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New Car Loan vs. Paying in Cash


New Car Loan vs. Paying in Cash

A good friend of mine owns a flooring business. He says when they run a 0% financing offer, you're really paying what they would have made on interest on the price of the floor. 


I'm guessing that's the same on new cars. Free or low interest financing ain't free. And I've come around to the old school belief you shouldn't take out a loan for a car, a depreciating asset, unless you really need to.


Does anyone have any specific insight on this? How much can you get off of the sticker price of a new car if you pay in cash?

Starting scores (June 9,2012): 591(TU), 582(EXP), 591(EQUI)
Current score: 721 (Discover Fico)
Goal scores: 761 across the board
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Established Contributor

Re: New Car Loan vs. Paying in Cash

That may be true for a small business like your friend's flooring company, but I don't think it applies to the huge auto manufacturers. Their overriding priority is to sell cars, so they're willing to forego making money on the loan.


While the usual dealer mantra is that you can't get both rebates and special financing, in many cases it's possible to have both big price discounts and low-interest financing. Last week, for example, I bought a brand-new 2020 Ford F-150 Platinum and got a winning combination of heavily discounted price, manufacturer rebates, and low-interest financing from Ford Motor Credit.


In some cases you might be able to get heavier discounts and rebates if you pay cash. But it's all about what you can negotiate. Besides, why would you ever want to invest your precious cash in a depreciating asset?! From a financial point of view, you're better off having as little as possible invested in a depreciating asset. That's why I usually put as little down on a new car as possible, especially if I can get 0 percent or low-interest financing. That's essentially "free money" that allows me to save my cash and invest it in assets that appreciate like stocks and mutual funds.


With manufacturer subsidized financing, paying cash for cars is largely a thing of the past.


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