new car purchase: any reason NOT to do 0% financing

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Admiral
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new car purchase: any reason NOT to do 0% financing

Post by Admiral »

Assuming that I first agree on an out the door price on the car (call it 28k) I have two choices:

Pay around 10k in cash (which I have on hand) and sell $18k of stock, paying capital gains on the entire $18k (while also reducing my $75k emergency fund by $18k)

OR

Financing 18k at 0%. Likely for 48 months.

Car is a 2019 Alltrack, new, with 6 year warranty.

I have not done the math on the cap gains as the gains are all different based on the lots. But clearly it won't be zero.

EDIT: All gains are LTCG.
wootwoot
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Re: new car purchase: any reason NOT to do 0% financing

Post by wootwoot »

Is there an option not to take the financing and get thousands off the out the door price?
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Well that's why I always tell them I am paying all cash when I get the OTD price. Then when I get the price I want, I see if they will do the financing at 0%. Just depends on how much profit they are making on the OTD price.

In one case the offer is "MSRP $35,859. Sale price $27,859."

This is before 8% tax and their various bs doc fees.
Goal33
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Re: new car purchase: any reason NOT to do 0% financing

Post by Goal33 »

I’d finance the 28k and decide later.
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

Goal33 wrote: Sat Aug 15, 2020 12:47 pm I’d finance the 28k and decide later.
hmm. I had not actually though about that. I think they make you put down something. But yes at 0% that is an option.
antwerp
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Re: new car purchase: any reason NOT to do 0% financing

Post by antwerp »

You may pay more for the veh to get 0% financing. Check out the current bank rates. Shop around, both for the veh and financing. You can probably get 3% or less with less than a 4 yr term.

I would not sell the securities and incur the tax hit. It will also reduce your emer fund which I don't think is a good idea. Remember you are in control when buying, not the dealer. Good luck with your purchase.
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JoeRetire
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Re: new car purchase: any reason NOT to do 0% financing

Post by JoeRetire »

Admiral wrote: Sat Aug 15, 2020 12:38 pm Financing 18k at 0%. Likely for 48 months.
It's pretty hard to beat 0%. I assume you can afford the payments.
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Goal33
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Re: new car purchase: any reason NOT to do 0% financing

Post by Goal33 »

Admiral wrote: Sat Aug 15, 2020 12:45 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Well that's why I always tell them I am paying all cash when I get the OTD price. Then when I get the price I want, I see if they will do the financing at 0%. Just depends on how much profit they are making on the OTD price.

In one case the offer is "MSRP $35,859. Sale price $27,859."

This is before 8% tax and their various bs doc fees.
Except the specific dealer makes money on financing and the 0% is sponsored by the manufacturer. I think your way costs your more money in today’s era. I think you were right 20-30 years ago, though.
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

Goal33 wrote: Sat Aug 15, 2020 12:49 pm
Admiral wrote: Sat Aug 15, 2020 12:45 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Well that's why I always tell them I am paying all cash when I get the OTD price. Then when I get the price I want, I see if they will do the financing at 0%. Just depends on how much profit they are making on the OTD price.

In one case the offer is "MSRP $35,859. Sale price $27,859."

This is before 8% tax and their various bs doc fees.
Except the specific dealer makes money on financing and the 0% is sponsored by the manufacturer. I think your way costs your more money in today’s era. I think you were right 20-30 years ago, though.
I'm no expert on new car shopping but isn't 0% 0%, no matter who is providing it? Yes, I've had a number of dealers say that "Oh that price on the Internet, that's the finance price. You have cash? It's actually $2500 more."

That said, my hope/strategy is to get them to give me price, in writing (via email) for cash and THEN tell them I want the 0% financing.
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Re: new car purchase: any reason NOT to do 0% financing

Post by livesoft »

I took 0% financing, but also charged the maximum amount allowed to my 2% cash-back card ... all after negotiating an OTD price.
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sport
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Re: new car purchase: any reason NOT to do 0% financing

Post by sport »

There is an advantage to getting a lower price rather than cheap financing. If your car should happen to be wrecked or stolen, your insurance will pay pay off the loan. However, the advantage of the low interest rate would be lost. OTOH, once you get the lower price, that savings is yours to keep, no matter what happens to the car.
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

sport wrote: Sat Aug 15, 2020 1:07 pm There is an advantage to getting a lower price rather than cheap financing. If your car should happen to be wrecked or stolen, your insurance will pay pay off the loan. However, the advantage of the low interest rate would be lost. OTOH, once you get the lower price, that savings is yours to keep, no matter what happens to the car.
The main issue issue is that I might save, say, $1500 by not financing, but that means I incur capital gains in order to pay cash for the lower price.

