Financing vs. buying for cash

If you have the $20,000 (US) or so to spend on a new car is it wiser to buy the car for cash or take out a loan? One salesman advised me it is better to get a loan so you pay less for the
car upfront in case it is in an accident as the insurance will only pay up to the current value of the car as used/depreciated. Was he just saying that to sell me a loan or does it make real world sense?
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if not all offer a Replacement Cost Coverage for the car for usually 2-3 years. This coverage protects your vehicle from depreciation in case of a total or partial loss. So even if the car gets crashed you get the full brand new value that you have paid. You would not loose any value within 2 years. On the other hand, if you want to build or maybe rebuild a credit score, going with a loan might be good to show you're a good payer. Yet again, if a credit score has no importance, than I would pay cash. Why pay interest on something you can afford cash. For sure the dealer wants to make money thus they will have you consider taking a loan. I say pay cash unless you don't have it all.
Thats my point of view. hope it helps.
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US. I mentioned it.

Yeah, the salesman sounded full of crap to me.

I have an excellent credit score from my credit cards - 790, but I have never taken out a car loan or loan of any kind.
Thanks for the reply.
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Intrepid Observer wrote:

Keep in mind that a car dealership will often add extra points onto the loan and pocket the difference between what you're paying and what the finance company actually approved you at. Financing a loan at a car dealership is usually a bad idea. It's usually better to secure your financing ahead of time through an independent source such as a credit union or whatever. Lastly, in your case since you can swing the cash then you will be better off. Why give someone else $1000's in interest if you don't have to?
Eric
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Eric wrote:

Another thing that I forgot to mention is that a large loan, such as a car loan, will actually lower your credit score. One factor in the credit score is the debt to credit ratio. The lower this number, the higher the score. For example, if you pay off your credit cards every month but then make a big purchase and apply for a loan immediately afterwards, then your credit score will be lower since you have increased your current debt. The take home message is to apply for loans only when your credit accounts are fully paid off. Another example is when you have multiple cards. For instance, there may be one or two of the accounts that for some reason you don't use frequently so you decide to close these accounts. This lowers your score in two possible ways. One, you've now lowered your total available credit which will increase the debt to credit ratio and two, you've also lost any credit history you had on these cards (credit history is also a factor in the final credit score).
Eric
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Waiving the right to remain silent, "Intrepid Observer"

Your salesman is probably trying to make a nice commission on a loan passed through the dealership.
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The wisest path is the one where you spend the least money.
To determine that, you need to kick-start that 2-stroke motor inside your skull (watch out for blue smoke) and do some calculations.

He's telling you the moon and Uranus were not in proper alignment for correct karma. Who's gonna look out for /you/ more, you or him?
Use your head.
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What he's trying to say is pay the cash. It's much cheaper.

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Wow, what an asshole you are.
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Bit harsh, was I?
It's true though, you can't let the salesman tell you what financing method is best for you. That's like letting the fox convince the chickens that it's perfectly safe for him to come into the chicken coop.
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Intrepid Observer wrote:

1. what rate of return can you get by investing 20k? 2. what is the rate of finance?
is 2 > 1?
also,
3. do you need liquidity? 4. do you want cheaper insurance? [fully comp is your only option if you finance] 5. can you repair your car cheaper than the insurer after an accident?
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wrote:

You're contemplating following the financial advice of a car salesman?
Hey, I have a reeeeeally nice piece of property for sale in New....... er, Louisiana.
.... Do you own a boat?
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Intrepid Observer wrote:

That depends on which car (historic depreciation), price of the car, cost of the loan, etc... If for instance you can get a Zero % loan, then it's a no brainer. That is, If you want to have monthly payments.

In a word: no! To go on, keyword in that sentence is: Salesman. Dealer secured "loans", "extended warranty", the little extras the F&I people try to coerce you into buying when signing for a new car are all a "BIG PROFIT CENTER" for the dealer. If you're going to finance, get the loan yourself from a credit union or your own bank, unless you can get a Zero Percent loan.
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