Author Topic: Is it actually better to get a car loan than pay cash in the US now?  (Read 10479 times)

daverobev

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Just curious. I was arguing, generally, 'never get a car loan' when I got this reply:

http://www.reddit.com/r/churning/comments/2w7qlb/is_there_a_point_where_hard_inquiries_arent/cophn1w

I read something about auto loans being the new bubble (ie, they are packaged and sold off as class A investments), thus making it more lucrative to get loans out there even if they won't be paid off. So a cash incentive upfront...?

Is it true, though? Can a person with a good credit score actually get a car loan at a lower rate than a mortgage?

Here in Canada it is always true, AFAIK, that a cash discount will get you a lower price than financing, but this person is saying the opposite is true. Thoughts?

alsoknownasDean

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #1 on: February 19, 2015, 07:11:02 PM »
Not if the availability of finance causes you to buy more car than you need.

kendallf

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #2 on: February 19, 2015, 07:15:05 PM »
I did this on my wife's car; loan is at 1.75%.  Somebody else in your link mentions the catch, which is insurance.  I would've gotten comprehensive on my wife's car anyway, so I financed it.  I just bought another Prius for myself, and I paid cash for it because I didn't need comprehensive on both cars.  The insurance savings was worth the cash hit, even at 1.75% finance rates.

Edit: 1.35% on used cars to 36 months currently! 

http://www.vystarcu.org/home/rates/consumer
« Last Edit: February 19, 2015, 07:16:41 PM by kendallf »

rmendpara

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #3 on: February 19, 2015, 07:44:57 PM »
Great point above. So long as you don't get stupid and buy more car than a you would have if you paid cash, then yes, financing at <1.5% is a no brainer.

Even if you are liquid, it's an interesting way for debt arbitrage... Like if you have a mortgage at even 3.5%, simply use the extra cash to pay down your mortgage and then keep laying the minimum on the car.

daverobev

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #4 on: February 19, 2015, 09:03:13 PM »
Crazy rates. I guess I can get similar by using margin. I wonder if I would take money out of my brokerage and use it to reduce my mortgage. We're only allowed 15% of the total mortgage as lump sum overpayments, though.

Interesting/crazy for the car loans really, when you factor depreciation. I mean, crazy risk for the lender, as a borrower - yes assuming you're not going to buy that F250 rather than a Civic - it's pretty clear financing is smarter.

Syonyk

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #5 on: February 19, 2015, 09:29:11 PM »
We got a $500 Mazda Loyalty discount by going with a loan instead of paying cash. Then paid it off in a few months. So that was worth it.

KMMK

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #6 on: February 20, 2015, 05:11:58 AM »
3 years ago in Canada we were prepared to pay cash but were told the price was the same either way. So we financed it at 0.9%. Maybe we're just poor negotiators? Or it depends on the dealer. I don't know.

Ricky

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #7 on: February 20, 2015, 06:17:11 AM »
3 years ago in Canada we were prepared to pay cash but were told the price was the same either way. So we financed it at 0.9%. Maybe we're just poor negotiators? Or it depends on the dealer. I don't know.

Dealers could care less if you're paying cash or financing. They get their money immediately either way. As soon as you mention paying cash, they know you're naive to this and probably cut off any possible deal in their mind.

Mississippi Mudstache

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #8 on: February 20, 2015, 06:19:23 AM »
3 years ago in Canada we were prepared to pay cash but were told the price was the same either way. So we financed it at 0.9%. Maybe we're just poor negotiators? Or it depends on the dealer. I don't know.

Dealers could care less if you're paying cash or financing. They get their money immediately either way. As soon as you mention paying cash, they know you're naive to this and probably cut off any possible deal in their mind.

Not true. Dealers get kickbacks for signing you up for a loan. It's definitely to their advantage. I found it nearly impossible to pay cash when I bought a used Prius from a dealership in 2010. I hope it will be at least 3 more years before I need to go car shopping again. But if I were offered financing at 0.9%, I would probably take the loan. Rates were still around 4% when I bought.

Mutton Chop

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #9 on: February 20, 2015, 07:19:02 AM »
In my opinion, there is no cut and dry answer whether it is okay to finance or not.  It depends on where you are at financially.

If you have the money in the bank to pay off the car at any point, not a big deal if that's what you want.

If you're just out of school and finance the car with no money in the bank, you've committed money you haven't earned yet and exposed yourself to financial risk should life take you in a different direction. 

Personally, I am more aligned with Dave Ramsey on this topic (no car debt).  We're 29 and 27 years old and trying to build our stache.  I bought a car when I graduated from school with a loan over $15,000,  (I had no idea what I was doing and had no money) and it'll be paid off in a few months, thank goodness!  Never again.  When you're just getting started and have to shell out $300 / month for a loan, it's quite a burden and frankly made me hate the car. 

