I am thinking about buying a car. The car cost 15, 000 dollars. Do I pay for the car in cash or do I leave the cash in a Money Market account and let it accrue intrest at 5% while paying the car off in three years.
2007-06-26 11:13:30 · 11 answers · asked by iprfl 2 in Cars & Transportation ➔ Buying & Selling
Depends on how much interest you'd be paying on a loan. If it's less than the interest you'd be earning on the Money Market account, then yes, finance the car and keep your money in the bank.
However, keep in mind that any interest you earn on your Money Market account is taxed as income. So, if your marginal tax rate is 25% (i.e. you make over $30k a year), that means you're actually only netting 3.75% interest. Can you get a car loan at less than 3.75%? Highly, highly unlikely unless you are getting a promotional interest rate through the manufacturer (such as the 0% loans GM and Ford have had this year).
The only hesitation I'd have about paying for a car completely in cash is if it would wipe out your savings account. A general rule of thumb is to keep 3 months worth of living expenses in savings. As long as you maintain that much of a cushion in your savings account, it's best to put the rest towards your car (unless you are getting something really great like the aforementioned 0% interest loans).
2007-06-26 11:51:10 · answer #1 · answered by nevergonnaletyoudown 4 · 1⤊ 0⤋
I'm not sure I understand. Are you saying you have a seller that will take payments for three years and charge you less than 5% interest? If so, go for it. Sounds like free money to me. But if you have to borrow fifteen large to pay for the car so you don't have to use your money market savings, then I doubt that the bank is going to give you a sub five percent loan. If you do plan to borrow the money and let's say that the bank will charge you ten percent, which is likely, and you are only making five percent in your money market account then you are losing five percent.
How about doing this instead. Pay the car off in full when you buy it. Send me half of the extra that you would've paid had you borrowed the money at ten percent. Then you would be saving two and a half percent and you'd be my buddy for life.
2007-06-26 11:29:17 · answer #2 · answered by Anonymous · 2⤊ 0⤋
Contrary to Mr. Majestic, car dealers prefer you financing as apposed to paying cash. It all depends on the interest rate you will pay by financing whether you need to take your money out of your money market account. However, 5% is pretty good on your money especially if you have 15000 or more in there. I would recommend financing the car with the dealership because they should have several different lenders that can compete for the best rate in house. If you let them know that you are considering paying cash, they will automatically provide you with the best rate to obtain the financing.
2007-06-26 11:41:48 · answer #3 · answered by Oblivious 3 · 1⤊ 0⤋
Money Market`s are shaky at best.Cash the car out and deal for a better price with cash up front plus O intrest.You might be surprised .Dealership`s will get the same cash price or less after getting the car financed for you and they`ll have to wait for the money.With cash in hand they`ll jump all over the book`s trying to sell at you`re price.
2007-06-26 11:29:36 · answer #4 · answered by mr.magestic 2 · 2⤊ 0⤋
One thing for you to consider: The rule of 72.
The rule of 72 states that every 14 years (compounding @ 5% interest) your investment will double.
I dont know how old you are but let's say for this example your 23 years old. You have 42 years until you retire. Your initial investment at age 23 of $15000.00 will be $60,000 by the time your 65. I know it's a long way down the road, but it's smoething to consider.
At an 8% return your money is doubling at a 9 year clip!
So, would you rather earn $60K or pay $1500.00 in interest?
2007-06-26 14:47:15 · answer #5 · answered by Jeremy A 3 · 0⤊ 0⤋
It depends on what you are trying to do, if you are trying to establish credit then financing a vehicle is a good way to establish credit, the money you would make off the interest of a money market would be better than the extra expense of interest you would pay instead of out right purchasing the vehicle. Another alternative woul be to put a down payment and put a loan on the rest to reduce the interest charges and have your other funds working for you in a money market. It will help avoid the extra debt and still establish credit.
2007-06-26 11:25:14 · answer #6 · answered by Johnnykickass2007 2 · 0⤊ 1⤋
What you have got to ask your self is; what is that this going to rate you finally? You are watching at a $2400 fix for a good vehicle with best eighty,000 and relativly more recent mannequin. after it's performed it's going to ordinarily be high-quality and pushed with out issues for a whilst until you're discovering extra to be unsuitable. despite the fact that you bought it as is, you would get at such a lot $2000 for the vehicle. so if you're taking the 2400 and 2000 you have got 4400 to spend on a brand new used vehicle. A $4400 vehicle isn't the finest on the planet. you're watching at shopping a older mannequin, ninety eight or older, with bigger mileage. as that stands, you're watching at issues even quicker once more together with your new used vehicle, and as a consequence going to have got to spend more cash solving that, seeing that you'll not ever purchase a used vehicle with no need to repair some thing. So, i might say repair the vehicle on your 2400, and be performed with repayments. That is the exceptional factor, not more repayments. so, relying on what your per 30 days fee was once, you might nonetheless be saving more cash via repairing it. ask your self how so much have you ever stored given that the repayments had been completed, does it outweigh what the maintenance shall be? simply what i feel must be performed.
2016-09-05 09:03:30 · answer #7 · answered by derizzo 4 · 0⤊ 0⤋
Depends on your situation. If you have little or no credit, I'd put half down and finance the other half (many car lenders now have $7500 minimums). If you can borrow less, then do it...but paying it off in 3 years or less is an excellent idea.
If your credit is good, I'd pay cash.
2007-06-26 11:48:23 · answer #8 · answered by Anonymous · 0⤊ 0⤋
well...if u take a loan on the car and make payments..u will be helping ur credit build.....but u also got to look at the percentage ur going to be on the loan..and i am sure it is going to be way higher than 5 percent... just pay it off and be done with it..
2007-06-26 11:26:58 · answer #9 · answered by formula72 4 · 0⤊ 0⤋
If you pay in cash you might get it cheaper then the asking price....say around 13 stacks. (That's Thousands)
2007-06-26 11:38:11 · answer #10 · answered by urnotme 2 · 2⤊ 0⤋