I don't really have an issue paying 1 or 2% on an $18k car loan for three of four years, it's pretty cheap money. I can always pay it off early and save a few years interest.
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Watty
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Re: new car purchase: any reason NOT to do 0% financing

Post by Watty »

One advantage of not having a car loan is that you can have a higher deductible on your car insurance.

I bought a new Toyota a few years ago and they had a 0% offer with no alternative rebate that you would have to give up.

It turned out that the dealership had to pay Toyota about a $1,000 "dealer participation fee" when they sold a car with the 0% financing. I was dealing hard with several dealerships and I got the same story from different dealerships so I suspect that was accurate.

I ended up not getting the 0% financing to get a sales price that was $1,000 lower.
stan1
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Re: new car purchase: any reason NOT to do 0% financing

Post by stan1 »

Admiral wrote: Sat Aug 15, 2020 12:38 pm Pay around 10k in cash (which I have on hand) and sell $18k of stock, paying capital gains on the entire $18k (while also reducing my $75k emergency fund by $18k)
I'm confused, your emergency fund is in equities (therefore not an emergency fund) or you have $75K in a cash account?

If you have $75K in cash just pay for the car and use income to restore the emergency fund.
chrisam314
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Re: new car purchase: any reason NOT to do 0% financing

Post by chrisam314 »

wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
There is, but it isn't advertised.

0% financing for cars is akin to points for hotels and miles for airlines. It's a marketing program designed to protect margins. It makes you feel better when you pay points or miles for hotel rooms when in actuality 9 times out of 10 you've actually wound up paying more than you otherwise would for whatever you purchased (I'm getting 3% back on restaurants, I didn't feel like cooking anyway).

It's easy for a car dealer to hold margins when they offer that, because the financial analysis has been done (by someone like me) and with that specific promotion they can hold firm on a price.

OP, look at it like this. When you get a mortgage on a house you can either A) Pay points now and get a lower rate or, B) Pay no points and have a higher rate. Either way you are going to pay that interest if you hold the loan until maturity.

In your situation paying 0% interest is akin to paying points now. You are pre-paying the interest on that loan because you makes you feel better as a consumer to not have to see that every month on your statement. The dealer is happy because margin is protected. The interest on the loan is effectively hidden in the price. Everyone feels good about the deal. Except you shouldn't because you didn't get the best price.

My suggestion if you want the best price on the car - separate the intrinsic value of the asset (the car) from the financing (the loan) to ensure you are getting the best price. In your situation what you should do is shop around for cars (you need to know exactly what you want in order to make meaningful comparisons on price) and auto loans separately (maybe start with a bank or credit union you have a good relationship with). Make sure the fees for both are low or none (delivery fee for the car, origination fee for the loan, etc). Those costs you can control through shopping around and refusing to pay them.

If the stated rate on the car loan is say 3%, that might sound bad but in reality all that matters is the effective rate. What I mean is that every time you make a pre-payment on that loan the rate of interest you actually paying drops lower and lower. Get the lowest price possible on the car (don't even talk financing with the dealer to ensure that) and then pay the loan off faster in order to control the interest rate on the loan.

Hope that makes sense.
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

stan1 wrote: Sat Aug 15, 2020 1:24 pm
Admiral wrote: Sat Aug 15, 2020 12:38 pm Pay around 10k in cash (which I have on hand) and sell $18k of stock, paying capital gains on the entire $18k (while also reducing my $75k emergency fund by $18k)
I'm confused, your emergency fund is in equities (therefore not an emergency fund) or you have $75K in a cash account?

If you have $75K in cash just pay for the car and use income to restore the emergency fund.
Yes. Some is in equities. About 12k is cash. I don’t believe in keeping that much out of the market. Or in bonds in a taxable account. I also have second tier EF of 200k in Roth.
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Re: new car purchase: any reason NOT to do 0% financing

Post by chrisam314 »

"I'm no expert on new car shopping but isn't 0% 0%, no matter who is providing it? Yes, I've had a number of dealers say that "Oh that price on the Internet, that's the finance price. You have cash? It's actually $2500 more."

That said, my hope/strategy is to get them to give me price, in writing (via email) for cash and THEN tell them I want the 0% financing."

