buying a new subaru outback

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thinkingmama
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Joined: Wed Mar 16, 2011 9:45 am

buying a new subaru outback

Post by thinkingmama »

DH and I have decided to buy a new subaru outback. We can afford to pay cash, but the dealer we have used for our current outback for the past 7 years is offering 1.94% financing. Is it better to pay cash or do the financing and let the money grow while we pay down the debt at our leisure? We calculated that the cost of interest per year would be around 400 with the 1.94% financing. Thoughts?
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HardKnocker
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Location: New Jersey USA

Re: buying a new subaru outback

Post by HardKnocker »

I'd pay cash if it won't cramp your style.

It would be hard to get 2% guaranteed.

I have two Outbacks. They are decent cars with some good features, some odd features missing. I don't like the rattles though. I call them "rattle-traps".

Not sure I'd buy another but I like wagons.
Last edited by HardKnocker on Thu May 07, 2015 2:38 pm, edited 1 time in total.
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flyingbison
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Re: buying a new subaru outback

Post by flyingbison »

You can potentially make more than 2% on your money if it is invested ... but you can also make less, or lose some. Personally, I'd just pay cash if you can afford it.
Browser
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Re: buying a new subaru outback

Post by Browser »

Depends on where you already have or can invest the cash if you take out the loan. Considering you'll pay tax on whatever earnings you have from financing and investing the cash, it would be a stretch to come out ahead at the end of the 3,4,5 year loan period unless you've got it invested now earning something north of 2%+. If the loan period is for 5 years you can currently get a little over 2% APY on a 5-yr CD from some of the online banks if you want to deal with them. You might want to check your local credit unions for rates. So - best case after taxes - you might break even at the end of 5 years but you might have to tie up the money in a CD or something to do that. But if you need to keep the cash on hand as an emergency fund or something like that it might make sense to finance and keep it in something more liquid than a 5 yr CD. A compromise might be to finance some of the cost to keep some cash on hand. But if you don't need (want) the cash on hand and it's not earning much now, you might as well pay cash for the car. There's such chickenfeed involved in getting a loan and investing the cash in a CD or something to earn 2%+ that it doesn't seem worth the bother.
We don't know where we are, or where we're going -- but we're making good time.
staythecourse
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Re: buying a new subaru outback

Post by staythecourse »

Is it a 1 yr. financing or longer? I just bought a new car and took a 63 month finance for 0.9%. That adds up to a whopping sub 500 dollars over 5 yrs. You can bet I took the financing as putting the difference into the market has a much better chance of making out as a profit over the long run.

If it is only 1 yr. I would doubt you will find a better fixed income that will return 2% without some risk.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
go140point6
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Re: buying a new subaru outback

Post by go140point6 »

Your location or situation may be different, but most of what I see is 0.9% (5 years?) from Subaru themselves. We opted to pay cash.

Somewhat off-topic, but have you considered waiting for the 2016? We've been pretty happy with our 2015, but being the first model year of the gen5, it did have a very annoying issue with wind noise from the front right triangle windows. Subaru fixed on the production line starting around Oct 2014, but it took several months for the parts to come in to fix the cars produced before then. I just had mine fixed last month. Other than that, it's been the nicest car I've ever owned, but that's coming from a guy who bought a bare bones 2000 Nissan Frontier regular cab truck brand new out of college and kept it for 15 years... :P ... still miss that truck, but was able to sell it private party for $3700... small trucks are in demand!

Anyway, you're so close if it were me, I'd wait to see what minor tweaks (if any) they come up with for the 2016 if you can hold off just a bit...
strafe
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Re: buying a new subaru outback

Post by strafe »

No question, I would take the practically-free loan and keep the "cash" invested. If it's a budget issue, draw the monthly payment out of the cash savings.
dognose
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Re: buying a new subaru outback

Post by dognose »

Assuming you have already negotiated a good price on the car, I would pay cash.
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Hawaiishrimp
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Re: buying a new subaru outback

