Ask HN: Should you buy a car with cash if you can afford it?
Obviously the exact answer depends on a lot of specific numbers that I'm not laying out, but broadly speaking, is this a sensible thing that people sometimes do or is it likely a bad idea?
Obviously the exact answer depends on a lot of specific numbers that I'm not laying out, but broadly speaking, is this a sensible thing that people sometimes do or is it likely a bad idea?
Here are my steps:
1. Look for a used car (reliable brands only like honda/toyota) on craigslist/facebook or directly from a seller. Check values on KBB.com or similar websites to compare what you should pay for a car like that.
2. Get a mechanic to check it for like $100/$150.
3. Buy it out with certified check to the seller. If dealing with a dealer, do not add any extra warranty crap. Just buy the damn car. If you are buying a reliable brand, it shouldn't matter.
You can do Step 1 with a dealer also and then you may not need Step 2 BUT dealers will always add a premium to the total cost. If you don't want the hassle of dealing with individual sellers, dealers are your best bet. DO NOT GO TO scummy auto centers that are not proper dealers. They would mostly sell you crap.
How do you find a mechanic that won't rip you off to do this?
I still feel better paying off a car in 3 years rather than 5, so I usually suggest making a few extra payments to make that happen.
You will get a better deal with more incentives with dealer purchased cars if you finance. They may give you more for a trade and negotiate more on the final price. Perhaps even give you a few extra options for free.
The second part might make sense if they're "betting" on getting late fees from me while I know there won't be any
More options to adjust pricing with dealers.
Repayments provide steady cash flow when sales are lagging. A auto finance business can become a general finance business (see Ally née GMAC) which may experience different business cycles than the auto business.
Loan servicing provides a marketting channel and a legitimate interest in monitoring borrower credit (which could be used to tailor marketting).
Promoting purchasing vehicles on credit may encourage borrowers to consider a new purchase when the loan is paid off.
But if it's really a necessity, just buy it rather than trying to optimize for that 1% extra income.
Is the return from investments more than you would pay in interest on a car loan?
If yes, then take out a loan for the maximum amount possible and invest the remaining, available funds that would have gone toward the car and you will come out ahead. Otherwise, just forget the loan and pay cash.
I would recommend avoiding an auto loan if you can.
Low risk investments are available. For example, high quality corporate bonds.
But there's a critical piece missing to the above comment: who can predict the value of the car in the future? Cars are a depreciating asset with significant value losses and other associated costs.
Thus paying cash for one involves risk too. Assume a 10-20% loss almost immediately. And if the owner should die in the near future, the need for the car will be negated and significant additional cash value may be lost for his estate/heirs.
The point being --- anything is possible either way. Risk is ever present and requires a personal judgment.
Before going to the dealer, I recommend check with your local credit unions, and getting approved for a loan. They usually have pretty low rates. If the dealer can beat that rate, go with the dealers financing, otherwise use your credit union financing.
The money that goes to purchase your car, is invested money that earns a non-zero return, whoever it comes from. If you have the cash, you be that investor, and you earn the return.
The manufacturer, and the dealer, have a bunch of dials they can twist to get the most money out of you while convincing you that you are getting a good deal. It’s win-win, except you don’t actually win. Paying cash takes the dials away.
They do this dozens of times a day, every day, and they don’t play to lose money. You’re not going to beat them.
But it was all for naught; the car ended up being a lemon and VW of America bought it back from me soon thereafter.
The best financial decision is to not have a car, it only generates expenses and usually are high cost to maintain, as you need insurance, maintenance and so on. As public transport isn't available everywhere, let's go on with the list...
The second best decisionis to buy a used car and pay with cash, not getting a loan.
The third of buying a cheap used car and getting a loan.
The 4th is buying a new car without a loan.
And the worse being buying a car you can't really afford, brand new with a loan.
The value of the purchase value of the car is pointless. What matters is how long you intend to stay with it, because when you do. You can factor in insurance + maintenance + depreciation and divide it to understand how much you will spend per month(This is how companies do accounting, you should as well do for yourself!). A lot of cars you lose at least $1K per month. You want to reduce this value as much as you can. Get a car that gives you just enough comfort, has a good reputation of not breaking down and doesn't consume a lot of fuel.
Just imagine instead if you had that $1k per month for yourself, invested it and perhaps was lending it to a clueless person to buy their own car. This is wealth :-)
As you can see, buying a new car is a bad idea. Sometimes it is even better to get a loan to buy a used car. A lot of used cars are sold very cheapily after 2 years and most of its value is lost. A used car has actually a better resale value than a new car, supposing when you bought it it was used.
So even if you end up buying some crooked car with real issues despite being only 2 years old(uncommon), you can always resell and buy another 2 years old used car.
If you really like cars and driving... and want to drive expensive cars, it is likely cheaper to rent them, drive it for a while and return it. You even get to experience different cars.
Brand new cars is for emotional buys, people who don't really grasp economics or are just too rich to care about it. Are you any of those options?
If it’s a “nothing fancy” car, maybe a 30k accord or less, and he has a good income, it’s not going to raise any flags with either state or fed.
Bottom line - pay your taxes and you’ll be fine.
I can’t emphasize enough how good a feeling it is to have the title to your own car.
--edit (a word)--
Do people actually show up with a briefcase of $100 bills like in movies?
[Advice I should have given myself many years ago.]