[Newton]

Took my Sport CVT in for its latest dealer service and chatted with their Customer Service rep / former salesman while I waited.

We talked about Accord pricing and how there really isn't any money in the car sale itself - the profit comes from all the add-ons like Paint Butler and extended warranty - big money to be made there, and of course vehicle financing. In fact the guy stated "oh we really don't like cash buyers - that's literally a volume sale for us, financing is where we really get the cash out of you". He went on to say that lots of buyers go around patting themselves on the back for getting an extra $500 off the deal price only to pay that back (and more) when they get hosed on the financing deal.

So all this made me think - I purchased my 2014 Accord Sport without any advance planning when my old Dodge literally died outside the Honda dealership - with a quick phone call to transfer money out of my savings into my checking account, I just don't finance cars.

So how many pay cash versus financing - the "guy" claimed it is almost unheard of, in fact his exact line was "no one pays cash for a car" which I find hard to believe.

 

[14v6]

I don't think too many pay cash. A cash sale eliminates a lot of areas where a dealer can confuse consumers and make a profit so like he says its about the volume on a cash sale which is important for dealers. I know when I buy a car and meet with the F&I person and say NO to everything they propose, they get pissed, sorry.

 

[Randy8]

Took my Sport CVT in for its latest dealer service and chatted with their Customer Service rep / former salesman while I waited.

We talked about Accord pricing and how there really isn't any money in the car sale itself - the profit comes from all the add-ons like Paint Butler and extended warranty - big money to be made there, and of course vehicle financing. In fact the guy stated "oh we really don't like cash buyers - that's literally a volume sale for us, financing is where we really get the cash out of you". He went on to say that lots of buyers go around patting themselves on the back for getting an extra $500 off the deal price only to pay that back (and more) when they get hosed on the financing deal.

So all this made me think - I purchased my 2014 Accord Sport without any advance planning when my old Dodge literally died outside the Honda dealership - with a quick phone call to transfer money out of my savings into my checking account, I just don't finance cars.

So how many pay cash versus financing - the "guy" claimed it is almost unheard of, in fact his exact line was "no one pays cash for a car" which I find hard to believe.

I paid half of my car upfront and financed the other half with Honda (To get the additional $500 off). Then I made the standard payments for 6-8 months (maybe?) and paid the rest off the following month. Interest paid ended up being much less than the $500, so I ended up ahead.

That being said. I could have paid 100% cash upfront but other incentives ($500 discount and credit boost) swayed me otherwise.

 

[JekyllandHyde]

I went into a Honda dealership in Queens, NYC that doesn't have a stellar reputation 2 years ago. The sales reps were all kissing my behind until I told the finance manager I was paying cash and he literally just got up and left without saying a word. Then the sales person said that he wouldn't be able to discount the 6-speed because it was a limited edition car. LMAO!

Fast forward to last month, I bought my car from Tarrytown Honda for an awesome price, I financed 9200 at 0.9% so the loan will cost me $212 over the course of five years. Will pay off everything year 2. I could've paid the whole thing but I want the credit score boost.

 

[GPz1100]

Wait, don't we all negotiate cash prices before discussing any financing

 

[karfreek]

Cash buyer here, unless I get 0% or .9% for 60 months. Then there are alternative ways to put your cash to better use. I did finance the minimum $5,000 on my Accord to get the $500 flex cash but paid it off in full later.

Jay

 

[mbnc]

Paid cash both times. Since I'm still in my 20s and had never had a loan in my name before, I used the LX as collateral on a credit union loan to build my credit history after the fact, but I didn't need the loan proceeds to swing the deal. Never bothered to do the same thing with the Sport.

I can't remember at what point financing was discussed, but I don't remember them offering any kind of incentive to finance either time. If they did, I would have been happy to let them lower the price then pay the loan in full the next month.

 

[Flyboy]

I have always bought new cars for cash except my 2013 Accord. I financed the minimum at .09% to get the extra $500 off on the purchase. I paid it off when the payment booket came in the mail. I paid $7 in interest. I still said no to everything the finance guy tried to push.

 

[ABQ14Coupe]

I've only purchased one car for cash and they put me through the ringer. I should have just financed part and then paid it off when the first payment was due.

Other than that when I used to service insurance customers for a company that went nationwide I noticed a trend where those on the West Coast (CA) generally leased and probably way above their means - Mercedes, BMW's, Escalades, etc. with super low coverage and then would freak out when we had to increase limits to meet the lease requirements that would quadruple their payments. The midwest generally bought cars with cash. I remember that one guy told me that they purchase a car and then set aside what it would cost someone to finance a car for 5 years so he could then buy another new car every 5 years for cash. Most other areas in the USA financed. Some better than others (you wouldn't believe what people will tell you over the phone).

 

[mdreibelbis]

I've paid cash for my last three cars - I don't like having any debt. I never tell them I'm paying cash until the very end. They don't push all the extra crap on you too hard when you do that - I guess they figure it's a losing battle with guys like me.

 

[cheesehead13EX]

Cash buyer here, I drive them until the wheels fall off. This begs the question, what percentage of buyers pay cash?

 

[Nogard13]

I financed ~$20,000 at 0.9% in order to get the $500 incentive. It's kind of a wash because my total interest payments are 483.92. So, basically, I get to finance a car for 60 months at 0.001%

I wouldn't pay cash for a car, even if I were a millionaire. I think that, because of the time-value of money, it's always better to finance large purchases. It's the same reason I wouldn't pay off my mortgage early, either.