No. It doesn't exist. Refer to my above post. Money isn't free and finance arms of manufacturers are not in the business of operating at a loss. In fact they are a major profit engine for them. What they are doing is a simple negotiating tactic with you to hold margin. You're response to that should be: I'm not interested in what the 'internet price' or 'finance price' or 'cash price'. I want to know if you want to sell me the car or not because I'm going to get the best price possible. Whether it's with you or not is really up to you. Then walk away, hang up, or offer to work with another sales rep at the dealer.

These people don't get paid unless they move cars. Don't ever feel like what they are telling you is in your best interest. Make them work for it.
unstartable
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Re: new car purchase: any reason NOT to do 0% financing

Post by unstartable »

The 0% is essentially the manufacture making a cash payment to the finance arm of their business instead of offering that directly to you. Usually you are taking 0% instead of a manufacture cash incentive, but the 0% is generally a much better deal. As long as you are disciplined, there is probably no downside, you may be able to use income that is already taxed on the payments instead of paying capital gains.

Edit: In my experience the dealer doesn't care and it has no effect on the price, except it be be instead of a manufacture incentive.
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Re: new car purchase: any reason NOT to do 0% financing

Post by fizxman »

Run the numbers and see what's best.

1) Get a good cash price.
2) Finance @ 0%.
3) Finance at some higher rate, get certain rebates that you'd otherwise not get when paying cash or financing at 0%, pay off in the first month.

I did #3 when I bought my truck about 18 months ago. I got an extra $500 rebate that I couldn't get paying cash or financing at 0% but had to finance at like 9%. But since I paid it off in the first month, it wasn't a big deal.
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

chrisam314 wrote: Sat Aug 15, 2020 1:25 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
There is, but it isn't advertised.

0% financing for cars is akin to points for hotels and miles for airlines. It's a marketing program designed to protect margins. It makes you feel better when you pay points or miles for hotel rooms when in actuality 9 times out of 10 you've actually wound up paying more than you otherwise would for whatever you purchased (I'm getting 3% back on restaurants, I didn't feel like cooking anyway).

It's easy for a car dealer to hold margins when they offer that, because the financial analysis has been done (by someone like me) and with that specific promotion they can hold firm on a price.

OP, look at it like this. When you get a mortgage on a house you can either A) Pay points now and get a lower rate or, B) Pay no points and have a higher rate. Either way you are going to pay that interest if you hold the loan until maturity.

In your situation paying 0% interest is akin to paying points now. You are pre-paying the interest on that loan because you makes you feel better as a consumer to not have to see that every month on your statement. The dealer is happy because margin is protected. The interest on the loan is effectively hidden in the price. Everyone feels good about the deal. Except you shouldn't because you didn't get the best price.

My suggestion if you want the best price on the car - separate the intrinsic value of the asset (the car) from the financing (the loan) to ensure you are getting the best price. In your situation what you should do is shop around for cars (you need to know exactly what you want in order to make meaningful comparisons on price) and auto loans separately (maybe start with a bank or credit union you have a good relationship with). Make sure the fees for both are low or none (delivery fee for the car, origination fee for the loan, etc). Those costs you can control through shopping around and refusing to pay them.

If the stated rate on the car loan is say 3%, that might sound bad but in reality all that matters is the effective rate. What I mean is that every time you make a pre-payment on that loan the rate of interest you actually paying drops lower and lower. Get the lowest price possible on the car (don't even talk financing with the dealer to ensure that) and then pay the loan off faster in order to control the interest rate on the loan.

Hope that makes sense.
Yes this is helpful. But I believe we are on the same page.
I am asking for their best OTD price. Once I have that,
I take it back to Dealer A and see if they can beat it. Then I do it again. I am now soliciting prices from dealers in New England (I am in PA). So far my experience has been that the prices are very, very close. Like within $200. Some of course have “lowered” the selling price and added on $480 in dealer prep. I know the game.
There is a number I am willing to pay and someone will get there.
The question was more about the advisability of selling equities vs very low or zero financing. I would likely pay the loan off early so that’s why the rate is not that material to me.
chrisam314
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Re: new car purchase: any reason NOT to do 0% financing

Post by chrisam314 »

Makes sense - if you need the car right now and can't save up the cash (real life vs. financial theory right?) I would probably just get an auto loan with low fees/rate at a bank or CU then pay it off early. Your call if you want to do the actual comparison though. Not sure its worth the hassle but a nerd like me would do it.

