Take auto loan 0.9% if I can afford cash?

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markfaix
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Take auto loan 0.9% if I can afford cash?

Post by markfaix » Wed Aug 15, 2018 8:27 am

I will be buying a car soon. I can afford to pay cash up front. The dealer says I’m eligible for 0.9% financing for 3 years. No change in price whether paying by cash or loan.

Would you take a car loan that you didn’t need? My only other debt is a home mortgage with after tax interest rate of 1.7% due to be paid off in 4 years.

I have not prepaid the mortgage because the effective interest rate is close to the risk free rate. However, for whatever reason, probably psychological, I’m reluctant to take the auto loan even though it is a lower interest rate.

Is there any logical reason to take or not to take this low interest auto loan in my situation?

bradpevans
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Re: Take auto loan 0.9% if I can afford cash?

Post by bradpevans » Wed Aug 15, 2018 8:31 am

markfaix wrote:
Wed Aug 15, 2018 8:27 am
I will be buying a car soon. I can afford to pay cash up front. The dealer says I’m eligible for 0.9% financing for 3 years. No change in price whether paying by cash or loan.

Would you take a car loan that you didn’t need? My only other debt is a home mortgage with after tax interest rate of 1.7% due to be paid off in 4 years.

I have not prepaid the mortgage because the effective interest rate is close to the risk free rate. However, for whatever reason, probably psychological, I’m reluctant to take the auto loan even though it is a lower interest rate.

Is there any logical reason to take or not to take this low interest auto loan in my situation?
I would take the loan - but my investments strategy is a bit more aggressive than most on this forum.

My current car offered me 1.4%. Dealer says "would you like to put any money down?" I said "as little as possible"

KT785
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Re: Take auto loan 0.9% if I can afford cash?

Post by KT785 » Wed Aug 15, 2018 8:33 am

I would . . . and did back in late 2016 when I bought my Subaru Outback. Make sure you understand the terms of the loan (no pre-payment penalty, etc.) but if the loan rate is lower than what you'd easily earn on a FDIC (or NCUA) insured account (let alone a bond fund), I'd rather keep my cash working for me.

KT785

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vineviz
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Re: Take auto loan 0.9% if I can afford cash?

Post by vineviz » Wed Aug 15, 2018 8:33 am

markfaix wrote:
Wed Aug 15, 2018 8:27 am
Is there any logical reason to take or not to take this low interest auto loan in my situation?
None that I can think of. Just be sure to read the contract for pre-payment penalties etc.

Generally speaking, though, these 0.9% dealer loans do not have a "catch". I'd take the shortest loan I could get with that rate and invest the cash.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

jehovasfitness
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Re: Take auto loan 0.9% if I can afford cash?

Post by jehovasfitness » Wed Aug 15, 2018 8:34 am

Sure and put the cash in a money market at CIT bank earning 1.85%

HEDGEFUNDIE
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Re: Take auto loan 0.9% if I can afford cash?

Post by HEDGEFUNDIE » Wed Aug 15, 2018 8:35 am

Take the loan, then balance transfer into a 0% credit card to save even more money.

jminv
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Re: Take auto loan 0.9% if I can afford cash?

Post by jminv » Wed Aug 15, 2018 8:38 am

markfaix wrote:
Wed Aug 15, 2018 8:27 am
I will be buying a car soon. I can afford to pay cash up front. The dealer says I’m eligible for 0.9% financing for 3 years. No change in price whether paying by cash or loan.

Would you take a car loan that you didn’t need? My only other debt is a home mortgage with after tax interest rate of 1.7% due to be paid off in 4 years.

I have not prepaid the mortgage because the effective interest rate is close to the risk free rate. However, for whatever reason, probably psychological, I’m reluctant to take the auto loan even though it is a lower interest rate.

Is there any logical reason to take or not to take this low interest auto loan in my situation?
If it's the case that you can't negotiate further with an all cash offer versus the financing, I would choose to finance the vehicle. The interest rate is below the rate of inflation and below the rate you could obtain on a 3 year risk free asset such as a CD or government bond. You can take the cash you would have spent on the car, apply it to a 3 year CD yielding 3.1% and the spread will be 2.2%.

