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new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 12:47 am
by space needle
I'm in the market for a new vehicle. Looking at spending about $28,000 for a Subaru Outback. Looks like a 0% loan is on offer.

I have the cash to pay in full, but with a no-interest loan, I'm considering whether I should take the loan and from a cash-flow standpoint, leave the $28,000 in my brokerage or savings account and just pay off the loan monthly. Can't think of a downside, but wanted to see what any of you think.

Pros / Cons ?

Thanks

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 1:00 am
by Brianmcg321
That’s what I would do. The downside would be the car is depreciating faster than you’re paying it off. But that’s true of all new vehicles.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 3:43 am
by bigfry
It just depends how comfortable you are carrying consumer debt. I went through a similar dilemma with my Subaru Forester I bought 6 months ago, I had a 0.9% loan for 4 years. From a mathematical standpoint leaving the money in your brokerage is probably the right thing to do. I personally couldn't stand the idea of having car debt so I sold some of my brokerage to pay it off. From now on I'll be paying cash for vehicles but that's why they call it personal finance πŸ™‚.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 4:47 am
by oldcomputerguy
This topic is now in the Personal Finance forum (loan issue). -- mod oldcomputerguy

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 4:53 am
by Stinky
You have three scenarios: (1) pay cash, (2) take the 0% loan, (3) finance through the dealer, at an interest rate higher than 0%.

Can you ask the dealer if the bottom-line price would be the same for each of the three options? Sometimes the dealer has trade-offs; something like you can either get the 0% financing, or you can get a lower price if you don't take the 0% financing.

If the bottom-line price is the same for all three options, I'd take the 0% financing.

If, by chance, the lowest price is for financing at higher than 0%, I'd take that deal, and then pay off the loan in the next month or two to minimize interest charges.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 7:37 am
by MikeG62
Stinky wrote: ↑Wed Sep 16, 2020 4:53 am You have three scenarios: (1) pay cash, (2) take the 0% loan, (3) finance through the dealer, at an interest rate higher than 0%.

Can you ask the dealer if the bottom-line price would be the same for each of the three options? Sometimes the dealer has trade-offs; something like you can either get the 0% financing, or you can get a lower price if you don't take the 0% financing.

If the bottom-line price is the same for all three options, I'd take the 0% financing.

If, by chance, the lowest price is for financing at higher than 0%, I'd take that deal, and then pay off the loan in the next month or two to minimize interest charges.
Agree with this advice.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 7:44 am
by 260chrisb
MikeG62 wrote: ↑Wed Sep 16, 2020 7:37 am
Stinky wrote: ↑Wed Sep 16, 2020 4:53 am You have three scenarios: (1) pay cash, (2) take the 0% loan, (3) finance through the dealer, at an interest rate higher than 0%.

Can you ask the dealer if the bottom-line price would be the same for each of the three options? Sometimes the dealer has trade-offs; something like you can either get the 0% financing, or you can get a lower price if you don't take the 0% financing.

If the bottom-line price is the same for all three options, I'd take the 0% financing.

If, by chance, the lowest price is for financing at higher than 0%, I'd take that deal, and then pay off the loan in the next month or two to minimize interest charges.
Agree with this advice.
I agree as well. An advertised 0% rate is one thing, a buyer actually qualifying for it is another, but what does it mean that the 0% is on offer? Does that mean it's on offer based on you paying sticker for the car or on offer after you've negotiated the final price?

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 7:47 am
by unstartable
0% offered by a manufacture is typically instead of a cash rebate. Usually the cash offered is not a better deal than the 0%. This has nothing to do with the best price you negotiate with the dealer.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 7:53 am
by livesoft
It is easy to find true OTD prices of Subarus on the internet with recent info. Example: https://www.subaruoutback.org/threads/t ... ad.513491/

If one uses that to get a similar best OTD price for one's make/model/options/ etc, then one can easily tell if one is paying a fair price and then add 0% on top of that.