I think your formula would be: (expected $ return on equities over X years) + ( $ tax impact of sales) vs (total cost $ of auto loan over X years)

Where total cost of the auto loan is interest plus fees.

It would of course be swayed by whatever your assumption on return of equities and how soon you pay the loan off is.

Sounds like either way you are on the right track.
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Re: new car purchase: any reason NOT to do 0% financing

Post by willthrill81 »

Watty wrote: Sat Aug 15, 2020 1:16 pm One advantage of not having a car loan is that you can have a higher deductible on your car insurance.
Good point. The savings from the higher deductible could easily outpace the <1% pre-tax yield that you could earn from a high-yield savings account these days.
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Re: new car purchase: any reason NOT to do 0% financing

Post by willthrill81 »

Admiral wrote: Sat Aug 15, 2020 12:45 pm This is before 8% tax and their various bs doc fees.
Most of those doc fees are negotiable.
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livesoft
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Re: new car purchase: any reason NOT to do 0% financing

Post by livesoft »

Watty wrote: Sat Aug 15, 2020 1:16 pm One advantage of not having a car loan is that you can have a higher deductible on your car insurance.
OTOH, there is the auto insurance option called "car replacement assistance"
Car Replacement Assistance: In the event of a total loss due to a covered claim, if car replacement assistance coverage is chosen, USAA will pay an additional 20% above the actual cash value of the vehicle involved in the claim. This optional coverage is surprisingly affordable, quoted at a couple of dollars per month for an older vehicle, and helps to bridge the gap between the insurance payout in a claim and the real-world cost of replacing that vehicle.
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BrklynMike
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Re: new car purchase: any reason NOT to do 0% financing

Post by BrklynMike »

As a reference, check out the following thread over at the Bronco forum. It will help you determine whether you are getting the best price.

https://www.bronco6g.com/forum/threads/ ... ople.3388/
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MarkBarb
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Re: new car purchase: any reason NOT to do 0% financing

Post by MarkBarb »

In 2014, I bought a car with 0.9% financing. I had intended to pay cash. The dealer was going to charge me $500 more for a cash purchase because that was the incentive they got from the manufacturer to make the 0.9% loan. We made a gentlemen's agreement that I would keep the loan for 90 days before I paid it off so that the dealership would get credit. Since then, I've talked to a lot of people that were offered better deals with financing than they could get for paying cash.

The best deal I've gotten was with a 2018 Hyundai. They gave the same incentives they gave leasers if you financed the car with a balloon loan (which not many states allow). Once again, I made a deal with the dealership that I'd take out the balloon loan and pocket the $3,000 incentive and then pay off the loan after 90 days.
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Re: new car purchase: any reason NOT to do 0% financing

Post by Calico »

chrisam314 wrote: Sat Aug 15, 2020 1:25 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
There is, but it isn't advertised.

0% financing for cars is akin to points for hotels and miles for airlines. It's a marketing program designed to protect margins. It makes you feel better when you pay points or miles for hotel rooms when in actuality 9 times out of 10 you've actually wound up paying more than you otherwise would for whatever you purchased (I'm getting 3% back on restaurants, I didn't feel like cooking anyway).

It's easy for a car dealer to hold margins when they offer that, because the financial analysis has been done (by someone like me) and with that specific promotion they can hold firm on a price.

OP, look at it like this. When you get a mortgage on a house you can either A) Pay points now and get a lower rate or, B) Pay no points and have a higher rate. Either way you are going to pay that interest if you hold the loan until maturity.

In your situation paying 0% interest is akin to paying points now. You are pre-paying the interest on that loan because you makes you feel better as a consumer to not have to see that every month on your statement. The dealer is happy because margin is protected. The interest on the loan is effectively hidden in the price. Everyone feels good about the deal. Except you shouldn't because you didn't get the best price.

My suggestion if you want the best price on the car - separate the intrinsic value of the asset (the car) from the financing (the loan) to ensure you are getting the best price. In your situation what you should do is shop around for cars (you need to know exactly what you want in order to make meaningful comparisons on price) and auto loans separately (maybe start with a bank or credit union you have a good relationship with). Make sure the fees for both are low or none (delivery fee for the car, origination fee for the loan, etc). Those costs you can control through shopping around and refusing to pay them.

