even if you borrowed 100K for a 60 month loan, your total interest payments would only be $8K.

So, do you want to pay 8K (spread out over 60 months) for the opportunity to have use of your 100K in the interim (less of course your payment amounts each month)?

You could sit on it as a cushion in the bank (although that seems somewhat silly given inflation), buy a bond or CD or other short term investment with a fixed rate that is higher than 3% (and yes, yes, you would have to earn 5% or so to account for taxes, but even that's seemingly feasible these days), buy an appreciating asset (for example, real estate prices are down since many cannot afford last year's prices now that mortgage rates are 7% or higher), or even step back in market now that it doesn't look as bubbly as it has.

In short, OP needs to decide whether $8K price is worth it to continue to have direct access to $100K for 5 years (or 16K for 200K, etc . . . ).

You can always pay off the loan at any time if you change your mind (or at least most loans allow that), but you likely could not pay cash now and then get a 3% rate against the car later.

 

[Redhot2474]

Setting aside all of the customary disclaimers that should not be necessary for a discussion amongst intelligent adults (e.g., everyone's financial position is different, returns on markets are not guaranteed, past performance is no indicator of future results, emotions tied to events in one's personal history can be a strong influence on thinking . . . ), I'm just surprised this topic has generated so much disagreement.

I don't know where OP got an interest rate of 3%. I also do not think that it should be too controversial that, under the current financial conditions (and continued constraint on supply), any rate between 0% and 3% is extremely attractive, very unusual, and likely will not be around for long.

I mean, I think it is too easy to get wrapped up in theory when you are thinking in terms of rates.

But, at 3%, even if you borrowed 100K for a 60 month loan, your total interest payments would only be $8K.

So, do you want to pay 8K (spread out over 60 months) for the opportunity to have use of your 100K in the interim (less of course your payment amounts each month)?

You could sit on it as a cushion in the bank (although that seems somewhat silly given inflation), buy a bond or CD or other short term investment with a fixed rate that is higher than 3% (and yes, yes, you would have to earn 5% or so to account for taxes, but even that's seemingly feasible these days), buy an appreciating asset (for example, real estate prices are down since many cannot afford last year's prices now that mortgage rates are 7% or higher), or even step back in market now that it doesn't look as bubbly as it has.

In short, OP needs to decide whether $8K price is worth it to continue to have direct access to $100K for 5 years (or 16K for 200K, etc . . . ).

You can always pay off the loan at any time if you change your mind (or at least most loans allow that), but you likely could not pay cash now and then get a 3% rate against the car later.

This basically sums up EXACTLY the way I’m thinking, to me it’s very logical . BTW , it’s Sikorsky credit union.

 

[Chris8536]

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).



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!

Buddy if you don’t have a private banker giving you special rates on your assets you shouldn’t have a Taycan.

 

[Sidicks]

Buddy if you don’t have a private banker giving you special rates on your assets you shouldn’t have a Taycan.

Nonsense, where is your ‘private banker’ getting his money from , at cheaper rates than the US government can borrow?

A loan is not an asset, it’s a liability.

Or is this just a disguised cost, where you believe you’re borrowing at a low number but in practice the true cost is being disguised elsewhere and you aren’t clever enough to understand where, how or how much?

 

[TDinDC]

Nonsense, where is your ‘private banker’ getting his money from , at cheaper rates than the US government can borrow?

A loan is not an asset, it’s a liability.

Or is this just a disguised cost, where you believe you’re borrowing at a low number but in practice the true cost is being disguised elsewhere and you aren’t clever enough to understand where, how or how much?

No, he has a point and I do the same. If you have enough assets under investment, a private banker will give you below market rates for debt like mortgages/loans just to keep your business (i.e., the investments).

 

[Sidicks]

No, he has a point and I do the same. If you have enough assets under investment, a private banker will give you below market rates for debt like mortgages/loans just to keep your business (i.e., the investments).

Yes, so he’s making money from you elsewhere.

 

[TDinDC]

Yes, so he’s making money from you elsewhere.

Correct, but it explains why people can get lower rates than those generally available to the public.

Worse, yet (or better if you have it), the fees they charge on the other investments are lower than you would pay if you had a smaller investment.

 

[Jhenson29]

Buddy if you don’t have a private banker giving you special rates on your assets you shouldn’t have a Taycan.

Oops. I didn’t know. Returning my car this afternoon. Thanks for the heads up.

 

[WasserGKuehlt]

Buddy if you don’t have a private banker giving you special rates on your assets you shouldn’t have a Taycan.

This is a stranger-still "flex" than the OP's. Most people here could effortlessly cover their purchase without much care to the "how", and I'm not sure that realization has sunk in? Not everyone gives a crap about extracting the last dollar out of the deal. (Recall we're talking about buying the product of a company that charges $200 to change the color of a plastic badge.)

 

[Redhot2474]

Yes, so he’s making money from you elsewhere.

Yes, it’s called AUM fees , most suckers are giving up 1+%, they need to throw you a “bone” somewhere so they can keep robbing you - I have the same advisor for over 25 years now (I’m 48), but we negotiated something palatable for both of us

 

[Sidicks]

Yes, it’s called AUM fees , most suckers are giving up 1+%, they need to throw you a “bone” somewhere so they can keep robbing you - I have the same advisor for over 25 years now (I’m 48), but we negotiated something palatable for both of us

I’m an investment professional so I don’t need to pay any fees to advisers ?

 

[TDinDC]

I’m an investment professional so I don’t need to pay any fees to advisers ?

Gotcha. I wasn't trying to flex, and the UK may be different from the US.

It's actually something that bothers me a bit about the US market even though I arguably benefit from it: It's cheap to be wealthy and expensive to be poor. Seems systematically unjust (and yes, I am fully a capitalist). Would be good I think to address some of the issues that push some in middle and lower economic classes into financial distress.

 

[Sidicks]

Gotcha. I wasn't trying to flex, and the UK may be different from the US.

I think the markets have many similarities in this respect.
Note I’m not a financial adviser!

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