Paying cars cash vs financing

[Kaido]

I would lease.

I have a buddy whose currently leasing and is involved in network marketing. Get this. He gets to write off the full amount of his car because he has a side business. He doesn't have to show profit. All he does is document that he's working his side business everyday. He gets to write off part of his rent, a new computer, printer, etc... Anything that's related to his network marketing gig he gets to write off. All without making a dime. You just gotta play the game which most people do not do. I don't care for Trump but I have to admit he's smart for not paying his taxes.

I know Trump's words were offensive to those of us who do pay taxes, but yeah, if you play the game smart you can make out pretty good. Helps to be able to pay for the top-educated financial guys who can find all of the legal loopholes!

 

[Muse]

What's your thoughts on it? Do you buy used cars cash? New cars financed? New cars cash? Currently I finance new cars. Can't help but feel it's a huge waste of money. Listening to Dave Ramsey he absolutely hates financing vehicles. I don't really see myself having more than 12k to buy a cash car when the time comes. I'm not sure I trust a 12k car to be 100% reliable. What is your opinions and experiences?

My boss at my first programming job told me he would never again buy a new car, only used. He kind of said it out of the blue. It stuck with me.

My car is a 1997, doesn't even have anti lock brakes. Reading Car Talk, I'm convinced it makes sense to get a fairly new car if needed that has the major advancements in car safety. Efficiencies and improved reliability are important. Myself, I don't drive enough to trip on identifying with my car.

 

[Kaido]

Or are his accountants smart and he's a dumb for losing close to $1B in a year?

My BIL did some construction work for a billionaire back during the stock market crash. The guy lost over $900M (on paper) - in a day. My BIL said he didn't seem fazed by it.

That's exactly it. There are ways to write things off so that you're making tons of money, but it appears publicly as a loss. Pay less to the IRS, to investors, to employee profitsharing systems, etc., while lining your own pockets. Tax avoidance schemes can get incredibly complex. For some fun reading, and this is just the tip of the iceberg, read up on the "Double Irish with a Dutch Sandwich" technique:

http://www.nytimes.com/2012/04/29/b...-aims-at-low-tax-states-and-nations.html?_r=0

Apple's response?

Apple has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules. We are incredibly proud of all of Apple’s contributions.

Technically, they're not wrong. Business is business; "doing the right thing" is separate from maximizing all of the legal avenues they can pursue as a corporate entity. Furthermore, iirc Trumps aid the politicians don't know how to manage the money they get effectively anyway, and he's not exactly wrong given how much debt, mis-spending, and corruption exists in our system. So yeah, he has a point. And companies would go under if they were really actually losing their shirts every year, you know? It's all a big game once you get into the big leagues.

 

[Kaido]

My boss at my first programming job told me he would never again buy a new car, only used. He kind of said it out of the blue. It stuck with me.

My car is a 1997, doesn't even have anti lock brakes. Reading Car Talk, I'm convinced it makes sense to get a fairly new car if needed that has the major advancements in car safety. Efficiencies and improved reliability are important. Myself, I don't drive enough to trip on identifying with my car.

Yeah...one feature I'm really interested in is radar cruise control (it basically keeps a distance from the car ahead of you so you don't have to adjust your set cruise speed, and can also auto-brake for you if you get cut off). My wife's car has it (EyeSight) & it's absolutely fantastic on the highway. And Toyota just announced the new Prius Prime ($27.1k base + $4.5k Federal tax incentive), which has a 25-mile battery plus a 50+ MPG gas engine...all models come with radar cruise (plus a host of other safety features), and I could basically commute for free all week & only use gas if I needed to go somewhere else. So good safety, nice convenience features, and super efficient. Downside is you have to tell people you drive a Prius

 

[Kaido]

side question: how much should someone allow themselves to pay for a vehicle? what % of net worth (or annual income)?

Well, that all depends on what your goals are. I know someone who just bought a Tesla Model X & doesn't have a home yet. It all depends on what your priorities are. On the flip side, most of my friends in NYC don't even own cars, but their rent is sky-high.

 

[Kaido]

If you're interested in understanding how your buddy might be screwing himself you might look into the "9 factors of profit motive" that the IRS uses when people try to play the game.

Hmm, pretty good article:

http://www.journalofaccountancy.com/issues/2013/oct/20138370.html

 

[JulesMaximus]

I would lease.

I have a buddy whose currently leasing and is involved in network marketing. Get this. He gets to write off the full amount of his car because he has a side business. He doesn't have to show profit. All he does is document that he's working his side business everyday. He gets to write off part of his rent, a new computer, printer, etc... Anything that's related to his network marketing gig he gets to write off. All without making a dime. You just gotta play the game which most people do not do. I don't care for Trump but I have to admit he's smart for not paying his taxes.

He is writing off the full amount of his car lease payment? There's an audit in the making. You can take a mileage deduction but you need to keep track of miles used for business and mileage used for personal use. I'm not sure who is his financial advisor but he is going to get your buddy audited IMO. How much money does he make on this side business? How does he get paid?

