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Why not take the money you would be using for a car payment (at your 2.5% rate) and put it into a checking account and in four years, pay cash for a used car?
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That's the same thing. Why not take the money you would be using for a car payment and put it in a savings account making 4.25% interest, then in four years borrow at 2.5% and still be making the spread Poundwise explained above.
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They could get the care cheaper with cash because there are no banks involved (for the dealer)
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That doesn't really hold water. The dealership gets cash either way. Whether you borrow from the bank and give them borrowed money, or pay them outright with your own, they're still getting cash. You can get pre-approved for a car loan and have the 'cash' right there in front of the dealer to psychologically have the upper hand, or you can have pulled it out of your car fund at ING. It's still just cash to the dealer.