Post by Hawaiishrimp »

strafe wrote:No question, I would take the practically-free loan and keep the "cash" invested. If it's a budget issue, draw the monthly payment out of the cash savings.
+1 on this.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.
PowDay
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Re: buying a new subaru outback

Post by PowDay »

2016 Eyesight outbacks will have lane assist, I would consider waiting just a few more months.
wilked
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Re: buying a new subaru outback

Post by wilked »

I agree with the others, best to pay cash
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lthenderson
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Re: buying a new subaru outback

Post by lthenderson »

I always have paid cash so perhaps I am missing something obvious. I don't understand how car dealers can function offering such low interest loans for five to six years. It would take a lot of loans collecting $400 in interest per year/per loan lifetime just to pay the people dealing with all the paperwork, etc. Are they just banking on attracting enough people to buy their cars and getting a profit margin off the price that the loans are essentially a write-off?
pochax
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Re: buying a new subaru outback

Post by pochax »

i would see if they can offer you an even lower price for the financing (sometimes they have an incentive) and also find out how long you need to keep the loan open to keep this incentive (usually 60-90 days), pay the payments for that time period, then pay it off in full. effectively you pay in cash but get any incentive for financing that you can get.
JoeJohnson
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Re: buying a new subaru outback

Post by JoeJohnson »

lthenderson wrote:I always have paid cash so perhaps I am missing something obvious. I don't understand how car dealers can function offering such low interest loans for five to six years. It would take a lot of loans collecting $400 in interest per year/per loan lifetime just to pay the people dealing with all the paperwork, etc. Are they just banking on attracting enough people to buy their cars and getting a profit margin off the price that the loans are essentially a write-off?
Interest rates are low. A car loan is low risk for the bank. The lowest rate loans are subsidized by the auto company e.g. Subaru, Ford, etc.
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kenyan
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Re: buying a new subaru outback

Post by kenyan »

1.94% is probably a bit higher than I'd want to pay, given the choice. Ours is at 0.9%, which is well shy of our current cash-equivalent return (5-year CDs at 2.4%, newly invested might be 2% or just above). 1.94% is a higher rate than an after-tax return on those CDs (for us, 25% fed + 5% Child tax credit phase-out + 9% state = 39% marginal tax rate; 2.4%*.61 = 1.46%).
Retirement investing is a marathon.
Browser
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Re: buying a new subaru outback

Post by Browser »

I see nothing special about a 1.94% rate. You can get 1.49% for a 36-month load at Penfed and 1.99% for a 48-month loan. If I could get a 0% loan I might bite, but the worm on this hook is not juicy enough.
We don't know where we are, or where we're going -- but we're making good time.
harikaried
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Re: buying a new subaru outback

Post by harikaried »

You can get 0.99% for 36 months if you get the loan through PenFed's car buying service. You don't need to use the price from the car buying service -- just need to at least view the price and click continue to get the loan. You can get a no hassle price to start from as well.

https://www.penfed.org/PenFed-Car-Buying-Service/
Browser
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Re: buying a new subaru outback

Post by Browser »

harikaried wrote:You can get 0.99% for 36 months if you get the loan through PenFed's car buying service. You don't need to use the price from the car buying service -- just need to at least view the price and click continue to get the loan. You can get a no hassle price to start from as well.

https://www.penfed.org/PenFed-Car-Buying-Service/
Penfed's car buying service is Truecar. I started a long thread about Truecar. I wouldn't bother with them. But if you can somehow head-fake Penfed to get that lower rate, that would be great. But I have trouble believing you can actually get away with that. Truecar pays Penfed for cars that actually get sold through their service, so I'm guessing that subsidizes the lower loan rate.
We don't know where we are, or where we're going -- but we're making good time.
harikaried
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Re: buying a new subaru outback

Post by harikaried »

thinkingmama wrote:dealer we have used for our current outback for the past 7 years is offering 1.94% financing
Are you sure it's 1.94% instead of 1.49%? The former is a bit odd of a rate.

