MBAMGPWR

When I recently bought my 04 C32 a couple of months ago I had a discussion with the head of financing at my MB dealership.

She said something to the fact that it was great I didn't have to finance my car and that 70% MB owners are upside down on their financing (they owe more on the car then it's actually worth).

I figured that most high end cars are purchased outright but maybe I'm wrong. What do you think about this statement?

revstriker

Well, actually, it's probably backward. First, when ever you buy a new car and finance it, you will most likely be upside down on the loan at first. After all, the car is depreciating at a faster rate than you are paying down the principle. So I do not doubt that 70% of MB owners are upside down. Probably 70% of MBs out there are under 2 years old (I don't know this).

However, the faster your car depreciates, the longer you will be upside down. Therefore, if you were to finance a Hyundai (assuming that it would depreciate at a faster rate) at the same term, and rate as the MB, you would be upside down longer on the Hyundai.

Another point: With interest rates being so low, it does not make a lot of sense to buy the car outright. If you have the money to do so, you could finance the car, invest the money, and make more than the interest you will be charged. If you can borrow $50k at 2-5%, and then invest that $50k and make more than the 2-5%, you'll come out on top. Actually, even if you only earn the same percent as you are paying, you will still come out on top with compounded interest.

deuce zer0

I know a couple of people who could defiantly afford to buy 8 cars in cash but financed them because the dealerships were offering 0 interests. They decided to leave the money in the back and make payments.

tntmcj

wow that seems like a huge number considering 70% of my buyers pay cash, and the rest either lease or finance, sounds like the dealership finance person was trying to do a cash conversion to lease on you. also most benz people who finance do so on smaller balances than what they paid i.e put alot down or have a trade that is paid for and finance only because rates are so low

Kirill

what dealership in Chicago is yours ?

tntmcj

the dealership is not mine the customers are mine. and to the best of my knowledge there is only 1 dealership in chicago

BudC

What kind of interest rates are available now on new Mercedes with a hefty down payment and great credit? MBUSA, credit unions, banks?

revstriker

Not sure if you work at a dealership or what, but if you're suggesting that 70% of the buyers at a certain dealership pay cash, I have a hard time believing that. Only 30% lease or finance? I'm sorry, but this just doesn't sound right.

revstriker

It depends upon the model of car. Dealers have offered deals as low as zero percent. I've also seen a ton of deals for around 2%. Credit Unions and outside banks will of course be higher.

BudC

I suppose it's either a good deal on the car or a good deal on the loan. You probably won't get 2% on a car being sold around Invoice.

I think I'll stick to cash and go for the best no-trade deal on the car.

MBAMGPWR

Here's an example (although she wasn't a current MB owner):

While I was at the dealership purchasing my C32, a women was looking at an SLK230 (and she was freakin' on fire too!). After I splashed myself with some water and stopped staring at her hotness I asked my sales guy about her. He said that she was trying to trade in her Impala SS on that SLK230. He stated that she was really upside down on the trade and owed like $20k on the car...but it was only worth $10k at most.

So, she was upside down on her car by $10k and would basically get screwed to trade it in on something and get buried deeper.

PS-She was hella hot!

tntmcj

not going to try to go into detail, but yes at least 70% of my personal customers, the 165 new car customers i sold last year paid cash, and when i say cash, they either wrote a check out of a checkbook, or brought a check in from somewhere else, money market fund, home equity line, whatever. not unrealistic at all, as a matter of fact i have customers who buy multiple benzes yearly, just did a 6 car deal with one of them. as far as rates go 3.65% for 60 at a bank in glenview, also most of the cars i sell to my customers are not c class or ml class most of my customers by e,s,sl,g these are people who are well into the six figure a year income bracket, and could care a less if rates are .9%. anyone who doubts this is more than welcome to come in and look over all my buyers orders from last year, or for that fact any year i have available, it is o.k for these people to pay cash do not be haters, i am just telling you what % my customers pay cash. not the dealership on a whole, i have no idea what the % of cash buyers is, but i really do not care. because other peoples customers do not pay me or my bills

revstriker

Well that's a different story! Yes, I would have a hard time believing that a dealership as a total sold 70% of it's cars to cash customers.

