Before I started my research into financial independence, I would have never considered buying a car in cash. I mean, who could afford paying $20k – $30k out of pocket? Certainly not me, nor anyone I know off hand. I eventually realized my mistake in thinking that. The majority of the population doesn’t pay for a car in cash because the majority of us can’t afford to shell out that amount of money. So, who buy’s a car in cash?
Those who have their financial lives together, that’s who. This doesn’t mean those of us who don’t/can’t pay cash aren’t headed in the right direction. We all have our obstacles, but consider this:
A vehicle is just that – a tool for us to get from point A to point B.
Sure there are luxuries that we would LIKE, but don’t NEED. That new Tesla certainly has my attention, but my wallet thanks me for not buying it. My 10 year old 4Runner (still probably more than I need) is a perfect combination of what I need (a working vehicle) and what I want (passenger room and cargo space).
In a story posted by MMM, a 25 year old readers was sucked into the Jeep hype right after college. His story hits home to me because my roommate was in the same situation – read about it HERE. Ultimately, they both realized that their monthly payments were insane (over half of my monthly mortgage!).
I was lucky enough to have a great opportunity at work that provided me with the chance to earn more, and save 80% of my paycheck. Because of this, I could afford to pay cash for my 10 year old car. And I’d be one of the first to recommend it to you.
The Monthly Payment Gimmick?
A major benefit of buying a car in cash is it’s impossible to exceed your budget. It’s possible to avoid all the gimmicks that dealerships and loans provide. Especially what I call the “Monthly Payment Gimmick”. You know how that conversation goes:
Dealer: “Hi Mr. Car-Buyer, I’d like to help you find a car that you can afford (but still gives me a large commission. What would you like your monthly payment to be?”
Car Buyer: “Well, I think I can afford $XXX a month.”
Dealer: “We shouldn’t have a problem finding a car for you. Our financing department is happy to extend loans to help you lower your payments. We even have loans out to 7 years! How nice is that?”
If you have to take out a 7 year loan (or any loan) for your vehicle, you should strongly reconsider. TheSimpleDollar explains why this is a bad idea very well, I recommend you check out the article here.
The biggest benefit is that money that would be going to monthly payments, are now building up your reserves – or better yet, being invested! Sure, the argument can be made that you are more likely to have maintenance issues, but look at it this way: that maintenance cost is just a monthly payment – as opposed to paying a monthly note AND paying for the maintenance.
What do you think? Would you purchase in cash if you could?