Paying for a car: pay in cash or finance and if I finance, what is the best way?

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I have cash to purchase a small used car and would still have money in savings. However it would take up about 60% of my savings. If I finance a car, I have no room in my budget for a payment other than to draw from my savings (from which I’m drawing about 4% interest). I do own a home but am paying on the mortgage. From letters I receive in the mail I have about $ 50,000 available to me through my house equity. Given my financial situation (if I were to qualify for 2.9% financing (or lower) on a car loan, what is in my best interest financially to pay for my vehicle.

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  1. Reply
    Feeling Mutual
    May 16, 2011 at 3:26 am

    The best way is to pay cash in advance.

    However, don’t tell them that until have they have agreed on a price.

    They always get a kickback from a finance company. So if they think you are going to finance it with them in advance, you might be able to negociate a lower price.

    Then when it comes time to close the deal, you can always say you decided to pay cash.

    It feels really really good not to have to pay a car payment every month, and you save not only the interest, but the loan origination fees. Normally, the first year of payments goes towards all those “extra” fees, before you actually start paying down the initial price of the car.

    They will still try to tack on other fees, you just have to not let them do it.

    Did I mention that it feels really really good not to have to pay a car payment every month?

    Oh, and by CASH, I mean a certified check or cashier’s check…

    Did I mention that it feels really really good not to have to pay a car payment every month?

    Oh, except in this case:
    If the interest on your “savings” will pay the entire car payment every month, or maybe a little more. Hmmm, that is even better… it is like a free car…

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