Lease vs Installments vs Cash Buy

[Bmw.wp]

Hi Fanatics

Always wanted to know which will be the best way to buy a R600 000 + Car when you have the money.

You just inherit or win the Lotto or whatever and can buy a R600 000 + car will you lease the car or put a 10% deposit down and pay off installments or buy it cash and score on the interest the Bank will make.?

I am just curious because it seems that big amount could have been use for something else but heck what if your dream car is a Bmw F10 M5 and you want to own one. :blueCry:

 

[that_guy_Ettiene]

Cash is always the way to go in my opinion.
Its alway better not owing someone( the bank) money

From my S7_Edge

 

[Coisman]

I wonder if John from Leo Haese Pretoria can maybe help here, by either answering himself, or getting one of his sales staff t answer and explain a bit better??

CALLING JOHN!!! :idea:

 

[TurboLlew]

Lotto win? Car you will keep for 5+ years? Cash IMHO.

People often say 'that money can be used for something else'... but you are using that money for the car anyway, just 'disguised' as a monthly payment and unless you have a cashflow requirement then you can use that interest you save (large amount I might add) for something apart from a car (or another car for that matter)

 

[Sabretooth tiger]

If I win the lotto I am not buying a car, but a new identity so some family members cant find me. :rollsmile:

Jokes aside, if I have that kind of cash, I would rather buy cash, instead of financing or leasing.

 

[zabbo]

The immediate answer seems to always be cash!

I do however think that in some or even most instances a deal can be structured in a way that over say 3 years (because if I had the cash i would change cars regularly) you could end up even if the money you would have spent on the car was invested wisely.

I would just hate to have paid R650k cash for say an M5 and then 3 years down the line only manage to get about R400k back for it - that R250k knock would be more painful than had i only been paying R15k a month.

Thats my feeling but it would be great if an Actuary or some other clever numbers person could do the real world maths for us.

 

[ChefDJ]

Cash purchase if it can be done is always better, to avoid interest.

If you win the lotto, or inherit a bit of money, and it's just enough to buy your dream car, but you have outstanding debts or a bond or something, then you are using that money for all the wrong reasons. Settle the debt with the biggest interest first. Dream cars can wait.

I'd rather have a paid-up house and a financed car, than the other way around.

 

[PLV]

Cash purchase if it can be done is always better, to avoid interest.

If you win the lotto, or inherit a bit of money, and it's just enough to buy your dream car, but you have outstanding debts or a bond or something, then you are using that money for all the wrong reasons. Settle the debt with the biggest interest first. Dream cars can wait.

I'd rather have a paid-up house and a financed car, than the other way around.

This is the wisest approach and the best advice by far... :clapper:

 

[zabbo]

Cash purchase if it can be done is always better, to avoid interest.

If you win the lotto, or inherit a bit of money, and it's just enough to buy your dream car, but you have outstanding debts or a bond or something, then you are using that money for all the wrong reasons. Settle the debt with the biggest interest first. Dream cars can wait.

I'd rather have a paid-up house and a financed car, than the other way around.

This is the wisest approach and the best advice by far... :clapper:

True and I agree Chef ... but what I was eluding to was if you finance a car at 5% (like many BMW deals) and instead possibly earn interest on an invest at 5% - would it not be better to finance the car - leaves you with many more options. (very narrow scenario of only considering a car purchase) - car is a depreciating asset and the investment will grow with compound interest - hence a numbers person to do the calculations for us will be awesome!

 

[Bayn46]

I'd rather have a paid-up house and a financed car, than the other way around.

Usually your bond will have a much better interest rate unless, as Zabbo said, you get one of those 5% efforts from BMW.

So if you're going to have one financed, I'd rather have 100k financed at my bond rate than at the much higher car rate.

 

[tman]

Cash Purchase, UNLESS you can use the capital amount to create an income for yourself (in a business venture) that exceeds the interest on the car repayments.

Simple as that.

 

[Pho3niX90]

Cash in most instances.

HOWEVER, there are instances where this is not the best.

Here is a example:
I am currently buying a ford pickup. Cash price 567930 with extras, however on ford financing I get a fixed 7.99% interest rate, a guaranteed future value of 46% (4 years from now), a 60K deposit, payment is made also over 48 months. BUT, I get a discounted price as well. Monthly installment 7500 which equates to 439200K paid back (with interest), and there is no residual.

So in a nutshell, options on each individual should be considered as this is per person basis. So If I were to sell said vehicle back to them in 4 yrs, my total expenditure would be (439K - 260K = 179K).

If I with another financing company (ABSA, WESBANK etc) though, total paid back would have been around (790K).

