Financing vs. buying for cash

If you have the $20,000 (US) or so to spend on a new car is it wiser to buy
the car for cash or take out a loan?
One salesman advised me it is better to get a loan so you pay less for the
car upfront in case it is in an accident as the insurance will only pay up
to the current value of the car as used/depreciated. Was he just saying that
to sell me a loan or does it make real world sense?

 

I don't know where you are from but here in canada, most insurance companies
if not all offer a Replacement Cost Coverage for the car for usually 2-3
years. This coverage protects your vehicle from depreciation in case of a
total or partial loss. So even if the car gets crashed you get the full
brand new value that you have paid. You would not loose any value within 2
years.
On the other hand, if you want to build or maybe rebuild a credit score,
going with a loan might be good to show you're a good payer. Yet again, if a
credit score has no importance, than I would pay cash. Why pay interest on
something you can afford cash. For sure the dealer wants to make money thus
they will have you consider taking a loan. I say pay cash unless you don't
have it all.

Thats my point of view. hope it helps.

 

US. I mentioned it.

Yeah, the salesman sounded full of crap to me.

I have an excellent credit score from my credit cards - 790, but I have
never taken out a car loan or loan of any kind.

Thanks for the reply.

 

Waiving the right to remain silent, "Intrepid Observer"

Your salesman is probably trying to make a nice commission on a loan
passed through the dealership.

 

The wisest path is the one where you spend the least money.

To determine that, you need to kick-start that 2-stroke motor inside your
skull (watch out for blue smoke) and do some calculations.

He's telling you the moon and Uranus were not in proper alignment for
correct karma. Who's gonna look out for /you/ more, you or him?

Use your head.

 

What he's trying to say is pay the cash. It's much cheaper.

 

Wow, what an asshole you are.

 

questons:

1. what rate of return can you get by investing 20k?
2. what is the rate of finance?

is 2 > 1?

also,

3. do you need liquidity?
4. do you want cheaper insurance? [fully comp is your only option if
you finance]
5. can you repair your car cheaper than the insurer after an accident?

 

Keep in mind that a car dealership will often add extra points onto the loan
and pocket the difference between what you're paying and what the finance
company actually approved you at. Financing a loan at a car dealership is
usually a bad idea. It's usually better to secure your financing ahead of
time through an independent source such as a credit union or whatever.
Lastly, in your case since you can swing the cash then you will be better
off. Why give someone else $1000's in interest if you don't have to?

Eric

 

Bit harsh, was I?

It's true though, you can't let the salesman tell you what financing method
is best for you. That's like letting the fox convince the chickens that
it's perfectly safe for him to come into the chicken coop.

 

You're contemplating following the financial advice of a car salesman?

Hey, I have a reeeeeally nice piece of property for sale in New.......
er, Louisiana.


..... Do you own a boat?

 

That depends on which car (historic depreciation), price of the car, cost
of the loan, etc... If for instance you can get a Zero % loan, then it's a no
brainer. That is, If you want to have monthly payments.

In a word: no!
To go on, keyword in that sentence is: Salesman.
Dealer secured "loans", "extended warranty", the little extras the F&I people
try to coerce you into buying when signing for a new car are all a "BIG PROFIT
CENTER" for the dealer.
If you're going to finance, get the loan yourself from a credit union or
your own bank, unless you can get a Zero Percent loan.

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Another thing that I forgot to mention is that a large loan, such as a car
loan, will actually lower your credit score. One factor in the credit score
is the debt to credit ratio. The lower this number, the higher the score.
For example, if you pay off your credit cards every month but then make a
big purchase and apply for a loan immediately afterwards, then your credit
score will be lower since you have increased your current debt. The take
home message is to apply for loans only when your credit accounts are fully
paid off. Another example is when you have multiple cards. For instance,
there may be one or two of the accounts that for some reason you don't use
frequently so you decide to close these accounts. This lowers your score in
two possible ways. One, you've now lowered your total available credit
which will increase the debt to credit ratio and two, you've also lost any
credit history you had on these cards (credit history is also a factor in
the final credit score).

Eric