For example, assuming the average S&P return over the last 100 years (about 7%), you could put the $20,000 in an Index Fund and have $28,350 after 60 months. Now, that assumes you don't touch it for that long, but if you were to withdraw your car payment every month, this is what you're looking at:

Starting Balance: $20,000
Monthly Payment Withdrawl (0.9% @ 60mo): $341
Total Interest paid over 60 Months: $3,593
Total in Finance Charges: $461
"Profit": $3,132


So, basically, I've just given you a formula on how to make over $3K by financing your car for 5 years. Do you still think it's worth it to pay cash?

 

[LAF]

At .9% only a fool would pay cash. That is truly free money. Cant see the cash buyers point at all at .9%.

 

[Flipster23]

I'm actually thinking about buying my next car all cash. Sure will hurt to throw 30k at the dealer... I was just asking this question the other day, if I went in with cash and offered less for the car do you think they will bite? Or will just wait for someone to finance it? I've bought a lot of cars but it was all financed besides a couple 5000 dollar cars..

 

[digitaltc]

At .09% only a fool would pay cash. That is truly free money. Cant see the cash buyers point at all at .09%.

I think you meant 0.9%

 

[mdreibelbis]

I financed ~$20,000 at 0.9% in order to get the $500 incentive. It's kind of a wash because my total interest payments are 483.92. So, basically, I get to finance a car for 60 months at 0.001%

I wouldn't pay cash for a car, even if I were a millionaire. I think that, because of the time-value of money, it's always better to finance large purchases. It's the same reason I wouldn't pay off my mortgage early, either.

For example, assuming the average S&P return over the last 100 years (about 7%), you could put the $20,000 in an Index Fund and have $28,350 after 60 months. Now, that assumes you don't touch it for that long, but if you were to withdraw your car payment every month, this is what you're looking at:

Starting Balance: $20,000
Monthly Payment Withdrawl (0.9% @ 60mo): $341
Total Interest paid over 60 Months: $3,593
Total in Finance Charges: $461
"Profit": $3,132


So, basically, I've just given you a formula on how to make over $3K by financing your car for 5 years. Do you still think it's worth it to pay cash?

It's always easy to make money on paper - in theory you're correct but in reality you're overlooking two very important things:


1) The span of 100 years has many ups and downs - that's why they look at 100 years. There's zero guarantee that you will hit 7% over *your* 5 year window - specifically because your model requires me to invest the entire amount at one point in time which may be at the beginning of a correction or may be at the end of a correction - no way to forecast that. The stock market goes in cycles - no way for the Average Joe to figure them out.

2) By paying cash I don't have a car payment and can take the money I would be paying monthly and invest it over the next 5 years - this allows me to dollar-cost-average which increases my odds of getting a decent return on the money over the 5 years which will allow me to pay cash for the next car.

In the end you may still be correct the majority of the time however I'll wager it's a few hundred dollars and not thousands - I'll take the loss every time to be debt free. It's a lifestyle choice.

 

[mdreibelbis]

I'm actually thinking about buying my next car all cash. Sure will hurt to throw 30k at the dealer... I was just asking this question the other day, if I went in with cash and offered less for the car do you think they will bite? Or will just wait for someone to finance it? I've bought a lot of cars but it was all financed besides a couple 5000 dollar cars..

They would prefer you to finance.

That said - you can actually use that to negotiate - tell them you'll finance if they lower the price some - then you simply write a check to the bank to pay in full once the financing goes through.

 

[Darmaniac]

Man, just installed my Idjmtoy Strip light, and it feels so nice, my Blue car now have the greatest touch it could have.
I plan on keeping my Sport 2014 another 5 to 8 years. My plan is to go all electric after this time. Tesla do you hear me ???

 

[Hi_Ho_Silver]

I paid cash for my Accord when I purchased, and it was an interesting experience. The finance guys tried most of the tired tactics mentioned here: downplaying my desire to own the car free and clear, trying to upsell me on dealer-added nonsense (3rd party warrantees, floor mats that were exorbitant in cost and ineffective as all get out, etc.); leaving my partner and I to "stew" in a back office while they schemed and plotted.

When the Finance Manager finally realized that we couldn't swayed, he grudgingly admitted that the dealer stood to make little to nothing on the sale of the car, an issue with which I had no concern. What we thought would take less than an hour became a nearly 3-hour process, when we simply expected to hand over the check and make that place a memory.

 

[karfreek]

I financed ~$20,000 at 0.9% in order to get the $500 incentive. It's kind of a wash because my total interest payments are 483.92. So, basically, I get to finance a car for 60 months at 0.001%

I wouldn't pay cash for a car, even if I were a millionaire. I think that, because of the time-value of money, it's always better to finance large purchases. It's the same reason I wouldn't pay off my mortgage early, either.

For example, assuming the average S&P return over the last 100 years (about 7%), you could put the $20,000 in an Index Fund and have $28,350 after 60 months. Now, that assumes you don't touch it for that long, but if you were to withdraw your car payment every month, this is what you're looking at:

Starting Balance: $20,000
Monthly Payment Withdrawl (0.9% @ 60mo): $341
Total Interest paid over 60 Months: $3,593
Total in Finance Charges: $461
"Profit": $3,132


So, basically, I've just given you a formula on how to make over $3K by financing your car for 5 years. Do you still think it's worth it to pay cash?

True finance people never finance something that depreciates. That is the part you are missing in your DCF analysis. You need to account for the depreciation of the asset in the future value. You can't over come the depreciation gap even with 0% financing.

Finance a house or education, something that will appreciate in value over time at a rate that is greater than the cost of financing never anything that will depreciate over time.

The above is why some of the wealthiest people I know drive s*it boxes, they can't justify the depreciation of a new car. And when they do buy a new one, it's usually used.

Jay