Cash or finance new truck

If you had the money to pay cash would you right now? Or would you finance and hang onto the cash? Give reasons for both.

 

How bad do you need a new truck?

 

What APR would you get if you financed? This is a major factor when deciding.

 

Depends on interest rate and whether the cash has good odds of outperforming it.

 

Depends on the rate you get on the loan, and if you take the cash and invest with it. Also factor in insurance, you'll probably go full coverage on a new car, but if you were buying an old used, you'd probably be better off buying liability only. With a loan, you have to buy comprehensive.

At any rate, with recent volatility in the market and higher interest rates on loans becoming more prevalent, I chose cash. In this instance, peace of mind meant more than the the ~$5k I wouldve made assuming 4% real return after inflation over the life of the loan. Now larger numbers such as mortgages make financing a no-brainer

 

https://www.allstate.com/tr/car-insurance/financing-a-car-vs-paying-cash-calculator.aspx

 

If you're financing with a good rate, then finance and use that money you would have paid cash for, and invest it in an S&P index fund that would return on avg. 10%. That way, you are essentially financing the truck for free and making 7% on avg per year on your investments. I never understood the mentality behind putting money down on a new car, just to save $10 per month on a car payment at 1.9%.....it's insanity

 

Here is a calculation based on:

1) The truck costing 45k
2) No down payment.
3) A 48month note.
4) 3% APR



Here is your amortization table, if you financed:

 

Same with mortgages - loving my 2.875% - free money

 

I always pay cash for my cars and as soon as I buy one I start saving for the next one.

 

Right now, it might be safer to pay cash due to the high interest rates and low return on investments (low risk is very low yield currently). If you can find someone to run sub 2% interest on a new car loan, then finance.

 

I am pondering this very question these days, pay cash (which means taking money away from investments which are making me money), or finance at a dirt cheap interest rate via PenFed. No matter how I do the math, a PenFed auto loan at 1.79% wins every time. Then there is the wrinkle where dealerships will cut you a few extra deals if you finance through them; say finance through one of their lenders for a few months and then refinance or pay cash.

 

Lots of folks do, however, in my mind that is costing you money.

 

Exactly....people get suckered into believing that not car payment is somehow saving you money, when it costs you 1.9% to barrow a vehicle. There's money markets that will give you 1.9.....for doing absolutely nothing.

 

Thanks for that, but I got plenty of money and zero debt to boot. Given that, why would I ever borrow money to buy a car? But I don't knock anyone for having to borrow money for a car, for most it is a necessary evil. I just encourage folks to limit how much they do borrow for a car and to get it paid for as quickly as possible. The only thing worse than car debt is credit card debt, but that is a topic for another thread / day.

PS: understand that you are borrowing money for a depreciating asset that you (by design) will beat the shit out of on a daily basis for the life of the loan and then some. That does not seem like a good thing to go into debt over unless again you have no choice in the matter.

 

Dude, I work for a large bank and we have not paid anywhere near 1.0% on a money market account for years! You are lucky right now if you find one paying over 0.5%.

 

Yes I have 0 debt , no credit card payments ect just house and reg bills. So from what I have been reading paying cash and having no debt is the best option for me.

 

I’d totally finance it right now if APR was decent. I would hold on to my cash and wait for the world to possibly normalize…..then when it does lol, I would pay it off.

 

I have to disagree, the fact the asset is depreciating is irrelevant. Borrowing money at super low interest rates will, as a general rule, leave more money in your wallet and accounts than paying cash for a vehicle. The question here is, "Is it more cost effective to borrow or pay cash?" Run the numbers any way you want, it will cost you more to pay cash than to borrow the money.

 

I just love his analogy between CC debt and a vehicle loan....let's see, 19.9 apr vs 1.9....yeah, I can see how those are similar. Someone missed economics 101 in college.