On a side note, in casual conversation with people, I've heard a few times "how nice it was not to have a car payment" for six months before they went out and bought another car.  If you keep trading up cars and always have a car payment, I consider it a burden unless you've got a mega stache!  Best Wishes.

boarder42

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #10 on: February 20, 2015, 07:22:19 AM »
wife's car is 1.9% my car is 3.75% our mortgage is 3%... yes its possible and easy to come by.  i will always finance a car if rates are like this... i'd rather let my money grow. 

JLee

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #11 on: February 20, 2015, 07:24:38 AM »
My car loan rate is even lower than my mortgage. Given that, it's hard to argue paying cash.

Left

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #12 on: February 20, 2015, 07:58:00 AM »
I bought a used subaru outback last year at 0.9% for 4 years, I'll pay it off then, and I'm currently planning on it being my "last" car until retirement

yes it is bigger/more than I need currently, but for my future self, 4 years of paying a loan for an ER of no car long and no need to upgrade, I'll do it while I'm working

plus I put the money that I would buy in cash in bonds for a better yield, didn't want them in stocks because I didn't want it's value to drop in case loan needs it. Yes, I get hit by the dividend tax, but it's still better than if I wasn't investing it
« Last Edit: February 20, 2015, 08:00:27 AM by eyem »

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #13 on: February 20, 2015, 09:53:12 AM »
I paid cash for my car because I didn't want to deal with payments.

But in my negotiation, I knew not to mention how I was paying until I signed the paperwork.  Dealers WANT you to take out a loan. There is no such thing as a cash discount anymore.

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #14 on: February 20, 2015, 09:56:36 AM »
They don't typically offer those sub 3% deals on the year models I buy!

Added:  I just checked the credit union which typically has the best rates.  If I were buying my last car today the rate would be 4.75%, the one before that they wouldn't have financed because it has a salvage title.
« Last Edit: February 20, 2015, 10:00:24 AM by So Close »

MustachianAccountant

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #15 on: February 20, 2015, 09:58:36 AM »
I would think that the savings on a private sale would outweigh any savings that might be leveraged through dealer financing.

kudy

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #16 on: February 20, 2015, 10:05:37 AM »
Not all financing is through the dealer; I think a lot of the promotional rates are through a dealer, but it's possible to arrange a car loan yourself, for any car purchase (used/new, private/dealer).

DoNorth

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #17 on: February 20, 2015, 10:15:43 AM »
I used a 3 year, 0.59% rate on my vehicle.  Using USAA allowed me to take advantage of cash incentives that I wouldn't have otherwise received if I used dealer financing.  did something similar with my mortgage.  It was 5.75% on a 30 year note; paid it down as much as I could, then took a CC convenience check and wiped out the last $25K with a 1.9% 12 month promotional rate.  Very likely that these rates won't be around by the end of the year.

« Last Edit: February 20, 2015, 10:19:03 AM by DoNorth »

boarder42

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #18 on: February 20, 2015, 10:29:07 AM »
I would think that the savings on a private sale would outweigh any savings that might be leveraged through dealer financing.

you dont have to dealer finance.  i buy all my cars private party and finance through banks and credit unions shopping for the lowest rate.

MoneyCat

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #19 on: February 20, 2015, 10:37:37 AM »
I actually got a $1000 cash incentive to take a 0% financing deal from the dealer and then just paid the entire amount off a month later, since there was no early payment penalty.

Sibley

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #20 on: February 24, 2015, 11:45:47 AM »
In December I bought a new 2014 Ford Focus, financed it. The rate is under 2% (can't remember the exact rate). In January I found MMM... oh well, I'll have a good car for a long time. However, I plan on paying it off within the next 2 years.

daverobev

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #21 on: February 24, 2015, 11:49:58 AM »
In December I bought a new 2014 Ford Focus, financed it. The rate is under 2% (can't remember the exact rate). In January I found MMM... oh well, I'll have a good car for a long time. However, I plan on paying it off within the next 2 years.

Why, though - either sell the car and buy something cheaper, or pay the minimums and invest the money..?

Villanelle

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #22 on: February 24, 2015, 11:54:30 AM »
Just curious. I was arguing, generally, 'never get a car loan' when I got this reply:

http://www.reddit.com/r/churning/comments/2w7qlb/is_there_a_point_where_hard_inquiries_arent/cophn1w

I read something about auto loans being the new bubble (ie, they are packaged and sold off as class A investments), thus making it more lucrative to get loans out there even if they won't be paid off. So a cash incentive upfront...?

Is it true, though? Can a person with a good credit score actually get a car loan at a lower rate than a mortgage?

Here in Canada it is always true, AFAIK, that a cash discount will get you a lower price than financing, but this person is saying the opposite is true. Thoughts?

The only time I've ever had a car loan is when DH bought a car and got .9%.  We figured we were better off having that and investing.  In the end, after a few months, we paid it off anyway, simply because I hated the idea of having debt, despite the fact that it was probably better for our bottom line not to.

The other factor here is that in order to get car loans with the great rates, you usually have to buy a new car.  And as we all know, that's not the best choice. 

johnny847

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #23 on: February 24, 2015, 11:59:01 AM »
My friend got a 0% 3 year loan on her Nissan Altima (or was it Maxima...*shrug*). She said she could have gotten a 5 year loan.

