Go Back  DVD Talk Forum > General Discussions > Other Talk
Reload this Page >

somewhat simple money question - pay with cash or finance?

Other Talk "Otterville" plus Religion/Politics

somewhat simple money question - pay with cash or finance?

Old 04-26-08, 03:15 AM
  #1  
DVD Talk Hall of Fame
Thread Starter
 
Join Date: Jun 2001
Posts: 7,770
Likes: 0
Received 0 Likes on 0 Posts
somewhat simple money question - pay with cash or finance?

how do you figure out the best ratio? this is for large purchases...im going to use a car for my example but i guess it could be used on other things. im assuming this is going to be a simple answer but since im not an econ major, i need help.

lets say you want to buy a car for $20,000. lets say you can get it financed for 5%. lets also say you have the cash to pay for it in full if you wanted to.

is it better to just buy it outright if you can or would it be better to finance it and pay it over ~5 years? or put half down and finance half?

how do you determine whats best? maybe this is a dumb question and you are suppose to pay it off right away and dont finance anything if you can do so? i feel there is a balance that needs to be met because part of me thinks that if you can pay some in cash taht is good but putting all of your cash towards it is dumb because you could be earning interest while investing that money instead.

does it depend on the return you get on your current investments vs the finance rate?
Old 04-26-08, 09:09 AM
  #2  
DVD Talk Hall of Fame
 
Duran's Avatar
 
Join Date: Jul 1999
Location: Columbia, MD
Posts: 8,177
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by atari2600
does it depend on the return you get on your current investments vs the finance rate?
Yes, and I'd also say it depends on how much you have in liquid assets total. If you have a total of $20k saved, I would finance. If you have a total of $1 million saved, I wouldn't. You should always have an emergency source of cash that would last you 3-6 months of expenses.
Old 04-26-08, 09:16 AM
  #3  
DVD Talk Special Edition
 
Join Date: May 2001
Posts: 1,340
Likes: 0
Received 0 Likes on 0 Posts
Depends on if the money is earning you more money than you'd lose by financing. Car financing is cheap now, heres 0% and < 2% offers all over. Don't forget to account for taxes if you have the money sitting in a bank.

I'd finance regardless no matter what if the car was 20k and I only had 40k liquid.
Old 04-26-08, 09:28 AM
  #4  
DVD Talk Legend
 
Minor Threat's Avatar
 
Join Date: Jul 2000
Posts: 13,739
Likes: 0
Received 0 Likes on 0 Posts
cash.....
Old 04-26-08, 09:42 AM
  #5  
DVD Talk Legend
 
Join Date: Jan 2000
Posts: 16,173
Likes: 0
Received 0 Likes on 0 Posts
There is no correct answer for everyone here.

You can base it on simple math

car loan costs 5%, investments are earing 10%, then it makes sense to finance

car loan costs 5%, investments are earing 3%, then it does not make sense to finance

Everyone is usually somewhere in the middle, you should keep some cash reserves on hand, how much is up to you.

high inflation says it makes sense to finance because your cash in the future is worth a lot less

Usually the more you put down on a car, the better your interest rate can be on the loan for the remainder, it's worth asking about.

put this in the category of things you need to decide on your own, unless your investments are turining in double digit returns right now.
Old 04-26-08, 11:16 AM
  #6  
DVD Talk Legend
 
Nick Danger's Avatar
 
Join Date: Mar 2001
Location: Albuquerque
Posts: 22,782
Received 17 Likes on 9 Posts
If the interest rate is lower than inflation, go for it. My dad was paying a 5% mortgage in 1980 when inflation was above 13%. Every month, his payments got a little smaller in real dollars. Banks hate that.

Inflation has been below 5% for twenty years, so that isn't likely to help you.
Old 04-26-08, 11:33 AM
  #7  
DVD Talk Gold Edition
 
Join Date: Sep 1999
Location: Earth
Posts: 2,047
Likes: 0
Received 0 Likes on 0 Posts
Even better is if you own a house and have equity in it, you can use a home equity loan to finance your purchase. The interest payments would be tax deductible.
Old 04-26-08, 11:35 AM
  #8  
DVD Talk Legend
 
Nick Danger's Avatar
 
Join Date: Mar 2001
Location: Albuquerque
Posts: 22,782
Received 17 Likes on 9 Posts
If course, if the market value of your house goes down (it could happen), you could end up owing more than the house is worth.

Also, my mortgage interest was not tax deductable this year. It was below the standard deduction which I would have gotten anyway, without paying that interest.
Old 04-26-08, 01:23 PM
  #9  
DVD Talk Special Edition
 
Join Date: Sep 2007
Posts: 1,915
Likes: 0
Received 0 Likes on 0 Posts
what duran and 4krg said
Old 04-26-08, 03:45 PM
  #10  
DVD Talk Legend
 
Join Date: Feb 2002
Location: Sugar Land, TX
Posts: 14,358
Likes: 0
Received 0 Likes on 0 Posts
Another option is just to buy a cheaper car, or whatever the item is.
Old 04-26-08, 04:38 PM
  #11  
DVD Talk Legend
 
Join Date: May 2004
Location: a mile high, give or take a few feet
Posts: 13,527
Likes: 0
Received 3 Likes on 3 Posts
For me, it would depend more on how much cash I could come up with in an emergency. After that, I would look at whether or not any investments would beat the interest rate.
Old 04-26-08, 05:03 PM
  #12  
DVD Talk Hall of Fame
 
Join Date: Apr 2005
Posts: 7,639
Likes: 0
Received 1 Like on 1 Post
If there is a cash back promotion the car could be cheaper if financed. Sometimes the amount of the cash back is greater than the total of the finance charges and you usually have to finance to get the cash back deal.
I bought a brand new Explorer in '99 and paid cash. I asked them how much they would take off for a full cash payment and they told me they had a $3000 cash back deal, but only if you finance. I wasn't going to finance because I was also looking to buy a house and didn't want a car loan affecting how much of a home loan I would qualify for. I had my checkbook in hand ready to pay them the full amount right there and then if they gave me the $3000 off the price but would go elsewhere to get a better deal if not. They gave me the discount.
Old 04-26-08, 06:27 PM
  #13  
DVD Talk Limited Edition
 
Join Date: Feb 2001
Location: So Cal
Posts: 7,072
Likes: 0
Received 0 Likes on 0 Posts
Theoretically, its better to finance.

...but since you're asking this question, the answer is no. Just buy it outright.

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is On
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Thread Tools
Search this Thread

Archive - Advertising - Cookie Policy - Privacy Statement - Terms of Service - Do Not Sell My Personal Information

Copyright 2018 MH Sub I, LLC dba Internet Brands. All rights reserved. Use of this site indicates your consent to the Terms of Use.