New car - 0% loan or $500 rebate

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
adamsdp
Posts: 1
Joined: Tue Sep 18, 2018 12:22 pm

New car - 0% loan or $500 rebate

Post by adamsdp » Tue Sep 18, 2018 12:24 pm

I am buying a new car and the dealer is offering 0% interest on a 48 month loan or $500 rebate off the price of the car. The amount that would be financed is $21,700. If I figure the average amount of extra money I will have to invest over the 4 years as 21,700/2=10,850 and then multiply 10,850 by 1.9% of a money market = 206.15/year x 4 years = 824.6. Taking taxes into account - Fed + State = 28.25%, 824.6 x .7175 = $591.65

I am inclined to pay cash and be done with it since the numbers are so close. I was wondering about if having an auto loan might help my credit score though? My score is already good - 800. I don't have any installment loans and am older and have a long credit history that has been 800+. Would an installment load possibly help my score go higher? I have read conflicting information. Some say having different type of loans can help. Others say if you have a good credit history adding a new auto loan would do more harm than good by reducing your average account age and having a new account application. Thank you.

Dave

Jack FFR1846
Posts: 8065
Joined: Tue Dec 31, 2013 7:05 am

Re: New car - 0% loan or $500 rebate

Post by Jack FFR1846 » Tue Sep 18, 2018 1:49 pm

You don't need the loan. You don't need a higher credit score. Think of it this way....if the sales guy asked "If you want to take out a loan, give me $500 and I'll get you one for no interest", would you pull cash out of your pocket to take out the loan that you don't need?
Bogle: Smart Beta is stupid

alfaspider
Posts: 1611
Joined: Wed Sep 09, 2015 4:44 pm

Re: New car - 0% loan or $500 rebate

Post by alfaspider » Tue Sep 18, 2018 1:58 pm

adamsdp wrote:
Tue Sep 18, 2018 12:24 pm
I was wondering about if having an auto loan might help my credit score though? My score is already good - 800. I don't have any installment loans and am older and have a long credit history that has been 800+. Would an installment load possibly help my score go higher? I have read conflicting information. Some say having different type of loans can help. Others say if you have a good credit history adding a new auto loan would do more harm than good by reducing your average account age and having a new account application. Thank you.

Dave
If you already have an 800 credit score, there's no advantage to raising your score further. You already qualify for the best rates.

denovo
Posts: 4384
Joined: Sun Oct 13, 2013 1:04 pm

Re: New car - 0% loan or $500 rebate

Post by denovo » Tue Sep 18, 2018 2:05 pm

adamsdp wrote:
Tue Sep 18, 2018 12:24 pm
I am buying a new car and the dealer is offering 0% interest on a 48 month loan or $500 rebate off the price of the car. The amount that would be financed is $21,700. If I figure the average amount of extra money I will have to invest over the 4 years as 21,700/2=10,850 and then multiply 10,850 by 1.9% of a money market = 206.15/year x 4 years = 824.6. Taking taxes into account - Fed + State = 28.25%, 824.6 x .7175 = $591.65

I am inclined to pay cash and be done with it since the numbers are so close. I was wondering about if having an auto loan might help my credit score though? My score is already good - 800. I don't have any installment loans and am older and have a long credit history that has been 800+. Would an installment load possibly help my score go higher? I have read conflicting information. Some say having different type of loans can help. Others say if you have a good credit history adding a new auto loan would do more harm than good by reducing your average account age and having a new account application. Thank you.