If the stated rate on the car loan is say 3%, that might sound bad but in reality all that matters is the effective rate. What I mean is that every time you make a pre-payment on that loan the rate of interest you actually paying drops lower and lower. Get the lowest price possible on the car (don't even talk financing with the dealer to ensure that) and then pay the loan off faster in order to control the interest rate on the loan.

Hope that makes sense.
I was considering a new car because the one I want is 0% now. But I am on the fence since my old car is just fine. I just thought I might get a good deal. That's why I read this thread. Anyway, what you said was really eye opening. I can't believe I never saw it like this before. Thanks for sharing!
Bastiat
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Re: new car purchase: any reason NOT to do 0% financing

Post by Bastiat »

wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Why would one get “thousands off” the OTD price by not financing?

The dealer doesn’t care at all that you’re paying cash. Every deal they do is cash, regardless if you bring it or not.

In fact, they would rather you finance.

Only way cash makes any difference is if the manufacturer offers a cash discount, but it’s not that common and I’ve never seen “thousands”.
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Re: new car purchase: any reason NOT to do 0% financing

Post by Bastiat »

chrisam314 wrote: Sat Aug 15, 2020 1:34 pm "I'm no expert on new car shopping but isn't 0% 0%, no matter who is providing it? Yes, I've had a number of dealers say that "Oh that price on the Internet, that's the finance price. You have cash? It's actually $2500 more."

That said, my hope/strategy is to get them to give me price, in writing (via email) for cash and THEN tell them I want the 0% financing."

No. It doesn't exist. Refer to my above post. Money isn't free and finance arms of manufacturers are not in the business of operating at a loss. In fact they are a major profit engine for them. What they are doing is a simple negotiating tactic with you to hold margin. You're response to that should be: I'm not interested in what the 'internet price' or 'finance price' or 'cash price'. I want to know if you want to sell me the car or not because I'm going to get the best price possible. Whether it's with you or not is really up to you. Then walk away, hang up, or offer to work with another sales rep at the dealer.

These people don't get paid unless they move cars. Don't ever feel like what they are telling you is in your best interest. Make them work for it.
This is bad advice. [OT comment removed by moderator oldcomputerguy]

You negotiate the OTD price. That’s all you should care about, and it’s pretty much all the dealer cares about.

The only difference between 0% and cash or getting a “3%” loan (this would be dumb when you have 0% available, obviously) is the manufacturer’s discount. The dealer is not the auto maker, even though the name is the same. The dealer has to buy the car just like you buy the car. You are buying from the dealer, not the auto maker.

[OT comment removed by moderator oldcomputerguy]
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jabberwockOG
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Re: new car purchase: any reason NOT to do 0% financing

Post by jabberwockOG »

There is no such thing as free money and no such thing in the retail world as 0% financing. Somebody ALWAYS has to pay for the "market" interest cost and the only person paying money in a car transaction is the car buyer. So guess who actually pays the real interest cost in every car deal? - the buyer pays it either directly or it's buried somewhere in the total sales price.

Instead of wasting time talking about financing which is just smoke and BS the sales guys like to use to scam the rubes, negotiate the OTD price without any discussion of financing first. If asked state you will be paying by bank certified check and source of funds is irrelevant and none of their concern. Once the final OTD price is agreed in writing, assuming you have made them sweat a little and be truly competitive to win your business, feel free to ask if they want to offer you interest free 0% money for a car loan in addition to the low price you negotiated - my guess is they will say no pretty quick.
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Re: new car purchase: any reason NOT to do 0% financing

Post by wootwoot »

Bastiat wrote: Sat Aug 15, 2020 10:14 pm
wootwoot wrote: Sat Aug 15, 2020 12:42 pm Is there an option not to take the financing and get thousands off the out the door price?
Why would one get “thousands off” the OTD price by not financing?

The dealer doesn’t care at all that you’re paying cash. Every deal they do is cash, regardless if you bring it or not.

In fact, they would rather you finance.

Only way cash makes any difference is if the manufacturer offers a cash discount, but it’s not that common and I’ve never seen “thousands”.
Because financing costs something, please read the full thread for more details.
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SebastianIII
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Re: new car purchase: any reason NOT to do 0% financing

Post by SebastianIII »

#1, why are you subject to capital gains? you would be better off trading it in and not be subject to capital gains.

You should not sell your stock and should finance @ zero.
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Re: new car purchase: any reason NOT to do 0% financing

Post by hudson »

Admiral wrote: Sat Aug 15, 2020 2:16 pm The question was more about the advisability of selling equities vs very low or zero financing. I would likely pay the loan off early so that’s why the rate is not that material to me.
It sounds like you have the cash OTD price. That's a great technique!
Sell stocks or zero financing is the question now.
I don't usually finance new cars. Since I like zero debt, I'll arrange to pay cash somehow.

