When Is It A Better Idea To Finance A Car Than Pay With Cash?

Hello everyone, and welcome to Letters to Doug, your weekly Jalopnik column where people send in letters and I openly scoff at them while I bang away at my keyboard listening to Jimmy Eat World.

If this sounds like something you want to get in on, then by all means: send me an e-mail at Letters2Doug@gmail.com, which is my official Letters to Doug e-mail address. And don't worry: I promise to change the name of the letter-writer, just in case you want to admit something terrible, like the fact that you're still dumping money into a first-generation Volkswagen Touareg.

This week's letter comes to us from a reader who called himself George, even though his real name is Mike. However, I am going to name him Tommy, because I like it better than both of those other names. Tommy writes:

Doug,

I work for a car manufacturer and they offer very attractive financing options through their credit service. I'd always planned to buy my next car with cash, but these offers made me wonder if it's possible for financing to be cheaper than cash? For example, they offer 0% APR for 36 months AND $1000 cash back on one of their models. Assuming my credit is good enough to qualify for the deal, it would seem to me that I would save money with the cash back and wouldn't be paying extra in interest. Am I missing something? Are there other fees I don't know about? If I didn't want to have to deal with car payments, could I take the financing deal to get the cash back and then just pay it off early on the first payment? Any clarification would be helpful.

Thanks,

Tommy

For those of you who want me to sum up Tommy's post because you don't enjoy reading, here's the deal: Why are you on a blog? Where it's all words? And writing? And reading? You should head over to YouTube, where they don't do any reading at all. I can be sure of this because yesterday someone made the following comment on one of my videos:

this is fucking stupid... give me that car ill go pick up hella bitches!

But over here at Jalopnik, we like to keep things a little more intelligent. And so today we have a car financing question, which can be summed up as follows: even if I want to pay cash, and I have the money to pay cash, and I could buy a car with cash, is there any reason I should finance?

And the answer is: MY GOD, YES, THERE IS! FOR GOD'S SAKE, TOMMY, FINANCE!!! DON'T PAY CASH!

And now I will try to sum up things a little more calmly, without using any capital letters, except where they belong, such as a) at the beginning of sentences, or b) in acronyms, like Bi-Drive Recreational All-Terrain Transport ("BDRATT").

Here's the deal, Tommy: despite what your now-deceased grandfather told you about borrowing money – namely, that you should never do it "even if your girlfriend gets pregnant and you have to have a weddin'" – borrowing money can be a good thing. It's soothing. It's helpful. It's beneficial. It's useful. I know this because I frequently borrow money from my friends, and then I tell them I'm busy whenever they ask for it back.

Ha ha! I am just kidding. In reality, borrowing money can actually end up being better than paying with cash, and today I'll give you an example of how this is possible.

Let's say you're Tommy and you're trying to buy a Dodge Grand Caravan. I say this because Tommy says he works "for an auto manufacturer," but he refused to disclose which one, so I can only assume it's Chrysler and Tommy is embarrassed.

So anyway: you go in to buy your Grand Caravan and you decide to fork over $35,000 in cash. That's great. Now you own it. You can put the title in a frame on your wall and watch your $35,000 depreciate to $4,600 in the span of a large animal's gestation period.

Or you can try something else: you can finance your Grand Caravan. You can walk into the Chrysler dealer with $3,500, finance at zero percent, take the remaining $31,500, and do whatever you want with it. You can go on vacations. Buy other stuff. Get a gas grill. Renovate your kitchen. Pay a recruiter to find you a job with Ford. ANYTHING!

In fact, you can even invest it and get more money.

For example: let's say you were paying cash for that Grand Caravan in 2011. You walked into a dealer, plopped your giant dollar-sign suitcase on the table, and BOOM! That thing was yours, free and clear. But now, a different approach: let's say you financed the van and invested the rest. You aren't paying a penny in interest, and you dropped $31,500 in a Dow Jones index fund on January 1, 2011. That was a good move, because three years later, the Dow had jumped 42 percent — and instead of your cash wasting away in your minivan, it was suddenly worth nearly $45,000.

And additional financial freedom isn't the only benefit to financing. Financing can also get you a better car. As an example, I have this friend named Sam who lives down in Tennessee, and for months he was looking for a used Porsche. And so he kept sending me listings for these high-mileage Boxsters and 911s where the headlights had yellowed to approximately the same color as Big Bird.

After a while, I finally asked him: "Sam. Why are you doing this? Why don't you spend a little more for a better car?" His response: I don't borrow money. I can't borrow money. I WON'T borrow money!! Nobody in my family has EVER borrowed money! I WOULD RATHER EAT AN ALARM CLOCK THAN BORROW MONEY!!!!!!!

So, Sam did what any reasonable person trying not to get in financial trouble would do: he bought a severely used Porsche that has covered approximately half the distance to the moon. Now, Tommy, I urge you not to make Sam's mistake. Don't spend your cash on the Grand Caravan. Finance it, and do something better with the leftover money. For example: you can give it to me for safekeeping. When you need it back, I might be, uh, busy.

@DougDeMuro is the author of Plays With Cars. He owned an E63 AMG wagon and once tried to evade police at the Tail of the Dragon using a pontoon boat. (It didn't work.) He worked as a manager for Porsche Cars North America before quitting to become a writer, largely because it meant he no longer had to wear pants. Also, he wrote this entire bio himself in the third person.