The only logical reason not to take it is if you could secure a bigger discount by not accepting the subsidized financing and instead paying in cash, but you've already said that's not what's on offer. I would have loan payoff on your auto insurance in case it's totalled early on and you owe more than the value of the car.

stupidkid
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Re: Take auto loan 0.9% if I can afford cash?

Post by stupidkid » Wed Aug 15, 2018 8:40 am

I took a loan at 1.9%. I pay it through a credit card that nets me 1%. Math worked out well. At sub 1% the only reason not to is an aversion to debt, which is a thing

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Toons
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Re: Take auto loan 0.9% if I can afford cash?

Post by Toons » Wed Aug 15, 2018 8:43 am

"Would you take a car loan that you didn’t need?"

No,
Pay cash
move on
Don't think about a loan
Enjoy the new ride
:mrgreen: :mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

daheld
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Re: Take auto loan 0.9% if I can afford cash?

Post by daheld » Wed Aug 15, 2018 8:45 am

I would take the loan. I had a VW TDI that VW bought back in the aftermath of the emissions scandal. They gave me $17k for a 5 year old car. I bought a new, 2016 Mazda 6 GT for $26k. Even though VW had paid me $17k and I only wound up paying $9k out of pocket, I wish I would have taken a loan. I could have invested the difference according to our plan and come out ahead, plus had more cash free for expenses related to the home we purchased. Wasn't a huge deal either way for us, and I suspect you're in the same situation, but I'd take the loan.

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dwickenh
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Re: Take auto loan 0.9% if I can afford cash?

Post by dwickenh » Wed Aug 15, 2018 8:56 am

Toons wrote:
Wed Aug 15, 2018 8:43 am
"Would you take a car loan that you didn’t need?"

No,
Pay cash
move on
Don't think about a loan
Enjoy the new ride
:mrgreen: :mrgreen:
+1 Some of us just think differently!!

:sharebeer
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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corn18
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Re: Take auto loan 0.9% if I can afford cash?

Post by corn18 » Wed Aug 15, 2018 9:12 am

I took the loan because the math said take the loan. Then when the paperwork showed up, I paid it in full. My reflexive brain couldn't handle the additional liability on the balance sheet even though my reflective brain said I was stupid to do that. My mind is not beautiful.
Don't do something, just stand there!

CAP_theorem
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Re: Take auto loan 0.9% if I can afford cash?

Post by CAP_theorem » Wed Aug 15, 2018 9:13 am

It's what I did. It's what I'm going to do again.

On paper it gives you more money to invest. Money you have invested is at risk. A bad sequence of events could lead to you being unable to make the payments.

CAP_theorem
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Re: Take auto loan 0.9% if I can afford cash?

Post by CAP_theorem » Wed Aug 15, 2018 9:15 am

corn18 wrote:
Wed Aug 15, 2018 9:12 am
I took the loan because the math said take the loan. Then when the paperwork showed up, I paid it in full. My reflexive brain couldn't handle the additional liability on the balance sheet even though my reflective brain said I was stupid to do that. My mind is not beautiful.
Oh that's usually not good. Usually you can get a better price if you don't take the financing. I take the financing when it's worth more than the cash back. Although when I bought not only was there less cash back, but the dealer wouldn't offer me the lowest price. It came out out closer to a wash due to the dealer not offering the same price, but still slightly in favor of financing.

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corn18
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Re: Take auto loan 0.9% if I can afford cash?

Post by corn18 » Wed Aug 15, 2018 9:24 am

CAP_theorem wrote:
Wed Aug 15, 2018 9:15 am
corn18 wrote:
Wed Aug 15, 2018 9:12 am
I took the loan because the math said take the loan. Then when the paperwork showed up, I paid it in full. My reflexive brain couldn't handle the additional liability on the balance sheet even though my reflective brain said I was stupid to do that. My mind is not beautiful.
Oh that's usually not good. Usually you can get a better price if you don't take the financing. I take the financing when it's worth more than the cash back. Although when I bought not only was there less cash back, but the dealer wouldn't offer me the lowest price. It came out out closer to a wash due to the dealer not offering the same price, but still slightly in favor of financing.
I told them when I walked in I was paying cash. Negotiated a cash price. Walked into the finance guy's office and he said he'd take $750 off my cash price if I did the financing. I did. Then went through the above machinations. Then paid it off.
Don't do something, just stand there!

