Quote:
Originally Posted by SirBrass
Actually, the less you have to finance, the better. Let's say the OP puts down $20k in cash and finances the rest, but decides to pay like he only put $2k down. It'll get his loan paid off much more quickly, as all the extra after covering interest goes directly against the principle. The longer you finance, the more the bank gets in pure interest, ie, the more you spend just paying the bank, not paying off what they loaned you. So, the faster you pay it off, the less money you spend overall.
$20k cash down is $20k you didn't have to ask the bank for and then pay more $$ in interest while paying off the loan. That is, you save even more.
The closer you can get to, in the end, paying what the car cost (with fees like TT&L and any service agreements you want as well), the better. The way to do that is pay it off as quickly as you can. A lower APR will help with that, as more of your extra payments will be towards principle.
Though let's talk about investing that $20k. Okay, good idea. Perhaps $15k down, and drop the remainder into an appreciating account with someone like Edward Jones. With the right financial manager, that $5k will grow pretty steadily with dividends being reinvested, and thus any capital gains taxes deferred until actual stock is sold, so investments remain untaxed until they're cashed in upon, and the investment just keeps growing on itself in a compound manner. And all you did was pay $5k less on a downpayment for a depreciating asset (car). After the loan is paid off quickly, I'll bet that investment account is close to being worth what you put as the downpayment.
A good investment will grow quickly with just a small boost, provided you have a smart guy wisely investing your money. Concentrate more on keeping the auto finance principle low.
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That was my initial logic as well, and it is sound logic indeed: pay off as much of the car as I can afford to so I can owe less money and pay less interest, since it is a depreciating asset (I was raised to be a frugal Asian guy). But when I started getting approvals for seriously low interest rates (0.9%), I had to reconsider.
Example: $30,000 @ 1.99% for 60 months
$0 down: $526 * 60 mo. = $31,560 = $1,560 interest
$20,000 down: $175 * 60 mo. = $10,500 = $500 interest
You end up paying roughly $1,000 less to the bank by putting $20k down. Personally, I would take that hit just to have $20k more to spend today (mods ^.^). Additionally, you can throw half of it into a decent compounding CD account, and you will likely come up with more than $1,000 in 5 years depending on the APR.
Of course, the logic would change for a higher-priced car and higher interest rates, as well as varying individual goals