When I first heard this, I thought, no brainer, just get the loan. I mean, even if she didn't earn any interest on the money she had to pay in cash, as long as there's inflation she's still making money in real terms.

But what I later learned was the loan provider mandated she get comprehensive insurance. She planned on getting it anyway, so it made no difference to her. But it will make a difference for people who don't want comprehensive insurance (I wouldn't....insurance is a waste of money if you can cover the catastrophic scenario).

SK Joyous

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #24 on: February 24, 2015, 01:03:50 PM »
We ABSOLUTELY finance our vehicles, because we have always been able to get 0% rate.  Even the cash purchase price only knocked off $500-1000, and investing the cash for the 4 years of the loan will make us way more than that, plus it gets the benefit of compounding.  No insurance or any weird things like that either, just 0% financing.  We have done that with the past few vehicles, and then save up the money for the years between when the payments are done and the next vehicle purchase so we have the cash to pay if there isn't 0% financing offered (there always has been though, we just wait for it).  I don't see any downside to this at all, and I think it's put us further ahead for sure.

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #25 on: February 24, 2015, 01:13:47 PM »
My friend got a 0% 3 year loan on her Nissan Altima (or was it Maxima...*shrug*). She said she could have gotten a 5 year loan.

When I first heard this, I thought, no brainer, just get the loan. I mean, even if she didn't earn any interest on the money she had to pay in cash, as long as there's inflation she's still making money in real terms.

But what I later learned was the loan provider mandated she get comprehensive insurance. She planned on getting it anyway, so it made no difference to her. But it will make a difference for people who don't want comprehensive insurance (I wouldn't....insurance is a waste of money if you can cover the catastrophic scenario).

Even if you do have comprehensive, it can be to your benefit to not have a loan. Here's my story:

In 2013, we owed about ~$5,000 on a 2007 Prius. We had comprehensive/collision with $1000 deductible. In March of that year, we had a hailstorm that left some nasty dents in the car. But they were purely cosmetic - no glass was broken. The insurance company sent us a check for $1200, so we decided to pocket the money rather than get it repaired. However, since we had a loan, the bank wouldn't sign off unless we could prove that we repaired the car. So, we paid off the car, the bank sent us the title and signed off on the check, and we pocketed the $1200.

I really don't care to have another car loan, no matter how good the rate, because I don't care to have a bank tell me what kind of insurance I have to have and what I can or can't do with insurance payouts. But that's just me.

Sibley

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #26 on: February 24, 2015, 01:21:54 PM »
In December I bought a new 2014 Ford Focus, financed it. The rate is under 2% (can't remember the exact rate). In January I found MMM... oh well, I'll have a good car for a long time. However, I plan on paying it off within the next 2 years.

Why, though - either sell the car and buy something cheaper, or pay the minimums and invest the money..?

daverobev - I'm paying cc debt off first, then SL and the car loan. As to selling the car, there's a lot of non-financial crap I'd need to deal with and there's only so much I can take from my family. Right now, they leave me alone and I expect that to continue indefinitely. A car loan is worth that to me for now.

johnny847

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #27 on: February 24, 2015, 01:24:57 PM »
My friend got a 0% 3 year loan on her Nissan Altima (or was it Maxima...*shrug*). She said she could have gotten a 5 year loan.

When I first heard this, I thought, no brainer, just get the loan. I mean, even if she didn't earn any interest on the money she had to pay in cash, as long as there's inflation she's still making money in real terms.

But what I later learned was the loan provider mandated she get comprehensive insurance. She planned on getting it anyway, so it made no difference to her. But it will make a difference for people who don't want comprehensive insurance (I wouldn't....insurance is a waste of money if you can cover the catastrophic scenario).

Even if you do have comprehensive, it can be to your benefit to not have a loan. Here's my story:

In 2013, we owed about ~$5,000 on a 2007 Prius. We had comprehensive/collision with $1000 deductible. In March of that year, we had a hailstorm that left some nasty dents in the car. But they were purely cosmetic - no glass was broken. The insurance company sent us a check for $1200, so we decided to pocket the money rather than get it repaired. However, since we had a loan, the bank wouldn't sign off unless we could prove that we repaired the car. So, we paid off the car, the bank sent us the title and signed off on the check, and we pocketed the $1200.

I really don't care to have another car loan, no matter how good the rate, because I don't care to have a bank tell me what kind of insurance I have to have and what I can or can't do with insurance payouts. But that's just me.
Interesting. I'll keep this in mind when I buy a car in the future (though I doubt I'll actually have comprehensive insurance anyway).

James

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #28 on: February 24, 2015, 01:30:16 PM »
I haven't purchased from a Dealer in over 10 years, I assume non of this applies to private sales? And isn't that the best place to purchase a car? Even if I get 0% financing, I can buy a similar vehicle for thousands less on craigslist, so why go to a dealer?

