Will I get a better deal financing my Prius or paying the balance in cash?

If you can, pay cash. But... to counter the interest your money would accrue if you had it in a CD or something, pay yourself back each month with interest. Essentially, set up a loan for yourself so that you get the principle AND the interest back, and it will help you maintain your savings. This system has worked well for us in helping maintain the safety net and also not paying out too much interest to banks.

 

GM kept itself (barely) afloat for many years due to GMAC's profits. There's a reason. It always, without exception, costs more to borrow money than to pay upfront. The loan company is borrowing the money from someone else, usually at higher than the savings rate you get from a bank, and they, and their intermediaries, all want to make a profit.

Even if you can negotiate down the 'cost' of the car for inputting into the finance computer, trust me - they'll make that back and more over the life of the deal. Make them show you the total cost of the loan - the actual total amount that you will be paying at these rates - and then compare.

Be wary - the dealer finance guys are particularly good at playing games with calculators, especially if you're moving from a low MPG car to the Prius. They will try to appropriate some of your savings on gas for their own pockets.

I took out a Personal Contract Purchase deal, where you pay a portion of the cost in monthly payments, then can return the car without paying the rest or pay off in a lump sum to keep it. For me there was £4,447, or more than 1/4 the cost of the car at £16,350, of fees and interest attached, and that was after getting £1,750 on my trade-in and a £2,000 cash deposit.

I re-read and spotted this after six payments of £260 = £1,560 and asked for a valuation to pay off the loan. I paid off the outstanding amount of £12,182.06. As you can see I'd reduced the amount borrowed, £12,600, by £417.94 leaving me net £1,142 out of pocket. Better than nearly £4.5k though.

Only go for it if you're certain that you can invest the cash to do better than the total finance amount, but you'll be pretty damn lucky to manage it.

 

a current "good" interest rate is 4.99. some places you can get 3.99 if you have excellent credit. when the stock market was in its hayday and a random mutual fund returned 20%+ each year, financing the car was leveraging - you paid 5% on the money and made 20% (pretax).

now, what you might get as a return for the next 60 months is less certain.

i have my investments diversified, with a rough percentage in "cash" which right now means 1.5% (pretax) at ING. That is the source of the funds i will use to pay cash for the 2010 when it comes in. So I will be making 3.99 or 4.99 % on the cash by paying cash, which is greater than 1.5% (pretax), guranteed, but when i look back in 60 months may be significantly less than that money COULD have made in the market. So be it.

 

Not really sure what you mean by having intrest "built in" and I've had a lot of loans over the years. A few years back Ford had a $1000 rebate if you financed through them. Their interest rate was 5.5% which was about 1% higher than my credit union at the time. I finance through Ford and paid the loan off in one month, kept the $1000 rebate. Only cost was interest on the loan which was just a little more than what I would have paid anyway.

As long as there are no prepaid fees for the loan, the auto loans should work just like the banks. Prepaying but not paying off would simply go towards paying down the principal reducing your interest costs. However not all loans would allow prepayment but I think all of them allow you to payoff early and you'd only pay interest on the principal you've used for that time.

I've financed with Nissan, Infinity (same) and Ford. Never had any problems paying off early. I have not been confronted with any loans where paying off early still cost you the total interest

 

It's a crap shoot. If the market does indeed recover I'd rather be in the market with my cash and borrow on the car at 5%. However if you're a conservative investor and keep money in cash no matter what then avoiding a loan seems like a sure savings.

Not sure what I'd do right now but surely the market will do some upshift that would exceed 5% annually sometime over the next two years. If it doesn't then $20,000 loan on a Prius is the least of my worries. Hey I want to retire! My 201K needs to get back to a 401K for that to happen.

 

Cash always works for me, PD Cash when I bought my 2007 Honda Ridgeline RTL...I am contemplating myself on what direction to take when I take ownership from the Stealership for my Prius IV with Moonroof.

eace:eace:eace:eace:eace:

 

Ignoring for a moment my earlier post where I suggested that taking dealer financing may be leverage to a lower car cost, I decide on whether to take at a loan or to pay cash with these thoughts in mind:

1. apr of the loan, vs apr that my money is expected to make
2. Rembering that my money's apr is taxed at my marginal rate
3. Anticipated inflation rate over the course of the loan.

Personally, I am very debt averse, but recognize debt as a superb inflation hedge.

People who have unstable unemployement could also rationally pay interest as a hedge to a time where they wished the cash they paid for the car was in their pocket, and not hte car dealers.