Are you money savvy?

[thennen]

I'm in a position to purchase a new 4Runner. My question is this: is there any advantage to getting a loan (and paying it off in a couple days) versus paying by check? I'm thinking getting a loan would insert the bank in between me and the dealership, perhaps providing a buffer of sorts. For example, the dealership might have to adhere to certain standards with the bank that I'm unaware of when I write the check.

Thoughts, anyone? Thanks.

 

[J.F. Sebastian]

Buying a brand new vehicle (AKA radically depreciating asset) is probably one of the worst uses of capital there is. Financing a vehicle out years is actually a much more cost effective way of owning one in terms of getting the most out of your money's purchasing power over time. Then again, where does anyone get any kind of decent return on their money in the meantime unless one takes risk in markets and/or has investing knowledge?

My opinion, if you can easily afford it, want it and it's sitting in front of you, just go buy the thing and enjoy it.

 

[Khjphoto]

Buying anything with an engine is a losing proposition. It is true the moment you drive it off the lot it is worth less. I always pay cash and be done. Financing only makes the vehicle cost more!

Banks are not your friend!

Pay cash. Live FREE!

 

[Oldmanb777]

If you can afford to pay cash, by all means do it. Then pay yourself the car payment, keep the interest in your account, instead of the banks profits.
Certainly if you could guarantee more return on your money than paying the interest on the loan, it might make sense. but figure in the taxes on your return and the opportunity cost of the hassle. Then drive it forever, that's the only way you ever come out on the purchase of the most expensive, fastest depreciating item you will ever own.

But good on ya that you have managed your money well enough to be able to pay cash. So what ever you do, pat yourself on the back for a job well done with that. I want to elect you to replace our overspending idiots in Washington!

 

[Ray Dunakin]

I agree that if you can afford to pay cash you should do so. Financing, even if you pay it off right away, just adds to the cost.

 

[4RN4FUN]

Cash is king. No need to have a buffer between you and the dealer for the transaction.

Show up with some duffel bags of hundreds, throw them on the table and ask for the keys.

Enjoy your paid for ride from the moment you leave the lot.


Sent from my iPad using Tapatalk

 

[Hepar]

I'd say the only reason you'd finance over paying it off in full is if you are looking for help building your credit.

 

[2016 4Runner SR5]

Friend of mine is a car salesman. They make $ by offering you financing. If you pay cash, they will not negotiate as well with you since they're losing $ on the finance side. Finance it but be sure to get in writing that there is no penalty for paying it off early. Wait for the first statement to come through and pay it off in full. You will likely get a better deal that way and you will own your vehicle just the same.

 

[kaikaikai]

I'm going to go against the grain here and say that you should get a car loan under 2 conditions:

1) You have good enough credit and can get a car loan around ~2% interest.
2) You have enough income and discipline that any money that ordinarily would've been used to make the outright car purchase would be redirected to an investment, as opposed to say a new mod.

Unless you meet those two criteria, it probably would be a safer bet just to pay for the car.

 

[T4R2014]

I feel like if you show up at the dealer wanting to pay for a $40k 4Runner in cash, they'll call the cops because they'll think you make your money illegally.

 

[2016 4Runner SR5]

They won't call the cops but they won't like it either. I put $10,000 cash down on mine and they didn't like that either. The more you finance, the more $ they make or think they're going to make because they won't know you're going to pay it off right away. Like I said though, be 100% sure there is no penalty for early payoff. Some banks will charge you the interest they would have made over 5 years even if you pay it off immediately.

 

[SCMountaineer]

Throwing this out there.
If you can borrow 40 grand for five years at 2% (a rate I realize is becoming rarer), at the end of the 5 years you will have paid a little over 2 grand in interest.
If you put that 40 grand into an investment that earns 5%, at the end of the 5 years you'll have made over 11 grand, so you're plus or minus nine grand better off than if you'd paid cash.

 

[2016 4Runner SR5]

What investment's are paying a guaranteed 5% these days though?

 

[SCMountaineer]

What investment's are paying a guaranteed 5% these days though?

I should have added that you've got to be able to stomach the risk.

 

[spartacus]

Good dealerships don't care if you pay with cash or not. Some dealers make money off of financing. Most toyota dealers get a flat rate for selling the car's and make better money leasing them and also warranty work. Others have mentioned some good points. Here is mine; paying cash for a anything doesn't improve your credit worthiness. Almost all of us one time or another require some sort of credit or financing. Getting a loan for closer to 1.5 or two percent is going to be tough after the 3rd fed interest rate hike. All banks have financial advisers that are non commissioned and are available for account holders and are underutilized. As a rule I always talk to three different advisers but at least two. Question should be how much will I have to put down to get the lowest rate and if they would recommend how to optimize lowest interest rate and boost to fico for future credit worthiness. In the end the goal is to use your financial state to further your financial stability in the long run.

 

[thennen]

Thanks everyone for your input. I really appreciate it!

I don’t need to establish credit-worthiness - I’m ok there. And my personality is such that I wouldn’t be disciplined enough to invest the money and earn more than I would spend in interest on a loan. My hat goes off to those of you who could and would manage that to your advantage.

I agree that a vehicle is a depreciating purchase, but since my M.O. is to keep a vehicle until it’s no longer driveable, depreciation never really comes into play for me.

From what I gather here, it’s probably better to write a check than “finance” the vehicle, even if the financing is free and brings no early payoff cost with it. Apparently there would be no “buffer” type benefit either, which is what I was wondering.

So thanks again! I may be writing that check soon. Appreciate having so many brains to pick in this forum!

 

[R5nnerup]

Savier, I usually perform a bank contribution monthly to for increased outcome

 

[BrianSD_42]

It really depends on what your cash situation is. I had a coworker once who told me he took his entire cash life savings of 5 years work (he was late 20s) amounting to around $25k and bought a new car so he wouldn't have a loan. Interest rates at that time for car loans were around 3-4%.

 

[AZ07Runner]

Is it brand new or "new to you"?

I would try and find a private seller who has new one for sale with low miles and save even more. It would still have the factory warranty, too.

 

[thenightman]

Regarding the finance it and invest the difference crowd; would you take a loan out against your paid off 4runner at 2%, in order to invest it at 5%? Serious question.