A Dave Ramsey Caller Debates Buying A $40,000 Car Or Investing The Cash. ‘You Can’t Be Underwater On A Car You Paid Cash For’

Benzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below.

Kevin from Minneapolis recently called into “The Ramsey Show” with a question that many people with solid finances might find themselves asking: Should you pay cash for a car or hang onto that cash and finance it instead?

Kevin explained that he and his wife have a $200,000 household income, a net worth of around $700,000, and $75,000 in savings, enough to buy a $30,000 to $40,000 certified pre-owned SUV outright. But he wondered if it made more sense to finance the car at a low interest rate and let the cash sit in a high-yield money market account instead.

“I see some benefit in the long term,” Kevin said. “Holding on to a 4.5 to 5% savings account and also having the cash available if absolutely needed.”

Don’t Miss:

One of the show’s co-hosts, George Kamel, pushed back on the numbers. “I don’t think you’re going to make 5% in a savings account, and I think your used car loan is going to cost you more than that over the life of the loan,” he said.

On the other hand, co-host John Delony chimed in with a different kind of return on investment: peace of mind. “The ROI that I look for with my wife on purchases now is peace,” he said. “I’ll give up 2% on a spread here and there just to put my head on my pillow at night and fall asleep.”

Kamel also warned that financing a car can put buyers in a tough spot if they ever need to sell. “You can’t be underwater on a car you paid cash for,” he said. “If you needed to sell it for whatever reason, wanted to sell it, you might be 10 grand in the hole come two years from now [if it’s financed].”

Trending: This Jeff Bezos-backed startup will allow you to become a landlord in just 10 minutes, with minimum investments as low as $100.

While Kevin felt that financing might offer flexibility, Delony reminded him that signing a loan doesn’t really let you “keep your money;” it’s the bank’s now. “You can hold it and you can pay them handsomely for the privilege of holding it, but it’s still theirs.”

Kamel echoed that point, adding that avoiding debt altogether creates breathing room for future decisions. “To live with as much margin as possible is always going to be best,” he said.

Both hosts agreed Kevin and his wife were doing a fantastic job financially. Still, they advised him not to go backwards over the idea of possibly earning a bit more interest elsewhere.