16 ms·

I used to buy cars with cash. But right now car loans are so cheap, if you have good credit, it may make more sense to take the loan and keep the cash invested

I used to buy cars with cash. But right now car loans are so cheap, if you have good credit, it may make more sense to take the loan and keep the cash invested. I think my current rate is 2% or so... an unthinkable rate not so many years ago.

charlesdm 9y ago
If cost of debt < investment returns -> borrow money / finance
- fegu 9y ago
  There is a lot more to this than a simple equation. Otherwise we would all borrow as much as we could (about 2% and somewhat predictable) and put it all in the stock market (avg 7,5 % but volatile).
  - taeric 9y ago
    To be fair, I think the equation doesn't get that much more complicated, typically. Add in fees and you go a long way to showing why this won't work. Add in a floor function for operating expenses money you need on hand, and you show most of the rest.
  - alexbeloi 9y ago
    >Otherwise we would all borrow as much as we could (about 2% and somewhat predictable) and put it all in the stock market (avg 7,5 % but volatile). The 2% rate is that low precisely becomes it comes with collateral (the car). Interest rates on personal loans with no collateral are closer to 10%, which is the reason people can't do what you're suggesting.
  - charlesdm 9y ago
    Anyone willing to give me a loan for $10m at 2% -- I'm game. 2% is a good interest rate for a collateralized loan, and frankly, often it's not worth putting up the money yourself if you can borrow it (at 2%). Then again, a car isn't (really) an asset with a positive RoI..
    - djKianoosh 9y ago
      tell that to the people that own certain porsches. some of those 911's go up in value
  - Spooky23 9y ago
    You can't get unsecured credit that cheap for very long or in great quantities. And when people do shit like that with home equity loans, etc, everything works great until it doesn't.
- aquark 9y ago
  More strictly: (investment returns - tax payable) (unless your debt is tax deductible ... most car loans aren't)
  - charlesdm 9y ago
    If it's a company car it is.
nvarsj 9y ago
When I bought a Honda many years ago, they were offering 1% financing. At the same time, Toyota was doing 0% financing. I don't know how they make a profit on it, but why wouldn't you get a 0% finance deal over paying in full? I think the main benefit of paying upfront is to buy a used car.
- blibble 9y ago
  it's just another form of competition right? all car firms offer lower and lower loans rates to try to get you to buy their product, and eventually the rate reaches 0%
  - jacquesm 9y ago
    It's mostly a function of the general interest rates.
  - eru 9y ago
    If that was the case, why stop at 0%? Why not negative?
    - blibble 9y ago
      would probably confuse people
- thearn4 9y ago
  Yep, my 2012 Civic was bought on 1% financing. Paid off now, still runs great, and I kept the would-be total payment in cash in retirement accounts. Probably could have done better on a used car, but for once I wanted to be the one to run something into the ground. Still waiting on that.
  - alexhutcheson 9y ago
    You'll be waiting a very long time on that one.
  - Spooky23 9y ago
toomuchtodo 9y ago
> I think my current rate is 2% or so... an unthinkable rate not so many years ago. Its crazy. The financing on my Model S is 1.5%. There's no point in paying cash when financing is almost free. Sold previous vehicle with equity in it, put all that in index funds, fully financed EV.
r00fus 9y ago
For the loan, if you are wary of dealing with the car company, a credit union can often give you a good rate with a more trustworthy agency. You get pre-approved, and walk into the dealership and walk out with the car.
- 13of40 9y ago
  If you finance through the dealership you can negotiate a lower selling price because the loan itself has value that they can sell. (At that point you refinance or pay it off. Make sure to ask them to waive the fees for the loan, too.)
dboreham 9y ago
Just bought a car that I could have paid for cash but they offered me zero % financing over three years, with zero down.
- StavrosK 9y ago
  When you guys say "cash", do you mean "not credit"? Because my dealership did not seem to appreciate it at all when I gave them 30,000 euros in stacks of 50 euro notes.
  - deleted 9y ago
    [deleted]
  - ncallaway 9y ago
    Yea, often when people say "cash" they're just referring to an instant asset transfer (cash, check, eft, etc). Usually I would expect a transaction in a dealership be a check or some kind of electric transaction. Sounds fun to pull out a large stack of actual cash, though.
    - StavrosK 9y ago
      It was fun for me. The salesman didn't seem to enjoy it, but, in my defense, I had told him I didn't want to wait a weekend for the SEPA transfer to reach their bank before I could get my new car.
  - wbl 9y ago
    Cash management is a PITA. Plus SAR reporting.
  - briandear 9y ago
    In France that would be illegal-- cash can't be used for transactions over €1000 because they're afraid of terrorism apparently.
    - metaphor 9y ago