Dave
viewtopic.php?t=124638
Hopefully you can save at least 2k by reading this.
"Don't trust everything you read on the Internet"- Abraham Lincoln

livesoft
Posts: 62834
Joined: Thu Mar 01, 2007 8:00 pm

Re: New car - 0% loan or $500 rebate

Post by livesoft » Tue Sep 18, 2018 2:06 pm

I always take the loan. I'm not putting the loaned amount into a 2% savings account over 4 years. I don't care about the risk-free rate because I always figure a way to take on risk and make more money over 4 years.
Wiki This signature message sponsored by sscritic: Learn to fish.

mmmodem
Posts: 1500
Joined: Thu May 20, 2010 1:22 pm

Re: New car - 0% loan or $500 rebate

Post by mmmodem » Tue Sep 18, 2018 2:14 pm

I don't make enough to ignore making $91.65 for essentially very little work. I'd also have to liquidate investments incurring taxes to pay cash for the vehicle. I would take the loan.

User avatar
grabiner
Advisory Board
Posts: 23061
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: New car - 0% loan or $500 rebate

Post by grabiner » Thu Sep 20, 2018 10:02 pm

adamsdp wrote:
Tue Sep 18, 2018 12:24 pm
I am buying a new car and the dealer is offering 0% interest on a 48 month loan or $500 rebate off the price of the car. The amount that would be financed is $21,700. If I figure the average amount of extra money I will have to invest over the 4 years as 21,700/2=10,850 and then multiply 10,850 by 1.9% of a money market = 206.15/year x 4 years = 824.6. Taking taxes into account - Fed + State = 28.25%, 824.6 x .7175 = $591.65
This is almost twice the correct amount. If you take out the loan, you will only have $21,700 in the bank in the first month, as you will be paying back the $21,700 monthly.

A better way to do the comparison is to compare financing $21,200 (taking the cash back) versus financing $21,700 at 0%. For the same $452 payment, the effective rate would be 1%. Therefore, it is better to take the 0% loan if you choose to finance.
I was wondering about if having an auto loan might help my credit score though? My score is already good - 800. I don't have any installment loans and am older and have a long credit history that has been 800+.
It might, but that doesn't matter; there is no bonus for having a better score when your score is already excellent.
Would an installment load possibly help my score go higher? I have read conflicting information. Some say having different type of loans can help. Others say if you have a good credit history adding a new auto loan would do more harm than good by reducing your average account age and having a new account application.
Both of these are true. Taking out a new loan, of any kind, will cause your score to decline immediately. But then it will increase over time, as the new loan is no longer new and the account age increases.

But your score only matters when you use it. If you take out a mortgage in three years, you don't care that your credit declines this year if it improves again by the time you take out the mortgage.
Wiki David Grabiner

Peppergrass
Posts: 46
Joined: Tue Mar 27, 2018 7:25 pm

Re: New car - 0% loan or $500 rebate

Post by Peppergrass » Fri Sep 21, 2018 12:23 am

Dave,

If I am reading correct, you have cash for the car?

if so buy it in cash and walk away.. no measly amount is worth the headache of calculating and moving money here to there and such.. it's just not.

that's just me though, I value time and simplicity over an extra return. when you are on your deathbed you are not going to give one hoot about saving some dollars on a depreciating asset.. want to talk about money, we should be talking a used Prius or Toyota truck, bought at a downturn in the economy or about keeping your current car and re-investing that cash long term... that's real money talk

my real concern is investing half an hour and calling all the dealers in the area of the state and making them compete for a bid, and using that for pricing point at the dealer you want to use, that to me is worth more money for the time invested. It think this is more worthwhile then pulling a loan and whatever reinvest plan you are planning. 20k just isn't going to move an needle for short term in safe assets

another is getting a better deal when the new models come in and they have to try to offload the "old model" reducing them by thousands..

another tactic is buying in a different state, as some states are cheaper to purchase in, and either road trip the car if it's close or put it on a flatbed and haul in.. this is more the serious type though as this is a lot of work and hassle usually transferring an out of state title at DMV.

again, I question in my mind if you thought used.. some cars you can find used for like 5k off because they have 10k miles on them. and I'm taking same year model as new.

another is trying to find some poor soul who took on too much debt with their new purchase or they lost their job or some unfortunate event and are forced sale at a discount..

