best place to get auto loan?

[Mango22]

Hands down, a credit union.

[Dadhawk]

Originally Posted by 7thgear

i can't speak for others, but it does help me sleep at night. Being debt free is an amazing feeling to have in today's economy. I could get fired today and not panic about it for at least a year.

Different strokes for different folks, but I'll always choose debt free over any type of loan. It's just a different prospective on the same financial sheets. It just depends on how your mind works.

Its sort of "Rich Dad/Poor Dad" vs "Dave Ramsey". Either's good but only if it works for you.

[engee]

Originally Posted by Subaruwrxfan

+100 I'm amazed how many people on here stuff their money under a mattress until they've saved enough to buy a car with cash. If that helps you sleep at night, fine. Otherwise, it makes no sense to NOT take out a loan if you're trying to make the most out of your dollar. Invest your cash in anything decent and you'll beat inflation and auto loan rates.

+100 on how many people think they can consistently and easily beat the market along with inflation. Most people already struggle to try and outperform the S&P 500. I would like to hear your opinion on what you consider decent because most safe blue chip stocks don't have high returns. Furthermore, this strategy would only work if you have excess cash to begin with. Periodically taking out money from your fund to pay off the car would incur more transaction fees to further reduce your yield. In the OP's case, it does not sound like he has the excess cash to try and earn money by beating the loan terms.

Lastly a 2.49% rate for 5 years on $24,300 means you are paying roughly a 6.5% in interest. Thus you would need to get a 6.5% return on your fund over 5 years. If you invested purely in the S&P 500 for the past 5 years (2007-2012), you would have had lost 3.29 % over the 5 years. Facts are facts.

I agree with dsgerbc. The reason "hey, my stock portfolio/investments yield more than car loan APR, so I'm turning down free money if I don't finance" is a bad reason to finance. Yields change on a day to day basis. Trying to make money for retirement and long term makes sense to me. Trying to beat a 5 year loan for a car is just nonsense.

OP: In my honest opinion, I would save up and just wait to buy the car. I get that you want the car now, but it honestly doesn't make sense from a financial perspective.

Just my 2 cents.

[Grimlock]

Originally Posted by engee

OP: In my honest opinion, I would save up and just wait to buy the car. I get that you want the car now, but it honestly doesn't make sense from a financial perspective.

Buying the car at all doesn't make sense from a financial perspective. But given that we are going to buy the car anyway, it's a moot point.

I'm actually in the position of deciding whether or not to finance this car or pay for it outright (including my trade-in or private sale current car). I too do not like having payments if I can help it, but having extra money available as a liquid asset is a good thing to have in a pinch. (It's easier to extract $10k from my bank account than $10k from my BRZ if I had an emergency home repair, for instance).

With an interest rate of 2%-3% and even something like an ING or Citibank savings account (~1% right now) or CD, which is risk-free, yields a cost of 1%-2% at most (provided it is not paid back early). That's a low cost for having direct access to liquid funds while getting a new car in the process.

I'll agree that this line of the conversation doesn't help the OP at all.

OP, here's a tip:
What I've done in the past when financing a car is to take the loan out for the longest amount of time I can at the same interest rate. For instance if the interest is 3% for anywhere between 3 years and 5 years, I'll take the 5 year loan. Then I'll make payments based on it being a three year loan. This gives me the same interest rate as I would have gotten with the three year loan, but gives me the flexibility of paying less than normal if necessary (aforementioned emergency expense). If I pay the loan off in three years, then I didn't pay anything more than if I had gotten the 3 year loan to begin with.

I admit that it takes willpower to pay more than the bare minimum necessary on a long loan. A lot of people don't have said willpower, but it works out well if you do.

[engee]

Originally Posted by Grimlock

Buying the car at all doesn't make sense from a financial perspective. But given that we are going to buy the car anyway, it's a moot point.

I'm actually in the position of deciding whether or not to finance this car or pay for it outright (including my trade-in or private sale current car). I too do not like having payments if I can help it, but having extra money available as a liquid asset is a good thing to have in a pinch. (It's easier to extract $10k from my bank account than $10k from my BRZ if I had an emergency home repair, for instance).

