Buying a car, is better to buy it outright or make payments?

[remixer 1,645]

Finance 110% of the cost for the longest term possible.  If your a betting man the government and or the US dollar will collapse before you pay it off

[vjf915 456]

Right now leases are so low that is a very good way to go. Just do not run over the milage. every three years you have borrow a new car with full warranty..

Fixed.

[TheDon 3]

Ugh!  This thread was painful to read.  I gave up.

 

The answer to the OP's question is the logical AND between the following 3 conditions:

A. Current personal savings is greater than 3-months regular income plus the cost of the car

B. Plan to own the car more than 5 years, the longer the better. 

C. Best available finance rate is greater than ~3%

 

If A and B and C, then buy the car cash.  Otherwise, finance it. 

Never lease.  Leasing of middle class cars is the biggest scam ever contrived by the corporate robber barons and only makes poor people poorer.  Leasing only makes sense for expensive cars that hold their value over time. 

[bry@n 195]

Just make sure to test drive the new VW Passat TDI diesel before you buy. I just got one at 21k out the door...0.99 for 6yrs. 46 mpg and getting better every day. They are awesome.

Gonna have to look at em. Haven't looked at vw diesels since the Jett's tdi in 2006

[liquidskin 3]

Buy it used, with cash and run it into the ground. No other way for me.

 

Sent from my Galaxy Nexus using Tapatalk 2

 

 

[70gto 142]

Thank you gentlemen, I will see what they have to offer for financing first, I'm the kinda guy that just sleeps a little better with some cash in the bank even if I incur some debt.

[vjf915 456]

 

Never lease.  Leasing of middle class cars is the biggest scam ever contrived by the corporate robber barons and only makes poor people poorer.  Leasing only makes sense for expensive cars that hold their value over time. 

I'm no financial expert, so this is a request for knowledge, not challenging your knowledge.  Wouldn't leasing an expensive car that DOESN'T hold it's value be smarter?  Logically, if a car holds it's value, it makes sense to purchase it.  And if a car doesn't hold it's value, then you don't want to purchase it.

[Howard 538]

Ugh!  This thread was painful to read.  I gave up.

 

The answer to the OP's question is the logical AND between the following 3 conditions:

A. Current personal savings is greater than 3-months regular income plus the cost of the car

B. Plan to own the car more than 5 years, the longer the better. 

C. Best available finance rate is greater than ~3%

 

If A and B and C, then buy the car cash.  Otherwise, finance it. 

Never lease.  Leasing of middle class cars is the biggest scam ever contrived by the corporate robber barons and only makes poor people poorer.  Leasing only makes sense for expensive cars that hold their value over time. 

While I generally agree with you about not leasing a "middle class car", it really all depends on what they do with the residuals.  Leasing really is the same thing as financing except that at the end of term effectively you are selling the car at a predetermined price.  That predetermined price (the residual) is the key to if it makes sense or not.  Many times car companies are trying to maximize the sale of a number of units and set crazy high residuals to move units accepting the fact they will have to take a hit two to four years down the road when these vehicles come back and sell at auction for less than the residual.  For those not familiar with leasing you pay for the difference between the sale price and the residual plus the interest.  I did the in the late 1990'2 early 2000's with three sets of Mercury Mountaineers (Ford Explorer with higher level trim and different name plate) when I leased them for two years each.  It was the cheapest way of having this type of vehicle.  All I ever did with them was add gasoline and change the oil.

 

I once leased an Old's mini van that we knew we were going to put a lot of miles on, and that worked two.  At the time Olds, had a deal where you got the vehicle with 15,000 miles per year and if you went over you paid something like 20 cents a mile BUT they let you pre-pay for extra miles at 8 cents a mile.  Any miles over the 15K that you did not actually use they actually refunded at 10 cents each, yea you lost the time value of money but it was a great deal.

 

Other note on leasing - never tell them you want to lease up front.  Do your homework first.  First negotiate a cash price for buying the car outright.  Then when they go to write up the paperwork tell them wait, I want to lease it instead - make sure they use your negotiated price as the base price for the lease.

[Maksim 1,504]

Holy great discussion.

 

Leasing and financing is the same thing.  Difference is... you are financing over short term with a promise to sell back the car.

 

BMW's, Audis, Lexus, etc... you are stupid to buy instead of lease.  Why?  BMW in particular is notorious for subsidizing the residual (value they base off at time of lease expiration).  As such, you can get a loaded Lexus IS 350 F for about $348 a month, putting down a few security deposits.  Yep... $348 a month for a $50,000 Lexus for 3 years.

 

Domestic cars are horrible leases... why?  Because they are worth nothing at the end of the lease. As such, cheaper/financially to buy outright.