Also, if you think that people in the six figure income bracket don't care about interest rates, then you are mistaken.

Lastly, just because someone brings in a check does not mean that they are paying cash. They could still be financing the car. It is possible to get financing first, and then go in with a bank check for the amount. You also mentioned a Home Equity line. I would also consider this financing, since they are getting a loan for the money.

Lastly, people with wealth don't continue to build wealth by making poor financial decisions. If they can get a loan for money at an interest rate lower than what they could earn on that money, then it would not be smart pay cash. In your example of 3.65%; I could easily take $60,000 and earn more than 3.65% a year on it. It makes more sense to invest my $60,000, and to borrow $60,000 for the car. I will come out ahead.

revstriker

It's possible that she was upside down on her previous car going into the Impala. It's surprising how many people will finance or lease a car for a longer term in order to get lower payments, but then trade in the car early, and roll over the negative equity into their new loan.

But everybody that finances a car will be upside down during the loan, especially during the first half of the term. It's only the people that trade in the car, and owe more than the trade in that get hurt on this. Then they either have to pay the difference, or roll it into the new loan. So yes, I believe that 70% of MB owners could be upside down at the present. But I doubt that 70% of the MB trade ins are in an upside down situation (probably a high percent though, but not 70%).

tntmcj

revstriker, you can put a pencil to whatever you would like the bottom line is the person who pays cash does so because they want to, not because i want them to and they probably could invest the money, but to these people it does not matter, they are not worried about how much they can make on 60000, they do not want to pay interest at any expense on their money, i have had this discussion with some of the wealthiest people in this area, so as hard as it may be for you to accept this, and it was for me to, it is what it is. best put by one of my best customers, i want my cars to be an asset not a liability, he has bought from me this year so far. 2 04 sl55, 3 04 sl600. and today i just made arrangements to have 4 of his cars picked up for trade on his 05s which will be arriving middle of next month.

mleskovar

"If you can borrow $50k at 2-5%, and then invest that $50k and make more than the 2-5%" What makes you think the difference is enough for people to go through all that trouble and risk (slight as it may be)? Anyone that can afford to plunk down $75K to purchase a car does not worry about a few hundred bucks over a period of two/three/four/five years. And sorry, just because people have money doesn't mean they waste the time to keep every penny of it....their time and peace of mind is worth more.

revstriker

Because typically people that make money, make it a dollar at a time.

By the way, even a small gain of 2% over the finance rate is $1,500 a year on $75,000, so it is a bit more than a couple of hundred. More like a couple of thousand. Even on two years at 2% (not even looking at compounding interest), you're talking $3,000, or 4% of the purchase price. After 5 years, it would be 7,500, or 10% of the original 75,000.

I know some people that could buy any production car they wanted that will still b!itch and complain when their morning coffee goes up in price by 10 cents.

I'm not saying that everybody out there that can afford to put down 75 G's on a car in cash cares about the lost money. But I know (personally) that a lot of them do.

tntmcj

revstriker you are not looking at the big picture. you are paying interest lets say 3.5% on a depriciating balance, if you finance. you put your money in the bank instead of paying cash, you are now earning 3.5 % what you make in proportion to what you earn will be much less than you have stated, because you did not factor in the cost of interest charges against the interest earned, i can only assume that you are either in the car business or the investment business, based on your approach to this whole matter. and i can honestly say i used that approach to things long ago, and now have gone to the asset instead of liability approach and i can tell you my wealth has grown much more than it did when i thought like you, but thats why people have opinions.

revstriker

Ok, I'm not quite sure I agree with where you're going. I'm not sure what you mean by "cost of interest charges against the interest earned". Also, when financing (as you have pointed out) you are paying interest on a depreciating balance, meaning your interest charges will go down each month. When earning money (gains), you are earning a percent against an appreciating balance, so the amount you earn actually goes up (compounding interest).

