Was Paying Cash For A Car Worth It?

Posted by The Happy Rock on September 25, 2007

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Previously I shared how we paid off our $15,000 car loan and were able to pay cash for two more cars in the following years.

As I thought back through our story, I was left asking myself “Was it worth it?”.

We got a lemon of a car in the Ford Focus, so yes it was extra hassle dealing with that. The fact of the matter is that bad breaks happen sometimes, even if my research said the Focus should have been pretty reliable. I don’t think making choices based on a fear of low percentage what-ifs isn’t going to breed success.

The decision was close to being a wash in the strictest financial sense. If we purchased the Murano right out of the gate, we would have paid about $17,000 for a similar Murano. That would have left us with financing of $8,000 @ roughly 7%. Since we paid about $8,500 in cash after the Focus trade in, we would have had the loan paid off in a year. That would have wasted about $300 in interest, and about $150 in opportunity cost in savings interest.

The only other thing to factor in is that we would own a car with an extra 15,000 miles on it. Using a Kelley Blue Book estimate that is about $1,000 dollars or so in unrealized savings.

Most of the numbers were irrelevant though. We had spent 4 years digging out of debt, so going back into debt would have proved that we hadn’t learned any lessons. On the other hand, sacrificing the car we wanted for a year and paying cash continued to set the stage for us to win financially. Going into debt would have opened up the financing option again on all other subsequent purchases. This was a test, and we passed. We had the benefits of being debt free firmly implanted in our minds, and we were not about to give them up.

The intangible benefits we received from paying cash seem extremely worth it, what do you think?

» Filed Under Cars, Debt Elimination, Psychology of Spending

Trackbacks/Pings

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Comments

20 Responses to “Was Paying Cash For A Car Worth It?”

cashgoat on September 25th, 2007 11:57 am

Don’t forget the “risk” factor. Paying with cash protects you in the event of a crisis or job loss. When something bad happens you don’t have to worry about making the car payment. When you finance a car you don’t “own” it until the bank gets all their money so if you miss a payment they will come and take what belongs to them, leaving you without transportation and in most cases having to pay the difference between what you owe and what they get at auction for the vehicle.

For me, risk is the single biggest factor for not going back into debt.
The Happy Rock (316 comments.) on September 25th, 2007 12:05 pm

cashgoat - I totally agree that not having debt does significantly lower your risk level. I didn’t mention it in this case, because the risk of losing my current job is really low, although the risk of totaling the car is a real possibility. Thanks for the great comment!
Millionster (1 comments.) on September 25th, 2007 8:43 pm

Having debt per se is not a bad thing. I dont think you getting debt again would be evidence of you not having learned your lesson. No. If you have sufficient funds to take on debt and it makes sense financially to do so (sometimes timing is more important) then its not a bad thing. Debt is bad if you don’t plan for it.. like babies. hehe
Tim Diehl on September 26th, 2007 8:56 am

It seems that incresingly our attitude is that we’re entitled to having the nicest of everything, regardless of whether or not we can afford it. so our strategy becomes debt. what before was somewhat shameful has now become some kind of financial strategy, which for most of us leaves us with sweet cars, huge houses and way too much stress. thanks for encouraging us in another direction Happy.
The Happy Rock (316 comments.) on September 26th, 2007 11:04 pm

@Millionster, I really do think debt is rarely a good thing, especially given our lessons learned and goals in life. Debt is usually a dead weight, rather than a tool.

@Tim, Entitlement, great/ugly word. Thanks for the encouragement.
Luke (1 comments.) on September 27th, 2007 7:00 pm

I’m with Tim (and you) on this one. It’s so sad to see depressed Lexus drivers. If you can pay cash, the more power to you! Cool post.
The Happy Rock (316 comments.) on September 28th, 2007 5:26 pm

@Luke - Glad you ride the cash train! It is very sad when out stuff starts to own us, rather than us owning our stuff.
Brandon (1 comments.) on April 15th, 2008 12:53 pm

Well I have done both paid cash and got financing In my opinion Financing is the way to go because your more likely getting sum car that could have a 100 things go wrong with it, with in a mouths time if you do have problems (in most case’s) there is some kind of warranty.
Financing also builds your Credit so you can get a cheaper payment and a better car next time around.
The Happy Rock (316 comments.) on April 15th, 2008 10:26 pm

@Brandon - Why would the car that you pay cash for be any different than the car that you finance? Going into debt out of fear is not a way to get financial freedom in my opinion.

On a personal note, I have bought a 99 Celica and a 94 Sentra with credit, and a 2001 Focus and a 03 Murano with cash. Buying with cash wins hands down.

Thanks for the discussion.
Brandon C (1 comments.) on April 30th, 2008 3:19 pm

Not like everyone can afford a lump sum all at once to buy a car but they can manage $300-$500 a month
The Happy Rock (316 comments.) on April 30th, 2008 4:10 pm

@Brandon - The idea is to save the $400 a month and then pay cash for something used and cheaper, and then keep saving the $400 for the next upgrade.
Sue (39 comments.) on May 22nd, 2008 10:54 am

So what are your thoughts about leasing? We are ending a lease currently so we either need to a) buy it out (which would include financing) b) lease a new car or c) buy or finance a used car.
The Happy Rock (316 comments.) on May 22nd, 2008 5:16 pm

@Sue - Leasing is usually the most expensive way to drive a car. Maybe I should do a whole post on it to break it down.

Without knowing any specifics the best option for your finances would most likely be to be a solid used car with cash.
Cash Loan Adviser (1 comments.) on July 22nd, 2008 9:47 am

“Without knowing any specifics the best option for your finances would most likely be to be a solid used car with cash.” Couln’t agree more. Great post.
Car Leasing Bob (1 comments.) on October 8th, 2008 3:06 pm

For business, leasing a vehicle is useful as it is fixed cost and off the balance sheet. If you buy it in the company name, then it gets written down as an asset of the company.

Have a look at my site for more information and see how good some of the prices are.
The Happy Rock (316 comments.) on October 8th, 2008 3:48 pm

@Bob

Despite tax benefits, I still don’t think I would recommend leasing in any circumstance. Things like mileage overages, new car cost, damage, actual lease terms(money factor, trade-in value), lack of short term flexibility are all working against you.

Buying a newish used car with cash is usually the way to go in every circumstance.
Jeremy (1 comments.) on December 5th, 2008 3:07 am

If you can afford to pay cash, you should, although I agree that debt is not necessarily a bad thing. There really are finance specialists out there that do have your best interest at heart, I’m talking from experience. If the car is not related to a business, I would never lease…