With an interest rate of 2%-3% and even something like an ING or Citibank savings account (~1% right now) or CD, which is risk-free, yields a cost of 1%-2% at most (provided it is not paid back early). That's a low cost for having direct access to liquid funds while getting a new car in the process.

I'll agree that this line of the conversation doesn't help the OP at all.

OP, here's a tip:
What I've done in the past when financing a car is to take the loan out for the longest amount of time I can at the same interest rate. For instance if the interest is 3% for anywhere between 3 years and 5 years, I'll take the 5 year loan. Then I'll make payments based on it being a three year loan. This gives me the same interest rate as I would have gotten with the three year loan, but gives me the flexibility of paying less than normal if necessary (aforementioned emergency expense). If I pay the loan off in three years, then I didn't pay anything more than if I had gotten the 3 year loan to begin with.

I admit that it takes willpower to pay more than the bare minimum necessary on a long loan. A lot of people don't have said willpower, but it works out well if you do.

Completely in alignment with you with having liquidity and I agree with most of your points.

However, one thing I would like to point out though is that a 3% loan is not equal 3% in interest due to amortization. Just taking the rates you put out earlier (a 3.14% loan on $125,000 over 6 years), you will be paying close to $12,307.50 (9.85%) in interest. You are not going to get 9.85% return in a savings account or CD.

[powertrip]

Originally Posted by engee

Completely in alignment with you with having liquidity and I agree with most of your points.

However, one thing I would like to point out though is that a 3% loan is not equal 3% in interest due to amortization. Just taking the rates you put out earlier (a 3.14% loan on $125,000 over 6 years), you will be paying close to $12,307.50 (9.85%) in interest. You are not going to get 9.85% return in a savings account or CD.

Hey guys to clarify with the spew of misinformation. The above is a bastardization of future value. If your trying to say that the 12,307.5 above is equivalent to 9.85% of the total loan value paid in interest over 6 years, that does not equate to a 9.85% yield APR on a savings account of CD. thats a total yield of 9.85% over 6 YEARS. and you can easily achieve that with a T bill let alone many safe investments in the market.

[Grimlock]

Originally Posted by engee

Completely in alignment with you with having liquidity and I agree with most of your points.

However, one thing I would like to point out though is that a 3% loan is not equal 3% in interest due to amortization. Just taking the rates you put out earlier (a 3.14% loan on $125,000 over 6 years), you will be paying close to $12,307.50 (9.85%) in interest. You are not going to get 9.85% return in a savings account or CD.

Compounding interest negates the extra cost in amortization though. Using the same numbers, but instead as a "savings account": a 3.14% interest rate on $125,000 yields $150,877 after the 6th year (compounded yearly), which is an extra $25,000. It would only need a 1.6% rate, to break even with the $12,300 cost of interest in your example.

[dsgerbc]

The choice of paying cash is unavailable to the OP, so....
As for saving-up to buy this car years from now - it's more of a personal preference. If one derives more pleasure from looking at the size of their savings/investment account compared to displeasure of driving some POS to work - do it. If anything, withdrawing hard-saved cash to buy a car is gonna be even harder decision, if you factor in the compounded interest you could've earned by your retirement on the withdrawn money

[dsgerbc]

Originally Posted by powertrip

and you can easily achieve that with a T bill let alone many safe investments in the market.

When was the last time you looked at treasury yields?
Typical 6-year car loan is gonna be a _mark-up_ over safe investment of similar duration simply due to auto-loan being a risky loan.

Originally Posted by Grimlock

It would only need a 1.6% rate, to break even with the $12,300 cost of interest in your example.

Don't forget taxes.

[tranzformer]

A $20,000 loan at 1.99% over 48 months will cost you ~$800 in interest over the life of the loan. That averages to $200/year or around $15 a month in interest. No way I would take an auto loan out at 5,6%. But at under 2% I can easily make that $800 back over the 4 years plus it will give me more liquidity that I think is more important than being loan free. There is nothing wrong with borrowing wisely. There is something wrong with borrowing when you can't afford it or pay 20% APR on a credit card.