charlesdm 9y ago

If cost of debt < investment returns -> borrow money / finance

fegu 9y ago
There is a lot more to this than a simple equation. Otherwise we would all borrow as much as we could (about 2% and somewhat predictable) and put it all in the stock market (avg 7,5 % but volatile).
- taeric 9y ago
  To be fair, I think the equation doesn't get that much more complicated, typically. Add in fees and you go a long way to showing why this won't work. Add in a floor function for operating expenses money you need on hand, and you show most of the rest.
- alexbeloi 9y ago
  >Otherwise we would all borrow as much as we could (about 2% and somewhat predictable) and put it all in the stock market (avg 7,5 % but volatile). The 2% rate is that low precisely becomes it comes with collateral (the car). Interest rates on personal loans with no collateral are closer to 10%, which is the reason people can't do what you're suggesting.
- charlesdm 9y ago
  Anyone willing to give me a loan for $10m at 2% -- I'm game. 2% is a good interest rate for a collateralized loan, and frankly, often it's not worth putting up the money yourself if you can borrow it (at 2%). Then again, a car isn't (really) an asset with a positive RoI..
  - djKianoosh 9y ago
    tell that to the people that own certain porsches. some of those 911's go up in value
- Spooky23 9y ago
  You can't get unsecured credit that cheap for very long or in great quantities. And when people do shit like that with home equity loans, etc, everything works great until it doesn't.
aquark 9y ago
More strictly: (investment returns - tax payable) (unless your debt is tax deductible ... most car loans aren't)
- charlesdm 9y ago
  If it's a company car it is.

nvarsj 9y ago

When I bought a Honda many years ago, they were offering 1% financing. At the same time, Toyota was doing 0% financing. I don't know how they make a profit on it, but why wouldn't you get a 0% finance deal over paying in full? I think the main benefit of paying upfront is to buy a used car.

blibble 9y ago
it's just another form of competition right? all car firms offer lower and lower loans rates to try to get you to buy their product, and eventually the rate reaches 0%
- jacquesm 9y ago
  It's mostly a function of the general interest rates.
- eru 9y ago
  If that was the case, why stop at 0%? Why not negative?
  - blibble 9y ago
    would probably confuse people
thearn4 9y ago
Yep, my 2012 Civic was bought on 1% financing. Paid off now, still runs great, and I kept the would-be total payment in cash in retirement accounts. Probably could have done better on a used car, but for once I wanted to be the one to run something into the ground. Still waiting on that.
- alexhutcheson 9y ago
  You'll be waiting a very long time on that one.
- Spooky23 9y ago

toomuchtodo 9y ago

> I think my current rate is 2% or so... an unthinkable rate not so many years ago. Its crazy. The financing on my Model S is 1.5%. There's no point in paying cash when financing is almost free. Sold previous vehicle with equity in it, put all that in index funds, fully financed EV.

r00fus 9y ago

For the loan, if you are wary of dealing with the car company, a credit union can often give you a good rate with a more trustworthy agency. You get pre-approved, and walk into the dealership and walk out with the car.

13of40 9y ago
If you finance through the dealership you can negotiate a lower selling price because the loan itself has value that they can sell. (At that point you refinance or pay it off. Make sure to ask them to waive the fees for the loan, too.)

dboreham 9y ago

Just bought a car that I could have paid for cash but they offered me zero % financing over three years, with zero down.

StavrosK 9y ago
When you guys say "cash", do you mean "not credit"? Because my dealership did not seem to appreciate it at all when I gave them 30,000 euros in stacks of 50 euro notes.
- deleted 9y ago
  [deleted]
- ncallaway 9y ago
  Yea, often when people say "cash" they're just referring to an instant asset transfer (cash, check, eft, etc). Usually I would expect a transaction in a dealership be a check or some kind of electric transaction. Sounds fun to pull out a large stack of actual cash, though.
  - StavrosK 9y ago
    It was fun for me. The salesman didn't seem to enjoy it, but, in my defense, I had told him I didn't want to wait a weekend for the SEPA transfer to reach their bank before I could get my new car.
- wbl 9y ago
  Cash management is a PITA. Plus SAR reporting.
- briandear 9y ago
  In France that would be illegal-- cash can't be used for transactions over €1000 because they're afraid of terrorism apparently.
  - metaphor 9y ago