If I was forced to buy a car today, I would break my rule and finance because I don't want another dollar of capital gains in 2020. It might make me go over one of those dreaded "cliffs." :) If you are facing something like that, financing works.

In the case above, I would put off my purchase until 2021 when my taxable income is lower. Then I could sell some holdings and stay away from the "cliff." Of course, I would wait until the last week of the month or the last week of the year to negotiate.
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

A sampling of a few of the replies I've gotten from dealers:
I can't do any better than the internet price. And that's with financing. I wouldn't be able to honor the internet price with cash.
The best price is going to be the price online. That price is also contingent on you financing through one of our lenders. The cash sale price is actually higher. But there is no pre payment penalty on auto loans in the US so you can keep the loan out for a month or two then pay it off. This way you get the larger discount!
So far I've only had one dealer who has come in low with an offer for cash, about $2200 below the "Internet price."
hudson
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Re: new car purchase: any reason NOT to do 0% financing

Post by hudson »

Admiral wrote: Sun Aug 16, 2020 7:33 am A sampling of a few of the replies I've gotten from dealers:
I can't do any better than the internet price. And that's with financing. I wouldn't be able to honor the internet price with cash.
The best price is going to be the price online. That price is also contingent on you financing through one of our lenders. The cash sale price is actually higher. But there is no pre payment penalty on auto loans in the US so you can keep the loan out for a month or two then pay it off. This way you get the larger discount!
So far I've only had one dealer who has come in low with an offer for cash, about $2200 below the "Internet price."
It pays to shop around!
You never know until you call and ask.
It's good that the two dealers above gave you straight answers; that way you can cross them off your list.
Some dealers just don't do the OTD price thing; but they might if you are a serious buyer who wants a specific vehicle on their lot that's going to buy a car today or tomorrow...and it's the about the last day of the month or the last day of the year.
deltaneutral83
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Re: new car purchase: any reason NOT to do 0% financing

Post by deltaneutral83 »

Never worry about these types of things, the dealer is going to either get theirs with an increased price of the vehicle at 0% or an interest rate and a reduced cost out the door. Nonetheless, the first 2,000 miles on the car negates any interest rate games so it's always moot for my purposes.
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whodidntante
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Re: new car purchase: any reason NOT to do 0% financing

Post by whodidntante »

Admiral wrote: Sat Aug 15, 2020 12:45 pm Well that's why I always tell them I am paying all cash when I get the OTD price. Then when I get the price I want, I see if they will do the financing at 0%.
I think that's a good way to do it. I also agree with your point downthread about car loans being really cheap right now. I can find sub 2% loans at a credit union easily.

The main way to "save" money on a car is not to buy it or to buy something less expensive. But I think we all know that.
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

deltaneutral83 wrote: Sun Aug 16, 2020 10:00 am Never worry about these types of things, the dealer is going to either get theirs with an increased price of the vehicle at 0% or an interest rate and a reduced cost out the door. Nonetheless, the first 2,000 miles on the car negates any interest rate games so it's always moot for my purposes.
Interesting perspective! Though of course the reduction in value as you drive off the lot doesn't change the amount you have paid (or not paid, as the case my be).

I agree, however, to your broader point which sounds like it is that at some level, the interest saved on 1% vs 2% vs 0% or versus $500 in cash savings becomes not worth my time/mental energy to worry about.

1% interest on $18,000 for 4 years is $370
2% interest on 18,000 for 4 years is $374 more, or $93 a year.
3feetpete
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Re: new car purchase: any reason NOT to do 0% financing

Post by 3feetpete »

I had the same decision to make a couple of years ago. In lieu of 0% financing they would only knock another $700 of the price of the car. It worked out to about 1% financing per year. I took the zero percent financing.
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Re: new car purchase: any reason NOT to do 0% financing

Post by Bobby206 »

Admiral wrote: Sat Aug 15, 2020 12:49 pm
Goal33 wrote: Sat Aug 15, 2020 12:47 pm I’d finance the 28k and decide later.
hmm. I had not actually though about that. I think they make you put down something. But yes at 0% that is an option.
I would put the most down they allow on your cash back/points credit card and finance the rest for sure. It's a minor hassle to have a car payment and then get the title form once it's paid off but very minor.
deltaneutral83
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Re: new car purchase: any reason NOT to do 0% financing

Post by deltaneutral83 »

Admiral wrote: Sun Aug 16, 2020 10:13 am
deltaneutral83 wrote: Sun Aug 16, 2020 10:00 am Never worry about these types of things, the dealer is going to either get theirs with an increased price of the vehicle at 0% or an interest rate and a reduced cost out the door. Nonetheless, the first 2,000 miles on the car negates any interest rate games so it's always moot for my purposes.
Interesting perspective! Though of course the reduction in value as you drive off the lot doesn't change the amount you have paid (or not paid, as the case my be).