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Nate79
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Re: Take auto loan 0.9% if I can afford cash?

Post by Nate79 » Wed Aug 15, 2018 9:30 am

markfaix wrote:
Wed Aug 15, 2018 8:27 am
I will be buying a car soon. I can afford to pay cash up front. The dealer says I’m eligible for 0.9% financing for 3 years. No change in price whether paying by cash or loan.

Would you take a car loan that you didn’t need? My only other debt is a home mortgage with after tax interest rate of 1.7% due to be paid off in 4 years.

I have not prepaid the mortgage because the effective interest rate is close to the risk free rate. However, for whatever reason, probably psychological, I’m reluctant to take the auto loan even though it is a lower interest rate.

Is there any logical reason to take or not to take this low interest auto loan in my situation?
How much is the loan? It's fairly trivial to calculate how much money you are going to make on the spread and you can decide if you want to do it or not.

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Watty
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Re: Take auto loan 0.9% if I can afford cash?

Post by Watty » Wed Aug 15, 2018 9:35 am

Without a car loan you can usually have a higher deductible on your car insurance so be sure to consider if that will save you some money.
jehovasfitness wrote:
Wed Aug 15, 2018 8:34 am
Sure and put the cash in a money market at CIT bank earning 1.85%
But that is taxable so your after tax return might be more like 1.5%. Compared to a 0.9% loan that would net you 0.6%.

If the loan is for $20,000 then that will net you $120 a year. When the loan is halfway paid off that will be $60 a year.

The thing that most people miss is that if you pay cash then you could reasonably put your "car payment" into some more aggressive investment since the money would not be needed until you are ready to buy your next car in maybe 7-10 years.

Halfway through the car loan you would have around $10,000 in your account. If that more aggressively invested account earns 5% that is $500 a year.

I would pay cash but keep saving a "car payment" into a car fund to buy my next car that could be invested more aggressively.

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DanMahowny
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Re: Take auto loan 0.9% if I can afford cash?

Post by DanMahowny » Wed Aug 15, 2018 9:52 am

I know the math says borrow at 0.9% but I say Pay Cash.

Car payments suck.
Funding secured

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Mlm
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Re: Take auto loan 0.9% if I can afford cash?

Post by Mlm » Wed Aug 15, 2018 9:54 am

I took the .9% loan but I hated making payments so I paid it off

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djpeteski
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Re: Take auto loan 0.9% if I can afford cash?

Post by djpeteski » Wed Aug 15, 2018 9:57 am

markfaix wrote:
Wed Aug 15, 2018 8:27 am
I will be buying a car soon. I can afford to pay cash up front. The dealer says I’m eligible for 0.9% financing for 3 years. No change in price whether paying by cash or loan.
Be careful of dealer BS. Many times they do this just to get you to submit a credit app. There may be no such promotion.

I am not sure why the dealer considers it such a win for you to submit a credit app, but they do.

Also consider both the cost and hassle of unfreezing your credit if it applies.

MichCPA
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Re: Take auto loan 0.9% if I can afford cash?

Post by MichCPA » Wed Aug 15, 2018 9:59 am

CAP_theorem wrote:
Wed Aug 15, 2018 9:13 am
It's what I did. It's what I'm going to do again.

On paper it gives you more money to invest. Money you have invested is at risk. A bad sequence of events could lead to you being unable to make the payments.
.9% is lower than the US treasury rate or FDIC insured cash accounts, so its not really fair to say its at risk. Its not like you are taking a margin loan to make the math work.

markcoop
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Re: Take auto loan 0.9% if I can afford cash?

