Financing vs. Cash Payment: The Best Approach for Used Car Buying

The Fundamental Question

When buying a premium used car, the question often arises: finance or pay cash? Both options have advantages and disadvantages that we analyze here.

Current Financing Conditions

Market Overview March 2024

Provider Type	Effective APR	Term	Characteristics
Auto Bank	4.99-7.99%	12-84 months	Brand-tied
House Bank	5.49-8.99%	12-120 months	Flexible
Online Loan	4.49-6.99%	12-84 months	Credit-dependent
Dealer Finance	2.99-9.99%	12-60 months	Often promotional offers

Typical Financing Examples

Vehicle	Price	Down Payment	Payment (48 mo.)	Total Cost
BMW E39 525i	8,500	2,500	145	9,460
Mercedes W210 E280	6,800	1,800	122	7,656
Audi A4 B6	7,200	2,200	121	8,008

Advantages of Cash Payment

Financial Benefits

1. No Interest Costs

• Savings of 500-2,000 depending on purchase price
• No hidden fees
• Clear cost transparency

2. Negotiating Power

Negotiation Argument	Potential Savings
Immediate cash payment	3-5%
No financing commission	2-3%
Quick processing	1-2%
Total	6-10%

3. No Monthly Burden

• Financial freedom after purchase
• No risk with income changes
• Vehicle immediately owned

Practical Benefits

• Free workshop choice without restrictions
• No comprehensive insurance requirement
• Sale possible at any time
• No residual debt insurance needed

Advantages of Financing

Financial Flexibility

1. Preserve Liquidity

• Capital remains available for other investments
• Emergency reserves stay intact
• Possibility of better returns

2. Inflation Effect

Year	Payment Value (real)	At 3% Inflation
1	145	145
2	145	141
3	145	137
4	145	133

Tax Aspects (Business)

Position	Advantage
Interest deduction	Business expense
Depreciation	Over useful life
VAT deduction	With VAT invoice

Cost Comparison: Real Examples

Example 1: BMW E38 740i

Position	Cash	Financing
Purchase Price	12,500	12,500
Cash Discount	-750	-
Down Payment	-	3,000
Financed Amount	-	9,500
Interest Cost (5.9%, 48 mo.)	-	1,178
Total Cost	11,750	13,678
Difference	-	+1,928

Example 2: Audi A6 C5 Quattro

Position	Cash	Financing
Purchase Price	9,800	9,800
Cash Discount	-490	-
Down Payment	-	2,500
Financed Amount	-	7,300
Interest Cost (6.5%, 36 mo.)	-	743
Total Cost	9,310	10,543
Difference	-	+1,233

When Financing Makes Sense

Recommended Scenarios

1. 0% Financing Available

   • True 0% without hidden costs
   • No inflated purchase price

2. High Return Expectations

   • Capital earns more than loan interest
   • Secure investment options available

3. Business Use

   • Tax advantages outweigh costs
   • Liquidity preservation more important

4. Urgent Vehicle Need

   • Not enough savings available
   • Vehicle needed for work

When Cash Payment Makes Sense

Recommended Scenarios

1. Purchase Price Under 10,000

   • Financing costs relatively high
   • Total savings significant

2. Flexible Situation

   • No comprehensive insurance desired
   • Free workshop choice important

3. Older Vehicles

   • E38, W140, D2
   • Financing often hard to obtain
   • Repair reserves more important

4. Sufficient Reserves

   • Emergency fund stays intact
   • No financial overextension

Hybrid Approaches

Optimizing Down Payment

Down Payment	Advantages	Disadvantages
10%	Low immediate burden	High payments/interest
30%	Balanced	-
50%	Low payments	Capital tied up
70%+	Almost like cash	Little flexibility

Balloon Financing

• Low monthly payments
• High final payment
• Suitable for planned resale

Negotiation Tips

For Cash Payment

1. Address Discount Clearly

   • “I’m paying cash - what can you do on price?”
   • Expect at least 5%

2. Negotiate Added Value

   • Winter tires included
   • Free service/inspection
   • Extended warranty

For Financing

1. Compare Conditions

   • Don’t blindly accept dealer financing
   • Use house bank/online as comparison

2. Calculate Total Costs

   • Don’t fixate on low payment
   • Effective APR is decisive

Checklist Before Deciding

Financial Questions

• How high are my available reserves?
• Does an emergency fund remain (3-6 months’ salary)?
• What return do I achieve with the capital?
• How secure is my income?

Practical Questions

• Do I need free workshop choice?
• Do I want to avoid comprehensive insurance?
• Am I planning a near-term resale?
• Is business use planned?

Conclusion

For most buyers of premium used cars in the price segment up to 15,000, cash payment is the more economical choice. The savings through negotiation discount and missing interest costs typically amounts to 1,000-2,500.

Financing makes sense with true 0% offers, business use, or when capital earns higher returns than financing costs.

Our tip: Always calculate both options and negotiate a cash discount with the dealer before signing the financing.

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Buying guide based on current market conditions. As of: March 11, 2024