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As I asked in another thread, I have job and savings of almost 50k. I am looking to buy a car, probably something used 1-3 years old so that I don't get hit by the quick depreciation on a new car.

I can free 20k cash and just buy it. Or does it make any sense not to use cash and get a loan instead?

Albrecht
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2 Answers2

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Most likely, buy the car for cash.

If you get a loan, you'll be paying extra in the % interest that you get on the loan. If you pay cash, you don't have to give that extra money away.

There are two instances where taking the loan would be a better option:

  • Spending the 20k would leave you dangerously low on your emergency fund/savings. It's not worth it to have a paid off car if you can't protect yourself from unseen emergencies, accidents, etc.
  • After taking out the loan, you rather invest the remainder of the 20k you could have paid towards the car. If you make more back than the percentage interest your losing to the car loan, you'd come out ahead.

Since you stated that your reserves are not low, the first instance is not an issue for your. So you could go with the second, and look to invest the money for a higher gain then you lose on the car loan.

If you don't find a way to do that, pay cash.

Eric Alberson
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Use cash to purchase a car. You might even want to move down in price. You can get a surprisingly nice car for $6000. Like you can get a nice 3 series BMW for that.

Pete B.
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