Post by markcoop » Wed Aug 15, 2018 10:16 am

I recently had a similar situation:
1) Pay full amount - get $750 discount
2) 0% 36 months - no discount
3) 0.9% 60 months - no discount

Mathematically, you could compute what is best given some assumptions. I would imagine it would not be a huge a difference. I also really don't think it's a huge deal between any such choices because of unknowns: a) it's hard to put a number on the loan hassle; b) it's hard to predict what my money would earn; c) it's hard to know if I will need some extra money over the next few years. I ended up taking the 5 year 0.9% loan because I have kids in college and thought it would be wise from a cash flow perspective to have more of a cushion.
Mark

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HomerJ
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Re: Take auto loan 0.9% if I can afford cash?

Post by HomerJ » Wed Aug 15, 2018 10:22 am

corn18 wrote:
Wed Aug 15, 2018 9:12 am
I took the loan because the math said take the loan. Then when the paperwork showed up, I paid it in full. My reflexive brain couldn't handle the additional liability on the balance sheet even though my reflective brain said I was stupid to do that. My mind is not beautiful.
This is me too.

The math works out, but I refuse to have debt.
The J stands for Jay

hightower
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Re: Take auto loan 0.9% if I can afford cash?

Post by hightower » Wed Aug 15, 2018 10:27 am

If you're asking if I would take the loan the answer is no. If you can afford to pay cash, just pay cash and be done with it.
The "math" only works if you make a dangerous assumption. You are assuming you can definitely invest the cash and make more money then the interest of the car loan would cost you. There's no such things as guarantees in investing. The stock market could crash and burn for the next 10 years and you'll be stuck paying off a silly car loan for the next 5.

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whodidntante
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Re: Take auto loan 0.9% if I can afford cash?

Post by whodidntante » Wed Aug 15, 2018 10:30 am

I would. The loan itself is a good investment because inflation is likely to be higher.

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FIREchief
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Re: Take auto loan 0.9% if I can afford cash?

Post by FIREchief » Wed Aug 15, 2018 10:38 am

markfaix wrote:
Wed Aug 15, 2018 8:27 am
Would you take a car loan that you didn’t need?
I would and have (twice). Both times, 0% for 36 months. I fully understand the emotional aspect of avoiding a car loan, but if your financial situation is extremely stable, then it is just a free loan. That is a good thing. :beer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

hightower
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Re: Take auto loan 0.9% if I can afford cash?

Post by hightower » Wed Aug 15, 2018 10:38 am

KT785 wrote:
Wed Aug 15, 2018 8:33 am
I would . . . and did back in late 2016 when I bought my Subaru Outback. Make sure you understand the terms of the loan (no pre-payment penalty, etc.) but if the loan rate is lower than what you'd easily earn on a FDIC (or NCUA) insured account (let alone a bond fund), I'd rather keep my cash working for me.

KT785
A lot of people tell themselves this, but what kind of return are you expecting that is FDIC insured? 2.4% on a 5 year CD? Okay, subtract the 0.9% and you're going to be earning 1.5% above what you're paying on the car loan. Then you have to pay taxes on that and your money is locked up for 5 years. To me it would be better to negotiate a better price and get the discount up front then have to wait 5 years for a minuscule return on a CD. And bond funds aren't a safe bet and could easily lose value in a 5 year period.

If there were options for a 5-6% CD or a 3-4% savings account, then sure, I might consider it. But, you probably won't be able to find a super cheap loan once interest rates get to that level.

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birdog
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Re: Take auto loan 0.9% if I can afford cash?

Post by birdog » Wed Aug 15, 2018 10:44 am

I'm debt averse. It keeps me up at night. I also have a goal of lowering monthly recurring expenses. I would pay cash. That's just me.

GT99
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Re: Take auto loan 0.9% if I can afford cash?

