Buying a car with cash

[lazypucker]

Yeah, I paid mine with cash, because Ferrari and Lamborghini don't have financing options...

[opendoor]

Originally Posted by Rathji

If you can get car financing for 0%-2%, then it would make sense to put that money onto a mortgage instead of a car, because there is almost no chance your mortgage rate is less than that. For example, borrow at 2% to avoid paying at 3-4%.

Maybe I am just being an idiot here, and people are able to get mortgages for a lot less than I am aware of.

But you have to pay income tax on rental income, so why not make the interest payments on the $20K tax deductible by borrowing the money for investment purposes? The tax deduction effectively drops the interest rate by 25-40% depending on the person's tax bracket. That puts a variable rate mortgage in the 1-2% range.

Obviously if you're getting money loaned for free that shifts the calculations, but from what I understand most 0% financing is at the expense of other possible discounts. Car dealers aren't in the business of losing money so they're usually getting you somewhere else to make up for the lost financing income.

[nfotiu]

I challenge someone to prove that buying 2 to 3 years used cars really is a wise financial move. Every time I've looked into it, it is a wash at best.

Ie, I bought a tdi wagon new recently in the US. Brand new one was 25000 with a .9% five year loan, and they include 3 year warranty and maintenance. Best deal on a 3 year old I could find was 20,000, no warranty, and I figure 4% for a 5 year loan.

Using a depreciation calculator for a car like that, I get that the 3 year old one would be worth 11,169 in 5 years, while the new one would be worth 12,863.

Total interest and depreciation for the brand new car would be 12,713 vs 10,911 for the used car. A savings of $1800 over 5 years. My guess is you'd come out behind after factoring in paying for 5 years of maintenance vs 2 years for the new car. Not to mention that having a car that is 3 years newer is worth at least a little intangible value to the owner.

[Table 5]

Originally Posted by lazypucker

Yeah, I paid mine with cash, because Ferrari and Lamborghini don't have financing options...

Sure they do. Rich people like to live on credit just like the rest of us.

[Sliver]

Originally Posted by nfotiu

I challenge someone to prove that buying 2 to 3 years used cars really is a wise financial move. Every time I've looked into it, it is a wash at best.

Ie, I bought a tdi wagon new recently in the US. Brand new one was 25000 with a .9% five year loan, and they include 3 year warranty and maintenance. Best deal on a 3 year old I could find was 20,000, no warranty, and I figure 4% for a 5 year loan.

Using a depreciation calculator for a car like that, I get that the 3 year old one would be worth 11,169 in 5 years, while the new one would be worth 12,863.

Total interest and depreciation for the brand new car would be 12,713 vs 10,911 for the used car. A savings of $1800 over 5 years. My guess is you'd come out behind after factoring in paying for 5 years of maintenance vs 2 years for the new car. Not to mention that having a car that is 3 years newer is worth at least a little intangible value to the owner.

hahaha, what a fun challenge!

Rapid depreciation is a well-known fact. Maybe you were looking at a car with a particularly high re-sale value, but the jury isn't out on this.

[Rathji]

Originally Posted by opendoor

But you have to pay income tax on rental income, so why not make the interest payments on the $20K tax deductible by borrowing the money for investment purposes? The tax deduction effectively drops the interest rate by 25-40% depending on the person's tax bracket. That puts a variable rate mortgage in the 1-2% range.

Obviously if you're getting money loaned for free that shifts the calculations, but from what I understand most 0% financing is at the expense of other possible discounts. Car dealers aren't in the business of losing money so they're usually getting you somewhere else to make up for the lost financing income.

That makes sense.

[Rathji]

Originally Posted by nfotiu

I challenge someone to prove that buying 2 to 3 years used cars really is a wise financial move. Every time I've looked into it, it is a wash at best.

Ie, I bought a tdi wagon new recently in the US. Brand new one was 25000 with a .9% five year loan, and they include 3 year warranty and maintenance. Best deal on a 3 year old I could find was 20,000, no warranty, and I figure 4% for a 5 year loan.

Using a depreciation calculator for a car like that, I get that the 3 year old one would be worth 11,169 in 5 years, while the new one would be worth 12,863.

Total interest and depreciation for the brand new car would be 12,713 vs 10,911 for the used car. A savings of $1800 over 5 years. My guess is you'd come out behind after factoring in paying for 5 years of maintenance vs 2 years for the new car. Not to mention that having a car that is 3 years newer is worth at least a little intangible value to the owner.

If the car really is worth 80% after 3 years, then you are right, it probably works out to about even.

