[Lo0mis]

Hello. Circumstances have placed me in a unique (to me) position in which I have the funds in hand to buy an M2. I've always financed my cars, so I've never really contemplated this situation. So I've been wondering if this would give me any leverage in negotiations? I do not intend to pay more than MSRP, so if this does give me some influence I'm hoping that I could at least eliminate any markups. Or maybe even get me under MSRP. Does anyone have any experience with this?

-Also, would the high demand, low supply eliminate any leverage?

[Ex-MINI]

Originally Posted by Lo0mis

Hello. Circumstances have placed me in a unique (to me) position in which I have the funds in hand to buy an M2. I've always financed my cars, so I've never really contemplated this situation. So I've been wondering if this would give me any leverage in negotiations? I do not intend to pay more than MSRP, so if this does give me some influence I'm hoping that I could at least eliminate any markups. Or maybe even get me under MSRP. Does anyone have any experience with this?

-Also, would the high demand, low supply eliminate any leverage?

Supply or lack of doesn't change anything. Dealership wouldn't give discount for cash. Either finance or cash they will get their money before they give you a car. If anything, they would prefer you finance, through them, so they also earn on the interest you pay.

[PackPride85]

They prefer financing so they can make money on the back end. Buying a car in cash right now would be a huge waste with financing rates so low.

[Ex-MINI]

Originally Posted by PackPride85

They prefer financing so they can make money on the back end. Buying a car in cash right now would be a huge waste with financing rates so low.

Maybe if you're in the US

But, for example, if you're in Ontario Canada like I am, the BMWFS rate for ///M products is 4.99%...that's the best they will offer regardless of how good your credit rating is. Much better to pay cash if you can

[jtfields]

Either way they end up with the cash whether it comes from a bank loan or straight out of your bank account. The only way they would care is if you were financing through them in which case they would make more money. You would think cash could at least save you some paperwork time but even when you pay cash they make you meet with the "finance guy" to do the paperwork.

[jpics80]

Paying cash actually works against you in most situations.

[CosmosMpower]

No

[gmzanatta]

Hell no. Finance rates are low, do not buy cash.

[Dabozo]

invest that cash instead. No brainer for someone in the US...Any rate less than 3% is a bargain imo.

[gtaM2]

there's no right or wrong here, depends on each persons situation

[Lo0mis]

Great, that answers my primary question, thanks everyone!

So now I have a follow-on: why would I opt for financing when I could just be done with it and not need to deal with a monthly payment? I'd also be saving money in the long run by not paying interest. Not that much, but still needs to be mentioned. It would also avoid touching my credit, which isn't that big of a deal, but at least it would be one less hard inquiry. I'm not grasping why having low rates available would entice me to finance, when buying outright is essentially a rate of zero. The only reason why I could imagine that getting into a loan would be advantageous would be that I would be holding the money over the next (however many) years, with the potential opportunity to gain some form of growth from it. I'm not an investment banker, but I don't think that this "small" amount of money would be able to net me any worthwhile return. Can someone please illuminate me further?

[twin fed]

I put down a little more than half in cash and financing the rest through a credit union.

[BEM-S4]

Originally Posted by twin fed

I put down a little more than half in cash and financing the rest through a credit union.

This is a good way to make sure you're never upside down and have to write a check if you ever want to get rid of the car while still preserving some liquidity. With rates where they are I'd have a hard time tying up the full $55k or whatever it is in a depreciating asset.

[gmzanatta]

Originally Posted by twin fed

I put down a little more than half in cash and financing the rest through a credit union.

This is also a great idea OP, if you are determined to put some cash down.

[blackholescion]

Originally Posted by Lo0mis

Great, that answers my primary question, thanks everyone!

So now I have a follow-on: why would I opt for financing when I could just be done with it and not need to deal with a monthly payment? I'd also be saving money in the long run by not paying interest. Not that much, but still needs to be mentioned. It would also avoid touching my credit, which isn't that big of a deal, but at least it would be one less hard inquiry. I'm not grasping why having low rates available would entice me to finance, when buying outright is essentially a rate of zero. The only reason why I could imagine that getting into a loan would be advantageous would be that I would be holding the money over the next (however many) years, with the potential opportunity to gain some form of growth from it. I'm not an investment banker, but I don't think that this "small" amount of money would be able to net me any worthwhile return. Can someone please illuminate me further?