(I have purchased 3 vehicles and sold 3 vehicles in the past 10 years on CL. I have looked at dealers, but what a rip off...)
« Last Edit: February 24, 2015, 01:31:47 PM by James »

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #29 on: February 24, 2015, 01:31:39 PM »
My friend got a 0% 3 year loan on her Nissan Altima (or was it Maxima...*shrug*). She said she could have gotten a 5 year loan.

When I first heard this, I thought, no brainer, just get the loan. I mean, even if she didn't earn any interest on the money she had to pay in cash, as long as there's inflation she's still making money in real terms.

But what I later learned was the loan provider mandated she get comprehensive insurance. She planned on getting it anyway, so it made no difference to her. But it will make a difference for people who don't want comprehensive insurance (I wouldn't....insurance is a waste of money if you can cover the catastrophic scenario).

Even if you do have comprehensive, it can be to your benefit to not have a loan. Here's my story:

In 2013, we owed about ~$5,000 on a 2007 Prius. We had comprehensive/collision with $1000 deductible. In March of that year, we had a hailstorm that left some nasty dents in the car. But they were purely cosmetic - no glass was broken. The insurance company sent us a check for $1200, so we decided to pocket the money rather than get it repaired. However, since we had a loan, the bank wouldn't sign off unless we could prove that we repaired the car. So, we paid off the car, the bank sent us the title and signed off on the check, and we pocketed the $1200.

I really don't care to have another car loan, no matter how good the rate, because I don't care to have a bank tell me what kind of insurance I have to have and what I can or can't do with insurance payouts. But that's just me.
Interesting. I'll keep this in mind when I buy a car in the future (though I doubt I'll actually have comprehensive insurance anyway).

We don't keep collision coverage, but we do have comprehensive. I think it costs us something like $30 every 6 months, so it's well worth it to us. I've had a stereo system stolen ($1000 - college years, no sound systems these days), lost a truck to fire ($8,000) and had the hail damage ($1,200), so we've come out well ahead on having comprehensive coverage over the years. I've never filed a claim for collision, so I was happy to drop that.

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #30 on: February 24, 2015, 01:32:15 PM »
I haven't purchased from a Dealer in over 10 years, I assume non of this applies to private sales? And isn't that the best place to purchase a car? Even if I get 0% financing, I can buy a similar vehicle for thousands less on craigslist, so why go to a dealer?
False.
I would think that the savings on a private sale would outweigh any savings that might be leveraged through dealer financing.

you dont have to dealer finance.  i buy all my cars private party and finance through banks and credit unions shopping for the lowest rate.

kendallf

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #31 on: February 24, 2015, 01:36:31 PM »

I really don't care to have another car loan, no matter how good the rate, because I don't care to have a bank tell me what kind of insurance I have to have and what I can or can't do with insurance payouts. But that's just me.

Good point!  Last year my parked car was hit by a lady who works in an adjoining building.  Dented a fender, broke one headlight cover, messed up the paint on the nose.  I took the $2900 insurance check and cashed it.  The car runs fine and doesn't hurt my pride any.  :-)

I haven't purchased from a Dealer in over 10 years, I assume non of this applies to private sales? And isn't that the best place to purchase a car? Even if I get 0% financing, I can buy a similar vehicle for thousands less on craigslist, so why go to a dealer?

(I have purchased 3 vehicles and sold 3 vehicles in the past 10 years on CL. I have looked at dealers, but what a rip off...)

My credit union will quite happily loan on cars purchased through private party sellers.  If they have a lien, you'll generally have to get both banks to coordinate to get title, but I have bought and sold multiple times like this.  Generally to get the excellent interest rates (like the 1.35% I quoted above) the vehicle must be less than about 6 years old.

johnny847

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #32 on: February 24, 2015, 01:37:04 PM »
My friend got a 0% 3 year loan on her Nissan Altima (or was it Maxima...*shrug*). She said she could have gotten a 5 year loan.

When I first heard this, I thought, no brainer, just get the loan. I mean, even if she didn't earn any interest on the money she had to pay in cash, as long as there's inflation she's still making money in real terms.

But what I later learned was the loan provider mandated she get comprehensive insurance. She planned on getting it anyway, so it made no difference to her. But it will make a difference for people who don't want comprehensive insurance (I wouldn't....insurance is a waste of money if you can cover the catastrophic scenario).

Even if you do have comprehensive, it can be to your benefit to not have a loan. Here's my story:

In 2013, we owed about ~$5,000 on a 2007 Prius. We had comprehensive/collision with $1000 deductible. In March of that year, we had a hailstorm that left some nasty dents in the car. But they were purely cosmetic - no glass was broken. The insurance company sent us a check for $1200, so we decided to pocket the money rather than get it repaired. However, since we had a loan, the bank wouldn't sign off unless we could prove that we repaired the car. So, we paid off the car, the bank sent us the title and signed off on the check, and we pocketed the $1200.

I really don't care to have another car loan, no matter how good the rate, because I don't care to have a bank tell me what kind of insurance I have to have and what I can or can't do with insurance payouts. But that's just me.
Interesting. I'll keep this in mind when I buy a car in the future (though I doubt I'll actually have comprehensive insurance anyway).

