Dear Driving for Dollars,
I'm planning to purchase a new car soon. I'll be retiring in about eight months. There are several ways I could finance the car purchase: I can pay cash either from my savings or from CDs that will be maturing. Or, I can finance the purchase through a low-interest car loan either from the car manufacturer or through my state pension. What's the best financial decision?
-- Joanne Soon-to-be-Retired
Continue Reading Below
It's always a better financial decision to pay cash for a car versus financing it if you can afford it. Even at a low interest rate, you'll be paying more for the car than it is worth and will automatically be upside down in your car loan, at least for a short time. If you have the cash and still have enough in savings to cover unexpected expenses in a rainy-day fund, then your best bet is to use the savings instead of cashing in your CDs at maturity -- if the interest rate on the CDs is higher than the interest rate you are earning in your savings account.
Regardless of how you decide to buy a new car, make sure you negotiate the purchase price separately from your trade-in. Also, do some advance research at an independent, car-pricing website to determine what you should pay for your new car and the value of your old one.