Debt averse but took 0% car financing over cash rebate. Need advice.

indx · Post by **indx** » Sat Jun 19, 2021 10:36 pm

Hi all,

Longtime listener, first time caller.

Long story short, the transmission in my 20 year old Toyota went out. Got two quotes for $3,500 to rebuild. Debated paying it (especially in this inflated used car market) but decided to buy new and drive for 10-20 years.

I also debated buying another ‘beater’, but the stress of taking an Uber to the mechanics multiple times was not something I really wanted to go through again.

For the new car, I paid 5% under MSRP (not including tax & license) for a new 2021 base model Japanese midsize sedan with 0% financing. Could have been 10% under MSRP if I opted for the $1,500 cash rebates with standard financing (3.99% for me even though I have an 800 fico score). This is the first new car I’ve ever purchased (I’m 31 years old).

I should note I’ve always been pretty debt averse.

It’s been almost a month now (haven’t made first payment yet), and I can’t help but think I made a mistake by taking the 0%.

If I pay to term, it makes sense to take the 0% mathematically speaking (to the tune of $300). But I think I want to pay it off because I don’t like the effect it’s going to have on my monthly cash flow.

In retrospect I really should have gotten a preapproval for financing through a credit union or bank. Or just paid cash for the car.

Should I pay off this car loan? This would leave me with a 5 month emergency fund.

basspond · Post by **basspond** » Sun Jun 20, 2021 4:41 am

To get any benefit of your decision, stick with the monthly payments for at least half of the term.

FizzyWomack · Post by **FizzyWomack** » Sun Jun 20, 2021 5:35 am

I had a somewhat similar situation this past year where I upgraded to a Honda Accord from a 2006 Civic. I'm a taller person so being cramped in the Civic was getting tiresome (and a little unsafe - at one point my knee knocked the key around the ignition and stopped the engine on the highway). I put down about 50% and the rate wasn't zero, but it was like 1.99% - I made a few payments and found myself getting annoyed with seeing that leave my bank account every month so I ended up just paying it off and getting the title.

Was it the 'smart' financial move? No, the 'smart' financial move at the time would have been to just keep rolling in my Civic ( OR to just keep paying because I certainly would have earned over 1.99% in an index fund since then.), but life is short and I didn't want to spend a few years worrying about the payment and being bothered by it even though it was well within my budget I'm also a person who will likely aim to pay my mortgage off early when it comes to the pay off/invest debate if that helps. If you can pay it off comfortably, go for it, if you need to pay down for a year or two to a better pay off number, do that. Maybe aim to make it where your emergency fund is a little beefier (9 months?) after you pay the car down if you go that route and if that makes you feel more confident about it.

One other thing to keep in mind is that (like you said) used car prices have been insane recently - a few weeks ago I ran my car through CarMax and their auto offer was with $1,000 of what I paid for it...so if that trend continues for a little bit, you could likely pay the car off, sell it to CarMax/Carvana/etc and go the Uber route for a few months while you think about what your next steps would be. If you love the car and it sounds like you plan on keeping it for a long time, then you've learned a lot of lessons about the car buying process that might not even be relevant in 15 years when you go for your next one because who knows what the industry will look like then

RickBoglehead · Post by **RickBoglehead** » Sun Jun 20, 2021 5:40 am

In hindsight, the right decision was to take the larger rebate, take the 3.99%, and refinance immediately with someone like PenFed.

You have the funds to pay the loan off now, and you are worried that not doing so will impact you"impact your monthly cash flow?".

I don't get that at all. Paying off a % loan is simply crazy. Take the funds and put 1/2 of the funds aside in a savings account, then invest the rest. Done.

onourway · Post by **onourway** » Sun Jun 20, 2021 5:58 am

We made a similar decision recently, and I feel the same way. It’s helped to me to re-frame the situation by realizing that I am executing a strategy rather than “making payments.” However I believe the potential upside is much greater than $300 in our situation. For a $300 benefit spread over many years, I’d just pay it off and be done with it.

galawdawg · Post by **galawdawg** » Sun Jun 20, 2021 6:03 am

Without knowing anything about your circumstances, the general recommendation for an emergency fund is three to six months expenses so if you have sufficient cash to pay off the car loan and still have five months expenses in your EF is likely sufficient.

That being said, what is your plan for the car funds if you don't pay off the car loan now? Can you cash flow your monthly car payment with your income without sacrificing your saving and investing and without using your cash savings? If so, consider just paying your 0% car loan with your monthly income and investing the extra cash you have already saved according to your financial goals. Even invested in a conservative allocation of low-cost index funds (such as 60/40) should provide a return on that cash over the long-term that far exceeds the $1,500 rebate you forfeited by taking the 0% financing.

