If you don't want a monthly car payment, start your “monthly car payment” into a savings account now. You'll end up paying less for your next car if you can maximise the up-front payment.
I picked $40k because that's roughly the median price of a new car. Whether your going for a $25k car, or a $125k car, the advice is the same: get a low-interest loan.
Just stop and think for a second - put yourself in the dealer's shoes - why do you think the dealer would want cash? No reason. They don't want your cash. A cash buyer is a pain. They want to sell you a loan.
The last time I bought a car I offered cash, and they countered with a four-figure discount (on total cost of ownership) if I took part of it as a loan. I now have that part of the price invested, creating money, while I gradually pay the loan.
And my credit score went up as I had a new, responsible loan!
Cash buyers are fools, unless you're really at the point of valuing not having a loan for moral reasons (maybe a German?) at four-figures.
https://news.ycombinator.com/item?id=14484615
I also had a friend do exactly what I described, and there was another thread where they only had to make two payments and then could pay off the rest without penalty (and even that was an unspoken gentlemen's agreement with the dealer) -- will find if I get a chance.
The point is, it's simply not warranted to assume as a bedrock of truth that no dealer every makes a confused deal in this respect, as chrisseaton was insisting.
They get a proportion of the sale price, and they get paid a referral fee for you opening a loan, and then on top of that they can offer extras that you probably don't need like fabric protection products.
> Nobody is coming out with less money on a loan purchase vs. cash, except the buyer.
The dealer is paid to get you to get a loan. If they don't get the loan, they get less money. My understanding is that their referral fee is somewhat weak about how much the loan actually has to be, so they just care that you take it.
It's worth it to them to discount the price by less than their loan referral fee, in order to get the loan referral fee.
> And if you had walked out the door they would have run after you to take the cash deal AND given you the discount.
No they'd just have sold to someone willing to pay their price.
There's a car supply shortage... that's the whole point of the article... did you miss that? If you want to buy a new car at the moment and you go in haggling them on a mid to high end spec car they'll just tell you to fuck off and you won't get the car you want.
Which is added in to the finance charges or amount borrowed. Ever wonder why the salesmen always want to negotiate a "payment" amount instead of a purchase price?
> No they'd just have sold to someone willing to pay their price.
And I'd have just gone to another dealer willing to work with me on my terms.
> There's a car supply shortage
True, and that causes higher prices overall. But negotiation strategies for getting the best deal haven't changed.
Well that's the point - say you want agree a purchase price for the car before you talk about how you'll pay. Do that and get an actual number from them. Then...
Offer to pay the agreed price cash and ask for a discount based on this - you won't get one because there's no benefit to the dealer in taking cash it's just an inconvenience to them.
or...
Offer to take at least a small a loan and ask for a discount based on this - you might get one because the way they are established means there are strong incentives for them to make loans.
In either case you can of course threaten to walk away if the price isn't right, but paying cash isn't going to increase your bargaining power it's going to diminish it - 'not only is this person wanting to pay less but they also want to fuck up my loan referral rate and fee and make me unpopular with my manager'. And at some point I presume you need a car so you can't walk away forever.
The idea that you're an attractive customer if you'll pay cash is a 90s thing.
There are always offers which are available to cash buyers/real loan buyers, but not 0% financing buyers. The reason for this is simple; 0% financing is a hack to get people to buy more expensive cars, and you'll discover that on the lower margin cars that option mysteriously vanishes.
I just went through this myself and helped two friends out, it's true for Ford, Honda, VW, Audi, and Chevy at least in the US.
* If you happen to be one of the few people who actually wants to buy a high-margin car (usually Halo cars like Corvettes) then sure, get the 0% financing. Just realize that you're being fleeced, although if you're buying a Vette you probably already knew that and value isn't top-of-mind
Sure the dealer will take cash if that's how you want to pay but you're not getting any extra discount.
The key is to not get emotionally invested in owning the car before you actually own the car. A lot of people can't do that.
German Ideal nowadays is to buy a house for a couple hundred grand on a loan that you finish paying off when retiring.
Trade ins are good for negotiation too. Wanted the factory extended warranty. Dealers in other states will discount the extended warranty but can’t sell in my state. Dealer wouldn’t discount the warranty to the price of the out-of-state so I had them keep it that price and up the trade in value to match it. They can show they didn’t discount the warranty. I get the discount.
They did that if I would get finance thru them, matching my prearranged banks rate. Deal made.
Went in the next Monday to the local bank and refinanced the car loan.
Also made them give me so thing for signing the arbitration agreement. Everything is negotiable. I did have to walk away but they called me back on the drive home.
I buy older than most people; currently my newest car is a 2009. I do maintenance and routine repairs myself, and I lose almost nothing on depreciation. But you can still come out ahead by buying 4-6 years old and letting the original buyers take the bulk of the depreciation losses.
Car market is a bit strange right now.
Check the price on your 2009 on eBay or craiglist. Is it worth more than you think it should be?
I don't carry comprehensive insurance on my car. I drive a 2000 Honda Accord though, so the KBB value (and what they quoted me for) was only about $1000. I wouldn't carry comprehensive on that. But you bet if I've got $40k+ rolling down the road and in the elements it's going to have some insurance on it.
If I had a 0% loan on it for some reason at that point, that meant paying off the loan to let me do that. (If you assume an 8% nominal return on investments, that means when paying off the loan would cost me under $100/mo.)
I think you should insure against risks that would be a substantial impact to your life and (generally) not insure against risks that wouldn't.
Better advice: put the money in the market or other higher-yielding investment, then take a low or no interest loan on the vehicle when the time comes so those investments can continue to grow at the much higher clip. Money's just too cheap to give away your own cash. Obviously, if the interest rate environment changes, this should be re-evaluated.
You might be able to scrounge up a few basis points somewhere if you're really determined and/or willing to meet some requirements. Still, even with our low-inflation these days [1], you're actually losing money in these savings accounts.
Main point though is that it's more of a relative game vs your ROI elsewhere. Even indexes and ETFs that are reasonably "low-risk" are routinely returning much more these days, and of course over the long haul equity markets still beat this handily, even when smoothed for downturns.
[0] https://www.bankrate.com/banking/savings/rates/
[1] https://www.statista.com/statistics/244983/projected-inflati...
It is funny though that they give the example that at $5,000 saved your effective APY is around 2.79%. I mean, the bottom line is that as soon as you get above $3K, any additional savings drops to a lowly 1%, which doesn't keep pace with inflation (i.e. you're losing money). But they're presenting it like 2.79% is some kind of average that matters, thus implying it's a good idea to keep pouring money in.
The reality is that the offer is not an average, but two discrete terms of 4% and 1%. And, on the latter, you're trading whatever other returns you could've made elsewhere for that miserly 1%. Much better to put it elsewhere, even for those who bite on the initial $3K for 4%.
If you pay off the car up front you may run into liquidity issues until you have restored your emergency fund.
The comment I was responding too talked specifically about saving money in a savings account for the purposes of buying expensive things like a car. It should go with out saying one should not use their emergency fund for these purchases (unless they are an emergency)
Once you have the 6mos to 1 year of expenses in your emergency fund you should divert any other cash to other accounts such as Debt Repayment (providing the debt is more than 5-7% interest or current inflation) and/or investments such as tax advantaged retirement accounts