Cash or finance new truck

You invested in the S&P but how did you make payments? Other money? Then put that every month in the S&P. Money from investments? Then your S&P principle drains over the life of the loan vastly shrinking returns. Put your lump sum in at the wrong time? Look up dollar cost averaging vs bad lump sum timing during the great depression.

Pay cash, dollar cost average every month into the S&P forever.

Freedom.

 

Oh lord, relax man it was just a simple example (maybe not simple enough for some). If you’re basing your retirement investing of my comment you got a lot more to worry about than buying a car

 

Finance as long as the APR is low; and by that I mean 2.2 or less.

 

All kinds of feedback on this thread!

I financed my first new Tacoma in May 2021...1.8%. Payments are just a nudge over $600/month.

Last new vehicles financed/paid off: 2003 Honda Pilot and 2017 Hyundai Elantra.

Still able to put money into both Traditional/Roth IRAs and set aside money for savings and paying monthly bills + mortgage.

I'm Retired military in 2011 (USAF 25yrs) and working civilian job.

Every financial situation is different. All goals are different.

Thanks to all for sharing your thoughts.

 

All depends on the financing percentage rate and if you have the cash laying around. I've had the cash but when a manufacturer offers 0.09% interest rate why would I pay cash?

Another thing to consider is if you need to build a credit history, you mention not really having any bills but do you have a strong credit history? If not paying a car loan off with on time payments will surely help your credit score.

 

Look up Paul Merriman "Two Funds for Life". Simple, effective.

 

Very much so...interest rates!

Let's say your amortization shows you're potentially paying total interest $1765 for a $35K/60 month loan...locked rate without penalty for early payoff.

What would you do with the funds you got from a mortgage refi/cashout--which was done before the vehicle purchase.

And let's say your credit score is 830.

For most, this doesn't happen overnight. Time and interest is a phrase that comes to mind. An interest to reach a goal is key.

But like I said, everyone has different goals.

 

Just because the dealer might make some money on financing doesn't mean you should make a poor financial decision for yourself. People who pay cash because they think they're getting "screwed" by financing are only really screwing themselves. (Assuming a reasonable interest rate)

 

The other thing these people always miss is that you can (almost) always pay off the loan early. If the dealer is going to knock a grand off your purchase price for financing just do it, make a few payments until you're penalty free and pay it off in a lump sum then. Still an opportunity cost since you're paying cash but it lessens the sting.

 

Complicating the situation is the uncertainty of the future. Disease, war and famine for much of the world in the near future, maybe. Inflation/decreased value of the dollar/increase cost of oil, panics, stock market crashes, scarcity, violence in the streets, political upheavals, maybe. Conventional financial strategies are based on assumptions of certain stabilities and conventions that now might be in a state of flux. Things are going to change in the near future in hard to predict and unpleasant ways.

I suspect a dollar today is worth a lot more than what a dollar will be in just a few years. I suspect scarcity is going to get worse rather than better. There are going to be some up and down movements in new and used vehicle prices, but I suspect the supply is going way down and the prices are going way up. A lot of vehicles are past due for the scrap yard. Scarcity, cost of replacement parts and impracticability of complex repairs of modern vehicles are going to be increasingly significant issues.

It might be best to buy new now while one still can. But I think it is not a good idea to pay with today's relatively strong currency. Buy today but pay with weaker currency in the future. But then again this is assuming future financial stability and good earnings of the buyer. It is flat out hard to determine what to do. Hopefully, this time two years from now these thoughts of mine will be seen as overreacting nonsense. Maybe we are at the peak or near the peak of worldwide craziness right now.

 

Bravo for contributing to the kids' Roth. So many parents miss this incredible opportunity.

If you did a cash-out refi and you're using the proceeds to buy a truck, then you're basically financing it. That "cash out" isn't free.

Your job situation is tricky, so I get why you would want to pay cash. If paying cash frees up your monthly budget to max out your 401k and maybe contribute some more to the Roth IRAs, then it could be a good play given your situation. Then you would still have the "safety" of no truck payment for the lean months while investing during the good months. Also the favorable tax treatment on those is a powerful thing. But if the hypothetical $600/month payment won't be put to work in an investment then you might be wasting money by paying cash.

 

Basically it's simple: If you can earn higher interest on the money than the interest rates on the loan, then you should not pay cash.

For example, government has bonds the earns 7.12% interest. My car loan was 2%. Better to have the cash in the bond earning 7.12% and pay 2% interest. Make your money work for you.

BTW: I didn't do bonds, I would rather put money into my retirement and pay the 2% interest.

 

Or pay less than 2% and:

1. Save to pay off loan
2. Double the payments as you manage your monthly outgoings

Doing both simultaneously is beneficial.

 

If it’s not been said yet, inflation is bonkers right now. If you’re getting a good rate, finance all the way.

 

I did both. Minus the 2%, but yeah. The bonds are great though for someone with cash sitting in a savings account and is risk adverse to investing in the market.

 

Finance on a 2.49% interest rate so its not too terrible and having cash on hand allows you to buy whatever stuff you want to build it with

 

If the interest rate you pay is lower than the return rate you get on the money otherwise produces than you finance. Else you pay cash or get a more affordable car.

 

Short sell the dollar

 

You know, I guess one's answer to this "pay cash or finance" question depends on where you are in life. For those in this thread that did the math to prove it makes more sense to keep your cash and finance the truck, I am not going to argue that you are wrong. But for me personally, I'd rather just pay for the goddamn thing and be done with it.

 

That was my philosophy when I bought my truck late 2019. Now however S&P 500 is down over 10% just since Jan 1, we’re in a downturn, inflation is skyrocketing. Tacomas meanwhile increase in value. If I bought today I would pay cash and come out ahead for this year for sure and maybe several years.