We don't keep collision coverage, but we do have comprehensive. I think it costs us something like $30 every 6 months, so it's well worth it to us. I've had a stereo system stolen ($1000 - college years, no sound systems these days), lost a truck to fire ($8,000) and had the hail damage ($1,200), so we've come out well ahead on having comprehensive coverage over the years. I've never filed a claim for collision, so I was happy to drop that.
Well clearly you can easily justify getting or not getting any type of insurance if you have the power of 20/20 hindsight.

But with insurance, it is statistically guaranteed that the expected value of your claims is less than that of your premiums (unless the insurance company is miscalculating these values, in which case the company will probably go out of business). Because that's the only way the insurance company makes money. The only situation where it makes sense to purposely raise your expected cost is if you need to lower the standard deviation: if you cannot afford to pay for the low probability but high cost event that the insurance covers, then you should certainly buy insurance.
EDIT: One exception is legally mandated insurance, such as liability insurance.

Mississippi Mudstache

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #33 on: February 24, 2015, 02:03:36 PM »
My friend got a 0% 3 year loan on her Nissan Altima (or was it Maxima...*shrug*). She said she could have gotten a 5 year loan.

When I first heard this, I thought, no brainer, just get the loan. I mean, even if she didn't earn any interest on the money she had to pay in cash, as long as there's inflation she's still making money in real terms.

But what I later learned was the loan provider mandated she get comprehensive insurance. She planned on getting it anyway, so it made no difference to her. But it will make a difference for people who don't want comprehensive insurance (I wouldn't....insurance is a waste of money if you can cover the catastrophic scenario).

Even if you do have comprehensive, it can be to your benefit to not have a loan. Here's my story:

In 2013, we owed about ~$5,000 on a 2007 Prius. We had comprehensive/collision with $1000 deductible. In March of that year, we had a hailstorm that left some nasty dents in the car. But they were purely cosmetic - no glass was broken. The insurance company sent us a check for $1200, so we decided to pocket the money rather than get it repaired. However, since we had a loan, the bank wouldn't sign off unless we could prove that we repaired the car. So, we paid off the car, the bank sent us the title and signed off on the check, and we pocketed the $1200.

I really don't care to have another car loan, no matter how good the rate, because I don't care to have a bank tell me what kind of insurance I have to have and what I can or can't do with insurance payouts. But that's just me.
Interesting. I'll keep this in mind when I buy a car in the future (though I doubt I'll actually have comprehensive insurance anyway).

We don't keep collision coverage, but we do have comprehensive. I think it costs us something like $30 every 6 months, so it's well worth it to us. I've had a stereo system stolen ($1000 - college years, no sound systems these days), lost a truck to fire ($8,000) and had the hail damage ($1,200), so we've come out well ahead on having comprehensive coverage over the years. I've never filed a claim for collision, so I was happy to drop that.
Well clearly you can easily justify getting or not getting any type of insurance if you have the power of 20/20 hindsight.

But with insurance, it is statistically guaranteed that the expected value of your claims is less than that of your premiums (unless the insurance company is miscalculating these values, in which case the company will probably go out of business). Because that's the only way the insurance company makes money. The only situation where it makes sense to purposely raise your expected cost is if you need to lower the standard deviation: if you cannot afford to pay for the low probability but high cost event that the insurance covers, then you should certainly buy insurance.
EDIT: One exception is legally mandated insurance, such as liability insurance.

Yeah, you don't have to explain how the math works. It may be a faulty assumption to think that I'm more likely to have a comprehensive claim than others, simply because that's been the case in the past, but for $5 a month, I'm okay with being wrong.

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #34 on: February 24, 2015, 02:13:02 PM »
My friend got a 0% 3 year loan on her Nissan Altima (or was it Maxima...*shrug*). She said she could have gotten a 5 year loan.

When I first heard this, I thought, no brainer, just get the loan. I mean, even if she didn't earn any interest on the money she had to pay in cash, as long as there's inflation she's still making money in real terms.

But what I later learned was the loan provider mandated she get comprehensive insurance. She planned on getting it anyway, so it made no difference to her. But it will make a difference for people who don't want comprehensive insurance (I wouldn't....insurance is a waste of money if you can cover the catastrophic scenario).

Even if you do have comprehensive, it can be to your benefit to not have a loan. Here's my story:

In 2013, we owed about ~$5,000 on a 2007 Prius. We had comprehensive/collision with $1000 deductible. In March of that year, we had a hailstorm that left some nasty dents in the car. But they were purely cosmetic - no glass was broken. The insurance company sent us a check for $1200, so we decided to pocket the money rather than get it repaired. However, since we had a loan, the bank wouldn't sign off unless we could prove that we repaired the car. So, we paid off the car, the bank sent us the title and signed off on the check, and we pocketed the $1200.