Post by GT99 » Wed Aug 15, 2018 12:21 pm

corn18 wrote:
Wed Aug 15, 2018 9:24 am
CAP_theorem wrote:
Wed Aug 15, 2018 9:15 am
corn18 wrote:
Wed Aug 15, 2018 9:12 am
I took the loan because the math said take the loan. Then when the paperwork showed up, I paid it in full. My reflexive brain couldn't handle the additional liability on the balance sheet even though my reflective brain said I was stupid to do that. My mind is not beautiful.
Oh that's usually not good. Usually you can get a better price if you don't take the financing. I take the financing when it's worth more than the cash back. Although when I bought not only was there less cash back, but the dealer wouldn't offer me the lowest price. It came out out closer to a wash due to the dealer not offering the same price, but still slightly in favor of financing.
I told them when I walked in I was paying cash. Negotiated a cash price. Walked into the finance guy's office and he said he'd take $750 off my cash price if I did the financing. I did. Then went through the above machinations. Then paid it off.
This is where the car business gets kind of weird. Whether or not you can get a better price on the car by paying cash or by taking the low interest loan varies depending on manufacturer, if the dealer is manufacturer affiliated or not, and the month of the year (or even day). Sometimes the financing arms of manufacturers will add an incentive to the dealer for selling the financing, enabling them to give you a lower than cash price. Those incentives usually vary monthly. If not, you can usually get a lower price paying cash.

Also, there's value in data, and you're giving them a lot more data with a loan.

indexfund56
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Re: Take auto loan 0.9% if I can afford cash?

Post by indexfund56 » Wed Aug 15, 2018 12:44 pm

If you have the cash, buy the car outright. And if you don't have the cash, then don't buy the car. My rule of thumb is pretty simple: Besides my house, I don't have debt of any kind.

CAP_theorem
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Re: Take auto loan 0.9% if I can afford cash?

Post by CAP_theorem » Wed Aug 15, 2018 2:19 pm

MichCPA wrote:
Wed Aug 15, 2018 9:59 am
CAP_theorem wrote:
Wed Aug 15, 2018 9:13 am
It's what I did. It's what I'm going to do again.

On paper it gives you more money to invest. Money you have invested is at risk. A bad sequence of events could lead to you being unable to make the payments.
.9% is lower than the US treasury rate or FDIC insured cash accounts, so its not really fair to say its at risk. Its not like you are taking a margin loan to make the math work.
You could do that, but you need to make a bit more than 0.9% for it to make sense. You have to make enough to offset the alternative incentives like cash back or the dealers willingness to give you a lower price. That basically rules out all the low risk investment options.

H-Town
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Re: Take auto loan 0.9% if I can afford cash?

Post by H-Town » Wed Aug 15, 2018 2:21 pm

markfaix wrote:
Wed Aug 15, 2018 8:27 am
I will be buying a car soon. I can afford to pay cash up front. The dealer says I’m eligible for 0.9% financing for 3 years. No change in price whether paying by cash or loan.

Would you take a car loan that you didn’t need? My only other debt is a home mortgage with after tax interest rate of 1.7% due to be paid off in 4 years.

I have not prepaid the mortgage because the effective interest rate is close to the risk free rate. However, for whatever reason, probably psychological, I’m reluctant to take the auto loan even though it is a lower interest rate.

Is there any logical reason to take or not to take this low interest auto loan in my situation?
Are you buying full coverage insurance regardless of paying cash or taking loan?

If you pay cash, you can save a lot with liability insurance.

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Meg77
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Re: Take auto loan 0.9% if I can afford cash?

Post by Meg77 » Wed Aug 15, 2018 2:33 pm

The behavioral psychology behind these decisions is much more important than the math.

--Often financing deals that good require you to buy a brand new model, to pay for the extended warranty, or to buy other add-ons you may not have otherwise purchased (the tire warranty, in my husband's case most recently). Obviously then it does NOT make sense.

--Often people spend more than they otherwise would when they are financing things. This is true when financing cars, homes, or simply using a credit card versus a debit card at a vending machine. Studies have shown this repeatedly in all kinds of situations: when using cash, people spend less than when they are using credit even though they usually don't realize it.

--Most people don't follow through. They say, "Why not borrow at 1% when I can invest and earn 5% or more?," but rarely do they actually take the full amount of the car loan they obtain and lump sum it into the stock market. Instead they keep more cash on hand, which can lead to feeling flush and spending more in general. If you deplete your cash to buy the car, you may be more likely to focus on rebuilding cash quickly. If you finance the car, you remain flush with cash and don't make the connection 4 months later when you justify upgrading the next family vacation - since after all, you have a fully funded emergency fund and are doing all the right things for retirement.
"An investment in knowledge pays the best interest." - Benjamin Franklin

TOJ
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Re: Take auto loan 0.9% if I can afford cash?

