įor ideas on where to invest your extra car cash, check out our article 7 easy ways to start investing with little money. As a cherry on top, financing with a low interest rate is better for your credit score. You could put it in your retirement account, where it could become $113,000 in 30 years.Īs a general rule of thumb, it’s usually worth financing at a 2% interest rate or lower and stashing the cash in other places where it can grow much faster.You could put it in an S&P 500 index fund where it could become $30,000 in five years.That leaves you with $12,000 today to play with. You put 20% or $3,000 down, and set up autopay for your $300 monthly payment. To illustrate, let’s say you choose to finance instead of paying cash. If you write Carmax a check for $15,000, that’s now $15,000 that you can’t invest and multiply. However, there’s an opportunity cost to paying cash. You don’t have to worry about a monthly payment, you don’t pay a dime of interest, it’s one-and-done. On paper, paying cash makes much more sense. If you can afford to pay cash, should you? Here’s why financing is almost always better than paying cash But we still recommend that you convince yourself that a used car is the better move. If you can’t bear the idea of driving a used car, but also can’t afford to finance a brand new one, leasing might be an option. If you don’t want the hassle of having to sell a used car, leasing might be the way to go. To be clear, this method isn’t necessarily cheaper than buying used - but it is a bit more convenient. Read more: Why you should (almost) never lease a car The two times leasing might make senseĪll that being said, there are two cases in which leasing might make sense. “Buying a car is almost always better than leasing.” Leases are riddled with hidden costs that drive up the monthly payment, such as higher insurance rates, mileage charges, and the results of the dreaded credit card test, where the dealer will charge you for every nick and scratch bigger than a credit card.Īs a result, Allyson Baumeister, a member of the Texas Society of Certified Public Accountants, says: Well, at Money Under 30, we’re torn on the idea of leasing a car. We know why a lease can be tempting - you get a brand new car for a lower monthly payment than a car loan. Now, let’s talk about buying versus leasing. Since we stayed within budget and put 20% down, we’re ~$80 below our maximum recommended payment - a good place to be. Punch in those numbers and scroll to the bottom, where you’ll see an all-important figure: Maximum recommended monthly payment. You don’t have a trade-in, and you choose a 48-month loan at 4%. Your budget is 35% or $14,000, and you plan to make a 20% down payment of $2,800. How to use the Money Under 30 Car Affordability Calculator You can tinker with the Money Under 30 Car Affordability Calculator to get your exact numbers:
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