I really don't care to have another car loan, no matter how good the rate, because I don't care to have a bank tell me what kind of insurance I have to have and what I can or can't do with insurance payouts. But that's just me.
Interesting. I'll keep this in mind when I buy a car in the future (though I doubt I'll actually have comprehensive insurance anyway).

We don't keep collision coverage, but we do have comprehensive. I think it costs us something like $30 every 6 months, so it's well worth it to us. I've had a stereo system stolen ($1000 - college years, no sound systems these days), lost a truck to fire ($8,000) and had the hail damage ($1,200), so we've come out well ahead on having comprehensive coverage over the years. I've never filed a claim for collision, so I was happy to drop that.
Well clearly you can easily justify getting or not getting any type of insurance if you have the power of 20/20 hindsight.

But with insurance, it is statistically guaranteed that the expected value of your claims is less than that of your premiums (unless the insurance company is miscalculating these values, in which case the company will probably go out of business). Because that's the only way the insurance company makes money. The only situation where it makes sense to purposely raise your expected cost is if you need to lower the standard deviation: if you cannot afford to pay for the low probability but high cost event that the insurance covers, then you should certainly buy insurance.
EDIT: One exception is legally mandated insurance, such as liability insurance.

Yeah, you don't have to explain how the math works. It may be a faulty assumption to think that I'm more likely to have a comprehensive claim than others, simply because that's been the case in the past, but for $5 a month, I'm okay with being wrong.
It certainly is a faulty assumption. But since you're okay with being wrong, then by all means keep paying for insurance.

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #35 on: February 24, 2015, 02:33:59 PM »
My friend got a 0% 3 year loan on her Nissan Altima (or was it Maxima...*shrug*). She said she could have gotten a 5 year loan.

When I first heard this, I thought, no brainer, just get the loan. I mean, even if she didn't earn any interest on the money she had to pay in cash, as long as there's inflation she's still making money in real terms.

But what I later learned was the loan provider mandated she get comprehensive insurance. She planned on getting it anyway, so it made no difference to her. But it will make a difference for people who don't want comprehensive insurance (I wouldn't....insurance is a waste of money if you can cover the catastrophic scenario).

Even if you do have comprehensive, it can be to your benefit to not have a loan. Here's my story:

In 2013, we owed about ~$5,000 on a 2007 Prius. We had comprehensive/collision with $1000 deductible. In March of that year, we had a hailstorm that left some nasty dents in the car. But they were purely cosmetic - no glass was broken. The insurance company sent us a check for $1200, so we decided to pocket the money rather than get it repaired. However, since we had a loan, the bank wouldn't sign off unless we could prove that we repaired the car. So, we paid off the car, the bank sent us the title and signed off on the check, and we pocketed the $1200.

I really don't care to have another car loan, no matter how good the rate, because I don't care to have a bank tell me what kind of insurance I have to have and what I can or can't do with insurance payouts. But that's just me.
Interesting. I'll keep this in mind when I buy a car in the future (though I doubt I'll actually have comprehensive insurance anyway).

We don't keep collision coverage, but we do have comprehensive. I think it costs us something like $30 every 6 months, so it's well worth it to us. I've had a stereo system stolen ($1000 - college years, no sound systems these days), lost a truck to fire ($8,000) and had the hail damage ($1,200), so we've come out well ahead on having comprehensive coverage over the years. I've never filed a claim for collision, so I was happy to drop that.
Well clearly you can easily justify getting or not getting any type of insurance if you have the power of 20/20 hindsight.

But with insurance, it is statistically guaranteed that the expected value of your claims is less than that of your premiums (unless the insurance company is miscalculating these values, in which case the company will probably go out of business). Because that's the only way the insurance company makes money. The only situation where it makes sense to purposely raise your expected cost is if you need to lower the standard deviation: if you cannot afford to pay for the low probability but high cost event that the insurance covers, then you should certainly buy insurance.
EDIT: One exception is legally mandated insurance, such as liability insurance.

Yeah, you don't have to explain how the math works. It may be a faulty assumption to think that I'm more likely to have a comprehensive claim than others, simply because that's been the case in the past, but for $5 a month, I'm okay with being wrong.
It certainly is a faulty assumption. But since you're okay with being wrong, then by all means keep paying for insurance.

You seem pretty adamant about this, and you don't even know me. Do you know whether I park my car in a garage at night? Do you know if I live in a high-theft neighborhood? Do you know how high the deer population is near my home? If you don't, then you have no clue whether or not my assumption is faulty.

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #36 on: February 24, 2015, 02:43:35 PM »
My friend got a 0% 3 year loan on her Nissan Altima (or was it Maxima...*shrug*). She said she could have gotten a 5 year loan.

When I first heard this, I thought, no brainer, just get the loan. I mean, even if she didn't earn any interest on the money she had to pay in cash, as long as there's inflation she's still making money in real terms.

But what I later learned was the loan provider mandated she get comprehensive insurance. She planned on getting it anyway, so it made no difference to her. But it will make a difference for people who don't want comprehensive insurance (I wouldn't....insurance is a waste of money if you can cover the catastrophic scenario).