My understanding is that a typical car loses about 50% of its value in the first 2-3 years after coming off the lot, so that changes things a lot.

[FlamesAddiction]

I bought a $12,000 used vehicle with my credit card before but then immediately transferred the money from my bank account to avoid any interest.

[opendoor]

Originally Posted by nfotiu

I challenge someone to prove that buying 2 to 3 years used cars really is a wise financial move. Every time I've looked into it, it is a wash at best.

Ie, I bought a tdi wagon new recently in the US. Brand new one was 25000 with a .9% five year loan, and they include 3 year warranty and maintenance. Best deal on a 3 year old I could find was 20,000, no warranty, and I figure 4% for a 5 year loan.

Using a depreciation calculator for a car like that, I get that the 3 year old one would be worth 11,169 in 5 years, while the new one would be worth 12,863.

Total interest and depreciation for the brand new car would be 12,713 vs 10,911 for the used car. A savings of $1800 over 5 years. My guess is you'd come out behind after factoring in paying for 5 years of maintenance vs 2 years for the new car. Not to mention that having a car that is 3 years newer is worth at least a little intangible value to the owner.

VW TDIs hold their value ridiculously well. 8-9 year old Jettas or Golfs that cost $20K new still cost $10-13K used (assuming they don't have a ton of KMs).

Different vehicles depreciate at very different rates. If you're looking for a minivan or a truck you can probably get one at half price after 3-4 years. If you're looking at some other types of cars you're looking at waiting 7-10 years before their value is cut in half.

[Bill Bumface]

Originally Posted by nfotiu

I challenge someone to prove that buying 2 to 3 years used cars really is a wise financial move. Every time I've looked into it, it is a wash at best.

Ie, I bought a tdi wagon new recently in the US. Brand new one was 25000 with a .9% five year loan, and they include 3 year warranty and maintenance. Best deal on a 3 year old I could find was 20,000, no warranty, and I figure 4% for a 5 year loan.

Using a depreciation calculator for a car like that, I get that the 3 year old one would be worth 11,169 in 5 years, while the new one would be worth 12,863.

Total interest and depreciation for the brand new car would be 12,713 vs 10,911 for the used car. A savings of $1800 over 5 years. My guess is you'd come out behind after factoring in paying for 5 years of maintenance vs 2 years for the new car. Not to mention that having a car that is 3 years newer is worth at least a little intangible value to the owner.

If we're cherry picking examples, then I'm going to pull out a car I know of that was bought in '08.

2004 Audi S4. Sold for just over $80,000 when the first guy bought it.

Resold in '08 (3.5 years old)
-40,000km
-bought from a dealer so CPO (2 more years of factory warranty bringing it up to 3.5 years of warranty for me, this obviously raises the sticker price).
-$41,000

Buying new the finance rate was actually worse than used, so we'll throw that out the window and go straight depreciation.

Buying a new one, 3.5 years later you've had $40,000 in depreciation.

Buying a used one, 3.5 years later that car was worth ~$23,000 still. Just finished the warranty.

That is a freaking huge difference.

[Dion]

Originally Posted by nfotiu

I challenge someone to prove that buying 2 to 3 years used cars really is a wise financial move. Every time I've looked into it, it is a wash at best.

Ie, I bought a tdi wagon new recently in the US. Brand new one was 25000 with a .9% five year loan, and they include 3 year warranty and maintenance. Best deal on a 3 year old I could find was 20,000, no warranty, and I figure 4% for a 5 year loan.

Using a depreciation calculator for a car like that, I get that the 3 year old one would be worth 11,169 in 5 years, while the new one would be worth 12,863.

Total interest and depreciation for the brand new car would be 12,713 vs 10,911 for the used car. A savings of $1800 over 5 years. My guess is you'd come out behind after factoring in paying for 5 years of maintenance vs 2 years for the new car. Not to mention that having a car that is 3 years newer is worth at least a little intangible value to the owner.

I bought a 2005 Ford Escape XLT back in 2008. It had 75,000 kms on the odometer and I paid $14,000 for it. Brand new it was worth $26,000 and change. That's a saving of $12,000 plus I got the balance of the warranty.

[Rerun]

No, in 2008 it was only worth $14,000, not $26,000

You didn't save any money. You just spent less.

No different than if Joe buys a Mercedes for $100,000 and I buy a Hyundai for $20,000. I can't go around saying I saved $80,000.

[stanleycup1989]

Originally Posted by albertGQ

Anyone here on CP able to buy a new car with cash? I'm not talking a beater for like $3k or less. But a brand new $20k+ car from the dealership

I've only bought one brand new car in my life but we had to finance it. 7 year term at only 0.9% interest rate.