I agree, however, to your broader point which sounds like it is that at some level, the interest saved on 1% vs 2% vs 0% or versus $500 in cash savings becomes not worth my time/mental energy to worry about.

1% interest on $18,000 for 4 years is $370
2% interest on 18,000 for 4 years is $374 more, or $93 a year.
Well to be fair, most new cars are over $25k for median BH purchases I believe so the interest savings are more significant, and many are over $50k in these threads. But again, I read a lot of posts with people who seem "happy" to get rather irritated and fire up their laptops to shoot off a plethora of emails to various dealers who do this for a living trying to save a thousand dollars on a new car set to depreciate 5% the second it's driven off the lot. Never made financial sense to me, let alone my "principals" of the matter.

A lot of BH's, it seems, get an unusually weird sense of happiness by their ability to save $1,000 off a new car purchase with some gimmick or avoiding a higher interest rate, etc. etc. I never really understood the doc fee cost of buying from a dealership anyway, so $500 saved with 27 emails with the sales rep is lost in other ways I imagine a lot of the time. I guess I avoid it altogether by buying used, including savings on insurance, HUT, etc. not just the mega hit on depreciation (and yes, I know Hondas and Toyotas are more likely to cushion the blow on depreciation which is why I drive one).
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

deltaneutral83 wrote: Sun Aug 16, 2020 10:28 am
Admiral wrote: Sun Aug 16, 2020 10:13 am
deltaneutral83 wrote: Sun Aug 16, 2020 10:00 am Never worry about these types of things, the dealer is going to either get theirs with an increased price of the vehicle at 0% or an interest rate and a reduced cost out the door. Nonetheless, the first 2,000 miles on the car negates any interest rate games so it's always moot for my purposes.
Interesting perspective! Though of course the reduction in value as you drive off the lot doesn't change the amount you have paid (or not paid, as the case my be).

I agree, however, to your broader point which sounds like it is that at some level, the interest saved on 1% vs 2% vs 0% or versus $500 in cash savings becomes not worth my time/mental energy to worry about.

1% interest on $18,000 for 4 years is $370
2% interest on 18,000 for 4 years is $374 more, or $93 a year.
Well to be fair, most new cars are over $25k for median BH purchases I believe so the interest savings are more significant, and many are over $50k in these threads. But again, I read a lot of posts with people who seem "happy" to get rather irritated and fire up their laptops to shoot off a plethora of emails to various dealers who do this for a living trying to save a thousand dollars on a new car set to depreciate 5% the second it's driven off the lot. Never made financial sense to me, let alone my "principals" of the matter.

A lot of BH's, it seems, get an unusually weird sense of happiness by their ability to save $1,000 off a new car purchase with some gimmick or avoiding a higher interest rate, etc. etc. I never really understood the doc fee cost of buying from a dealership anyway, so $500 saved with 27 emails with the sales rep is lost in other ways I imagine a lot of the time. I guess I avoid it altogether by buying used, including savings on insurance, HUT, etc. not just the mega hit on depreciation (and yes, I know Hondas and Toyotas are more likely to cushion the blow on depreciation which is why I drive one).
Agree again and I almost always have bought used. However in this case this MY has the People First warranty which is good for 6 years. Which means I can/could drive it for 4 years and then sell it with 2 years of full warranty left. Also VW reliability for the long haul is suspect so this is some added insurance. I don’t put more than 5k miles per year on my cars.

Interestingly some dealers are selling low mileage (like 6k) 2017 MY cars for virtually the same price as new.
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Re: new car purchase: any reason NOT to do 0% financing

Post by hudson »

deltaneutral83 wrote: Sun Aug 16, 2020 10:28 am I never really understood the doc fee cost of buying from a dealership anyway, so $500 saved with 27 emails with the sales rep is lost in other ways I imagine a lot of the time.
I don't find that it takes that long; it's not that hard, but it is intense. I don't like sitting around dealerships waiting forever to get a price. I can do most of the work from home.