Even if you do have comprehensive, it can be to your benefit to not have a loan. Here's my story:

In 2013, we owed about ~$5,000 on a 2007 Prius. We had comprehensive/collision with $1000 deductible. In March of that year, we had a hailstorm that left some nasty dents in the car. But they were purely cosmetic - no glass was broken. The insurance company sent us a check for $1200, so we decided to pocket the money rather than get it repaired. However, since we had a loan, the bank wouldn't sign off unless we could prove that we repaired the car. So, we paid off the car, the bank sent us the title and signed off on the check, and we pocketed the $1200.

I really don't care to have another car loan, no matter how good the rate, because I don't care to have a bank tell me what kind of insurance I have to have and what I can or can't do with insurance payouts. But that's just me.
Interesting. I'll keep this in mind when I buy a car in the future (though I doubt I'll actually have comprehensive insurance anyway).

We don't keep collision coverage, but we do have comprehensive. I think it costs us something like $30 every 6 months, so it's well worth it to us. I've had a stereo system stolen ($1000 - college years, no sound systems these days), lost a truck to fire ($8,000) and had the hail damage ($1,200), so we've come out well ahead on having comprehensive coverage over the years. I've never filed a claim for collision, so I was happy to drop that.
Well clearly you can easily justify getting or not getting any type of insurance if you have the power of 20/20 hindsight.

But with insurance, it is statistically guaranteed that the expected value of your claims is less than that of your premiums (unless the insurance company is miscalculating these values, in which case the company will probably go out of business). Because that's the only way the insurance company makes money. The only situation where it makes sense to purposely raise your expected cost is if you need to lower the standard deviation: if you cannot afford to pay for the low probability but high cost event that the insurance covers, then you should certainly buy insurance.
EDIT: One exception is legally mandated insurance, such as liability insurance.

Yeah, you don't have to explain how the math works. It may be a faulty assumption to think that I'm more likely to have a comprehensive claim than others, simply because that's been the case in the past, but for $5 a month, I'm okay with being wrong.
It certainly is a faulty assumption. But since you're okay with being wrong, then by all means keep paying for insurance.

You seem pretty adamant about this, and you don't even know me. Do you know whether I park my car in a garage at night? Do you know if I live in a high-theft neighborhood? Do you know how high the deer population is near my home? If you don't, then you have no clue whether or not my assumption is faulty.
If you had said "It may be a faulty assumption to think that I'm more likely to have a comprehensive claim than others" and left it at that, then I would have no argument.
But you stuck in the later clause "simply because that's been the case in the past." You seemed to imply that for some reason, the fact that you've had to make three claims in the past means your chances of future are higher than the general population. Which is total nonsense. The fact that you've had your car broken into before in no way affects your chances that you car will be broken into in the future.
If you had said that you think you're more likely to have a comprehensive claim because you live in a high theft neighborhood, or the deer population is high around your home, etc. then I would not have said your assumption is faulty.

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #37 on: February 24, 2015, 03:02:52 PM »
My friend got a 0% 3 year loan on her Nissan Altima (or was it Maxima...*shrug*). She said she could have gotten a 5 year loan.

When I first heard this, I thought, no brainer, just get the loan. I mean, even if she didn't earn any interest on the money she had to pay in cash, as long as there's inflation she's still making money in real terms.

But what I later learned was the loan provider mandated she get comprehensive insurance. She planned on getting it anyway, so it made no difference to her. But it will make a difference for people who don't want comprehensive insurance (I wouldn't....insurance is a waste of money if you can cover the catastrophic scenario).

Even if you do have comprehensive, it can be to your benefit to not have a loan. Here's my story:

In 2013, we owed about ~$5,000 on a 2007 Prius. We had comprehensive/collision with $1000 deductible. In March of that year, we had a hailstorm that left some nasty dents in the car. But they were purely cosmetic - no glass was broken. The insurance company sent us a check for $1200, so we decided to pocket the money rather than get it repaired. However, since we had a loan, the bank wouldn't sign off unless we could prove that we repaired the car. So, we paid off the car, the bank sent us the title and signed off on the check, and we pocketed the $1200.

I really don't care to have another car loan, no matter how good the rate, because I don't care to have a bank tell me what kind of insurance I have to have and what I can or can't do with insurance payouts. But that's just me.
Interesting. I'll keep this in mind when I buy a car in the future (though I doubt I'll actually have comprehensive insurance anyway).

We don't keep collision coverage, but we do have comprehensive. I think it costs us something like $30 every 6 months, so it's well worth it to us. I've had a stereo system stolen ($1000 - college years, no sound systems these days), lost a truck to fire ($8,000) and had the hail damage ($1,200), so we've come out well ahead on having comprehensive coverage over the years. I've never filed a claim for collision, so I was happy to drop that.
Well clearly you can easily justify getting or not getting any type of insurance if you have the power of 20/20 hindsight.

