Car dealerships need to pull their heads out of the 80's

[hellishhorses]

I pay cash for my cars. If I can't afford to pay cash, I can't afford it. Same with our next house. Credit is a sucker's game. If you could have back all the interest you've paid on financed goods or all the extra cash you've given away, just so you could finance and take it home today (even at 0%) you'd have a better return on investment then any stocks, bonds or mutual funds available.

 

[Mreed911]

(even at 0%)

While I agree with you in practice and sentiment, I do need to point out the math error here.

Financing for five years at 0% is cheaper than paying the same amount up front.

Why? Time-value of money. If they're giving me 5 years to pay off $30,000 at 0%, they're actually taking less than $30,000 in "today's money" given that you could be earning interest on the entire sum starting from today. In translation, I'm "saving" paying them that money (either to due inflation or due to investing and earning a return, possibly both). Linearly, $30,000 in five years is about $26,500 today (at 4%), meaning if I take that $26,500, invest at 4% and pay the loan from there (assuming one large payment at the end), I've paid $26,500 for a $30,000 car.

Obviously making payments changes that figure (makes my savings less), but it's not insignificant. The problem is I can't negotiate that with the dealer because they're getting their money from the finance company up front, so it's no different to them. The finance company is hoping I'll do something to cause my 0% rate to increase (miss a payment, etc.), and statistically enough do to make it worthwhile to offer that.

 

[Brains]

You are absolutely correct. Buying cars for cash is convenient, but is not the best use of your money.

 

[TexasBrandon]

My general methodology is buying based on price. If I can afford it in cash then I can afford the vehicle. I always finance regardless. If something ever came up, such as my current situation and being unemployed I'm not down however many grand I put on the vehicle. If I had too, I could still pay it off. I'd rather put my money elsewhere while financing a vehicle at 0-3% over 36 months.

 

[TheDan]

I used to pay cash for everything, but don't anymore. Your money is worth more today than it is tomorrow, and it'll probably get worse in the near future. Any financing below 3% is free money these days. Depending on your perspective it might even be worth it at even higher rates. It's kind of a dangerous gamble on something important like your home, but on something frivolous like a new car who cares.

 

[peeps]

While I agree with you in practice and sentiment, I do need to point out the math error here.

Financing for five years at 0% is cheaper than paying the same amount up front.

Why? Time-value of money. If they're giving me 5 years to pay off $30,000 at 0%, they're actually taking less than $30,000 in "today's money" given that you could be earning interest on the entire sum starting from today. In translation, I'm "saving" paying them that money (either to due inflation or due to investing and earning a return, possibly both). Linearly, $30,000 in five years is about $26,500 today (at 4%), meaning if I take that $26,500, invest at 4% and pay the loan from there (assuming one large payment at the end), I've paid $26,500 for a $30,000 car.

Obviously making payments changes that figure (makes my savings less), but it's not insignificant. The problem is I can't negotiate that with the dealer because they're getting their money from the finance company up front, so it's no different to them. The finance company is hoping I'll do something to cause my 0% rate to increase (miss a payment, etc.), and statistically enough do to make it worthwhile to offer that.

Don't forget taxes on that 4% interest. Because "you didn't build that". And, risk of loss on the invested money. Cash is king, but I see the point about cheap financing. If you're going to do that, make sure you have plenty of cash reserves.

To OP, sorry about your deal. The world is cutthroat and full of incompetence, and who knows, maybe you got both!

 

[Bozz10mm]

While sitting in his office, I've actually had a car salesman at a GMC dealership say to me "Why do people try to negotiate the price on a new car? If you go into a clothing store, you don't try to talk the salesman into giving you a lower price on a suit, do you?" I was a bit stunned and felt slightly insulted. I told him if the suit cost $22,000, I would definitely try to negotiate it down. It was his way of saying "We ain't budging on the price".

So, out the door I go. That was in 1995. In 1979, pretty much the same thing at a Datsun dealer in Austin. Trying to buy a B210, the guy says "That's the price, take it or leave it. If you don' buy it, someone else will".

In 2006, looking for a slightly used SUV online. Found a Chevy dealer in Round Rock with what I wanted, and a $500 printable coupon on the website. $500 off any used car on the lot. That's what it said. That didn't work out either. Wouldn't accept it. Said it didn't apply to that vehicle, because the price was already marked way down. About 20 grand for a 3 year old, low mileage, Eddie Bauer Expedition.

I really hate buying new cars, or even used cars, from a dealer.

 

[sidebite252]

Most car dealers are snakes. I know of only 1 or 2 that would half ass shoot straight with me. Last vehicle I purchased was for my mother and the deceptive tactics that the salesperson used were amazing. Either they just assume we're all dumber than a sack of nails or they are encouraged to be that way. I'd rather eat glass than purchase a new vehicle.

 

[karlac]

With the price of cars going up, mine's worth more and more in terms of what I'll invest in repairs. Resale value is somewhere over $6,000 on my 2008 Mazda Tribute V6 w/185K miles, which is effing incredible. Replacement cost for a used vehicle, newer, would be around $12K. New more than twice that (I'd have to move to the Escape since the Tribute isn't made anymore).

That '13 RAM mentioned above, bought in early '14, is now BB listed as worth roughly $1100 more than I paid CarMax ...