 

[AdiS]

Cash Purchase, UNLESS you can use the capital amount to create an income for yourself (in a business venture) that exceeds the interest on the car repayments.

Simple as that.

This. If you have cash, it ends up being a capital allocation question. So, you need to look at all the options of how you can allocate that capital, and the respective interest paid or earned in each situation.

If you buy the car cash, you don't have to pay interest on a financed amount, but then you can't deploy that capital elsewhere because it has been used to pay for the car. Depreciation should equally be a consideration, but that is to do with capital preservation, rather than the opportunity cost of financing vs paying cash in terms of interest paid or interest earned.

As has already been mentioned, in the above hypothetical situation described by OP, it's only worth financing a car, if you can use the capital amount (R600k) and invest it elsewhere to get a return that exceeds the interest you will be paying on the financed capital amount use to pay for the car.

An oversimplified illustration that has already been alluded to by others: Depreciation notwithstanding, if you finance a R600k purchase @ 5% interest rate, and could invest R600k in an asset class where you could expect 10% return, then all things being equal, it's better to finance the car and pay it off monthly while your R600k earns a healthy yield. This is a highly unusual situation, as in most cases in real life, the interest in financing a car is quite high, and its difficult to get a higher rate of return (relative to the cost of financing) on capital without incurring a fair amount of risk - which is a whole separate discussion which involves your personal risk and liquidity preferences.

Personally, i stay as far away from debt as possible. Buying a house is perhaps the most justifiable case to raise debt, but I purchase all my cars cash because invariably financing it costs me a lot more money, and I lose out on being able ot invest that money I pay in interest elsewhere (opportunity cost).

The above is my interpretation the hypothetical situation described by the original poster, and should not be considered financial advice.

 

[K_S]

Cash Purchase, UNLESS you can use the capital amount to create an income for yourself (in a business venture) that exceeds the interest on the car repayments.

Simple as that.

This. If you have cash, it ends up being a capital allocation question. So, you need to look at all the options of how you can allocate that capital, and the respective interest paid or earned in each situation.

If you buy the car cash, you don't have to pay interest on a financed amount, but then you can't deploy that capital elsewhere because it has been used to pay for the car. Depreciation should equally be a consideration, but that is to do with capital preservation, rather than the opportunity cost of financing vs paying cash in terms of interest paid or interest earned.

As has already been mentioned, in the above hypothetical situation described by OP, it's only worth financing a car, if you can use the capital amount (R600k) and invest it elsewhere to get a return that exceeds the interest you will be paying on the financed capital amount use to pay for the car.

An oversimplified illustration that has already been alluded to by others: Depreciation notwithstanding, if you finance a R600k purchase @ 5% interest rate, and could invest R600k in an asset class where you could expect 10% return, then all things being equal, it's better to finance the car and pay it off monthly while your R600k earns a healthy yield. This is a highly unusual situation, as in most cases in real life, the interest in financing a car is quite high, and its difficult to get a higher rate of return (relative to the cost of financing) on capital without incurring a fair amount of risk - which is a whole separate discussion which involves your personal risk and liquidity preferences.

Personally, i stay as far away from debt as possible. Buying a house is perhaps the most justifiable case to raise debt, but I purchase all my cars cash because invariably financing it costs me a lot more money, and I lose out on being able ot invest that money I pay in interest elsewhere (opportunity cost).

The above is my interpretation the hypothetical situation described by the original poster, and should not be considered financial advice.

This!

Well said

---

Always the calculate the opportunity cost of paying cash upfront.

 

[NtandoN]

In many cases the interest on debt will be higher than interest on investment. But this will be based on how your debt finance is structured with your lender.

If it was my money - not taking debt responsibilities into account - I would buy the car cash and save/investment the money that would have been paid towards the monthly instalment. That kills off interest and you don't owe any institution.

 

[CK4LIFE]

Cash is King!

 

[maleven-GP]

Buy a townhouse, retains value and is likely to appreciate should you wish to sell in the future.. rent it out and get to collect monthly rentals! Which can then be used towards car repayments...

A bit off topic, but that's my 2c..

 

[MikeR]

Buy a townhouse, retains value and is likely to appreciate should you wish to sell in the future.. rent it out and get to collect monthly rentals! Which can then be used towards car repayments...

A bit off topic, but that's my 2c..

:withStu:

 

[Tjoppies]

:withStu:

 

[Sabretooth tiger]

Buy a townhouse, retains value and is likely to appreciate should you wish to sell in the future.. rent it out and get to collect monthly rentals! Which can then be used towards car repayments...

A bit off topic, but that's my 2c..

+1