Purchasing with Cash or Financing

[Chad86]

Originally Posted by suaveflooder

Do a 15 year vs a 30 year mortgage. You will save quite a bit of money in interest.

I was referring to the car financing...

[Zozr]

Originally Posted by juliog

If you can afford to do cash, you're not buying the most expensive car you can afford. Step up to an M4 or a Porsche!

/First world problems

I hope this was sarcastic but I'm honestly not sure. Easily the worst advice ever.

[forzajuve]

If you're going to put any money down on this car, I would do no greater than $5,000 and finance it for ~8 years. If you can pay it off 4 years or less so be it. When you are considering a house, however, that is where your down payment makes sense - I believe a good downpayment on a home is between 10%-20%, of course that entirely depends on where you plan on buying. Remember, don't get ANY extras from the dealership - it is a scam

[suaveflooder]

Originally Posted by Chad86

I was referring to the car financing...

Not going to make a difference. Statistics say that you won't do it for the entire loan. Better to put more money down. We all love to say, "I'm going to pay it off early" and I truly hope you are someone who will, but studies show otherwise. There is a reason why dealerships are so willing to jump through hoops to get you into a financing option even when someone can't afford the car (I'm talking about others here, because it sounds like you actually can)

Honestly, do what you want and don't ask people here. If you can get anything under a 2% loan, you aren't loosing much (Although, I agree that this is a "toy" car and should be paid for in CASH. The car is FAR from practical). Make sure that your downpayment will at least cover the depreciation for the first year. (mine went down $10k in a touch over a year, but I drive a lot)

[86-tundra]

I am sick of these "financial advise" threads in the general forums. It always turns into a huge debate and is never constructive. If you want financial advise, and you go to an advisor, they will all tell you spending money on a car you don't need is stupid. If you ask the forum for advise, they will probably tell you the same thing, but you know what?

We are all here, we all have this car, we all spent money on a car that has very little utility and function in terms of what people really need out of a car (space for passengers, for moving things around, etc). Financial advisers would call ALL of us stupid.

[suaveflooder]

Originally Posted by trevorovert

I am sick of these "financial advise" threads in the general forums. It always turns into a huge debate and is never constructive. If you want financial advise, and you go to an advisor, they will all tell you spending money on a car you don't need is stupid. If you ask the forum for advise, they will probably tell you the same thing, but you know what?

We are all here, we all have this car, we all spent money on a car that has very little utility and function in terms of what people really need out of a car (space for passengers, for moving things around, etc). Financial advisers would call ALL of us stupid.

YUP!!! AGREED!!!

[juliog]

Originally Posted by juliog
If you can afford to do cash, you're not buying the most expensive car you can afford. Step up to an M4 or a Porsche!

/First world problems

Originally Posted by Zozr

I hope this was sarcastic but I'm honestly not sure. Easily the worst advice ever.

Why thank you . Was meant as sarcasm, yet I see people do this all the time...

[Porsche]

Originally Posted by Chad86

Is it possible to save more on interest ... to pay bi-weekly ... through car financing??? (I see on Scion.ca there is a bi-weekly option)

Yes.

For example:

$20,000 - Loan


4% - Interest rate


5 years - Term of loan (60 months)


$368.33 - Monthly payment


$2099.80 - Total interest (the cost of "buying" $20,000 for 5 years @ 4%)

Arrange with the lender to make bi-weekly payments of $184.17, which is half the regular monthly payment, except that you'll be paying this about twice per month. In fact, you will make one full additional monthly payment per year; 26 half payments vs. 12 full payments.

Doing this will reduce both the payoff time, i.e. the term of the loan, and the total interest you will pay… as you had hoped.

$1900.55 - Total interest paid on the bi-weekly plan.

$199.25 - Saved on interest on the bi-weekly repayment plan.