Post by TOJ » Wed Aug 15, 2018 2:37 pm

I sincerely doubt there is "No change in price whether paying by cash or loan. " No offense intended, but it sounds like you played all your cards early.

There are usually rebates associated with taking in-house financing vs paying cash or outside financing. In fact, there are usually additional rebates that apply if you opt for (or only qualify for) their non-promo rates (meaning you pay 3%+ instead of the 0%, 0.9%, etc). In other words, if you finance, the car is going to cost you $30k. All the haggling is doing is dividing the cost between principal and interest. Price of the car magically goes up $4k if you go for promotional financing. Let them slide as much of the cost onto the interest side of the equation by choosing the dummy interest rate option. They will lower price of car to keep the monthly payment doable (only you know that you don't care about monthly payment).

Based on my experience, if I wanted to pay cash, I would go in there and drive for the best price. Let them ring you up with 5% interest. Make double sure of no prepayment penalty as you're signing all the paperwork. There is usually a state law that prevents such penalties. Then, pay it off after the loan is set up at the lender. In other words... agree to pay $27k with 4% interest over 5 years instead of $29k with .9% interest over 3 years. First option is better if paying off immediately.

DaftInvestor
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Re: Take auto loan 0.9% if I can afford cash?

Post by DaftInvestor » Wed Aug 15, 2018 3:00 pm

I would (and routinely do) take the loan. Put the money in the bank (1.85% at gsbank - might be better options) and set payments on autopay. Money in the bank.

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Toons
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Re: Take auto loan 0.9% if I can afford cash?

Post by Toons » Wed Aug 15, 2018 4:29 pm

dwickenh wrote:
Wed Aug 15, 2018 8:56 am
Toons wrote:
Wed Aug 15, 2018 8:43 am
"Would you take a car loan that you didn’t need?"

No,
Pay cash
move on
Don't think about a loan
Enjoy the new ride
:mrgreen: :mrgreen:
+1 Some of us just think differently!!

:sharebeer
:sharebeer
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

MichCPA
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Re: Take auto loan 0.9% if I can afford cash?

Post by MichCPA » Wed Aug 15, 2018 5:04 pm

CAP_theorem wrote:
Wed Aug 15, 2018 2:19 pm
MichCPA wrote:
Wed Aug 15, 2018 9:59 am
CAP_theorem wrote:
Wed Aug 15, 2018 9:13 am
It's what I did. It's what I'm going to do again.

On paper it gives you more money to invest. Money you have invested is at risk. A bad sequence of events could lead to you being unable to make the payments.
.9% is lower than the US treasury rate or FDIC insured cash accounts, so its not really fair to say its at risk. Its not like you are taking a margin loan to make the math work.
You could do that, but you need to make a bit more than 0.9% for it to make sense. You have to make enough to offset the alternative incentives like cash back or the dealers willingness to give you a lower price. That basically rules out all the low risk investment options.
Three year treasuries are at 2.7% over 3 years. That's an extra 1.1% per year on your money even after taxes (24% rate). If its a 30k loan over 3 years that is about $500. The OP said there was no cash vs financing price difference.

tesuzuki2002
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Re: Take auto loan 0.9% if I can afford cash?

Post by tesuzuki2002 » Wed Aug 15, 2018 5:11 pm

markfaix wrote:
Wed Aug 15, 2018 8:27 am
I will be buying a car soon. I can afford to pay cash up front. The dealer says I’m eligible for 0.9% financing for 3 years. No change in price whether paying by cash or loan.

Would you take a car loan that you didn’t need? My only other debt is a home mortgage with after tax interest rate of 1.7% due to be paid off in 4 years.

I have not prepaid the mortgage because the effective interest rate is close to the risk free rate. However, for whatever reason, probably psychological, I’m reluctant to take the auto loan even though it is a lower interest rate.