I have an Outback with a 0% loan. However, if you get 2% cash back or more on a credit card, you may wish to pay some of the purchase price with a credit card, too.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 7:56 am
by Stinky
unstartable wrote: ↑Wed Sep 16, 2020 7:47 am 0% offered by a manufacture is typically instead of a cash rebate. Usually the cash offered is not a better deal than the 0%. This has nothing to do with the best price you negotiate with the dealer.
If OP is willing to pay cash anyhow and if there is a rebate when 0% financing is not taken, then he should take the rebate and pay cash.

The manufacturer rebate was would be reflected in the bottom line price at the dealership (at least in my experience).

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 8:27 am
by midareff
Geez, free money... I'd put the money in a tax-exempt muni fund like VWIUX and let their money take us out to dinner .. or curbside pickup as the case may be.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 9:48 am
by Hyperchicken
AFAIK no cash rebate is offered in this case. This deal has been going on for a while - 0% for 63 months on 2020 models. You can negotiate all you want and then get 0% financing on the negotiated price, and paying cash would not get you better bottom line price. So yes, free money and no rational reason not to take this deal assuming you want to buy this car.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 10:00 am
by Watty
A few years ago I bought a Toyota that had a 0% financing offer but no rebate if you did not take it.

I bargained hard with several dealers over the internet and they would all sell it to me for $1,000 less if I did not take the 0% financing. The same explanation I got from several dealerships was that if I took the 0% financing then they had to pay corporate Toyota a $1,000 dealer partipication fee if I used the 0% refinancing.

Every deal is different, even though there is not a formal rebate I would not surprised if you could get a better deal without the 0% financing.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 10:12 am
by batpot
260chrisb wrote: ↑Wed Sep 16, 2020 7:44 am
MikeG62 wrote: ↑Wed Sep 16, 2020 7:37 am
Stinky wrote: ↑Wed Sep 16, 2020 4:53 am You have three scenarios: (1) pay cash, (2) take the 0% loan, (3) finance through the dealer, at an interest rate higher than 0%.

Can you ask the dealer if the bottom-line price would be the same for each of the three options? Sometimes the dealer has trade-offs; something like you can either get the 0% financing, or you can get a lower price if you don't take the 0% financing.

If the bottom-line price is the same for all three options, I'd take the 0% financing.

If, by chance, the lowest price is for financing at higher than 0%, I'd take that deal, and then pay off the loan in the next month or two to minimize interest charges.
Agree with this advice.
I agree as well. An advertised 0% rate is one thing, a buyer actually qualifying for it is another, but what does it mean that the 0% is on offer? Does that mean it's on offer based on you paying sticker for the car or on offer after you've negotiated the final price?
+2

Often it's 0% financing, OR $XXXX lender credit....do you know what the active dealer incentives are in your area?

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 10:39 am
by unstartable
If they would be willing to give you $1000 off for cash, the 0% is still probably the better deal. Obviously the price of the car and your estimate of what your money could earn elsewhere would change the point at which one or the other is better.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 10:42 am
by Nate79
You are basically going to earn 1% on your money (pretax...) so it's not like this is some big money maker for you. If you can get any discount on the car vs the 0% then get the discount.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 10:53 am
by balbrec2
Hyperchicken wrote: ↑Wed Sep 16, 2020 9:48 am AFAIK no cash rebate is offered in this case. This deal has been going on for a while - 0% for 63 months on 2020 models. You can negotiate all you want and then get 0% financing on the negotiated price, and paying cash would not get you better bottom line price. So yes, free money and no rational reason not to take this deal assuming you want to buy this car.
The 0% financing is through Subaru. What you negotiate with the dealer is separate.
Dealer financed is a misnomer. My son just bought an Outback. Dealer gave 2600 of sticker
Then he was eligible for the 0% finance through Subaru. I thought this was a decent deal.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 10:53 am
by DaftInvestor
unstartable wrote: ↑Wed Sep 16, 2020 7:47 am 0% offered by a manufacture is typically instead of a cash rebate. Usually the cash offered is not a better deal than the 0%. This has nothing to do with the best price you negotiate with the dealer.
Not sure what you mean by "Usually" but it isn't usual for Subaru. I bought two Subaru's at 0% - could have paid cash at the same price in one case and in one case I got a better deal taking the loan. I think Toyota has had deals whereby it is Either 0% OR a Cash Rebate - but I wouldn't define this as usual.

