Calgarypuck Forums - The Unofficial Calgary Flames Fan Community - View Single Post - I could use some CP advice re: buying a new car

BigNumbers · 01-16-2016, 04:36 PM

There is no refund - it relates to the net cost of the new car. Like most scenarios in life, no tax is the best scenario.

Also, it's worth noting that DEALERS WOULD RATHER YOU FINANCE THAN PAY CASH - CASH OFFERS NO LONGER GET YOU A BETTER DEAL, absent a delta in manufacture incentives, where often times the cash incentive (reduction to purchase price from manufacturer) is better than the discount for financing. Why do dealers prefer you finance? The dealers get a kickback payment form the lender if you finance, so they'd actually prefer you finance, as they pay the same to the manufacturer for the car regardless of cash or financing (before incentives)

However this lower financing incentive vs. a cash incentive is usually more than made up by the cheap financing that comes with it, 90% of the time. Ie:

Ford may offer $10,000 cash rebate on a new F150 as a fictitious example, or a $6,000 discount if you finance, but they are then also offering 0% for 5 years.

So while the cash discount will be $4,000 cheaper, on a $30K truck, assuming you don't have cash on hand, will cost you 6% to finance through a bank, so you are talking $1,800 a year in extra interest for 'paying cash' x 5 years = $9,000

So the actual discount for financing is the $6K from the manufacturer, plus the $9K in value of the 0% (or whatever the discounted finance rate is). So it's actually $5K cheaper to finance over the life of the car than to pay cash. This plays out in 90+% of the scenarios.

Even if you have cash - is it the best use of cash? I'd argue not. You can apply the above logic to this: Instead of paying $30K cash, you take the 0%. Then you buy CIBC stock, which pays a 5% dividend. You're still ahead over $4,000 after 5 years AND you now own a big 5 Cdn bank stock that's likely appreciated. Even if that stock went DOWN 12% (2% a year) or $4,000 you'd be break even with a cash deal. Conversely, if it went up 12%, now you're ahead $8K!!!!

TLDR; Check the manufacture incentives closely. 90+% of the time, in my experience, over a 4-5 year period, it is cheaper to finance than pay cash.

01-16-2016, 04:36 PM	#29
BigNumbers Powerplay Quarterback Join Date: Jan 2013 Exp:	There is no refund - it relates to the net cost of the new car. Like most scenarios in life, no tax is the best scenario. Also, it's worth noting that DEALERS WOULD RATHER YOU FINANCE THAN PAY CASH - CASH OFFERS NO LONGER GET YOU A BETTER DEAL, absent a delta in manufacture incentives, where often times the cash incentive (reduction to purchase price from manufacturer) is better than the discount for financing. Why do dealers prefer you finance? The dealers get a kickback payment form the lender if you finance, so they'd actually prefer you finance, as they pay the same to the manufacturer for the car regardless of cash or financing (before incentives) However this lower financing incentive vs. a cash incentive is usually more than made up by the cheap financing that comes with it, 90% of the time. Ie: Ford may offer $10,000 cash rebate on a new F150 as a fictitious example, or a $6,000 discount if you finance, but they are then also offering 0% for 5 years. So while the cash discount will be $4,000 cheaper, on a $30K truck, assuming you don't have cash on hand, will cost you 6% to finance through a bank, so you are talking $1,800 a year in extra interest for 'paying cash' x 5 years = $9,000 So the actual discount for financing is the $6K from the manufacturer, plus the $9K in value of the 0% (or whatever the discounted finance rate is). So it's actually $5K cheaper to finance over the life of the car than to pay cash. This plays out in 90+% of the scenarios. Even if you have cash - is it the best use of cash? I'd argue not. You can apply the above logic to this: Instead of paying $30K cash, you take the 0%. Then you buy CIBC stock, which pays a 5% dividend. You're still ahead over $4,000 after 5 years AND you now own a big 5 Cdn bank stock that's likely appreciated. Even if that stock went DOWN 12% (2% a year) or $4,000 you'd be break even with a cash deal. Conversely, if it went up 12%, now you're ahead $8K!!!! TLDR; Check the manufacture incentives closely. 90+% of the time, in my experience, over a 4-5 year period, it is cheaper to finance than pay cash.