Cicero wrote:You raise a really interesting point about car financing. While I'm not aware of any banks or credit unions offering car loans for much less than 3.5%, the car companies are being pretty free with their 0% or 0.9% financing deals lately, including on late model used cars. It's precisely this sort situation that poses a financial dilemma for me -- it seems wasteful and counter-productive to defer paying a relatively high interest loan in order to avoid taking out a relatively low interest loan. But emotionally I don't like the idea of planning to take out more debt in the future. (Also, I'm probably susceptible to the way that so many personal finance talking heads demonize car loans.)
FWIW, I agree with Sarah's analysis about cash vs. loan for a car provided that you have at least one other loan at an interest rate that's higher than what you can get on a car loan, though I still wouldn't go with 100% financing because I'd always want to make sure the car's value is higher than what I owe on the loan and certainly never pay for gap insurance. The point is to use the loan as a tool, not as a necessity (otherwise get a cheaper car!).
My anecdote: I had planned to pay cash for the car I bought last December, but because I was able to get a 48 month loan at 2.14% (was with SunTrust, and I had no existing account with them whatsoever at the time), yet had a student loan remaining around 4.25%, I paid a little over half in cash, financed the remainder, and immediately put the rest of the cash intended for the car at my student loan instead. Once the student loan was fully paid off, I aggressively paid towards the car loan and just killed it last month. I did not take the 0% financing offer from the dealership because I did my research and learned about a $1,500 dealer incentive (you can only get one or the other), and doing the math, it was more profitable for me to negotiate for me to get the $1,500 benefit than to have 0% financing. In the end, I only paid $167 on interest over the 11 months I kept the loan (substantially less than the $1,500 up front savings).