 

Other option Lease and buy it out at the end of term.

 

Furthermore, Leasing has extra perks for businesses.  Full write off as an expense, as opposed to financing where you do have to play with numbers. (consult accountant).

 

Overall. I hate "spending" money on a depreciating asset.  It is actually pretty cool to see a few clients of mine chime in on this thread, and they answered a few things I always preach.

 

When interest rates are this stupid low, i mean, look at Bryan's example of a 1.5% financing on a 60 month auto loan.  As long as you don;t blow your money you put away, there are much better things you can do to get 1.5%, especially over 5 years, hedged out, zero risk.

 

So because the rates are so low, if you can get them, no issues financing the thing.  If the rates were above 5% or so... I would say pay cash unless your risk free rate was higher than 5%... and even still. I hate borrowing money on a depreciating asset.

 

The other really good idea, buy a 2 or 3 year old slightly used certified car.  Let someone else take the 30% to 50% depreciation hit. 

[TheDon 3]

I'm no financial expert, so this is a request for knowledge, not challenging your knowledge.  Wouldn't leasing an expensive car that DOESN'T hold it's value be smarter?  Logically, if a car holds it's value, it makes sense to purchase it.  And if a car doesn't hold it's value, then you don't want to purchase it.

 

At a high level, the way a lease works is, the actuaries who work for finance companies calculate the projected value of the car at the end of the lease and subtract it from its new value and that amount is financed.  So the lesser the depreciation over the term, the better the deal. 

 

The major problem with leasing cars that cost less than $30K is that the service charges, origination fees, interest and other crap adds up to an order of magnitude that is meaningful compared to the amount financed.  The minor problem with leasing is that you do not own the car.  You never have a trade-in, you have no equity, and can become locked into a leasing cycle where you cannot afford to buy.  Remember, trade-in value is what makes buying new cars possible for most people. 

 

As Howard mentioned, if you are going to lease, do your homework.  Leases are sold by monthly payments, not total capital outlays.  So, they hide a lot of crap in them.  I have seen some lease offers from Nissan with effective finance rates in excess of 12%. 

[Maksim 1,504]

At a high level, the way a lease works is, the actuaries who work for finance companies calculate the projected value of the car at the end of the lease and subtract it from its new value and that amount is financed.  So the lesser the depreciation over the term, the better the deal. 

 

The major problem with leasing cars that cost less than $30K is that the service charges, origination fees, interest and other crap adds up to an order of magnitude that is meaningful compared to the amount financed.  The minor problem with leasing is that you do not own the car.  You never have a trade-in, you have no equity, and can become locked into a leasing cycle where you cannot afford to buy.  Remember, trade-in value is what makes buying new cars possible for most people. 

 

As Howard mentioned, if you are going to lease, do your homework.  Leases are sold by monthly payments, not total capital outlays.  So, they hide a lot of crap in them.  I have seen some lease offers from Nissan with effective finance rates in excess of 12%. 

 

While I do agree with you... lets be honest... how many people finance a car, putting little down, you are absolutely upside down on your equity day one. I have a client who owns a Toyota dealership, and the vast majority of the folks coming in with a financed car... are upside down, with zero equity.

 

The only time financing really makes sense is if you buy your car, and drive it till it breaks apart.  Most folks keep their cars less than 5 years, particularly in this area.  Look in the example I gave above.

 

$350 a month for a Lexus IS 350, with a few security deposits (which you get back) (used to lower the rate)..... with zero warranty issues, zero maintenance, etc.... or you going to finance say a $30k GM Vehicle for $500 a month, that the day you drive it off the lot, you are driving a $24k GM vehicle.  

 

The only way to beat the car is a waste of money argument is by having the car way past its pay off.... or you really want a domestic vehicle which has a crappy residual value.

 

Leasing while you may not build equity in your cars.... you will not be upside down and owe more on the car than it is worth.  But if you are worried about what your car is worth, go buy a junker for $2k and save the rest of the money.  Buying a new car is not about saving money (leasing or financing).  It is nothing more than an expense, and the only factor to worry about is.... what will end up costing me less.

 

So my wife wants a newer vehicle, and not have to worry about maintenance.  She has a 2012 Honda Accord, zero out of pocket for $245 a month.  Lease.  If we want to keep it, we can at lease end.  Very very very good rates.  Loaded car.  $25k sticker price or so.

 

I was ok doing maintenance and I ran into an amazing deal for my BMW.... so I bought it as an 09 in 2011... letting someone else take the hit.  I paid mid to high 20's on a 2 year old BMW with a $46k sticker price on it with 17k on the odometer.  Was too good a deal to pass up.  financed that one for about 2.5% on a 72 month.... free money considering I had the money allocated for the car sitting in fairly safe investments earning over 8%.  

