Get a loan if you could pay cash?

[ekmom]

We have never had much debt and have a great credit score. We have a number of credit cards but have never paid any interest on them. We paid off our mortgage in 2007 and our last car loan was paid off in 2011. We'll be buying a car sometime in the next year and we could easily pay cash but we're wondering if it might be better to get a 2 year loan and pay it off month by month just to show some revolving credit again. Or at this point, given our history, does it matter?

 

[smitch425]

We have never had much debt and have a great credit score. We have a number of credit cards but have never paid any interest on them. We paid off our mortgage in 2007 and our last car loan was paid off in 2011. We'll be buying a car sometime in the next year and we could easily pay cash but we're wondering if it might be better to get a 2 year loan and pay it off month by month just to show some revolving credit again. Or at this point, given our history, does it matter?

Unless you are talking about a 0% financed loan then I would pay cash. Why would you pay interest if you have the money.

 

[Darcy03231]

Unless you are talking about a 0% financed loan then I would pay cash. Why would you pay interest if you have the money.

I agree. If you want to keep a more recent credit history you'd be better off charging something on a credit card each month and then just pay the balance in full to avoid interest charges.

 

[girli565]

If it's a 0% car loan then that's fine but if you want to show revolving credit it'd be better to use a credit card to pay your regular expenses and then pay it off monthly (I pay our phones, cable, and anything that takes credit card). Or like my husband does, use it for dinner once a month and then pay it off. Shows you're using your credit and builds a history.

 

[DawnM]

You have more bargaining power with cash and may get a better deal on a car if you go with cash.

Dawn

 

[arthuruscg]

Well, it my make more sence to finance the car instead of paying cash. You have to run the math.

You might get a better deal if you finance thru the car dealer. All parts of the dealer ship have to make $ for the dealership as a hole to be profitable.

You might be getting a better return on investment buy keeping the $ in the stock market or CD.

You could also, put a large amount of your Disney Visa, pay it off the follow month, and earn a lot of Disney Dollars.

 

[disneychic2]

It is almost always better to pay cash. You obviously believe that since your financials are in such great shape! Also given your savvy handling of money, why do you care about revolving credit???

When DH and I became debt free, we cancelled all but two credit cards. The companies all tried to talk us out of canceling saying our credit rating would go down and all sorts of nonsense. When I asked why we would care about our credit rating when we only pay cash for things, they had no answer. BTW, that was a few years ago and we still have a credit rating in the 800s.

ETA: We do use credit cards for certain large purchases and vacation and then pay them off since it makes sense to take advantage of the rewards. Good point ekmom!

 

[ekmom]

Interesting responses. Actually I don't particularly believe in paying cash if it is to my advantage to use a credit card. I charge everything possible and pay it off monthly. Why not get the cash back or other rewards that they offer? And I care about revolving credit because I may be in a position at some point that I want to get a mortgage again. I do like the idea of using a credit card for as much of the car as possible.

 

[smitch425]

Interesting responses. Actually I don't particularly believe in paying cash if it is to my advantage to use a credit card. I charge everything possible and pay it off monthly. Why not get the cash back or other rewards that they offer? And I care about revolving credit because I may be in a position at some point that I want to get a mortgage again. I do like the idea of using a credit card for as much of the car as possible.

You did not mention anything about a credit card in your first post. You asked about getting a loan. That is two different things. Many places will not let you use a credit card to purchase a car, but if you can, then certainly you should use it and pay it off immediately. Just don't pay interest on a car when you have the money just sitting there. There is no reason to pay extra for something when you don't have to. That was the point of my original response.

 

[Darcy03231]

You did not mention anything about a credit card in your first post. You asked about getting a loan. That is two different things. Many places will not let you use a credit card to purchase a car, but if you can, then certainly you should use it and pay it off immediately. Just don't pay interest on a car when you have the money just sitting there. There is no reason to pay extra for something when you don't have to. That was the point of my original response.

When I bought my car the dealership allowed me to charge $5k of the purchase price. I wrote a check for the rest and then just paid off the credit card.

 

[duffy]

Title of this thread is: "Get a loan if you could pay cash?" And my answer is, no, why? Why borrow money that you already have?

 

[DisneyCowgirl]

You have more bargaining power with cash and may get a better deal on a car if you go with cash.

Dawn

I don't think this is true for a car--the dealership makes a lot of money on the financing.

 

[taaren]

When DH and I got together, I started building his credit by taking CCs out in his name and paying them off every month, just like I did my own. He had a few hits on his credit score from various things, and he had a new loan on his car that his parents cosigned with him, but otherwise no credit history. I owned my car outright, neither of us had student loans or any kind of debt.