I'm jus throwing out some ideas that to.. are worth then some reinvestment plan and taking on a loan.. this I believe are worth the time to explore as options as they will save more then you can most likely earn and require not as much effort in my mind..

obviously my vote is with the $500 back.

Ron Scott
Posts: 1090
Joined: Tue Apr 05, 2016 5:38 am

Re: New car - 0% loan or $500 rebate

Post by Ron Scott » Fri Sep 21, 2018 3:28 am

You don’t need to have some car salesman giving you options. Send an email to 4 dealers with your specs (don’t use the manufacturers online configuration code) and tell them you’re paying cash. Buy from the lowest bidder.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

inbox788
Posts: 5690
Joined: Thu Mar 15, 2012 5:24 pm

Re: New car - 0% loan or $500 rebate

Post by inbox788 » Fri Sep 21, 2018 12:51 pm

mmmodem wrote:
Tue Sep 18, 2018 2:14 pm
I don't make enough to ignore making $91.65 for essentially very little work. I'd also have to liquidate investments incurring taxes to pay cash for the vehicle. I would take the loan.
The exact amount depends on a number of factors, but for the most part, it's equivalent enough that it won't matter. The question is whether OP is the type of person who see's an extra $20,000 in the bank/investment account and wants to spend it or whether losing $500 in monthly budget is going to make him feel poorer and otherwise spend less.

It's market timing, but a couple of years ago, I took the loan and kept things invested, which turned out to be a good investment. If the market crashes, you'd have wished you just paid cash and gotten the rebate. Still, long term, as long as the interest is low and the rebate small, if you always choose loan an invest the funds, you'll likely be better off. And putting off any immediate taxes is a further incentive to kick the can.

pennylane
Posts: 173
Joined: Thu Apr 12, 2018 10:22 am

Re: New car - 0% loan or $500 rebate

Post by pennylane » Fri Sep 21, 2018 1:03 pm

Ron Scott wrote:
Fri Sep 21, 2018 3:28 am
You don’t need to have some car salesman giving you options. Send an email to 4 dealers with your specs (don’t use the manufacturers online configuration code) and tell them you’re paying cash. Buy from the lowest bidder.
purchasing cash doesn't entice a dealer to give you the best deal. If anything, its the opposite.

User avatar
Nestegg_User
Posts: 1119
Joined: Wed Aug 05, 2009 1:26 pm

Re: New car - 0% loan or $500 rebate

Post by Nestegg_User » Fri Sep 21, 2018 1:24 pm

for only $500, it’s really not worth the effort

when I did purchase a vehicle last year, I was able to take advantage of a $1250 rebate rather than cash, and like you basically financed only $20k. paid it off after the month- - better return; the price had already been negotiated (and couldn’t improve with cash... but the dealer “metrics” could, so they were inclined to deal)
{ $85 cost for $1250 lower price... worked for us}

User avatar
Toons
Posts: 13041
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: New car - 0% loan or $500 rebate

Post by Toons » Fri Sep 21, 2018 1:39 pm

am inclined to pay cash and be done with it since the numbers are so close

The right idea in my opinion :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Rupert
Posts: 3783
Joined: Fri Aug 17, 2012 12:01 pm

Re: New car - 0% loan or $500 rebate

Post by Rupert » Fri Sep 21, 2018 1:51 pm

pennylane wrote:
Fri Sep 21, 2018 1:03 pm
Ron Scott wrote:
Fri Sep 21, 2018 3:28 am
You don’t need to have some car salesman giving you options. Send an email to 4 dealers with your specs (don’t use the manufacturers online configuration code) and tell them you’re paying cash. Buy from the lowest bidder.
purchasing cash doesn't entice a dealer to give you the best deal. If anything, its the opposite.
+1. I wish people would quit repeating the myth that you get a better price by paying cash. Dealers today make a significant portion of their profit off financing cars. As a result, I would never tell a dealer upfront, during price negotiations, how I intend to pay for the car.