OP: I would take the loan. There is no downside. Upside is you gain some amount of interest and help your credit score. Put the money in the bank and just set the payments up on auto-pay.

(As livesoft alluded to - I always put as much downpayment as is allowed on my credit card to get my 2% back - sometimes there is a $2K cap - one time they allowed me to go above the cap)

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 10:55 am
by perceptionist
Assuming OTD price is the same, I would not hesistate to take the 0% loan for the longest duration. Is this through the dealership finacing or somewhere else? We are planning on getting likely a brand new SUV within the next 2 years. I want a Honda Pilot, but they don't typically give out 0% financing (usually 0.9% at the lowest). Toyota on the otherhand often have 0% financing deals and their Highlander is also nice as well. Personally when I got our last Honda we got 0.9% financing for 60 months on top of the best pricing we could get from them at the time. It would have been the same even if we paid cash. Did the internet pricing method and have dealerships beat the lowest offer tactic. This was back in 2013-2014.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 11:00 am
by DaftInvestor
Watty wrote: ↑Wed Sep 16, 2020 10:00 am A few years ago I bought a Toyota that had a 0% financing offer but no rebate if you did not take it.

I bargained hard with several dealers over the internet and they would all sell it to me for $1,000 less if I did not take the 0% financing. The same explanation I got from several dealerships was that if I took the 0% financing then they had to pay corporate Toyota a $1,000 dealer partipication fee if I used the 0% refinancing.

Every deal is different, even though there is not a formal rebate I would not surprised if you could get a better deal without the 0% financing.
Funny. Toyota once told me the opposite - they said they get a kickback for every loan refinanced through Toyota-Loan-Services (or whatever it is called) so gave me additional incentive to take the 0% loan. Enough people make loan payments late, etc. that they probably still make money on many of the 0% loans.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 11:10 am
by MrJedi
Assuming you can't get the price lower otherwise and you don't want to bother with leveraging up on your investments, the essentially risk free way to do it would be to just put the money into a savings account and just let the loan auto draft each month and collect the extra interest each month. You can even just open a new savings account to do this to help with mental accounting. Yes the gain will be small, but the effort is small too. It also provides extra liquidity in case of emergency.

With a little more effort you can setup a CD ladder as well.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 11:22 am
by mmmodem
1. Usually a cash rebate is in lieu of a rebate. For my end of the year Toyota bought in October, they allowed both. Thus, I financed at 0% and got the rebate. I then had autopay set up from my savings account where I had the full cost of the car saved up and forgot about the payment. Easy. For my Hyundai, I didn't get both. I did the math and taking the rebate was better than the APR. So I paid off the vehicle promptly.

2. The loan company usually require full coverage insurance and a maximum $1000 deductible. I like to have higher deductibles or liability only. I don't find this too much of a con for financing as I would want full coverage insurance for the first 5 years anyway as the vehicle would be a large financial loss.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 11:26 am
by Admiral
Just bought a new VW Alltrack so here are my thoughts.

The cash price and the 0% financing price are rarely the same. Get them to agree to an OTD price WITHOUT any mention of how you plan to pay for the car (and don't discuss trade in, if applicable). Once you get the price you want, THEN see if they will offer 0% financing on that amount.

