It’s funny you made this post, our car just reached 5 years old and I realized a month ago that we need to do this too. We did this last time, but did not start in time, so we still needed to finance half the loan. It’s true that it’s much harder to pay cash than to sign on the line for a loan. Something stupid about that, but it really is true.

One other benefit of saving and paying cash – CASH discount. Try walking into any dealership and have enough to pay in full with cash!

Your ability to bargain is MUCH better than if you were going to finance. Set your CASH price and if not met, BYE!

I did notice… as I was looking at the possibility to buy a rental property that housing prices increased due to the cut backs in mortgage interest.

Ah, the fun of economics!

Happy Holidays!

First, it means I own the car the minute you buy it. I like that, because it means no matter what catastrophe happens to my finances, nobody is going to come and take away my means of transportation. Also, if I lose my income I don’t have to make payments on it out of my emergency fund, so my e-fund can be smaller. In fact, if I do lose my income, instead of the current car being a drag on the emergency fund, the still-unpurchased next car is a supplement to it (see reason five below).

Second, I also use that account for maintenance/repairs on the current car. There’s no need to wait for a better time, or put it on the credit card. I can actually enjoy the feeling of having brand new tires, or a timing belt good for another 100,000 miles, without thinking about how to pay for it, and I can afford to go buy them whenever the mood strikes me. That makes me feel like a bazillionaire. I did have to stop paying cash at the garage though. They give me dirty looks (I think it means they have to go to the bank) and they can never make change!

Third, it means that for each year I keep the current car the amount I have to spend on the next one goes up. It’s an incentive to keep the one I have (very frugal) and watching the “value” of my next car go from roadside Fer Sail beater to gently-used, Certified Pre-Owned is fun.

Fourth, it’s harder to plunk down five figures in cash today, instead of just signing on the dotted line for six years of payments later. Really makes me think about what I need in a car, not what will make my neighbors jealous. I suspect I won’t spend my whole car fund when the time comes. But I can pretend I will until then!

And finally, imagine I’m half-way along in my savings plan. Suddenly the financial system blows up, credit disappears, and unemployment goes off the charts. I know, what are the odds? But if that ever did happen, there I’d be, with half a car in the bank ON TOP of my emergency fund, and more going in every month. If I suddenly needed to replace my 7 year old car I could get something perfectly serviceable without a loan. Until that happens, that money is a big emergency fund supplement. That’s very comforting.

Ok that was more than a couple reasons. Man, you know you’re a windbag when the comment is longer than the blog post. But anyway, yeah, when it comes to cars saving up as opposed to paying of is all kinds of awesome.

Don’t fret on car value as almost all cars lose value overtime, albeit at different rates. Honda’s and Toyota’s drop less, but then the buy-in for a new one is more than a comparable Ford, and moreso a GM. i.e. it all works out in long run.

Some area’s of the country also factor in a steeper decline of value, but for the most part, keep it up in maintenace, keep it clean, and if you ever need to sell it, at least you can try to get max and then some for that type of car.

Plus, the economy with play games with value. Even the cool MINI Cooper is taking a sales hit, although it probably has the highest resale value, bar none.

Personally, I drive a 2006 Ford Fusion (paid off – love it), and and saving up about 100.00 a month to put towards a new one in 2010-2011 (Hybrid) …(just my thoughts)