Dear all,

Let's say you have 120k in cash and would like to buy a new car. What is the best strategy financially?
- To buy the car with cash?
- To pay only minimum amount required?

In the latter scenario, would it be better to stretch the number of year to maximum (9 years) or make it shortest (1-2 year)?

My calculation model shows that paying the minimum amount required and stretch the loan to maximum number of years is the most profitable. But advices that I get from the Internet is to put as much downpayment as possible.

I am confused. Please enlighten me.

Thanks!!

Pay cash but pay all...that's better..no need worry anything

^ Do you have any calculations to share with us?

depends bro..
for me la..if i got 120k in hand..
i will spend 30% or max 50% of my cash..
i like keep money if hand..
car loan for me is if can buy the whole car but must left enough cash in hand.
if not pay higher down payment and make it shortest..

looks loke everybody is giving the same advise of having our loan shorter

can someone share the calculations with us?

thanks!!

I heard that paying all in cash will lead to some kind of govt tax.
Maybe someone could explain if this kind of thing really happen.

Only if you've been evading tax such as extra income that you did not report to the LHDN. But if you're really clean and you are cash rich, then yeah. Why not ? Just pay cash

yes, it happens in Agartha or Kingdom of Saguenay.
but never heard about such taxes here.

bro..simple calculation here..
if the car value at 60k..
then interest rate is 3%(exp only)
then every year you need pay 1.8k..
so if take 9yr loan then you need pay extra 16.2k..
so total value of the car will be 76200.
beside that, take 9yr loan,if you got plan after a few year you use that car,its better to take shorter loan because if you take 9yr loan,then when you sell then car,sometime after you sell then car you still need add up some money to settle the bank loan cause car value drop every year =D

@MilesAndMore: thanks for the explaination.
TS: I think it would be better to diversify your cash, rather than put all into the car.

^ that is assuming your cash sits under your bed (you can't hide 120k under pillow without getting any attention).

if we can generate higher return with that cash vis a vis the loan interest, am i right to say we should pay minimum amount and extend the loan period to maximum?

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Added on September 17, 2011, 3:21 am@EquinoX
it seems that we have the same wavelength.

This post has been edited by new[x]: Sep 17 2011, 03:21 AM

YUP..I'm the kind of person you saying.
I use my cash more on investment and only 30% of my money for down payment.
then every month my loan payment all come from my investment

the good thing of short loan is so that when u sell the car u get back cash
unlike 10% downpayment and loan for 9 years,the first 3 years u are paying for the interest only...so as ur car depreciate and when u need to sell ur car,lets say ur car market value 0k...but u still owe bank 80k...in order to sell your car u have to settle bank another 30k

YA, its better pay down payment or 20% - 30% ( plan first) ..take loan for balance. shorter time is better. the rest of money can invest, which can generate more than 3% annual return.

CEO/director seldom buy cars CASH.

If cash out rm120k, no returns. if pay 60K and put 60K in a investmnt at least can generate 5%,...... 3% for car instalment and 2% as income for balance 60K.

My mother pays cash for her car and I can see the advantages. Eg. If we buy a car on loan of 100K. After paying the car, we would have already paid 136K for the car and if the value of the car 30K after 9 years. It means the owner lost 106K if he decides to sell the car. But if it was paid cash then he loses 70K for the car. Imagine if the car is a supercar, what will the loses be? It means that if you are taking a loan, then the usage of the car is RM981 per month while if you have the means to pay cash you spend RM648 per month.

If you are a businessman and if the cash can generate more income than it is wiser to use the funds for your business. But most businesses have their own pool of finance and car is more of a personal matter. How sure are you that the funds can generate more income than the interest rate that financial instituitions charges? It all comes to whether you have the extra funds and if it is just lying in the bank then you save more for a car usage if you pay cash. Who wants to borrow when they can afford?

This is your own choice really. To what you have plan for yourself.

You pay cash for car, no need to worry later days you don't have money to pay back. And for the moment, you have nothing to invest in.

You pay some cash for the car, and invest in other things.

What I do is, I pay 10% for the car. I put the rest in investment. And I settle the car loan in 2~3 years time. That is what I did. Because for me, I need cash in hand for investment and business.

For you it might be different case.

For me, it's very simple.
In term of monetary, if u think your investment return rate is higher than the loan interest rate, then pay minimum & strength the period.
And vise versa.

if u pay cash, then your money will stuck in a depreciating asset. if an investment opportunity comes, u do not hv the capital if most of ur money already dumped on the car. yes, u can refinance but it already defeats the purpose of buying cash.

the present n future value prevails here. 120k cash car? ok if its just 0.1% of ur money.

Let me be the devil.

We're always on the assumption that we're going to sell the car thus the "car value" depreciation that we always talk about when it comes to car. What if we don't intend to sell the car??

But remember, we're also always talking about depreciation in currency. And since interest rate is fixed, wouldn't paying RM1000 monthly loan repayment for example is actually paying lesser when it comes to depreciation of money at later years.?

heheh - bro b00n, same wave-length, buy and use until...

I think the bottom BOTTOM line would be the cost of loan/HP (cars are straight line methink, gotta convert to effective % per annum compounded) VS whatever opportunities that can be presented during the life time of the loan - as a fellow forumer stated earlier somewhere in this topic/thread.

Mind U, if the difference is less than 2%, i think i'd buy cash (assuming $120K is less than 3%-5% of my investment assets) - one is FOR SURE (loan interest), one is probability-based (investments/trades).

Just a thought