Originally Posted by gmzanatta

This is also a great idea OP, if you are determined to put some cash down.

In addition to this, the reason why you wouldn't pay for it is if you put that 60k in an index fund at an average return of 6-7% in 5 years you'd have paid for the interest you would have paid on the car and come out ahead, assuming 3% interest rate on the car. Of course markets vary, etc. But there really is no reason not to invest that money and sit on it in a market for 5-10 years with interest rates so low. If the rate was 5%, then I'd say pay for it. But compound interest is a hell of a thing.

[Dabozo]

Originally Posted by blackholescion

In addition to this, the reason why you wouldn't pay for it is if you put that 60k in an index fund at an average return of 6-7% in 5 years you'd have paid for the interest you would have paid on the car and come out ahead, assuming 3% interest rate on the car. Of course markets vary, etc. But there really is no reason not to invest that money and sit on it in a market for 5-10 years with interest rates so low. If the rate was 5%, then I'd say pay for it. But compound interest is a hell of a thing.

^^This exactly.

[PackPride85]

Originally Posted by blackholescion

In addition to this, the reason why you wouldn't pay for it is if you put that 60k in an index fund at an average return of 6-7% in 5 years you'd have paid for the interest you would have paid on the car and come out ahead, assuming 3% interest rate on the car. Of course markets vary, etc. But there really is no reason not to invest that money and sit on it in a market for 5-10 years with interest rates so low. If the rate was 5%, then I'd say pay for it. But compound interest is a hell of a thing.

This.

If you finance 30k you're paying about $1600 in interest over the life of the loan at 2% rate (doable through any credit union).

Put the remaining 30k in an index fund at 5% and you're making $1500 per year.

[blackholescion]

Originally Posted by PackPride85

This.

If you finance 30k you're paying about $1600 in interest over the life of the loan at 2% rate (doable through any credit union).

Put the remaining 30k in an index fund at 5% and you're making $1500 per year.

Yep. Just to add a bit, due to compound interest it's 1500 the first year, 1575 the second, 1653.75 the third, 1736.44 the fourth, and 1823.26 the fifth. Which means you've made (after interest costs), 6688.45 over the course of a 5 year loan. Not exactly chump change and much better in your pocket than in BMWs. That's a lot of scratch for mods, cheeseburgers, video games on Steam, or whatever else.

And yes, if you choose an index fund, you will get 5% over time easily. Even if the market tanks tomorrow and your 30k goes to 15k over night, it will rebound in 5 years and be worth exactly as much as it should have been and potentially more as the economy gets stronger. Take a look at your 401k and look at the dip in 2008 compared to 5 years later. That dip could have easily wiped out half of your value in the short term but in the long term, your money is worth more.

If you don't know what index fund to invest in, give Vanguard a call and talk to someone. Pick one they recommend with the lowest fees and don't touch it again until 2021.

[desertfox73]

^Agree with this. Personally, I would put down whatever amount got me the lowest financing rate (should be under 2%) and invest the rest. It sounds like your current financial position is uncommon, so in going to assume it might not always be this good. If that's the case, should your personal financial circumstances change you have immediate cash liquidity and you can get out of the car, if need be, at your own pace; and as others have said you should be able to generate more investment income than you pay in interest.

[Lo0mis]

Thanks for all the suggestions everyone! I'm starting to like the idea of putting half down and investing the balance. I'll get with a financial adviser about the specifics.

[Lo0mis]

Originally Posted by desertfox73

Personally, I would put down whatever amount got me the lowest financing rate (should be under 2%) and invest the rest.

Good point, I'll also keep this in mind.

[guarnibl]

Originally Posted by Lo0mis

Thanks for all the suggestions everyone! I'm starting to like the idea of putting half down and investing the balance. I'll get with a financial adviser about the specifics.

You don't need to talk to a financial advisor to invest $30k. Do your own homework first and foremost but personally I'd finance every penny of it if the rate is 2% or less. Even a very conservative portfolio of a few index funds in vanguard should out earn that interest rate. You can always pay it off in the future if you need to. Rarely do you come across pre payment penalties in auto loans.