 

[Younggun]

Truck values have gone way up since fuel prices have gone way down.

If you wanna cash in on the equity, sell before gas prices go up again.


Sent from my HAL 9000

 

[grasshopperglock]

While I agree with you in practice and sentiment, I do need to point out the math error here.

Financing for five years at 0% is cheaper than paying the same amount up front.

Why? Time-value of money. If they're giving me 5 years to pay off $30,000 at 0%, they're actually taking less than $30,000 in "today's money" given that you could be earning interest on the entire sum starting from today. In translation, I'm "saving" paying them that money (either to due inflation or due to investing and earning a return, possibly both). Linearly, $30,000 in five years is about $26,500 today (at 4%), meaning if I take that $26,500, invest at 4% and pay the loan from there (assuming one large payment at the end), I've paid $26,500 for a $30,000 car.

Obviously making payments changes that figure (makes my savings less), but it's not insignificant. The problem is I can't negotiate that with the dealer because they're getting their money from the finance company up front, so it's no different to them. The finance company is hoping I'll do something to cause my 0% rate to increase (miss a payment, etc.), and statistically enough do to make it worthwhile to offer that.

Damn. You're sharp.

 

[Mreed911]

Bozz10mm - I do in fact negotiate on clothing if I'm purchasing more than just one thing (and even then I ask about discounts/coupons). Same with furniture or any major purchase.

 

[grasshopperglock]

I'm a credit ghost. Which is bad and good.

To purchase a vehicle I have to go two ways. Use my bank and buy 1/2-3/4 of the loan up front through down payment. The remaining balance is placed in a CD money market for the duration of the loan.

Option two. Same thing but no CD. Dealership sponsored bank. I'll have to buy the risk off the loan and a low interest. Again, upfront through down payment. The kicker is that the dealership lender will require more risk purchased verses the bank. No funds locked in a CD that pays a pathetic .05%.


Financed for a max of 48 months. My credit will be golden within 2-3years. Then it's house time.

 

[hellishhorses]

While I agree with you in practice and sentiment, I do need to point out the math error here.

Financing for five years at 0% is cheaper than paying the same amount up front.

Why? Time-value of money. If they're giving me 5 years to pay off $30,000 at 0%, they're actually taking less than $30,000 in "today's money" given that you could be earning interest on the entire sum starting from today. In translation, I'm "saving" paying them that money (either to due inflation or due to investing and earning a return, possibly both). Linearly, $30,000 in five years is about $26,500 today (at 4%), meaning if I take that $26,500, invest at 4% and pay the loan from there (assuming one large payment at the end), I've paid $26,500 for a $30,000 car.

Obviously making payments changes that figure (makes my savings less), but it's not insignificant. The problem is I can't negotiate that with the dealer because they're getting their money from the finance company up front, so it's no different to them. The finance company is hoping I'll do something to cause my 0% rate to increase (miss a payment, etc.), and statistically enough do to make it worthwhile to offer that.

If you have cash, you don't pay that $30,000 or the $26,500 either. I've bought six $30,000 trucks in the last two years that I only paid $21-22,800 for. Much greater savings than the $3,500 you're earning on your financed investment. You don't have that kind of leverage when you're financing.

 

[mroper]

If you have cash, you don't pay that $30,000 or the $26,500 either. I've bought six $30,000 trucks in the last two years that I only paid $21-22,800 for. Much greater savings than the $3,500 you're earning on your financed investment. You don't have that kind of leverage when you're financing.

This depends on the time of year and the vehicle you are buying. If you go through the GMAC or Chrysler credit corp etc. They sometime have special incentives to purchasers who finance.

 

[Younggun]

Why not just go on and offer a cash price, if they accept go to the bank and get a low interest loan for this awesome cash price deal you just got, take the 21k to the dealer and leave with 30k truck, pay bank on low interest loan saving 2k due to inflation, benefit from both sides.


Sent from my HAL 9000

 

[hellishhorses]

Why not just go on and offer a cash price, if they accept go to the bank and get a low interest loan for this awesome cash price deal you just got, take the 21k to the dealer and leave with 30k truck, pay bank on low interest loan saving 2k due to inflation, benefit from both sides.


Sent from my HAL 9000

This makes a little more sense. However, consider that the bank is giving you a 2-3% interest rate, that only negates the rise in inflation — it still doesn't get you any better of a deal. To earn more interest than the loan, you'd have to put that capitol into a CD, money market, mutual fund, etc. Which means you can't touch it, meaning you can't make your monthly payment with it. So you're not really saving/earning anything.

If anything, you've broken even, except now you're handcuffed to the inconvenience of a monthly payment. And remember all that cash you saved to buy the car outright? You were earning interest on that the whole time

 

[hellishhorses]

Why not just go on and offer a cash price, if they accept go to the bank and get a low interest loan for this awesome cash price deal you just got, take the 21k to the dealer and leave with 30k truck, pay bank on low interest loan saving 2k due to inflation, benefit from both sides.


Sent from my HAL 9000

P.S. They will never accept the cash price unless you have the check/cash on the table...

Until they see the cash, you're just blowing smoke.

 

[grasshopperglock]

Special order. 70 days for dodge to build it. $1000 deposit.

Now we wait.

 

[ZX9RCAM]

Special order. 70 days for dodge to build it. $1000 deposit.

Now we wait.

Awesome!