Finance or Pay Cash in this market?

[Anonymous]

I am shopping for a new car and like many of you, we have saved up to purchase a vehicle. We understand that this is probably not the best time to buy a new car but it is what it is.

In today's inflation fueled market, I feel it is foolish to pay cash for a depreciating asset.

Should we finance a new car or is there some advantage in paying cash?

[Anonymous]

Unless you can not get 1 - 2% interest, there is not typically a financial advantage to paying cash, just a preference and the ability to say "I pay for all my cars in cash". In fact, typically dealers have better deals they can offer based on financing. You could always finance and then use your cash to pay it down as quickly as you like.

[Anonymous]

It depends what interest rate you'd get for financing and what you could do with the money you save by not paying cash.

Do you have other debt?
Do you have an emergency fund?
Have you maxed out ibonds?
What rates are you seeing for CDs or other safe investments and how do they compare to the car loan rates?

[Anonymous]

My philosophy with cars is always to get the longest possible loan. I pay it off if I want to, but I am keeping the loan on the car i bought in December 2021. It is at a 2.5% rate, so well below inflation. In a high-inflation environment, fixed-rate debt is not bad.

[Anonymous]

Anonymous wrote:Unless you can not get 1 - 2% interest, there is not typically a financial advantage to paying cash, just a preference and the ability to say "I pay for all my cars in cash". In fact, typically dealers have better deals they can offer based on financing. You could always finance and then use your cash to pay it down as quickly as you like.

They aren't giving deals in today's market. Not for financing, not for anything. Been there.

[Anonymous]

Anonymous wrote:It depends what interest rate you'd get for financing and what you could do with the money you save by not paying cash.

Do you have other debt?
Do you have an emergency fund?
Have you maxed out ibonds?
What rates are you seeing for CDs or other safe investments and how do they compare to the car loan rates?

OP here. No debt (no mortgage, no car note, no student loans, etc), just revolving credit card debt that gets paid off at the end of every month.

Yes, big emergency fund.
No ibonds.
I average around 8% rate of return on my cash but it is locked up for a period of 1-2 years at a time.

[Anonymous]

Anonymous wrote:My philosophy with cars is always to get the longest possible loan. I pay it off if I want to, but I am keeping the loan on the car i bought in December 2021. It is at a 2.5% rate, so well below inflation. In a high-inflation environment, fixed-rate debt is not bad.

OP here. Thank you, this is exactly what I was looking for in an answer. This feels right for me. Even though I have the cash, take the longest loan possible and put my money to work at a higher interest rate. Thank you again.

[Anonymous]

Anonymous wrote:

Anonymous wrote:It depends what interest rate you'd get for financing and what you could do with the money you save by not paying cash.

Do you have other debt?
Do you have an emergency fund?
Have you maxed out ibonds?
What rates are you seeing for CDs or other safe investments and how do they compare to the car loan rates?

OP here. No debt (no mortgage, no car note, no student loans, etc), just revolving credit card debt that gets paid off at the end of every month.

Yes, big emergency fund.
No ibonds.
I average around 8% rate of return on my cash but it is locked up for a period of 1-2 years at a time.

Where are you getting 8% return on cash?!

[Anonymous]

The first question you need to ask is what interest rate would you borrow at? Liquidity is never a bad thing in the current economy. But 8% return on cash? Are you extending payday loans?