Is it better to pay cash for a new car or take out a home equity loan? We do have the cash, but what's the best advice?
By Dory from Joliet, IL
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IF you don't need the credit history and have plenty of cash, why incur interest on a loan that you don't have to? Plus cars depreciate quickly.
I don't buy new cars because as doon as you drive it of the lot it has depreciated so quickly. So I buy program cars from the dealer which are cars returned to the dealer from leases. But if you choose to buy new I would pay cash and don't fall for all the add ons such as extented warranties, paint protection,etc.
I would then put back in the bank every month what the car payment would have been. Saves a lot of money on interest rates.
If you have the cash why waste money on interest payments? I would also suggest purchasing a car that is two to three years old (that will save you oodles of money) with as low of mileage as possible and pay "your" mechanic to inspect it whether or not you're buying it from a dealer or through a private sale.
I would say that if you are looking to add to your credit score, get a loan. You will need at least 6 months of payments to affect your score. So I would put a lot of cash down so that I do not have many payments left. If you do not need to add to your credit score, I would pay cash. I would also not buy a used car. I would buy a new one. The reason being is that with a new car you are going to get at least a 3 year warranty on everything in the car up to 100,000 miles usually on drive, train, things like that.
The other thing is there are a lot of incentives on getting a new car verses a used car. Those will come off of the price of the car. The last two things are if you have cash, a lot of times you can get them to take quite a few thousand dollars off the price of your car. Many people do not know this. This is how we buy our cars. Cash sells at a dealership. We bought a brand new 2008 Pontiac Grand Prix, all leather heated seats and steering wheel, gps in the dash with touch screen. There are a lot of things that came with this car. It is what we wanted. They were asking $21,000. Anyway, we had cash because we had been saving for a new car. First they took all the incentives and rebates off the price which was about 5 thousand dollars, and brought the total price down to 16,000. Then, because we had cash, we got them to take off another 4,000 making it 12,000 total now. We had a trade in that we already owned and we had paid off. We got 3,000 trade in for it, making this car only 9,000. Now we did not tell them that we had a trade in until we made the deal with the cash so as not to affect how much they would take off.
I said that there were two more things. Here is the last one. Because of the car being newer it had the newer safety features like side air bags and a gauge in the car that shows exactly which tire is low in air and by how much as well. Small things that you do not think about like that. Well it lowered our insurance on that car. Which is really something to think about when buying a car. No one wants an insurance payment as high as a car payment. For full coverage on two cars cause we have another car (a civic hybrid) we are paying $110 a month. We go through Geico so we pay that for 4 months cause you have 2 months with no payments. I hope that this has helped. I do not sell cars. I am chef, a mother, a wife, a friend, and walking book of useless information.
Please don't take a home equity loan. Worst case scenario you could loose your home. We never know what the future holds.
Put the loan on the back burner for emergencies. Always keep this rule of thumb: if you don't have the money to purchase something, wait til you've saved up. If you do, use cash; cash is king.
Your auto will depreciate once it gets off the lot, so why bother with a loan. The loan doesn't depreciate as the auto does.
No matter how you get the car or truck be aware of the fact the Lemon Law applies to all new and used purchased vehicles. Also ask for a Zero deduction, ask for a free loaner if it needs repairs and do not purchase the extended warranty unless it cover seal and gaskets they are what counts most, be sure to see it in writing as well. Good Luck and God bless you.
To save money in the long run:
1. Research the reliability of cars at msnautos.com. You will find the Japanese made cars are generally much more reliable.
2. Consider four year old cars being sold by private owners.
3. Look for cars that were driven by women. Ask when you shop.
4. Don't be afraid of cars with high mileage, I would rather have a well-cared for car with 100K miles than a poorly cared for car with 40K miles.
5. Look for cars that were owned by people who live in nicer houses and neighborhoods - that likely means they could afford to maintain the vehicle properly.
6. If a car has custom items like rims, paint etc. Avoid it.
7. If the car you are looking at is dirty or trashed inside or in the trunk, it means the owners did not care for the car. Avoid it.
8. Before buying, ask to see the maintenance receipts for the car. If there are none, be very suspicious.
9. Look for cars that were driven by women. Ask when you shop.
10. Do a careful test drive. If the car has been warmed up prior to your coming to see the car, that usually means the owner is hiding something. Wait until the vehicle has cooled overnight and see how it starts and runs when cold.
11. Go to the Blue-Book web site to see what the car should cost, and if it is reasonable, pay cash to get the best deal.
After the purchase, take care of your vehicle by getting service at the manufacturer's recommended mileage (oil changes, tune ups, etc), and by keeping it waxed and clean inside and out.
Keep your car until its mileage is in the high 200,000 range or beyond (as long as it is reliable). As a car ages, the insurance rates will drop over the years.
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Are you better off taking out a loan for a new car or paying cash?
Bob from Wheeling, IL
If you have the money to pay cash for the car, do it.
If you take out a loan, the interest will add to the total cost of the car. Unless you get 0% interest, pay cash. I have done both, and cash is better. (09/08/2006)
This very question as asked by me to my financial planner who responded that it is always better to obtain a loan and invest your money for a greater return on your dollars. Inasmuch as the vehicle is a depreciating asset and the interest paid, with normal car loans, is not deductible. Good luck. (09/09/2006)