http://cars101.com/ says these are the finance rates at least for the northwest:
Outback 1.49% 24-36-48 mos, 1.90% 60-63-72 months
Legacy 1.49% x 24-36-48 mos, 1.90% x 60-63-72 months
Forester .90% 24-36-48 mos, 1.90% x60-63-72 months
Crosstrek 1.49% 24-36-48 mos, 1.90% 60-63-72 months
Crosstrek Hybrid 0%x36 mos1.49% 24-36-48 mos, 1.90% 60-63-72 months
Impreza 1.49% 24-36-48 mos, 1.90% 60-63-72 months
WRX, STI 2.90% x24-36-48-60-63 months
BRZ .90% 24-36-48mos, 1.90% 60-63-72 months
harikaried
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Re: buying a new subaru outback

Post by harikaried »

Browser wrote:if you can somehow head-fake Penfed to get that lower rate, that would be great
This is exactly what we did last year when we bought our Forester. Here's the instructions from the Car Buying Service page:
  1. Go to the PenFed Car Buying Service site and select the vehicle(s) that you are interested in purchasing.
  2. Upon selecting a vehicle and submitting your contact information through the Car Buying Service, you will be presented with a New or Used Vehicle Certificate. Take note of the Certificate Number (a 6-character code near the top of the Certificate) as well as the Certified Dealers that are outlined on the Certificate.
  3. Apply for your PenFed auto loan by clicking the "Apply Now" link at the bottom of the Certificate page. Select the appropriate loan product and complete your application.
  4. Once you have obtained your PenFed auto financing, you can proceed to any of the Certified Dealers from your Certificate to purchase your vehicle.
To get the loan, it's just a link that takes you back to PenFed's site. You complete the application and get the check in the mail. We didn't show the dealership any Certificate Number.
Browser
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Re: buying a new subaru outback

Post by Browser »

harikaried wrote:
Browser wrote:if you can somehow head-fake Penfed to get that lower rate, that would be great
This is exactly what we did last year when we bought our Forester. Here's the instructions from the Car Buying Service page:
  1. Go to the PenFed Car Buying Service site and select the vehicle(s) that you are interested in purchasing.
  2. Upon selecting a vehicle and submitting your contact information through the Car Buying Service, you will be presented with a New or Used Vehicle Certificate. Take note of the Certificate Number (a 6-character code near the top of the Certificate) as well as the Certified Dealers that are outlined on the Certificate.
  3. Apply for your PenFed auto loan by clicking the "Apply Now" link at the bottom of the Certificate page. Select the appropriate loan product and complete your application.
  4. Once you have obtained your PenFed auto financing, you can proceed to any of the Certified Dealers from your Certificate to purchase your vehicle.
To get the loan, it's just a link that takes you back to PenFed's site. You complete the application and get the check in the mail. We didn't show the dealership any Certificate Number.
Thanks for the info. The "certificate" thing is from Truecar. My understanding is that you can use it or not at your discretion. I think you might get bombarded with calls/emails from Truecar dealers if you go through the process. Did that happen with you?
We don't know where we are, or where we're going -- but we're making good time.
JoeJohnson
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Re: buying a new subaru outback

Post by JoeJohnson »

kenyan wrote:1.94% is probably a bit higher than I'd want to pay, given the choice. Ours is at 0.9%, which is well shy of our current cash-equivalent return (5-year CDs at 2.4%, newly invested might be 2% or just above). 1.94% is a higher rate than an after-tax return on those CDs (for us, 25% fed + 5% Child tax credit phase-out + 9% state = 39% marginal tax rate; 2.4%*.61 = 1.46%).
A 5 year auto loan does not compare to a 5 year CD. The auto loan gets paid down. If it was a zero payment, balloon loan sure.
DireWolf
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Re: buying a new subaru outback

Post by DireWolf »

It depends what the incentives are. We were going to pay cash for our last vehicle, but the dealer offered us $750 to finance it. When the first loan payment arrived, we paid it off in full, giving us a net $700 bonus.
harikaried
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Re: buying a new subaru outback

Post by harikaried »