Is there any logical reason to take or not to take this low interest auto loan in my situation?
Only if you get a cheaper price on the car.... they make money on the financing... take the finance... and then pay it off quick and pocket the bonus!

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Re: Take auto loan 0.9% if I can afford cash?

Post by KlangFool » Wed Aug 15, 2018 5:35 pm

markfaix wrote:
Wed Aug 15, 2018 8:27 am
I will be buying a car soon. I can afford to pay cash up front. The dealer says I’m eligible for 0.9% financing for 3 years. No change in price whether paying by cash or loan.
markfaix,

You should shop around. You may not be getting the best deal. In my case, the dealer pays me an extra $1,000 for taking the car loan instead of paying cash. I took a minimum 3 years $10,000 loan. So, that extra $1,000 cover the loan interest plus I receive extra money.

KlangFool

mervinj7
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Re: Take auto loan 0.9% if I can afford cash?

Post by mervinj7 » Wed Aug 15, 2018 5:36 pm

How do people feel about the 0.0% loans that some dealers offer? When we bought our Nissan Leaf, we were prepared to pay cash and negotiated based on that. When we got the finance room, the finance guy offered 0.0% financing and an extra $500 off but wanted to add a bunch of extra stuff (e.g. GAP insurance, paint sealant). We gladly took the 0.0% loan and said no to the rest. He wasn't too pleased.

KlangFool
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Re: Take auto loan 0.9% if I can afford cash?

Post by KlangFool » Wed Aug 15, 2018 5:38 pm

TOJ wrote:
Wed Aug 15, 2018 2:37 pm
I sincerely doubt there is "No change in price whether paying by cash or loan. " No offense intended, but it sounds like you played all your cards early.

There are usually rebates associated with taking in-house financing vs paying cash or outside financing. In fact, there are usually additional rebates that apply if you opt for (or only qualify for) their non-promo rates (meaning you pay 3%+ instead of the 0%, 0.9%, etc). In other words, if you finance, the car is going to cost you $30k. All the haggling is doing is dividing the cost between principal and interest. Price of the car magically goes up $4k if you go for promotional financing. Let them slide as much of the cost onto the interest side of the equation by choosing the dummy interest rate option. They will lower price of car to keep the monthly payment doable (only you know that you don't care about monthly payment).

Based on my experience, if I wanted to pay cash, I would go in there and drive for the best price. Let them ring you up with 5% interest. Make double sure of no prepayment penalty as you're signing all the paperwork. There is usually a state law that prevents such penalties. Then, pay it off after the loan is set up at the lender. In other words... agree to pay $27k with 4% interest over 5 years instead of $29k with .9% interest over 3 years. First option is better if paying off immediately.
+1.

Tell the car dealer that you want to pay cash. If they want you to take a car loan, they need to sweeten the deal and make you a good offer.

KlangFool

dpc
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Re: Take auto loan 0.9% if I can afford cash?

Post by dpc » Wed Aug 15, 2018 5:46 pm

Usually you can get a better price if you don't take the financing
This seems logical, but has not been my experience. The financing is through the car manufacturer. It's still a cash deal for the dealer. And I suspect they get some credit for having it financed through their manufacturer.

I did a 0.9% loan when I bought my Honda, even though I had the money. I'm the king of debt. 8-)
"Worrying is like paying interest on a debt that you might never owe" -- Will Rogers

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Alexa9
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Re: Take auto loan 0.9% if I can afford cash?

Post by Alexa9 » Wed Aug 15, 2018 5:50 pm

I prefer no debt to even a 0% car loan even if it's just psychological. A mortgage is somewhat different (30 years) so I prefer to invest than pay it early.

Nissanzx1
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Re: Take auto loan 0.9% if I can afford cash?

Post by Nissanzx1 » Wed Aug 15, 2018 6:06 pm

Do you have an emergency fun of 3-6 months in cash Plus the savings to pay cash for the car?

If so, do what you think makes you happy. If not, don't even think about borrowing the money. The emergency fund trumps a better car any day.

Additional point: if you take cash greenbacks with you on the last day of the month, you will almost always get a better deal and if they won't cut you a better deal- don't buy- walk out. Try another dealer in your area.

