Buy a new-to-me car in cash instead of finance?

Submitted by Baraba83 t3_10qa20y in personalfinance

I know I am one of 10 gazillion people asking a similar question. With everyone situation being different, I welcome your thoughts on mine. I also understand this will be a very mixed bag of opinions - my current thought is to pay cash. But, should I? Hear read me out.

Income: $200,000 pretax (just myself, as of recent) + wife $155,000 pretax (but varies; commission base, this is a HIGH year)
Current monthly bills: ~$3,240
- Mortgage $940/mo. (19 more years)
- Property tax/Home Insurance: $550/mo.
- Utils: ~$300
- Daycare/kids activities: $950
- Other: ~$500 (life ins, car ins, cellphones, netflix, hulu, etc.)

Both 401k accounts are maxed out, and I invest an additional $2625/month between maxing out the HSA and taxable accounts. No Roth (or backdoor) yet; still learning...

Current investments: $540,000 together. Wish I started earlier...
Current cash: $385,000 - Aside from keeping a year's worth in emergency fund, most of this will go into investments as well. Majority of this came from recent commissions from wife's salary, so I didn't take the plunge yet.

So what the hell is my problem then?
Our cars are both 10 years old, still very good. However, we love to RV and while are current tow vehicle is "ok", I would really like to upgrade to a larger one due to safety concerns.

What I am looking at is 2019-2021 Dodge Ram 1500 or similar, roughly $35,000-$40,000.

With interest rates being higher than what I'd like, I have also always been turned off with having a payment for a depreciating asset.

Given what cash we have on hand, should I just buy it? Or finance and just pay off quicker?

Also, we are both 40 this year and both have been in the same jobs for a long time. Being in tech, I am always paranoid about losing my job, so this doesn't help my case... :)

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Thank you all!

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Comments

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2ReddYet t1_j6oro42 wrote

Sometimes you can get the cost of the car lowered if you finance from the dealership. In that case, sign up for their financing & turn around and pay the entire loan off with payment #1.

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Baraba83 OP t1_j6os2ff wrote

I've been reading about that. I'd definitely try to reach the final price first before opting to pay cash. Although I heard some horror stories of people being kicked out by the dealer...so financing and then paying off seems easier.

Edit: complete the sentence.

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micha8st t1_j6otfpq wrote

We actually did what u/2ReddYet is suggesting. Back in 2016, we had negotiated online to get the car I wanted. (They had to get it shipped from Japan because the exact configuration I wanted wasn't available in the US. And I wasn't in a hurry.)

WE get to the dealership...and there's a snafu. Apparently I hadn't told them I was expecting to write a check for the car (my first time!) So. I debated with myself and my wife for a minute or two, and then I asked two questions:

  1. What's the minimum I have to finance to qualify for the incentive?
  2. how soon can I pay off the loan and still qualify for the incentive?

I ended up financing about 1/3 of the price of the car (the minimum), and as soon as the first bill came in, I swooped in and paid off the loan in full. I paid $22 in interest to get that $500 financing incentive.

BUT... 2016 was a different market....and we bought new.

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AlessandroTheGr8 t1_j6pel5q wrote

Oh man, so I just went through the hassle of buying a car in November. Two weeks looking for the car I wanted and going into dealerships to "negotiate." It was a pretty bad experience.

I was looking at a Kia Telluride, and the dealership put a $5k market adjustment just two lines below the $5k savings. The answer we got was "thats just how it is." We reminded him that he told us he would waive the $5k we came in today, and he said he couldn't honor it. Waste of 2 hours as they treat you like a dummy the whole time. I also had another dealership raise the price $2,000 and drop it $2,000 making it look like a deal.

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Admirable_Nothing t1_j6p7ye7 wrote

I have done that but generally you can't pay it off til payment 3. They don't get paid if it is paid off in the first 60 days.

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myusernamechosen t1_j6otev7 wrote

I would just buy it cash in your position, and did. Interest rates just aren't good enough to justify keeping the money invested right now. Just buy the truck cash and be happy. Just don't tell the dealership that until you are done negotiating. They make money on loans and you'll get a worse deal if they know they aren't getting that money up front.

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Baraba83 OP t1_j6otoj5 wrote

Thank you. Yes, been reading up on that. What about straight cash vs financing and paying off in 30-90 days?

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myusernamechosen t1_j6ouox4 wrote

What's the benefit of the 90 days? You pay some amount of interest for what value? One time when buying a car there was a $500 incentive if you financed through the manufacturer. So I did and paid of the load within the first week. I made sure there was no clause in the loan that prevented me from doing so.

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Baraba83 OP t1_j6ouxfv wrote

Exactly that...if there are some clauses that would call for that. The other reason is...juuuust in case the car falls apart 😂

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nails_for_breakfast t1_j6oue39 wrote

You're a millionaire asking if you should finance a $40k truck. What the hell...

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Werewolfdad t1_j6oqwsl wrote

Would you borrow at 5-6% to invest?

If not, you should pay cash

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Baraba83 OP t1_j6or814 wrote

Do you mean would I borrow $40,000 from Tony Soprano at 5-6% to invest into VTI?
No, I most definitely wouldn't. Him or the bank.

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Werewolfdad t1_j6orgcb wrote

Well there you go then. Because that's essentially what you'd be doing if you used a loan to buy a car instead of your current investments/liquidity

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ReddSaidFredd t1_j6p4j9h wrote

After buying this truck, you will still have $345k in cash. You are wasting your time asking the question or analyzing the situation.

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