My wife is self-employed and we make estimated tax payments every quarter (about $10k per quarter in fact). We deduct for business use of her car (she keeps a written log of her mileage), and we depreciate it because we bought it (you can't depreciate an asset you don't own) we don't deduct for her home office (because it is not used solely for business and I don't want to get audited on it anyway). She will get a 1099 at year end for her income. We will offset some of her income with legitimate business expenses but that will only amount to around $20k. The thing that kills us is the self-employment tax.

BTW-We have a CPA doing our tax return. Costs us around $1200/year.

 

[highland145]

The thing that kills us is the self-employment tax.

BTW-We have a CPA doing our tax return. Costs us around $1200/year.

Same on both.

 

[bruceb]

When I was buy my Mazda's back in late 70's / 80's they were mostly cash purchases. Same with my 1999 Grand Prix bought it new. .. Just bought a 2016 Cadillac ATS V6 AWD Premium (new with 10 miles) for a little over $56,370 .. GM offered 0% APR for 72 Months so I took that option.

 

[brianmanahan]

Well, that all depends on what your goals are. I know someone who just bought a Tesla Model X & doesn't have a home yet. It all depends on what your priorities are. On the flip side, most of my friends in NYC don't even own cars, but their rent is sky-high.

i've seen people on bogleheads say you shouldn't pay more than a couple percent of net worth for your car

e.g. if you are worth 500$k, you can buy a car that costs 10$k

 

[monkeydelmagico]

Just bought a 2016 Cadillac ATS V6 AWD Premium (new with 10 miles) for a little over $56,370 .. GM offered 0% APR for 72 Months so I took that option.

Grats on the new whip. Fine ride. Last I checked they were knocking nearly $10k off sticker for 2016's.... seems a bit steep.

 

[iroast]

Assumptions:

* You're not a teen learning to drive
* Your you've never had a brand new car before
* You can afford to buy a brand new car

Then buy brand new. Get it out of your system

Going forward,

* Buy used all the way. You would save a lot of money. If you have 0% interest on financing, take advantage of that.

 

[bruceb]

Maybe that offer just came up. I took delivery last Wednesday and the car I wanted had to be brought in from a dealer in Michigan. But it has just about all the options, except the driver assist package and the track package. I liked the 2016 as in that model, you can still turn off the automatic engine stop / start feature with a button on the center console. I heard the 2017 does not have that option. Nice red car with a Kona Brown leather interior.

 

[Kaido]

i've seen people on bogleheads say you shouldn't pay more than a couple percent of net worth for your car

e.g. if you are worth 500$k, you can buy a car that costs 10$k

Sure, if you're interested in letting financial hobbyists dictate how you live your life. Which isn't bad. I have a friend who does this...he reads Consumer Reports, researches the crap out of everything, and picks stuff that will have the maximum reliability & resale value. To me, it's a very boring approach because he does "safe picks" on absolutely everything he buys, but he also has pretty reliable stuff, so there's that to consider.

On the flip side, again...eventually you're gonna die, and you have to decide where you want to put your money, your time, and your fun. If a WRX is within your budget, but you pick a Corolla because someone on the Internet told you to, you may not be as happy with your purchase looking back on it down the road, you know? But if you're strapped with student loans, medical debt, and are barely making it, then obviously an expensive car is not a good choice.

It all boils down to what you can responsibly afford. If you blow your budget on a Tesla & can't buy winter clothes for your kids, then that's not the smartest decision. That's an extreme example, but I know people with low self-discipline who have purchased cars that are way too expensive for their budget & have had to go into more debt to cover other areas of their lives because of it.

So if you want to play it safe, sure, buy by a percentage of your net worth...nothing wrong with that at all. All that matters is what you can responsibly do & what you want to do. I know plenty of people who can afford a Mercedes, yet drive Hyundai, because they don't want all of their money sunk into a monthly car payment. Nothing wrong with it either way if you're not screwing yourself over budget-wise!

 

[JulesMaximus]

Sure, if you're interested in letting financial hobbyists dictate how you live your life. Which isn't bad. I have a friend who does this...he reads Consumer Reports, researches the crap out of everything, and picks stuff that will have the maximum reliability & resale value. To me, it's a very boring approach because he does "safe picks" on absolutely everything he buys, but he also has pretty reliable stuff, so there's that to consider.

On the flip side, again...eventually you're gonna die, and you have to decide where you want to put your money, your time, and your fun. If a WRX is within your budget, but you pick a Corolla because someone on the Internet told you to, you may not be as happy with your purchase looking back on it down the road, you know? But if you're strapped with student loans, medical debt, and are barely making it, then obviously an expensive car is not a good choice.

It all boils down to what you can responsibly afford. If you blow your budget on a Tesla & can't buy winter clothes for your kids, then that's not the smartest decision. That's an extreme example, but I know people with low self-discipline who have purchased cars that are way too expensive for their budget & have had to go into more debt to cover other areas of their lives because of it.

So if you want to play it safe, sure, buy by a percentage of your net worth...nothing wrong with that at all. All that matters is what you can responsibly do & what you want to do. I know plenty of people who can afford a Mercedes, yet drive Hyundai, because they don't want all of their money sunk into a monthly car payment. Nothing wrong with it either way if you're not screwing yourself over budget-wise!