[eikond]

Originally Posted by tranzformer

A $20,000 loan at 1.99% over 48 months will cost you ~$800 in interest over the life of the loan. That averages to $200/year or around $15 a month in interest. No way I would take an auto loan out at 5,6%. But at under 2% I can easily make that $800 back over the 4 years plus it will give me more liquidity that I think is more important than being loan free. There is nothing wrong with borrowing wisely. There is something wrong with borrowing when you can't afford it or pay 20% APR on a credit card.

Well said..

Also.. if you factor in the cost of inflation, that $800 in interest is worth even less.

My first car loans and mortgages were at 8% in the late 90's and early 00's.. At those rates the cost of interest was more substantial and something to avoid if possible. But, now, with rates under 3% for a car and under 4% for a house... that's amazingly low. I'll borrow all I can at these low rates.

[hanabie]

Originally Posted by eikond

Well said..

Also.. if you factor in the cost of inflation, that $800 in interest is worth even less.

My first car loans and mortgages were at 8% in the late 90's and early 00's.. At those rates the cost of interest was more substantial and something to avoid if possible. But, now, with rates under 3% for a car and under 4% for a house... that's amazingly low. I'll borrow all I can at these low rates.

and use the available cash for investment or emergency use.
People always say wow!! loan sux! I will buy it cash!
I just feel sorry because they don't have plan for that available cash.

[hanabie]

Originally Posted by Grimlock

OP, here's a tip:
What I've done in the past when financing a car is to take the loan out for the longest amount of time I can at the same interest rate. For instance if the interest is 3% for anywhere between 3 years and 5 years, I'll take the 5 year loan. Then I'll make payments based on it being a three year loan. This gives me the same interest rate as I would have gotten with the three year loan, but gives me the flexibility of paying less than normal if necessary (aforementioned emergency expense). If I pay the loan off in three years, then I didn't pay anything more than if I had gotten the 3 year loan to begin with.

I admit that it takes willpower to pay more than the bare minimum necessary on a long loan. A lot of people don't have said willpower, but it works out well if you do.

Thanks.. that's what I'm gonna do
Btw, I'm debt free. I graduated as an engineer and paid off my student loan.

[Subaruwrxfan]

Originally Posted by engee

+100 on how many people think they can consistently and easily beat the market along with inflation. Most people already struggle to try and outperform the S&P 500. I would like to hear your opinion on what you consider decent because most safe blue chip stocks don't have high returns. Furthermore, this strategy would only work if you have excess cash to begin with. Periodically taking out money from your fund to pay off the car would incur more transaction fees to further reduce your yield. In the OP's case, it does not sound like he has the excess cash to try and earn money by beating the loan terms.

Lastly a 2.49% rate for 5 years on $24,300 means you are paying roughly a 6.5% in interest. Thus you would need to get a 6.5% return on your fund over 5 years. If you invested purely in the S&P 500 for the past 5 years (2007-2012), you would have had lost 3.29 % over the 5 years. Facts are facts.

I agree with dsgerbc. The reason "hey, my stock portfolio/investments yield more than car loan APR, so I'm turning down free money if I don't finance" is a bad reason to finance. Yields change on a day to day basis. Trying to make money for retirement and long term makes sense to me. Trying to beat a 5 year loan for a car is just nonsense.

OP: In my honest opinion, I would save up and just wait to buy the car. I get that you want the car now, but it honestly doesn't make sense from a financial perspective.

Just my 2 cents.

Like has been previously said, you are forgetting compound interest on your investments, so your view on interest rates is not quite the same as mine. As for decent investments, I dunno what your risk tolerance is, but there's plenty of mutual funds that consistently beat the S&P 500 (normally by a wide margin) while still having minimal fees and being dividend focused in order to minimize your taxes. Plus they have excellent Morningstar ratings, so these aren't crap funds. Three such funds are PYEQX, PDT, and FVD. And that's all the free investment opinions you're getting out of me, lol.