So anyone ever pay cash for their brand new car?

Yup, twice.

[AMG_G]

Originally Posted by hulkrogan

If we're cherry picking examples, then I'm going to pull out a car I know of that was bought in '08.

2004 Audi S4. Sold for just over $80,000 when the first guy bought it.

Resold in '08 (3.5 years old)
-40,000km
-bought from a dealer so CPO (2 more years of factory warranty bringing it up to 3.5 years of warranty for me, this obviously raises the sticker price).
-$41,000

Buying new the finance rate was actually worse than used, so we'll throw that out the window and go straight depreciation.

Buying a new one, 3.5 years later you've had $40,000 in depreciation.

Buying a used one, 3.5 years later that car was worth ~$23,000 still. Just finished the warranty.

That is a freaking huge difference.

Buying new is a huge kick in the nuts for sure but I'm willing to lose 30k in 3 years knowing that no one shagged in my car. I paid about 88k for my car and would be lucky to get mid 50s if I sold now.

I did pay cash for my MDX since they gave me $7000 off at that time.

[Bill Bumface]

Originally Posted by AMG_G

Buying new is a huge kick in the nuts for sure but I'm willing to lose 30k in 3 years knowing that no one shagged in my car. I paid about 88k for my car and would be lucky to get mid 50s if I sold now.

There were dents in the back middle from the baby seat, so I thought I was safe. Oh god maybe that's where it was conceived too! No wonder they sprung for the power privacy shade!!!!

[Dion]

Originally Posted by Rerun

No, in 2008 it was only worth $14,000, not $26,000

You didn't save any money. You just spent less.

No different than if Joe buys a Mercedes for $100,000 and I buy a Hyundai for $20,000. I can't go around saying I saved $80,000.

I never said it was worth $26,000 in 2008. That price reflected what it was worth had someone bought it new back in 2005.

[blankall]

Originally Posted by Dion

I bought a 2005 Ford Escape XLT back in 2008. It had 75,000 kms on the odometer and I paid $14,000 for it. Brand new it was worth $26,000 and change. That's a saving of $12,000 plus I got the balance of the warranty.

75,000k is a lot of mileage for car that new. That's potentially half the life of the car and you're looking at some potentially large repairs in the next few years.

[Dion]

Originally Posted by blankall

75,000k is a lot of mileage for car that new. That's potentially half the life of the car and you're looking at some potentially large repairs in the next few years.

I put 300,000 kms plus on my last few vehicles so the mileage isn't a concern. Plus I got to see all the computerised service records that would indicate any possible past problems indicating a lemon and wether the oil was changed at the proper intervals. Other than new tires, regular tranny/coolant flushes and brakes it hasn't needed any repairs. Besides, the money saved not buying new will more than cover any possible repairs down the road.

[Red John]

It's one thing to say you saved money when buying a pre-owned car that's less than a year old. You still have the newest possible model and someone else took the initial depreciation (and couldn't have driven it much to offset that).

It's another to buy several years old and say you "saved money." No you didn't. You just bought a cheaper car which is that much closer to the junk heap - that's why it's cheaper.

[nfotiu]

Originally Posted by hulkrogan

If we're cherry picking examples, then I'm going to pull out a car I know of that was bought in '08.

2004 Audi S4. Sold for just over $80,000 when the first guy bought it.

Resold in '08 (3.5 years old)
-40,000km
-bought from a dealer so CPO (2 more years of factory warranty bringing it up to 3.5 years of warranty for me, this obviously raises the sticker price).
-$41,000

Buying new the finance rate was actually worse than used, so we'll throw that out the window and go straight depreciation.

Buying a new one, 3.5 years later you've had $40,000 in depreciation.

Buying a used one, 3.5 years later that car was worth ~$23,000 still. Just finished the warranty.

That is a freaking huge difference.

My point was that it's not always a slam dunk better way to go. Buying a 2 year old car off a lot, you lose a couple thousand too driving off the lot. All things considered, the two options are not far from being a wash in most cases I would bet.

You can get the car you want with a lower payment buying used and maybe help your cash flow, but in terms of the impact on your bottom line, it is probably close to the same 5 years down the road.

I get a little annoyed at the pretentious some show towards "anyone stupid enough to buy a new car". We all know cars are bad investments. I'd argue cars are not an investment any more than a stereo or tv are. Those don't hold their values worth crap either, but just because I bought my last tv off Craigslist, doesn't mean I call everyone who buys a new tv a dumbass.