But with insurance, it is statistically guaranteed that the expected value of your claims is less than that of your premiums (unless the insurance company is miscalculating these values, in which case the company will probably go out of business). Because that's the only way the insurance company makes money. The only situation where it makes sense to purposely raise your expected cost is if you need to lower the standard deviation: if you cannot afford to pay for the low probability but high cost event that the insurance covers, then you should certainly buy insurance.
EDIT: One exception is legally mandated insurance, such as liability insurance.

Yeah, you don't have to explain how the math works. It may be a faulty assumption to think that I'm more likely to have a comprehensive claim than others, simply because that's been the case in the past, but for $5 a month, I'm okay with being wrong.
It certainly is a faulty assumption. But since you're okay with being wrong, then by all means keep paying for insurance.

You seem pretty adamant about this, and you don't even know me. Do you know whether I park my car in a garage at night? Do you know if I live in a high-theft neighborhood? Do you know how high the deer population is near my home? If you don't, then you have no clue whether or not my assumption is faulty.
If you had said "It may be a faulty assumption to think that I'm more likely to have a comprehensive claim than others" and left it at that, then I would have no argument.
But you stuck in the later clause "simply because that's been the case in the past." You seemed to imply that for some reason, the fact that you've had to make three claims in the past means your chances of future are higher than the general population. Which is total nonsense. The fact that you've had your car broken into before in no way affects your chances that you car will be broken into in the future.
If you had said that you think you're more likely to have a comprehensive claim because you live in a high theft neighborhood, or the deer population is high around your home, etc. then I would not have said your assumption is faulty.

Well, it was never my intention to justify my choice to carry comprehensive insurance to you, but since you seem really interested: I do not have a garage, and we get hail storms here every few years; my parking spot is under an oak tree that could drop a limb in a windstorm; we live adjacent to a state park and deer are a frequent hazard on the roads. I consider $5/month a reasonable price to pay for insurance against those hazards. Sheesh. I'm done here, clearly this has gone on for too long.

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #38 on: February 24, 2015, 03:27:37 PM »
I haven't purchased from a Dealer in over 10 years, I assume non of this applies to private sales? And isn't that the best place to purchase a car? Even if I get 0% financing, I can buy a similar vehicle for thousands less on craigslist, so why go to a dealer?
False.
I would think that the savings on a private sale would outweigh any savings that might be leveraged through dealer financing.

you dont have to dealer finance.  i buy all my cars private party and finance through banks and credit unions shopping for the lowest rate.

Obviously you can get a vehicle loan through a bank or credit union, but then you are paying market interest rates, not 0-2%. So if someone is out there getting a loan at 0-2% on a private purchase vehicle, then we could get a loan for paid off vehicles and invest the money, which would interest me. But I assume that isn't the case, so you still need to go through a dealer to get the 0-2% loans, meaning you are still paying a lot more for the vehicle in order to get that loan which doesn't make sense to me.

So let me simply ask, is anyone getting loans under 2% for private vehicle purchases?

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #39 on: February 24, 2015, 03:59:46 PM »
Well, it was never my intention to justify my choice to carry comprehensive insurance to you, but since you seem really interested: I do not have a garage, and we get hail storms here every few years; my parking spot is under an oak tree that could drop a limb in a windstorm; we live adjacent to a state park and deer are a frequent hazard on the roads. I consider $5/month a reasonable price to pay for insurance against those hazards. Sheesh. I'm done here, clearly this has gone on for too long.
All I was saying was that you made a faulty implication. Nothing more.

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #40 on: February 24, 2015, 09:20:15 PM »

So let me simply ask, is anyone getting loans under 2% for private vehicle purchases?

Yes.  Before the gargantuan quote-fests above, I posted that my credit union (Vystar) is currently offering 1.35% on used cars up to 6 years old.  This includes private party purchases.

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #41 on: February 25, 2015, 08:32:52 AM »

So let me simply ask, is anyone getting loans under 2% for private vehicle purchases?

Yes.  Before the gargantuan quote-fests above, I posted that my credit union (Vystar) is currently offering 1.35% on used cars up to 6 years old.  This includes private party purchases.

Since 6 years old is about where I'd start looking to buy, and I suspect many mustachians are in a similar boat, this still does me no good.  For those who want a newer car and don't mind eating the depreciation costs, if they are going to buy newer anyway, I can see why this is a better deal than not financing.  But for those who are making the sound decision to buy an older car, it doesn't seem like there are deals to be had on financing for private sales. 

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #42 on: February 25, 2015, 08:43:24 AM »

So let me simply ask, is anyone getting loans under 2% for private vehicle purchases?

Yes.  Before the gargantuan quote-fests above, I posted that my credit union (Vystar) is currently offering 1.35% on used cars up to 6 years old.  This includes private party purchases.


I should check with my local credit union, if they were offering a deal like that I would get loans for my current vehicle and invest the money. I can't see why they would loan money at this rate, but I would take it, but I better look soon since one vehicle is 6 years old and the other is 10... :)

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Re: Is it actually better to get a car loan than pay cash in the US now?
« Reply #43 on: February 25, 2015, 09:10:28 AM »
Generally those rates are only seen with asset secured loans.