Oops? I Did It Again! Buying NEW Cars with Financing. Kiss My PF Cred Goodbye

Oh hey. Not every personal finance expert will tell you to buy a used car with cash. I'm here to tell you why I love buying new cars with the dreaded dealer financing. Let's do this and I'll turn in my personal finance expert card later.

So, 10 years ago I bought a new car. You can read all about how I financed it at a low interest rate and just … kept my money in the market. Due to this long bull market, it's probably not much of a surprise to discover that my money has done much better in the market than it would have done with a 1.9% guaranteed “return” that comes with getting rid of my debt.

The strategy worked so well that I did it again. Welcome to my little family, you sexy beast.

My Subaru Outback Wilderness

I loved my last Subaru Outback so much that I bought another. Only this time, I went with the limited edition new trim. Some of the things I like about the Wilderness, and why I'm willing to spend more for this trim, include:

  • Higher clearance. This is the biggest thing. I take my car off-road sometimes for camping and to get to hiking trailheads. I was able to take my old Outback up a Forest Service road once, but it was a little nerve-wracking. The higher clearance on the new Outback offers a little extra room underneath.
  • Front obstacles. I like how I can put my Subaru in a mode based on snow and mud. This then turns on a feature that alerts me to obstacles that I might not see over the top of the hood. This feature will likely prove useful in the winter when I head out to snowshoe.
  • Automatic back door. My old Outback didn't have an automatic back door. The hatch is great. It's already been useful in camping, where I can climb in, and then use the clicker to just shut the door, rather than try to reach out and pull it shut.
  • Full-size spare. I've had my share of flat tires. A full-size spare that goes with the car is fantastic, especially if I need to get out of the backcountry.
  • Various thoughtful touches. There are several thoughtful touches for the outdoorsperson, such as anchors for a cartop tent, cladding to protect the bumpers and front undercarriage, glare reduction on the hood, and useful little pockets and nooks.

It seems like a small thing to pay an extra three or four thousand dollars for, but it's worth it to me. I have a car that fits my lifestyle and hits the major notes. So I was willing to spring for the extras because I can afford it and it will enhance my experience for the next 10 years.

In fact, I struggled a bit with it, but a friend I discussed it with pointed out that I write and talk all the time about using your money as a tool to enhance your life. So I decided to practice what I preach.

In Which I Justify Buying New Cars

Now comes the fun part. Where I justify my penchant for buying new cars. Why would I buy something — and finance it no less  — when it will depreciate 30% as soon as I drive it off the lot?

Well, it's for that very reason. It's going to depreciate so I don't want to tie my money up in it. I didn't even use a cash down payment. I was able to get $5,500 for my old car as a trade-in. That's what I used as my down payment. The money I would have spent to buy this car remained right where I left in — an S&P 500 index fund.

My last car, bought in 2011, was financed for 1.9%. As you can see, by leaving the money in SPY, and not paying off my car early, I've seen pretty solid returns in the last 10 years. Plus, that money's been fairly liquid. It's in a taxable investment account, so if I needed it for an emergency, I could get at it. Liquidating a car for cash — especially if you need it for transport — isn't as easy.

I didn't get quite the same financing deal this time around, thanks to my recent credit debacle. But I still ended up with 2.49% APR, so I'm not too broken up about it. Leaving my money in the market, rather than putting it in the car, still makes sense for me.

And I'm not planning to pay this one off early, either. Sixty months financing all the way, baby!

So, Why Don't I Buy Used Cars?

I did buy a used car for my son. But I don't buy used for me. How come? After all, I could pay cash and the depreciation isn't as rapid. Well, mainly it's because I like the convenience of a new car. Three of my friends who bought used have had their cars less than five years and all three of them are dealing with expensive transmission repairs.

Yeah, I don't wanna.

Having a new car that's reliable is a big deal for me. My area might have a low cost of living, but it also has no public transit and isn't very walkable. Plus, my lifestyle involves being out in nature. Being able to load up the car and go is huge for me and my enjoyment of life.

A used car just wouldn't meet my expectations the same way. I'd be worried about breakdowns and whether it's covered under the warranty still. This way, I'm fairly confident I won't have to do much other than regular maintenance for the whole time I own it. Because it's a Subaru. The only repairs made on my old Outback were related to car accidents that the other person's insurance paid for.

The wealthy use other people's money to leverage their lifestyles. They keep their money in the market and borrow to fund their lifestyles. I'm not quite at that level. I can't use my portfolio as collateral for debt (well, unless it's with M1 Finance), but the idea is there. Borrow money at a relatively low rate and keep my money in the market to grow using compounding returns. Over time, having that money in the market is more valuable than tying it up in a car — even if it's a used car.

Not Everyone Can (or Wants) to Do It My Way

Now, I've talked about why buying new cars works for me. But it's important to note that not everyone can do this. I have a lot of privilege. My credit is reasonable. I was able to start from a place where I could trade in my car as a down payment. My finances are such that I can leave my money in the market. I've had time to build my portfolio.

On top of this, I'm reasonably comfortable with a certain level of debt. Not everyone is comfortable with spending what I did on a car — or being in debt for five years because of it. And that's fine. Sometimes it's not about the numbers and more about peace of mind.

What matters is that you make a deliberate choice. Take a step back and evaluate where you are and where you want to be. Think about how you use the car. I know people who don't use their own cars at all and instead rely on car share.

Buying new cars (and whether you want to do it) is about your personal situation and what you're comfortable with. Just make sure you know what you're getting into and how it fits into your big financial picture. For me, I have the cash flow, the investment portfolio, and the interest in the convenience that comes with buying new cars with financing. My risk tolerance is good. That's not the case for everyone.

So, what do you think? Are you into buying new cars? Do you finance or pay cash? And what's your reasoning behind it?

1 thought on “Oops? I Did It Again! Buying NEW Cars with Financing. Kiss My PF Cred Goodbye”

  1. I love your statements that “Sometimes it’s not about the numbers and more about peace of mind. What matters is that you make a deliberate choice.” There is a lot of great financial (and life) advice to be found, but in the end we should all decide what is best for our personal situation as we balance numbers and personalities.

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