I was surprised to find when we applied for our mortgage that his credit score was marginally higher than mine given that I had a credit history of 10+ years and his was less than 5 years old. It was because of the car loan (which by that time his parents had taken the car over since we moved to Hawaii and it was close to being paid off).

Moral of the story being, yes, having a car loan will increase your credit score. But if you have fabulous credit otherwise, particularly a long history of paying credit cards and not carrying any debt (these days I believe it focuses more on your available credit/use of credit ratio), its only going to increase it a few points. Definitely not worth it if you're going to pay interest, if you finance at 0% it might be, but to me not worth the headache of yet another detail to remember each month (even if its only a website to visit and punch in payment) for a few extra points on our credit score.

When we bought our most recent car for DH, the Honda dealer let us put $5K on our Disney Visa and use a check for the rest. We'll be using that for a meal at the WDW this winter!

 

[Cruise]

For me, it would depend on how much cash it would leave me with. If it would take everything out of savings, then I'd pay what I could in cash, leaving myself a comfortable emergency buffer in savings, and get the rest as a loan. If I could pay cash and still have a comfortable emergency fund in the bank, I'd just pay cash.

 

[MrsPete]

You have more bargaining power with cash and may get a better deal on a car if you go with cash.

Dawn

We're at the point in our lives that we can pay cash for cars, and we've found just the opposite to be true. When the dealer learns that he isn't going to make money from financing, he's done negotiating. We now refuse to talk about HOW we will pay 'till we've agreed on the total price.

 

[elaine amj]

We could pay cash but opted to take advantage of 0% financing for 3 yrs. Much nicer to earn interest on the money rather than giving to to someone else to earn interest. Also, it spread out the payments over 3 years, which is always nice.

Will be nice this yr once we are done to have an extra $600 a month in cash flow!

 

[bumbershoot]

We're at the point in our lives that we can pay cash for cars, and we've found just the opposite to be true. When the dealer learns that he isn't going to make money from financing, he's done negotiating. We now refuse to talk about HOW we will pay 'till we've agreed on the total price.

That doesn't mean the other poster was wrong, though. If you let the dealer work it all out based on low monthly payments (while they hope you'll have the loan the whole time and pay them lots of interest) and then at the END pull out the cash, you'll have gotten a better deal.




OP, if you can get a 0% loan, or if you have a place to put the money that you would use, where the interest you will earn is greater than the interest you will pay, then get the loan. (the latter is what a relative of mine does)

 

[MrsPete]

That doesn't mean the other poster was wrong, though. If you let the dealer work it all out based on low monthly payments (while they hope you'll have the loan the whole time and pay them lots of interest) and then at the END pull out the cash, you'll have gotten a better deal.

Disagree. When you're talking about multiple numbers: Total price, monthly payment, 36 months vs. 60 months, etc., etc., etc., the car dealer -- who does this day in, day out -- is in his element. It's easy for him to slip something by you, and you won't realize it 'til you're looking at the final paperwork. Instead, it's easier to just talk about one number: The total, out-the-door price. The car dealers don't like this; they keep trying to change the conversation to payments or something else.

By the way, this isn't just my opinion. It's also Consumer Reports' advice, and I do tend to buy into their train of thought.

 

[msmama]

We're at the point in our lives that we can pay cash for cars, and we've found just the opposite to be true. When the dealer learns that he isn't going to make money from financing, he's done negotiating. We now refuse to talk about HOW we will pay 'till we've agreed on the total price.

My experience, too.

Another option is to finance and pay it off immediately (sometimes you can get a lower rate with a longer term - just make sure that there are no fees for paying it off early).

Also, a friend just bought a car and told me that when purchasing with over 10K cash, the dealership has to report it to the IRS. (Apparently most American's can't be trusted to actually save money so something shady must be going on). So that's something else to consider.

 

[hops&dreams]

I, personally, would pay cash. I agree that it will give you greater bargaining power if it were not financed at all. Paying "cash" could also include you paying fora large chunk of it on your Disney visa or whatever credit card you choose and earning points through that. As far as the dealership is concerned, you've then "paid" for the car.

As for revolving credit - DH and I don't carry balances other than our home, which will be paid off 8 years after we bought the house, and one car. To keep our credit score building, we pay for all of our gasoline on the one credit card that we have, and pay it off each month. It's an easy way to keep building that credit score, and easily monitor our fuel purchases, and make sure no one is mis-using our credit card number. We also do large purchases or internet purchases (rare) on our credit card rather than our debit card. More consumer protection with our credit card than our debit that has direct access to our checking acct.

JMHO. hope it helps or gives you some kind of insight.