I've found that phone calls work better than emails. I can usually make the OTD bid system work by calling 5-6 dealers. I tell them that I'm a serious buyer who is buying say today or tomorrow. I specify a car on their lot that I want and I want an OTD price. I'll keep calling until I get 2-3 dealers who want to deal. Then I quickly tell the dealers that I'm going to make a final decision in say 3 hours and decide. Before I drive, or before I notify the losing dealers, I confirm by phone and by some kind of emailed or texted document that the deal is as expected. Then I put down a credit card deposit and arrange to pick up my vehicle.
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Re: new car purchase: any reason NOT to do 0% financing

Post by westie »

never mention how you are going to pay for a vehicle until you are sitting in the finance office with an agreed upon price for the cost of the car, tax,tile, and license fees all compiled and ready for signature. Yes that means OTD in the fiance office, not in the showroom! If they won't do that, walk away.
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Re: new car purchase: any reason NOT to do 0% financing

Post by RocketShipTech »

westie wrote: Sun Aug 16, 2020 12:46 pm never mention how you are going to pay for a vehicle until you are sitting in the finance office with an agreed upon price for the cost of the car, tax,tile, and license fees all compiled and ready for signature. Yes that means OTD in the fiance office, not in the showroom! If they won't do that, walk away.
These days the whole negotiation and contracting can happen online, even car delivery to your house is standard.
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

westie wrote: Sun Aug 16, 2020 12:46 pm never mention how you are going to pay for a vehicle until you are sitting in the finance office with an agreed upon price for the cost of the car, tax,tile, and license fees all compiled and ready for signature. Yes that means OTD in the fiance office, not in the showroom! If they won't do that, walk away.
This works in theory but in my experience not in practice.
They do not seem to honor an OTD cash price if you then say you want financing.

I am not quite at the final offer stage yet but am close. It is hard because I want to get this whole thing done before setting foot in the dealership. And I may, if I go the online route.
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dratkinson
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Re: new car purchase: any reason NOT to do 0% financing

Post by dratkinson »

Used chrisam34's method on last vehicle. Worked well. (Was in ‘90s, things may have changed.)
--Negotiate best cash OTD price.
--Then negotiated cash price with trade in.
--Then allowed dealer to finance remainder (after down payment) so they could make up loss on cash price.
--Then paid off loan next month. Recall paying <$50 in interest.



OP. Suggest you consider using LT national muni bond fund (VWLTX,...) as your 2nd-tier EF. Why?
--You need bonds, so put some in taxable, and increase equities in TA for increased tax-free growth.
--You can withstand more risk (currently using equities as 2nd-tier EF), bonds are less risk.
--Bond NAVs fluctuate less than equities, so the next time you tap 2nd-tier EF, you'll owe less CGs tax.
--The major component of bond fund total return comes from dividends, so within reason, I prefer LT national muni because it pays more dividends.

LT national muni is a win^4 as my 2nd-tier EF, does double-duty as retirement bonds, did TLH in 2018.

So your EF structure evolves to become:
--1st tier: insured accounts: FDIC, NCUA, treasury. (Use "ABP by CC technique" to reduce FOMO.)
--2nd tier: acceptable muni funds*: tax-exempt dividends, lower taxable income, lower CGs tax if tapped.
--3rd tier: acceptable equity funds: QDI dividends, higher CGs tax if tapped.
--4th tier (doomsday scenario): all of your TA accounts.

* Later added a single-state muni fund that produces slightly more after-tax income than LT national.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
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JonnyDVM
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Re: new car purchase: any reason NOT to do 0% financing

Post by JonnyDVM »

If the price is the same then sure. Take the 0%. I prefer to pay in cash cause I don’t want to keep track of payments. But that’s probably lazy.
I’d trade it all for a little more | -C Montgomery Burns
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Admiral
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Re: new car purchase: any reason NOT to do 0% financing

Post by Admiral »

So the latest is one dealer was very clear:

Internet price is $28,495.
At 0% financing, the price goes up to $31,245
Difference: $2750

It is just very difficult to get a single price from these guys.
Nowizard
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Re: new car purchase: any reason NOT to do 0% financing

Post by Nowizard »

Only issues might be whether the vehicle price is higher than when paying cash and having to keep up with payments.

Tim
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