55 months - Paid off 5 months sooner (rather than in 60 months)


By the way, simply amortizing this loan over a 5 year term, but with 26 equal annual payments vs. 12, perhaps for the convenience, will only save you about $17, assuming the lending institution would agree to such terms. The figures above reflect a standard loan with monthly payments, which you then repay on a different schedule. So long as the bank does not treat your payments as simply "early payments" on your monthly schedule, but credits them against the balance upon receipt, you should see the savings as noted above. Many lenders have a habit of interpreting events in a way that favors them financially. Be sure to clarify this with your lender to avoid misunderstandings.

Note that the savings that one realizes on a similar bi-weekly repayment plan applied to a 30-year mortgage are even more impressive.



Better still are the savings to be had with a 15-year mortgage vs. a 30-year mortgage. Yes, the 15-year monthly payment is higher, but nowhere near being double the amount as for a 30-year mortgage. If one can afford the higher monthly payment, the savings are dramatic, exceeding $100,000 over the life of the loan depending on how much is borrowed and at what interest rate. Given your interest in finding ways to save on your interest costs, @suaveflooder offered excellent advice.

[extrashaky]

Originally Posted by trevorovert

If you want financial advise, and you go to an advisor, they will all tell you spending money on a car you don't need is stupid.

No they won't. Financial advisers do not decide what you need or don't need. They ask what you want to accomplish with your money and try to help you achieve that. If you tell your financial adviser, "I want to buy a car I really don't need," he's going to say, "Let's see if we can make that happen for you."

Originally Posted by trevorovert

We are all here, we all have this car, we all spent money on a car that has very little utility and function in terms of what people really need out of a car (space for passengers, for moving things around, etc).

On the contrary, this car has the exact utility and function I was looking for. I needed a small, fuel efficient vehicle for solo work trips. I don't need to haul around kids, and I have a truck for hauling around crap. To be able to have the utility and function I needed in a sporty package and also have it perform like a mofo on the rural backroads, and all of it under $30K, made this car perfect for me.

Originally Posted by forzajuve

If you're going to put any money down on this car, I would do no greater than $5,000 and finance it for ~8 years.

Yikes! I would never try to finance a car for more than 5 years. More than that is just begging to get upside down on it, even with a $5K down payment.

[forzajuve]

Why not more than 5 years?

[extrashaky]

Originally Posted by forzajuve

Why not more than 5 years?

As you pay down your loan, you pay down principal, or the amount you actually owe on the car. As soon as you drive the car off the lot, it starts losing value. If you pay off the principal slower than the car loses value, then at some point during the loan you will owe more than the car is worth. That's what it means to be "upside down" or "underwater" on a loan.

That's fine if you end up keeping the car until the loan is completely paid off, because your payments will catch up in the end. But what if you don't or can't keep it that long? There are a couple of potentially negative scenarios here:

First, think about what happens if your car is totaled while you're upside down. The insurance will pay you the market value of the car, but you'll still owe more than that to the lender. You'll be paying money on a car you don't have. You can get GAP insurance to cover this (which you should do anyway), but a lot of people don't.

But what GAP insurance doesn't cover is getting stuck in a car you can't sell or trade. Suppose you still owe $15K on the car, but it's only worth $10K on the used car market. If you need to sell it, you'll have to sell it for $10K and still come up with the additional $5K to pay off your loan. If you don't have the $5K, you could find yourself stuck with the car. A car dealer selling you another car might be able to take your upside down car in trade and absorb that difference into the loan on the new car, but that's just passing the buck down the road and asking to be underwater all over again.

Some cars lose their value faster and some lose it slower, but the general rule of thumb is that a four year loan will usually keep you from getting upside down on your loan. Five years is more risky, depending on the car. If you go more than five years, you're just asking for trouble, not to mention that the lender is going to charge you a higher rate for a longer loan.

[forzajuve]

You are attempting to tell me information I already know. Good effort, however.

[extrashaky]

Originally Posted by forzajuve

You are attempting to tell me information I already know. Good effort, however.

You asked.

[forzajuve]

Hmm I didn't ask for an unconvincing opinion