I'm very interested in finding out how you made more money by purchasing with cash over financing at a lower rate than a return on an investment. The only way I could understand this would be if your interest rate on a loan was higher than the return you would get on an investment. But there's no way you can tell me that if I Finance 75K at 3%, and invest 75K with a return of 5% (using the 2% from my example), that I would be worse off than if I just dumped the 75K into the car and paid no interest, and made no return.

You were close about my employment. I am not in the car industry, nor am I in the investment industry, but I am in finance.

tntmcj

here is one example. i have a sl600 04, i paid cash 128750 no finance charges, i trade every 5-6 months car will be worth 125000. in my eyes i have paid 3750 for this car for 5-6 months cost to drive equals 625 a month plus gas and insurance. now if i would have financed my cost to drive this car would have 625 plus interst on 128750 whatever that number would be. next example. i currently have 2 houses beeing built i am paying cash for all expenses, when these homes are built they will be sold for a larger profit than if i would have used money from the bank on a balloon payment at4% for 120-190 days. as i had said for some people using other peoples money might be in their best interest, you could not convince me to borrow money unless it was free to borrow. i do not live check to check or on limited funds, i have been in the car business for over 20 years. ran a very large dealer group for 14 years, and now sell part -time for a very reputable mercedes dealership in chicago, i take no new business i deal only with my previous customers, and absolutely love the car business. i currently have over a million dollars in assets, at 38 years old i think i am doing very good. i am a college grad. and have now become a resident of montana to avoid taxes. why use other peoples money to make money if you have money. believe me as i had said i fought this same battle many times then was introduced to a very wealthy very intelligent man, and i attribute my wealth to him, his motto cash is king. if you can own it do so, if you have to borrow it it is not for you. look at the donald trump that is constantly robbing peter to pay paul

tntmcj

finally had time to put a pencil to your scenario, you are still out 138 dollars on a 60 loan. now try this scenario. 150000 for 60 mo financed at 3.65% with a return on your money at 4% and in the 38% income tax bracket. it would cost you 4400 more to finance than pay cash, as i had said before i used to think just like you then i saw the light and now i look at things so much more differently.

revstriker

Yes, but if you would have invested the money that you did not put down at a higher return rate than than your interest, you would have earned more money. In a sense, it would have cost you less than 3750 for the 5-6 months.

Josh K

I wouldn't know, I pay cash ;0)

revstriker

You are correct in your example. However, if you're only making 4% of 100k+ investment, I would say that you need to look for a new broker. And perhaps a 0.35% difference would not make it worth it. But this cut off would be different for different people (depending upon their financial situation).

And yes, we all need to sit down and figure out the tax burden of the gains. But like I said, this will effect all of us in a different way. For example, if you were to finance the car with a home equity loan, then the interest rate could be tax deductible (on the loan) which could offset some of the capital gains on the investment. Of course, if you could afford to make them long term investments, then you could save even more, and would have more of an opportunity to shelter them. There are too many scenarios to get into that apply to different situations. I was not trying to suggest that in every situation, it's better to finance than to pay cash. But with interest rates the way they are today, it's not too difficult to get a return on your investment to beat it.

It sounds like you've done all right for yourself.

tntmcj

well i never said i earn 3-4 % on my money you are the one who used that example, and no matter how hard you try to convince me or anyone else who has the money to pay cash that financing is better you are completely wrong, assets not liabilities is the key to wealth, you can say all you want about brokers investing in stocks whatever, cash is king, keep telling yourself to use other peoples money to make money, once you factor in all tax liabilities, fees, and whatever else the bottom line is you can never, never make as much money on investments or assets that you finance as you could if you paid cash, the only thing i invest in now is dirt, thats right dirt because god cannot make more dirt, i have doubled and tripled my money on homes bought and held for 2-3 years all that time while renters are paying me rent to live there, say what you want i will gladly compare net income earned statements, on any investments i have. you seem like a horse with blinders only looking straight. i see you are from texas, investments like enron probably made you alot of money? it is people who think like you who make people like me very wealthy keep up the good work i appreciate all your money