In my experience last month, I was finally able to get them to agree to the price I wanted, but they would not offer VW's 0% financing on that amount ($8.5k below sticker). I had to get my own financing, which I did, from PenFed. 2.14% for 36 months.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 11:29 am
by DaftInvestor
Admiral wrote: ↑Wed Sep 16, 2020 11:26 am Just bought a new VW Alltrack so here are my thoughts.

The cash price and the 0% financing price are rarely the same. Get them to agree to an OTD price WITHOUT any mention of how you plan to pay for the car (and don't discuss trade in, if applicable). Once you get the price you want, THEN see if they will offer 0% financing on that amount.

In my experience last month, I was finally able to get them to agree to the price I wanted, but they would not offer VW's 0% financing on that amount ($8.5k below sticker). I had to get my own financing, which I did, from PenFed. 2.14% for 36 months.
In my case "rarely" has been 100% of the time (one time cheaper) :) This has been with Subaru (which is what the OP is looking at) and Toyota - each multiple times. Perhaps VW is different. The Toyota and Subaru dealers don't seem to care - the loans come from above - in fact - at one point Toyota told me they get an incentive (I think it was $200 per loan) to put the deal through financing so they split the difference with me and gave me another $100 off (already below invoice price) to take the loan.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 11:38 am
by Admiral
DaftInvestor wrote: ↑Wed Sep 16, 2020 11:29 am
Admiral wrote: ↑Wed Sep 16, 2020 11:26 am Just bought a new VW Alltrack so here are my thoughts.

The cash price and the 0% financing price are rarely the same. Get them to agree to an OTD price WITHOUT any mention of how you plan to pay for the car (and don't discuss trade in, if applicable). Once you get the price you want, THEN see if they will offer 0% financing on that amount.

In my experience last month, I was finally able to get them to agree to the price I wanted, but they would not offer VW's 0% financing on that amount ($8.5k below sticker). I had to get my own financing, which I did, from PenFed. 2.14% for 36 months.
In my case "rarely" has been 100% of the time (one time cheaper) :) This has been with Subaru (which is what the OP is looking at) and Toyota - each multiple times. Perhaps VW is different. The Toyota and Subaru dealers don't seem to care - the loans come from above - in fact - at one point Toyota told me they get an incentive (I think it was $200 per loan) to put the deal through financing so they split the difference with me and gave me another $100 off (already below invoice price) to take the loan.
Perhaps. But there's no magic to 0% financing. It's not free money. Car dealers are not in the business of taking less profit when you finance. It's possible that the manufacturer does offer discounts or incentives to the dealer to make up for lost interest on a 0% loan, that's true. But in general you are going to pay one way or the other: if there are no interest charges, then you will pay more up front.

That's why it pays to negotiate the OTD price up front.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 11:45 am
by MrJedi
It varies all the time and depends of course. Sometimes it is true that you cannot get a lower price even when declining 0% financing.

Credit card companies offer 0% intro financing all the time. It's a promotion to earn your business, and you can play the same game there with floating the money for the interest as long as you are diligent.

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 11:55 am
by neverpanic
They've got 0% for 5 years on the table at your negotiated price. How much time are you going to spend trying to shave a few more dollars off the OTD price? And how much is your sweat worth?

Re: new car - 0% interest loan ?

Posted: Wed Sep 16, 2020 5:21 pm
by hudson
space needle wrote: ↑Wed Sep 16, 2020 12:47 am I'm in the market for a new vehicle. Looking at spending about $28,000 for a Subaru Outback. Looks like a 0% loan is on offer.

I have the cash to pay in full, but with a no-interest loan, I'm considering whether I should take the loan and from a cash-flow standpoint, leave the $28,000 in my brokerage or savings account and just pay off the loan monthly. Can't think of a downside, but wanted to see what any of you think.

Pros / Cons ?

Thanks
space needle,
I'm in the no debt camp, so I would just pay it off.
Benefits: No payments
You get the title immediately.
It's the simple way.

Sure getting a no-interest loan should get you more money in the long run...if your investments work out. It might even help your credit score a little...but you're probably an 850 anyway.