Quote:
Originally Posted by v_tec
.....and they also tend to give the best cash rate too.
Often times $x000 off if you're doing cash, especially at end of the year.
You got to work out the math to see if it's worth getting a slightly higher rate from the bank to offset the cash saving from dealer.
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Agree 100%.
The math you need to do is not comparing the interest rate between the bank and the dealer, but rather the bank's rate
and the cash discount to see what is a better deal.
Example: $50,000 car (5 years, monthly payments, 0 down, no taxes for simplicity).
Dealer offers you two choices... 2.9% financing, or a $2,500 discount if you pay cash. Your bank also offers to loan you the money but they will charge you 4.9%.
If you finance through the dealer, you borrow $50,000 at 2.9%, you make 60 payments of $896.21 which means at the end of the day, you pay
$53,772.86 for the car including your interest.
If you buy it from the dealer cash and finance through the bank, you only pay $47,500 for the car, and you borrow that $47,500 from the bank at 4.9%. You end up paying the bank 60 payments of $894.21 which means you actually only pay
$53,652.54 for the car. You paid more interest, but the discount on the car actually made it cheaper overall.
Hope that helps,
Mark