 

So... you really have to look at it on a case by case basis.

 

 a Lease is STILL a purchase.  You do negotiate the purchase price of the car.  The dealer will focus on the monthly payment as well, quite frankly most of the people shop based on if they can afford the monthly payment, not the entire purchase.

 

No matter if you are buying or Lease... you negotiate the purchase price of the car... knowing what the residual rate and interest rate is supposed to be... with those numbers you can compute the monthly payment.  There should be NO surprises.  The cars have posted Money Factors (interest rate on lease) and Residuals.  Dealers who want to scam you, will not tell you those numbers and play with the math.  YOU HAVE to know those numbers.

 

There are plenty of good lease calculators out there, and go visit Edmunds prices paid forum, where you can see what the residual rate is, along with money factors.

 

To a dealer, it does not matter if you buy or lease.  it is still a sale.

 

Financing = you borrow money to pay off over 5 years or so, you keep it.

Leasing = you borrow only the difference between the purchase price and the posted value your car will be worth with x amount of miles and x amount of years down the line.

 

You are still buying.

[vladtepes 1,060]

I just got a 2010 VW GTI

 

18K miles

2yr 25k mile warranty

2.9 financing

put a little over 25% down

 

 

VERY happy with this car.. 

[TheDon 3]

<snip>

The only time financing really makes sense is if you buy your car, and drive it till it breaks apart.  Most folks keep their cars less than 5 years, particularly in this area.  Look in the example I gave above.

<snip>

 

I admit that I am prejudiced because I never owned any car for less than 10 years (except for the one I totaled as a kid, but that is different). 

I agree the math does work if you would be buying a new car every 3-to-5 years anyway.  That is IF, and this is a big IF, you do your homework and don't get taken for a fool by the finance officer at the car lot.  As I said above, I did the math on my niece's Nissan and she had an effective finance rate of over 12%. 

[Howard 538]

As has been said very well here by several, do your homework.  Car sales people are right up there with politicians in terms of lack of honesty, sorry if I insulted any politicians  

 

Bottom line all you care about is what is your total cost over "x" number of years, pick the method (cash purchase, finance, or lease) that gives you the lowest cost.

[Maksim 1,504]

I admit that I am prejudiced because I never owned any car for less than 10 years (except for the one I totaled as a kid, but that is different). 

I agree the math does work if you would be buying a new car every 3-to-5 years anyway.  That is IF, and this is a big IF, you do your homework and don't get taken for a fool by the finance officer at the car lot.  As I said above, I did the math on my niece's Nissan and she had an effective finance rate of over 12%. 

 

See, you do it smart.  Most folks don't. =)

 

Yes, on short term leases, if you factor all in... essentially the big one is if the lease company adds in security deposit, acquisition or lease turn in fees.

 

It varies company to company.  Some will have it, some will not.  Some will offer breaks if you are a returning leasee. 

 

Moral of story, dooooo homework. =)

[71ragtopgoat 23]

 

The other really good idea, buy a 2 or 3 year old slightly used certified car.  Let someone else take the 30% to 50% depreciation hit. 

Just did this with a Loaded 2011 Mustang Cali special convertible with 19K on it. Got 50% discount off the original list price!

[Newtonian 453]

IMO it depends on whether you're a borrower or a saver. You're not going to make much money on the "float" no matter what the interest rate is. If you're a saver you get it out of the way, drive safely and take it off collision as soon as you can. If God forbid you have a mishap it will probably be the other guy's fault.

[Holeshot 3]

Just did this with a Loaded 2011 Mustang Cali special convertible with 19K on it. Got 50% discount off the original list price!

 

Nice car at a nice price!

 

I love Domestics!   2 years old with 20K  and like you said a 50% discount!  Can't beat that.

[mustang69 505]

Im in the market for a newer car, I have been saving for years. Is it better to write the dealer a check for the full amount or give half down and finance the rest? The answer would be obvious if I had "extra" money. Write a check = no payments but little left over or give half, and finance the rest = cushion in the bank. I know it would depend on the interest rate, maybe i'm cheap but its hard to let go of a big chunk of change all at once.

Thanks in advance.

The answer here depends on things you haven't included.

 

Mainly, is this the only savings you have or is it "extra" money?

 

If you have no other savings and still needed to buy the car I would finance, almost regardless of the interest rate because you need a cash cushion.

 

If you have other savings, then it comes down to the finance interest rate and other incentives.  If the dealer offers a rebate instead of financing, pay cash and take the rebate.  If you get a rebate only if you finance, then take the loan.  You can always pay the loan off early.  You can rarely borrow more later.

 

All this assumes the low interest rates available today.  If you have bad credit or cannot get a cheap loan, then I would pay cash.

