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I've always found the "zero percent" financing to be misleading: if you opt to pay with cash there is usually a cash rebate (or equivalent) that makes your purc

by kardos 7y ago

I've always found the "zero percent" financing to be misleading: if you opt to pay with cash there is usually a cash rebate (or equivalent) that makes your purchase price lower. This difference amounts to something like a 4% interest rate. Are there any cases where the cash price matches the "zero percent loan" price?

toomuchtodo 7y ago
Time value of money [1]. You should evaluate if the cash rebate is a greater amount than you could've earned taking a 0% loan and sticking the cash into investments. Any interest rate on a loan at or below the rate of inflation is essentially free money (assuming you can service the debt without fail). Also, lots of comments in this thread not understanding the cost of the vehicle versus the cost of financing. You should always negotiate the cost of the vehicle separately (as low as possible, obviously, between different dealerships), before the financing to prevent being sold on a monthly payment versus total vehicle price. Otherwise, it becomes trivial for the dealership to inflate their margins on your transaction. [1] https://www.khanacademy.org/economics-finance-domain/core-finance/interest-tutorial/present-value/v/time-value-of-money https://www.khanacademy.org/economics-finance-domain/core-fi... (Khan Academy: Time value of money)
- ghaff 7y ago
  >sticking the cash into investment Which is essentially zero (or less than zero) return adjusted for risk and and discounted for inflation. All of which is especially hard to gauge at the moment. Maybe I'd take a 0% loan for something I'd otherwise put cash on the barrel for at the moment. But it wouldn't be for the purpose of putting the cash into an equities bet.
  - toomuchtodo 7y ago
    If you gave me $37k in cash today (average price of a new vehicle), I would still immediately put it in the equities market. It is likely one of the few investments left with reasonable risk adjusted returns (>4%) accessible to your average retail investor. Yes, there's high vol currently, but as long as you think the world will continue to exist (and the cashflows generated by said world), it's a sound strategy (dollar cost averaging).
    - ghaff 7y ago
      To each their own. I still have a lot of money in equities but I'm keeping or have switched quite a bit to cash or near-cash as well. It limits the upside but offers some floor if things really go south.
      - deleted 7y ago
        [deleted]
- imtringued 7y ago
  And then you lose your job because of Covid 19 and you can't liquidate your assets to cover the car payments.
  - toomuchtodo 7y ago
    That’s why you should have an emergency fund or some other sort of cash reserves.
shiftpgdn 7y ago
That's generally not true in the auto world. The dealer makes more when you finance a car vs when you pay cash. You can generally get an overall lower purchase cost by agreeing to finance as the expectation is the finance arm of the dealership makes it up there. Just finance through the dealer and pay off through your bank within 30 daysm
- deleted 7y ago
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by kardos 7y ago

toomuchtodo 7y ago

Time value of money [1]. You should evaluate if the cash rebate is a greater amount than you could've earned taking a 0% loan and sticking the cash into investments. Any interest rate on a loan at or below the rate of inflation is essentially free money (assuming you can service the debt without fail). Also, lots of comments in this thread not understanding the cost of the vehicle versus the cost of financing. You should always negotiate the cost of the vehicle separately (as low as possible, obviously, between different dealerships), before the financing to prevent being sold on a monthly payment versus total vehicle price. Otherwise, it becomes trivial for the dealership to inflate their margins on your transaction. [1] https://www.khanacademy.org/economics-finance-domain/core-finance/interest-tutorial/present-value/v/time-value-of-money https://www.khanacademy.org/economics-finance-domain/core-fi... (Khan Academy: Time value of money)

ghaff 7y ago
>sticking the cash into investment Which is essentially zero (or less than zero) return adjusted for risk and and discounted for inflation. All of which is especially hard to gauge at the moment. Maybe I'd take a 0% loan for something I'd otherwise put cash on the barrel for at the moment. But it wouldn't be for the purpose of putting the cash into an equities bet.
- toomuchtodo 7y ago
  If you gave me $37k in cash today (average price of a new vehicle), I would still immediately put it in the equities market. It is likely one of the few investments left with reasonable risk adjusted returns (>4%) accessible to your average retail investor. Yes, there's high vol currently, but as long as you think the world will continue to exist (and the cashflows generated by said world), it's a sound strategy (dollar cost averaging).
  - ghaff 7y ago
    To each their own. I still have a lot of money in equities but I'm keeping or have switched quite a bit to cash or near-cash as well. It limits the upside but offers some floor if things really go south.
    - deleted 7y ago
      [deleted]
imtringued 7y ago
And then you lose your job because of Covid 19 and you can't liquidate your assets to cover the car payments.
- toomuchtodo 7y ago
  That’s why you should have an emergency fund or some other sort of cash reserves.

shiftpgdn 7y ago

That's generally not true in the auto world. The dealer makes more when you finance a car vs when you pay cash. You can generally get an overall lower purchase cost by agreeing to finance as the expectation is the finance arm of the dealership makes it up there. Just finance through the dealer and pay off through your bank within 30 daysm

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