Browser wrote:I think you might get bombarded with calls/emails from Truecar dealers if you go through the process. Did that happen with you?
I didn't get any calls but I did get emails. I just searched through my mail from last year:
2/3 From: PenFed Car Buying Service (truecarmail)
Thank you for using the PenFed Auto Buying Program

2/3 From: Lithia Reno Subaru (truecarmail)
Your Guaranteed Savings Certificate

2/3 From: PenFed Member Service (info@penfed)
Pentagon Federal Credit Union Membership Application

2/3 From: PenFed Member Service (info@penfed)
Online Banking Logon Information Change Confirmation

2/3 From: Pentagon Federal Credit Union (member@penfed)
Confirmation to Begin Receiving E-mail Notification of Your Statement

2/3 From: Pentagon Federal Credit Union (member@penfed)
Confirmation to Begin Receiving Online Tax Information

2/3 From: Pentagon Federal Credit Union (member@penfed)
Confirmation of E-Message Service Activation

2/4 From: Pentagon Federal Credit Union (member@penfed)
Pentagon Federal Credit Union - New Message Notification

2/10 From: PenFed Member Service (info@penfed)
PenFed Online Banking Transaction Confirmation
(triggered by returning loan application)

2/11 From: PenFed Car Buying Service (truecarmail)
Your Vehicle Alert for February 11, 2014

2/18 From: PenFed Car Buying Service (truecarmail)
Your Vehicle Alert for February 18, 2014

3/2 From: Pentagon Federal Credit Union (info@penfed)
Consider Guaranteed Asset Protection

3/7 From: PenFed (newsletter@penfed)
Are YOU ready to save? PenFed's 0% New Auto Loans
Summarizing:
  • 4 emails from TrueCar: instructions, certificate, 1 week followup, 2 week followup
  • 7 emails from PenFed related to creating an account / loan
  • 1 email followup GAP solicitation
  • 1 general newsletter announcing 0% rates down from 0.99%
And just because I have the numbers handy:
2014 Subaru Forester Touring + Options MSRP: $34,207
TrueCar Price Estimate: $30,994
9.4% off MSRP just by showing the email to the salesperson

We also received a $500 check from the dealership by the general manager, but that's unrelated to PenFed/TrueCar. It was something with the trade in, oil plan, and a previous note I had from Subaru of America.

Although looking at the instructions email, it does have a last step of "Report your purchase from a Certified Dealer to get the TrueCar Buyer's Bonus for $1,000+ worth of additional FREE benefits." that I don't remember doing. I wonder if because the dealership didn't use the certificate code, they didn't have to pay TrueCar/PenFed the referral, and I didn't notify TrueCar of using their service.
Browser
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Re: buying a new subaru outback

Post by Browser »

Just to run some numbers: If you take out a 3-year car loan @1.49% for $20,000 and keep the cash in an account earning 2.00% APY, making monthly payments on the loan from the 2% APY account, at the end of 3 years you would have netted $139 total vs. just paying cash upfront and not taking out the loan. That's before taxes. If your earnings are taxed at the 15% marginal rate, then you've netted $118 ($39/year) - which is something under 0.2% APY on the invested principal - and at the 25% marginal rate you've netted $104 ($35/year). Chickenfeed. Now if you could invest the money at something like 5% APY, you'd net $1084 after 3 years before taxes. That might be worth considering, but who's making 5% on anything these days????
Last edited by Browser on Sat May 09, 2015 12:59 pm, edited 1 time in total.
We don't know where we are, or where we're going -- but we're making good time.
Browser
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Re: buying a new subaru outback

Post by Browser »

I just ran some numbers to get an idea of whether it would be worth getting a 0.99% 3-year loan from Penfed by going through their car-buying process vs. just taking the standard 1.49% 3-year loan (you can only get a 3-year term at either of these rates). On a $20,000 loan the monthly payment difference to payoff the loans would be $568.41 @1.49% vs. $564.08 @0.99%. Over the 36 months that would amount to $155.88 or $51.96/year. I probably wouldn't mess with it even on a $30K loan. I lose that much in change out of my pockets.
We don't know where we are, or where we're going -- but we're making good time.
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