Pay cash or finance ??

[Redhot2474]

After tax? Find a term matched perfect after tax hedge and then maybe. Absent that, you’re mismatching risk.

Also, not sure where people are seeing 3% car loans right now. Data I’ve seen is 4.5-7%.

You’re correct , most rates are very high….Sikorsky is still under 3% for shorter term

https://www.sikorskycu.org/Borrow/Loans/Vehicle-Loans/New-Used-Car-Loans-1

Sponsored

 

[Redhot2474]

Not sure I understand. Yes, you need to have cash to be considering choice as to whether to pay with cash or finance, but assuming the question is real, then the choice is the same whether you are a millionaire or billionaire. It is all about difference between cost of money and opportunity. The fact that it is a depreciating asset matters, but if you have already made the decision to buy, that variable is no longer relevant to the decision.

I do agree, for some it’s the psychology of it. Some just hate debt, even if it’s good debt. I have this conversation with a dear friend all the time, who’s much more well to do than me, he pays cash for EVERYTHING……I don’t get it…..but for some, the debt is a mental obstacle or simply a nuisance, it’s just not worth the extra effort to get a loan, etc - they don’t care enough as they have “enough”

 

[NJ-Taycan]

Just pay cash. If you invest the cash and earn 5%, that will be diluted once you are taxed federally and at the state level on the gain.

 

[RAHRCR]

I do agree, for some it’s the psychology of it. Some just hate debt, even if it’s good debt. I have this conversation with a dead friend all the time, who’s much more well to do than me, he pays cash for EVERYTHING……I don’t get it…..but for some, the debt is a mental obstacle or simply a nuisance, it’s just not worth the extra effort to get a loan, etc - they don’t care enough as they have “enough”

When buying becomes immaterial to your liquidity, ability to invest, and net worth, you tend to just write a check and move on.

 

[TDinDC]

I do agree, for some it’s the psychology of it. Some just hate debt, even if it’s good debt. I have this conversation with a dead friend all the time, who’s much more well to do than me, he pays cash for EVERYTHING……I don’t get it…..but for some, the debt is a mental obstacle or simply a nuisance, it’s just not worth the extra effort to get a loan, etc - they don’t care enough as they have “enough”

This is undoubtedly true and frequently tied to whether you were born rich or had to earn it.

 

[Deleted member 6348]

If you’re getting 3% or less, take the “free” money and finance. I haven’t seen many rate offers that low. If you found one, smoke’em while you got ‘em.

If you’ve got the cash (ie. not pulling it out of investments), cash sitting in account in this inflationary environment is just sitting there losing value. Unless you’re seeing the free money interest rates, now is the time to spend cash.

I will take the free money when offered, but in this environment, my recent vehicle purchases have all been cash.

 

[JRNJTAYCAN]

I only pay cash for everything, no mortgages, loans or credit card debt!
Pay cash and don’t be tied to anyone if you can.

 

[TDinDC]

I only pay cash for everything, no mortgages, loans or credit card debt!
Pay cash and don’t be tied to anyone if you can.

Debt is just a tool. If you can pay the debt at any point, you are not tied to a soul.

neither debt nor cash is always the right answer. Circumstances matter. With high inflation, buying now with cheap, fixed financing is a bargain because the money you are spending today will be peanuts tomorrow.

 

[Redhot2474]

Debt is just a tool. If you can pay the debt at any point, you are not tied to a soul.

neither debt nor cash is always the right answer. Circumstances matter. With high inflation, buying now with cheap, fixed financing is a bargain because the money you are spending today will be peanuts tomorrow.

case and point ,30 yr mortgage rate today vs 1 year ago (3 vs 7%)

 

[Archimedes]

I’m taking him at his word. And obviously tax matters but 3% is not that hard to match or beat at the moment.

Risk free five year treasury yield is 4.34. After tax, at my marginal tax rate, that’s below 3. You can’t borrow at a risky rate and beat that yield without taking risk. You understand why lenders would lose money if that were the case right?

There is no riskless arbitrage on auto finance borrowing like so many people parrot on the Internet.

 

[TDinDC]

Risk free five year treasury yield is 4.34. After tax, at my marginal tax rate, that’s below 3. You can’t borrow at a risky rate and beat that yield without taking risk. You understand why lenders would lose money if that were the case right?

There is no riskless arbitrage on auto finance borrowing like so many people parrot on the Internet.

Maybe you are not pressuring your bankers enough. And I’m not interested in playing meaningless Internet games. The simple point is that there is no universally right answer. Debt is neither always good nor always bad. Look for your circumstances and take them.

 

[Sidicks]

My guess is that people quoting 3% are referred to flat rate not APR I.e. simple interest not compound interest.
So the true rate for comparison with other investments is more like 6%.

if you can borrow at a genuine 3% fixed rate, then you should definitely do so.
Borrow twice as much as you need for the car and invest the rest!!

 

[Buckets265]

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!

 

[BigBob]

My guess is that people quoting 3% are referred to flat rate not APR I.e. simple interest not compound interest.
So the true rate for comparison with other investments is more like 6%.

if you can borrow at a genuine 3% fixed rate, then you should definitely do so.
Borrow twice as much as you need for the car and invest the rest!!

And you can invest the 'spare' cash into Tesla stock. Then you sort of have 2 EVs. Sort of.

 

[whitex]

Why does the use matter? If you can finance at 3% and earn at even 3.5%, why wouldn’t you finance, even if a toy?

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.

Sponsored