If I have the cash to pay for a car outright should I do it? My inner Dave Ramsey is saying yes. But I know I've heard some say I could get a low interest rate and invest the money instead. That sounds enticing....but that is assuming I actually do invest the money and not just keep it in my bank account.

Curious what smart money people think. Despite having the cash I am not good at these types of things. I'm just cheap.

I ordered a new Telluride a few weeks ago and take delivery tomorrow. No way am I taking money out of the market when financing is almost free.

Low interest rate amd take 75% of the money and put it into crypto ((Sun when they dip belowthe following prices)).
This weekend's prices
60% Cardano ADA : $1.60/token
20% Vechain VET : $.23/token
20% Harmony ONE : $.13/token

Revisit thos thread and these prices Sept 30th.

Outdoorag011 said:

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I would finance it at a low interest rate. I also would normally say pay cash for it but with the way inflation is looking, having a low fixed interest rate is a good way to beat inflation.

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Not on a depreciating asset it isn't

TXTransplant said:

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I wondered this same thing the last time I bought a car in Oct 2017.

I had a budget ($50k) and stuck to it. I also had about $42k in my Fidelity investment account. By the time I traded in my older car, that was close to the amount I financed.

I paid the car off last Fall. Today that $42k is $67k (I have not added any additional funds, so that's pure market growth).

I realize my story is anecdotal, but I have no regrets financing the car.

Edited to add: I'm not an aggressive or particularly savvy investor. That money is just in a few index funds. The monthly payment on the car was $500, so I gained more than what I paid out over that 3 years, and pretty much broke even, maybe came out a little ahead, on the total transaction, factoring in what the car is currently worth. The difference is, if I'd paid cash and then just reinvested the equivalent of the car payment every month, I would have been starting from a 0 investment balance, which would not have earned as much.

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Compounding interest at work

I'll see what interest rate I get offered. I think paying cash and not having a car payment gives me the most peace of mind. But if I get offered some ridiculous low rate then I'll step out of my comfort.

I just refinanced my truck (after one payment with Ford credit) for 1.8% for 72 months with my credit Union.

Good rates can be had. Also, you pay so little interest on a car.

For example, my Ford credit rate was 3.7%. Dropping to 1.8% lowered my payment by $30. 30x12x6. ~$2200 in interest over 6 years isn't a lot to save by cutting your rate in half. The amort schedule is so short on vehicles that interest just isn't that big a deal, especially when comparing to what you can gain by keeping $50k in cash to invest or buy a new wife.

Frok said:

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I'll see what interest rate I get offered. I think paying cash and not having a car payment gives me the most peace of mind. But if I get offered some ridiculous low rate then I'll step out of my comfort.

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I think it's interesting what gives different people peace of mind. For me, financing gave me peace of mind, because the idea of taking roughly half of my cash savings and tying it up in a depreciating asset seemed like the riskier option. But a lot of that depends on the price point of the vehicle and how much you have in savings.

Frok said:

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I'll see what interest rate I get offered. I think paying cash and not having a car payment gives me the most peace of mind. But if I get offered some ridiculous low rate then I'll step out of my comfort.

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If it causes you any angst, I would just pay cash. Hopefully you aren't spending such a large percentage of your net worth on a car that it will really make a big difference to your overall finances either route you go so its not going to be worth losing any sleep over.

hypeiv said:

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ehrmantraut said:

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Outdoorag011 said:

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I would finance it at a low interest rate. I also would normally say pay cash for it but with the way inflation is looking, having a low fixed interest rate is a good way to beat inflation.

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Not on a depreciating asset it isn't

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Money is fungable so it's irrelevant what the collateral for the debt is. I.e. the car will depreciate the same regardless of if it is paid off or not.

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You're right, but having a low interest note on a car has no bearing on "beating inflation", which is what my comment was about.

From the automotive board. FYI

https://texags.com/forums/46/topics/3197687

I agree it has little to no effect based on timeline of a car note (3-6 years)... but if you want to hold low interest debt as a hedge against inflation, it is irrelevant what the collateral is, the only thing that matters is what the interest rate is.

If you view your finances as a balance sheet, the debt goes in like any other debt and the depreciate of the car goes in as any other deprecating asset. The fact they are linked doesn't impact the performance of those positions.

Yes it does have a bearing on beating inflation. Getting a 3% fixed rate and sticking your money either in the market or anywhere is a much better option right now. Most everyone can beat 3% annually. Stick the money in almost any index fund and you'll beat 3% easily. It being a depreciating asset is irrelevant because if I pay cash for it, my cash just lost 10% immediately. Also I if I finance the car, it loses 10% as well as soon as you leave the lot. So the question is are you comfortable carrying debt. I don't mind carrying car debt if I know I can pay it off at anytime I want. I'd rather invest it that money and make it work for me.

Diggity said:

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you can tell by some of the comments on here that it's been a long time since we've had an extended market correction.

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Depends on what your expectations are and if you're willing to hang on for the long-haul.

I originally opened my investment account (I think it was in 2014) to help offset my next car purchase and/or the purchase of a car for my son.

When the market tanked last March/April, my balance actually dropped back down to that $42k-ish mark. I panicked a little because I knew I wanted to pay off the car by the end of 2020. I didn't want my son driving something that wasn't paid for (he got his license in Dec).

That $42k was still about $10k more than what I had put in, so I pulled $10k out to make sure I had that available to pay off the car later in the year without having to tap into my emergency savings.

Turns out none of that was necessary because the market bounced back. And since I have no plans to buy another car anytime soon, I can leave that investment account alone to weather whatever ups and downs it may have.

The way I look at it, I can take money out of the market anytime I feel uncomfortable with the risk. I can't get money out of the car unless I sell it, and a $500/month payment is a pretty low expense for me.

Diggity said:

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you can tell by some of the comments on here that it's been a long time since we've had an extended market correction.

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Extended is the key word here. We haven't had a "long" term bear market since when?

2008

hypeiv said:

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I agree it has little to no effect based on timeline of a car note (3-6 years)... but if you want to hold low interest debt as a hedge against inflation, it is irrelevant what the collateral is, the only thing that matters is what the interest rate is.

If you view your finances as a balance sheet, the debt goes in like any other debt and the depreciate of the car goes in as any other deprecating asset. The fact they are linked doesn't impact the performance of those positions.

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Except I can't write off the depreciation of the car on my personal taxes like I could if it was a business (assuming average joe here with basic taxes)

Okay... The car still loses the same amount of value over time regardless of if you have debt against it. If you use debt to free up cash to earn more for you than the interest on the loan it doesn't matter if the collateral of the debt it on the car, or your house or anything else.