[hkarthik]

It really depends on the financing rate. At below 3.0%, it doesn't make sense to put too much cash into a depreciating asset like a car when your money could be put toward other investments that can probably net more than 4% return.

I still feel better paying off a car in 3 years rather than 5, so I usually suggest making a few extra payments to make that happen.

You will get a better deal with more incentives with dealer purchased cars if you finance. They may give you more for a trade and negotiate more on the final price. Perhaps even give you a few extra options for free.

[brundolf]

Weird. Why would they do that?

[toast0]

The manufacturer has several reasons to push the buyer to financing.

More options to adjust pricing with dealers.

Repayments provide steady cash flow when sales are lagging. A auto finance business can become a general finance business (see Ally née GMAC) which may experience different business cycles than the auto business.

Loan servicing provides a marketting channel and a legitimate interest in monitoring borrower credit (which could be used to tailor marketting).

Promoting purchasing vehicles on credit may encourage borrowers to consider a new purchase when the loan is paid off.

[yellow_lead]

They make that extra X% on the loan. For a 30k car at 3% that's nearly 1k. Also, the loan could be worth more due to potential late fees, etc

[brundolf]

The first part isn't really helpful to me though- if the APR is 3% I'll just factor that into the price up front and then any "deal" they give me will be (theoretically) the same as or worse than paying up front. Unless I take the loan deal and then immediately pay it off, I guess

The second part might make sense if they're "betting" on getting late fees from me while I know there won't be any

[hkarthik]

There's nothing stopping you from buying it with financing, and then immediately paying it off before you incur too many interest charges. My parents do that with every car purchase. It makes the deal making process and all negotiations way smoother, while ensuring they don't incur any unwanted debt.

[gabrielsroka]

The last time I bought a new car with a loan, which was in 1993, the interest was pre-computed. I tried to pay it off early, but I wouldn't save any money on interest. I don't think they do that anymore, but read the fine print.