 

Good Luck

[70gto 142]

I have more savings, but usually more is better. I think the interest rate will be the deciding factor.

[Underdog 1,593]

It would be better to buy a 2-3 year old "trade in" in good condition from a private buyer than to finance a newer car.  The amount of money you lose when you take the car off the lot isn't worth the new-car smell.  However, you will probably get a lower finance rate on a newer car. 

[bry@n 195]

I agree with what most has said. I prefer to buy a new vehicle because I know it's history. Especially with a sports car. Just my opinion.

 

I put way too many miles in a vehicle to lease. In two years I'm around 50k.

 

Getting back to buying used, I know many people that never follow service intervals when leasing. Specifically oil changes. Only way I would buy used is if I knew the vehicle, knew the person selling it and it there was a substantial amount of records that made me feel good.

[ryan_j 0]

I did 0% for our last vehicle. No brainier.

[tony357 386]

And payments that never end.

 

If your budget and your mindset allows that, more power to you!

here is how i figured it, i have purchased 6 vehicles and owned them to term, after warranty was up almost all of them had repairs totaling more than a years worth of payments each year. trade in is a joke your not getting anything back. so if i am going to spend the money in repairs any way i might as well be driving a new car..

Plus the lease is in the busines name so i can write it off.. 

[bry@n 195]

I did 0% for our last vehicle. No brainier.

 

When this is offered, there is also pretty good rebates. I look both ways but almost always if your credit is good, it's better to take the rebates.

[ryan_j 0]

When this is offered, there is also pretty good rebates. I look both ways but almost always if your credit is good, it's better to take the rebates.

 

Oh I got a good price. There really weren't any rebates as Toyota didn't offer them. "American" mfgs like GM and Chrysler tend to offer more rebates and incentives. My credit is 800+

[bry@n 195]

Oh I got a good price. There really weren't any rebates as Toyota didn't offer them. "American" mfgs like GM and Chrysler tend to offer more rebates and incentives. My credit is 800+

 

I hear ya. I'm over 800 also.

[71ragtopgoat 23]

Nice car at a nice price!

 

I love Domestics!   2 years old with 20K  and like you said a 50% discount!  Can't beat that.

Yeah got it for about wholesale. Cash is king when dealing with personnel sellers. Nobody has cash. Did you know in an economic downturn people needing loans buy more new cars then people with cash. Its the only way they(broke people) can buy cars.People with cash sit on it. The Mustang is a second car to me . If it were my primary I recommend buying a Honda and driving it till the wheels fall off.

I bought a used 05 in 07 with 25 k on it. I now have 156k on it with not one issue and 32 mpg @70 mph. Sure its not current and trendy but the best part is still yet to come.

I can park it anywhere and dont have to worry about dents and such anymore. Plus the insurance is dirt cheap. They get better as they age. Love Honda

[Bob2222 316]

I pay cash. I like cars. They're a hobby. This keeps me from getting too spendy on cars.

 

If I can't afford something, I can't afford it. I think it's reasonable to finance an investment -- school, a business or a house. But not a depreciating asset like a car.

 

If my hand were to quiver writing out the check, it would mean the car would cost more than I'd be comfortable spending. Which is (I think) where the OP is coming from. I would NOT want to have my savings sitting out in my driveway, rusting away.

 

I know luxobrands like Audi, Mercedes and BMW seem to massage their accounting to come up with their lease rates. Or at least they seem to have a lot of customers who lease. However, my back-of-the napkin calculation on my BMW shows me it cost me about $415/month for depreciation and the extended warranty I purchased. The current model leases for $449/month "well equipped" (not really) all plus the charges in the fine print. I checked almost every box on the options list when I ordered mine, except for an automatic transmission. I'm guessing it was about 10% cheaper for me to buy than to lease.

 

Even if it weren't, I'd still rather drive an old Toyota Corolla than a new BMW and have a car payment.

 

Just as long as the Corolla has a stick shift.

 

http://www.consumerreports.org/cro/2012/12/buying-vs-leasing-basics/index.htm

 

 

[Holeshot 3]

I agree with what most has said. I prefer to buy a new vehicle because I know it's history. Especially with a sports car. Just my opinion.

 

I put way too many miles in a vehicle to lease. In two years I'm around 50k.

 

Getting back to buying used, I know many people that never follow service intervals when leasing. Specifically oil changes. Only way I would buy used is if I knew the vehicle, knew the person selling it and it there was a substantial amount of records that made me feel good.

 

I wish buying a new vehicle always meant you knew it's history but unfortunately that is not always the case either.

 

Also sound advice on buying used. Service records at the very least are a must but knowing the person/vehicle is a huge plus.