Pay or Borrow

Today TaxMama hears from Bobbie in Highland Park, IL who asks, “Should you finance, lease or buy a car with cash?”

Hi Bobby,

Personally, I always prefer to buy a car rather than lease.

But here’s an analysis so you can decide for yourself.
http://www.taxmama.com/Articles/rentvbuy.html
This page is being updated this week for my new column on buying cars on Military.com

As to financing vs paying cash – it all depends on the loan rate you can get. And what you could earn on the cash if you invest it. These days, you can get pretty good financing deals from both the dealer (as low as 0%) and your credit union. (Banks usually have the highest rate.)

Or you might get away financing the car for 0% on your own. For instance, we bought my husband’s last truck using money from a credit card. We had 0% interest for about 12 months and made sure to pay it before the 12 months ended. Although, we could just as easily gotten another 12-15 months by accepting another 0% offer.

So the loan cost us nothing.

See if you can get free money – and I am seeing loans on credit cards for about 15 months. In fact, here are two of them: http://www.cardoffers.com/partners/links/cpa/all.asp?tempid=339850

Then, invest the money you would have used to pay cash in something that pays you a higher rate of interest. Perhaps a REIT (real estate investment trust)? They are paying about 7% or so.

Good luck!

Remember, you’ll find answers to questions about money decisions and all kinds of tax issues, free. Where? Where else? At TaxMama.com

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