I’ve long advocated paying cash for cars. This idea is completely foreign to many, but the advantages are compelling.
You’ll buy a more reasonably-priced car
It’s harder to hand over cash you’ve saved than it is to agree to future payments. Car salespeople are experts at spinning the numbers to steer you into a lease with payments that seem low. But you’re still giving away a huge pile of money when you total up the payments and future penalties. It’s much easier to understand what you’re really paying when save up for a car. And you’re much more likely to make a reasonable choice of car instead of burying yourself in debt.
Get a better deal
Buying a car is stressful and the salespeople have information advantages over you. When you’re paying cash, there are fewer ways to trick you. Car loans can seem cheap, but the reality of paying for many years may not be in the front of your mind. Things get worse with leases if the contract has clauses that will very likely have you paying penalties when you return the car.
0% financing doesn’t exist
We love to get things for free. But when a dealership offers either 0% financing or cash back, that’s an admission that the financing is not 0%. If there is no cash back alternative to the 0% financing, the car’s advertised price is still inflated. The truth is that the financing rate will be higher than your mortgage rate, but that won’t be obvious at all as your head swims in numbers.
Get off the debt treadmill
If you save up to buy a car you avoid debt. Once you’ve bought the car you can start saving a little each month towards your next car. Instead of being on a negative debt treadmill, possibly owing more than your car is worth, you get into a positive pattern. It feels good not to have car payment obligations.
If you cannot pay cash for a car, it's a to expensive car for your means. I am still amazed when someone say "I do not have 8k$ for a used car so I will buy a new one for 25k$ @ 0% instead"
ReplyDeleteMy actual car worth no more than 5k$ and only cost me a 30$ oil change/year in maintenance because I drive 8,000km/year. Tires and breaks seems to last forever. If I was in debt to the eyeballs, this is definetly the kind of car I would be looking for!
My CWs earning 1/2 my salary mostly drive new cars and SUVs, leased or financed
@Le Barbu: It looks like your thinking about cars lines up with my own.
DeleteHowever, sometimes even when you get the best deal, you can't pay cash, because they won't let you?!? I seem to remember someone telling me that story once. I pay cash (and buy previously enjoyed), works for me.
ReplyDeleteActually got my last vehicle for $1000 off for financing it instead of paying cash. This was a used car, and the financing company gave the dealership a kickback (of which $1000 went to me) for generating a car loan. Five days later, I paid the finance company in full.
ReplyDeleteI was careful to make sure there were no restrictions on early payment. I was tipped off to this because the marketing had a lot of arguments that taking a car loan was better than a home-equity line of credit. The dealership guy said I could pay it off after one bill, but I was able to do it sooner. I didn't like the interest rate, so I was keen on dispatching it ASAP.
This doesn't negate your argument, of course, since I was, in effect, paying cash.
Delete@Gene: Nice. They tried to play you, but you played them.
DeleteInteresting perspective. It's not a foreign concept for me to pay cash for my car/next car, just need to work on saving up enough. Not easy when you have competing priorities you know this, been there, done that.
ReplyDelete0% is not truly no financing but sometimes the math beats using a HELOC.
I've decided to keep my 16-year-old car as long as it doesn't cost me more than a newer ride.
Ideally I will do what gene did in a couple of years. Keep you posted.
Mark
@Mark: The thing about using your own financing is that you can get a lower price for the car than you'll get with the so-called 0% financing.
DeleteI don't believe in borrowing to purchase luxury items.
ReplyDeleteIf you don't have the cash to buy a nice car, borrowing in order to buy it is pathetic.
@Anonymous: I agree. And maybe your blunt approach might snap some people out of thinking that it's normal to go into debt pointlessly.
DeleteI'm not sure if other people have had this experience, but usually the first question a dealer salesperson asks has been "how are you financing this"? Then when I say I would like to pay cash. I get very mixed reactions. The worst being they told me the advertised price that I had brought in with me on a flyer would be "higher" if I paid cash...
ReplyDeleteIf you listen to a very popular car program that is syndicated across Canada Saturdays, you would think paying cash is tantamount to killing a puppy. The last car I bought was used, I made my deal, and paid the bill via a cash back credit card that I paid off at the end of the same month. (Don't tell SST I told you that though please) :)
@Paul: The last car I bought I was hit with a hard sell to finance instead of paying cash. But I resisted. I think your approach is sensible.
DeleteThe only sources of unbiased information in Canada about cars I'm aware of are Phil Edmonston's Lemon Aid Guides and Consumer Reports. The Lemon Aid Guides are far better. Everything else in print or on video or audio appears to be either not authoritative or influenced by car company money.