JackoC
Posts: 347
Joined: Sun Aug 12, 2018 11:14 am

Re: New car - 0% loan or $500 rebate

Post by JackoC » Fri Sep 21, 2018 2:03 pm

grabiner wrote:
Thu Sep 20, 2018 10:02 pm
adamsdp wrote:
Tue Sep 18, 2018 12:24 pm
I am buying a new car and the dealer is offering 0% interest on a 48 month loan or $500 rebate off the price of the car. The amount that would be financed is $21,700. If I figure the average amount of extra money I will have to invest over the 4 years as 21,700/2=10,850 and then multiply 10,850 by 1.9% of a money market = 206.15/year x 4 years = 824.6. Taking taxes into account - Fed + State = 28.25%, 824.6 x .7175 = $591.65
This is almost twice the correct amount. If you take out the loan, you will only have $21,700 in the bank in the first month, as you will be paying back the $21,700 monthly.
Adamsdp is dividing the 21.7 by 2 to roughly account for the amortization. I wonder if you missed that or if I missed your point.

The other cost which hasn't been mentioned is if OP could stand to take the risk and not keep collision/comprehensive coverage; in general that coverage would be required with a loan whether you felt you needed it or not. Although you can't fairly count that extra cost as the whole (coll/comp) insurance premium because you do have some actual expected loss due to uncovered claims if you drop it. But the total coll/comp premiums would be way more than $90 over 4 yrs and even the insurance co's overhead and profit margin portion of the premium almost surely more.

alter
Posts: 140
Joined: Thu Feb 26, 2015 11:27 pm
Location: Chicago

Re: New car - 0% loan or $500 rebate

Post by alter » Fri Sep 21, 2018 4:30 pm

If you have the cash, buy the car with a credit card like the Fidelity 2%. Get $434 cash back, and pay off card right away. Get the lower price, no loan and free $434.

User avatar
White Coat Investor
Posts: 13580
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: New car - 0% loan or $500 rebate

Post by White Coat Investor » Fri Sep 21, 2018 4:37 pm

Do you like being in debt? I don't. I can afford the luxury of not having to leverage everything in my life to the hilt in order to meet my financial goals.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

User avatar
whodidntante
Posts: 4304
Joined: Thu Jan 21, 2016 11:11 pm

Re: New car - 0% loan or $500 rebate

Post by whodidntante » Fri Sep 21, 2018 4:45 pm

alter wrote:
Fri Sep 21, 2018 4:30 pm
If you have the cash, buy the car with a credit card like the Fidelity 2%. Get $434 cash back, and pay off card right away. Get the lower price, no loan and free $434.
You might encounter slight difficulties finding a dealer who will eat that fee and the risk of a chargeback.

User avatar
whodidntante
Posts: 4304
Joined: Thu Jan 21, 2016 11:11 pm

Re: New car - 0% loan or $500 rebate

Post by whodidntante » Fri Sep 21, 2018 4:46 pm

livesoft wrote:
Tue Sep 18, 2018 2:06 pm
I always take the loan. I'm not putting the loaned amount into a 2% savings account over 4 years. I don't care about the risk-free rate because I always figure a way to take on risk and make more money over 4 years.
This is the way I look at it, and it's what I have done.

livesoft
Posts: 62834
Joined: Thu Mar 01, 2007 8:00 pm

Re: New car - 0% loan or $500 rebate

Post by livesoft » Fri Sep 21, 2018 5:03 pm

whodidntante wrote:
Fri Sep 21, 2018 4:45 pm
alter wrote:
Fri Sep 21, 2018 4:30 pm
If you have the cash, buy the car with a credit card like the Fidelity 2%. Get $434 cash back, and pay off card right away. Get the lower price, no loan and free $434.
You might encounter slight difficulties finding a dealer who will eat that fee and the risk of a chargeback.
I just bought a car with a 0% loan, but I did ask what was the max I could charge on my cashback credit card that was allowed by the dealer. So I charged the max allowed and got the 2% on that bit of the deal.