Beehave
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Re: Take auto loan 0.9% if I can afford cash?

Post by Beehave » Wed Aug 15, 2018 6:09 pm

My advice (and what I'd do) = pay in full and stay out of debt.

I'd do it on general principle.
I'd do it to avoid unnecessarily putting all my personal i.d. and financial info in the dealer's hands and whoever they then give it to.
I'd do it to keep my financial life as uncluttered as possible.

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bertilak
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Re: Take auto loan 0.9% if I can afford cash?

Post by bertilak » Wed Aug 15, 2018 6:25 pm

Toons wrote:
Wed Aug 15, 2018 8:43 am
"Would you take a car loan that you didn’t need?"

No,
Pay cash
move on
Don't think about a loan
Enjoy the new ride
:mrgreen: :mrgreen:
I'm with you on this, with one exception: Often there is a choice between a lower price and cheaper financing. I'd ask about that first.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

PFInterest
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Re: Take auto loan 0.9% if I can afford cash?

Post by PFInterest » Wed Aug 15, 2018 6:27 pm

markfaix wrote:
Wed Aug 15, 2018 8:27 am
I will be buying a car soon. I can afford to pay cash up front. The dealer says I’m eligible for 0.9% financing for 3 years. No change in price whether paying by cash or loan.

Would you take a car loan that you didn’t need? My only other debt is a home mortgage with after tax interest rate of 1.7% due to be paid off in 4 years.

I have not prepaid the mortgage because the effective interest rate is close to the risk free rate. However, for whatever reason, probably psychological, I’m reluctant to take the auto loan even though it is a lower interest rate.

Is there any logical reason to take or not to take this low interest auto loan in my situation?
Yes take.

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JoeRetire
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Re: Take auto loan 0.9% if I can afford cash?

Post by JoeRetire » Wed Aug 15, 2018 6:30 pm

markfaix wrote:
Wed Aug 15, 2018 8:27 am
Would you take a car loan that you didn’t need?
Been there. Done that. I use the t-shirt for cleaning my car windows.
I have not prepaid the mortgage because the effective interest rate is close to the risk free rate.
Makes sense.
However, for whatever reason, probably psychological, I’m reluctant to take the auto loan even though it is a lower interest rate.
Why the difference in psychology for home loan versus car loan?
Is there any logical reason to take or not to take this low interest auto loan in my situation?
Depends on what you mean by "logical".

Some don't think it's logical to leverage a loan for a depreciating asset. Some would argue that logically the price of a car isn't worth worrying about either way.
Very Stable Genius

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FIREchief
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Re: Take auto loan 0.9% if I can afford cash?

Post by FIREchief » Wed Aug 15, 2018 6:35 pm

thangngo wrote:
Wed Aug 15, 2018 2:21 pm
Are you buying full coverage insurance regardless of paying cash or taking loan?

If you pay cash, you can save a lot with liability insurance.
How will paying cash save you anything on liability insurance? I've never heard of such a thing. :confused
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Starfish
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Re: Take auto loan 0.9% if I can afford cash?

Post by Starfish » Wed Aug 15, 2018 6:54 pm

I just cannot comprehend why would you even consider buying with cash. It does not make any sense.
I don't is any difference between credit aversion and the spending compulsion. Obviously the effects are very different, but the mechanics seem to be identical.
I personally take any loan with a low enough interest rate and maximum term possible. I never buy anything cash if it is possible. I bought all my cars on credit (5 years, I would definitely take more if available at low interest rates). I always use credit cards. I make any loans as long as possible if the interest rate is still cheap. Any loan under 2% effective interest rate makes money for me only because inflation is ~3%.
But the most import part is the opportunity cost. I really like to have cash. If I have an emergency, 20-30k$ makes a huge difference. It is a year of mortgage for example. If I find some good deal to invest, I need the money. If the market crashes I need the money to buy at the bottom. What good does not to have car payments? I feel very anxious to have less money, money are insurance.

However there are things to consider. Car loans come with insurance conditions attached. Would you take the same insurance if you did not have the the loan? If not, it will cost you more.

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