Bad example, WRX=Corolla... in looks anyway.

 

[OverVolt]

Where did you just pull these numbers from? (1850 and 3000)

Nissan rebates, which I'm sure is indicative of the market overall because they all pretty much do the same thing. Also depends on the price of the car. Altimas can get $3k rebates, Sentras $1850.

If you want a good deal on a car track the manufacturer rebates. You're looking for about 85% of MSRP.

0.9% APR is in lieu of the rebate, but probably is around the same payment.

Read the fine print.

 

[JEDI]

What's your thoughts on it? Do you buy used cars cash? New cars financed? New cars cash? Currently I finance new cars. Can't help but feel it's a huge waste of money. Listening to Dave Ramsey he absolutely hates financing vehicles. I don't really see myself having more than 12k to buy a cash car when the time comes. I'm not sure I trust a 12k car to be 100% reliable. What is your opinions and experiences?

60month loans is sooooooooo last decade.

now 72 month @ 1.9%
(or maybe 84month)

now that $90k suv's monthly note looks affordable.
and of course buy gap insurance in case you want to trade it in b4 8years

 

[TwiceOver]

Personally I'm done paying monthly for things. I'm not interested in playing the loan game tying up future money for a minor percentage. I'll just pay cash and get it over with.

To each their own though. People should do what they want.

 

[Chaotic42]

I've done both, but right now I'm financing at something like 1.89%. I had a 2012 Chevy Cruze which started having all sorts of problems at 40,000 miles, so I just said to hell with it and got a 2016 Subaru WRX. It was time for a fun, reliable car. My best ever deal was getting a 1991 Ford Festiva used for $700, putting 100,000 miles on it, and then selling it for $300. Baller.

 

[Kaido]

Bad example, WRX=Corolla... in looks anyway.

lol I actually posted that to see if anyone would catch that they are lookalikes, you're quick!

 

[JulesMaximus]

lol I actually posted that to see if anyone would catch that they are lookalikes, you're quick!

LOL! Yeah, Subaru has a habit of teasing the public with cool and interesting concepts for the WRX but when it comes to the production model, BAM!!! Toyota Corolla with a hood scoop.

 

[adairusmc]

My Ram 3500 diesel was just over $50k, but had no choice but to finance it at that price. Currently at 2.25%

 

[Fritzo]

I have a limit of $15K I'll spend on a car, and I follow the "trade in-trade up" theory of cars. I'll typically keep a car for 3-4 years, and I target cars that have a big enthusiast following. That way, when I go to sell the car is a bit more valuable than a generic car and I can get something better (not to mention more fun to drive). For example:

1. Started with a Mazda pickup truck
2. Bought a Jeep
3. Bought a Mustang
3. Bought a BMW 330
4. Bought a Mini Cooper JCW
5...maybe a BMW M3 by 2018

I never spend more than 15K out of pocket, but my trade-in or sale is more valuable each time. Of course some mechanical knowledge is required to do this as the more exotic the car, the more expensive the repairs, but in most cases repairs can be done in your own garage rather inexpensively. My current Mini has been the most expensive so far to fix, but after $1500 repairing a fuel pump and a water pump, a class action lawsuit appeared and I'm getting my money back

Anyway, buy low and sell high and all that jazz. If you set a savings schedule and watch your spending you'll be surprised at how fast you can save up $15000. My favorite way of stopping frivolous spending is before every purchase, ask yourself: "How long to I have to be at work to earn enough to pay for that?" It's really sobering.

 

[Fritzo]

when i bought my 2015 mazda, my Credit Union was offering .9% financing. that's pretty much a free loan in my book and took it. i felt better not draining my bank account 23K.

Was that for a new car only? Also, the danger of that is when you have free/nearly free financing you tend to overspend.

 

[s0me0nesmind1]

Dave Ramsey advocates zero debt period - it's not the amount of interest paid, it's the freedom provided by being debt-free. This philosophy works for some people...maybe it's not the most mathematically strategic way to approach life but - it's not "wrong" either. He makes an exception for a home purchase because you generally don't go upside-down on the loan, but only with a sufficient down payment and a mortgage that's properly proportioned to your income.

Usually my wife would get the new cars and I get the used ones and that was fine. Three and a half years ago I got a new car, my first since 1990. I hold my cars for a long time so I'll likely drive it for 8 or 9 more years. My wife drives hers a long time also.

And anyone with half a brain in finance (Grade school equivalent) would tell you that Dave Ramsey is a complete moron.

Paying off debt in order of which one is the smallest amount is HANDS DOWN the dumbest "advice", it's actually handing out misinformation and not truly informing people of what their ideal option is. Debt is an incredibly helpful and useful tool in life if used appropriately. Life has a way of taking a complete shit on you at random, and I would much rather have the option of walking away from a loan resulting in shitty credit rather than live in misery with low cash on hand when something big happens.

That said, I don't have any debt outside of a mortgage. I've paid cash for used cars and my '06 Acura TSX will serve me for many more years.