BTW, the loan didn't change my credit score by more than 10 points when I thought it might drop 30 or 40 points.
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
wabbajack
Posts: 238
Joined: Sun Mar 25, 2018 8:05 pm
Location: Indianapolis

Re: New car - 0% loan or $500 rebate

Post by wabbajack » Fri Sep 21, 2018 10:32 pm

Interesting that there's about a 50/50 split between those who would take the loan and those who would pay cash. I wonder if those advocating for cash would also tend to be older. OP, you know the math answer is in favor of the loan.

The answer to your question is not going to depend on numbers, or you would already have made your decision. If you value simplicity over liquidity and returns, then pay in cash. Personally, I would take the loan.

User avatar
El Greco
Posts: 310
Joined: Tue Aug 23, 2016 2:21 pm

Re: New car - 0% loan or $500 rebate

Post by El Greco » Fri Sep 21, 2018 10:42 pm

What about inflation? I recently bought a car with 0% financing for 63 months. Why not pay for the car with cheaper dollars?

mmmodem
Posts: 1500
Joined: Thu May 20, 2010 1:22 pm

Re: New car - 0% loan or $500 rebate

Post by mmmodem » Fri Sep 21, 2018 10:46 pm

wabbajack wrote:
Fri Sep 21, 2018 10:32 pm
Interesting that there's about a 50/50 split between those who would take the loan and those who would pay cash.
It pretty much means there is no wrong choice. Do whatever you like and it won't make a whole lot of difference one way one or the other.

phantom0308
Posts: 44
Joined: Thu Aug 25, 2016 6:52 pm

Re: New car - 0% loan or $500 rebate

Post by phantom0308 » Fri Sep 21, 2018 10:59 pm

Take the loan. You’ll have more liquidity and will save money with inflation and risk free investments. I took the same and auto-pay. I haven’t had to touch the account in 2 years and I don’t worry that I’ll lose my mind and start spending like crazy.
People so averse to debt that they’d consider not taking a 0% loan aren’t the type to go out and go crazy with the extra liquidity.

inbox788
Posts: 5690
Joined: Thu Mar 15, 2012 5:24 pm

Re: New car - 0% loan or $500 rebate

Post by inbox788 » Sat Sep 22, 2018 3:04 am

livesoft wrote:
Fri Sep 21, 2018 5:03 pm
I just bought a car with a 0% loan, but I did ask what was the max I could charge on my cashback credit card that was allowed by the dealer. So I charged the max allowed and got the 2% on that bit of the deal.
I would value 0% loan 36 months at more than 2% upfront NPV, and more if longer loan. While small amounts for little fraction that was charged, if I were taking on a loan already, might as well go $0 down if possible.

heikejohn1
Posts: 53
Joined: Wed Apr 23, 2014 6:02 am

Re: New car - 0% loan or $500 rebate

Post by heikejohn1 » Sat Sep 22, 2018 5:56 am

Take the rebate.
Pay as much as you can by credit card for the cash back, and pay it off as the bills come in.

We put $3000.00 each on 4 different credit cards (dealer limit) when we purchased our last vehicle. Wrote a check for the rest.

User avatar
whodidntante
Posts: 4304
Joined: Thu Jan 21, 2016 11:11 pm

Re: New car - 0% loan or $500 rebate

Post by whodidntante » Sat Sep 22, 2018 9:21 am

heikejohn1 wrote:
Sat Sep 22, 2018 5:56 am
Take the rebate.
Pay as much as you can by credit card for the cash back, and pay it off as the bills come in.

We put $3000.00 each on 4 different credit cards (dealer limit) when we purchased our last vehicle. Wrote a check for the rest.
Highly YMMV. My dealer would only do one swipe for $2,500. Anyway, doesn't matter, we appear to be talking to ourselves because the OP disappeared.

Post Reply