However, if you are so debt-adverse that having the car loan causes you undue anxiety, just pay it off and be done with it. Sometimes financial gains aren't worth the stress if you are pursuing a course of action outside of your comfort zone.

jebmke · Post by **jebmke** » Sun Jun 20, 2021 6:07 am

I did similar financing a couple of years ago. Put the full cash price in my online savings account and the payments hit that account automatically. I don’t even notice it.

valleyrock · Post by **valleyrock** » Sun Jun 20, 2021 6:14 am

This is not such a bad problem to have. I'd consider it tuition to have received confirmation that loan rates at car dealers are well above those available from a bank or credit union. It's the folks with fewer resources who get taken advantage of most on that score.

The decision to buy a new car involves acknowledging that the act of driving it off the lot results in a huge decrease in monetary value. You just cannot turn around and sell it for what you paid for it. (I personally don't like that new car smell because it can involve some not very nice chemicals, but that's another matter. Parking a new car in the sun with the windows rolled down ought to help speed up the off-gassing to get rid of the chemicals).

Now you have saved yourself a lot of maintenance bother. Actually, we all might need to reconsider having cars out of warranty because that chip shortage in the news, which is slowing down new car production, reflects the nasty reality that repair costs are going to go way up. All those sensors will be costly to maintain. They will require replacement, reprogramming, re-alignment, etc. Being able to push a button to parallel park doesn't come cheap!

I'd say flip a coin and be happy and enjoy the new car and the lack of maintenance bother. If the coin flip results in continuing the monthly payments, you can always pay it off later. If the coin flip results in paying off the car immediately, enjoy the lack of monthly cash outflow. Either way, drive carefully.

SmileyFace · Post by **SmileyFace** » Sun Jun 20, 2021 6:21 am

Take the money you will use to pay it off and put it into a separate account earning interest - set up monthly auto paymemts from that account. Zero impact on cash flow (since you would have used that cash to pay it off and it would be gone) and you pocket interest. You also keep an installment loan which has a minor positive impact on your credit score.

Vanguard Fan 1367 · Post by **Vanguard Fan 1367** » Sun Jun 20, 2021 7:15 am

I also don’t like debt.

I would go with my favorite mentor who encouraged us not to beat up on ourselves when we make a mistake. Try to learn from it and do better in the future.

Watty · Post by **Watty** » Sun Jun 20, 2021 8:06 am

If it was a mistake, which I am not sure it was, then it is far from the worst financial mistake you will ever make. You are only 31 so you likely have 50+ years of investing ahead of you so this could be a good lesson to think through all the permutations before you make a decision like that. That $300 could be money well spent if it prevents you from making some larger mistake ten years from now.

One of my favorite quotes is, "Good judgement comes from experience, experience comes from bad judgement."

When figuring if you should pay it off thing to factor into your decision is how it might impact your housing plans. If you are likely to buy a house anytime in the near future then having an extra $30K(or whatever) in cash could come in handy. If you own a house now and have a mortgage then you could look at using that $30K to do a "mortgage recast"(Google this) to see how those numbers would look.

SmileyFace wrote: ↑Sun Jun 20, 2021 6:21 am Take the money you will use to pay it off and put it into a separate account earning interest - set up monthly auto paymemts from that account. Zero impact on cash flow (since you would have used that cash to pay it off and it would be gone) and you pocket interest. You also keep an installment loan which has a minor positive impact on your credit score.

Your cashflow is not an issue.

Note: Somewhere in your plans you should still be putting a couple of hundred dollars a month into a car fund so that you will have the money available to pay cash for your next car when you need it. For example in rough math if the car cost $30K and you paid cash for it and you plan on replacing it in 15 years then you should be saving $2,000(adjusted for inflation) a year for your next car so you will have the money to pay cash for it then. In accounting this is called a sinking fund. If you keep the car loan then you should then save more each month once the car loan is paid off.

riverant · Post by **riverant** » Sun Jun 20, 2021 8:18 am

I suggest to shift your mindset. Rather than you taking on debt with a 0% car loan, the auto dealer is buying a bond from you with negative real return. You’re paying for a car for the next X years (of likely 2-3% inflation) with 2021 dollars and have the ability to invest the difference. This was a no brainer vs paying cash.

lazynovice · Post by **lazynovice** » Sun Jun 20, 2021 8:21 am

I am pretty debt averse, but 0% is hard to pass up. Just set it up in bill-pay and forget it. Or consider the $300 a tax you have to pay for this lesson. It will sting for a month and you will get over it.

Advice for next time-

We have made it a rule not to buy cars we can’t pay cash upfront for (minus trade in or resell of current car) since about your age. Knowing that is the plan going in, we view the offers differently. We let the dealership know we can pay cash or finance. We ignore interest rates, take the largest rebate and negotiate for other extras. If the dealership is pushing a particular loan for some unclear reason, we ask for extras from the dealership’s pocket- tint the windows and other after-factory add-ons. We pay the loan off as soon as the first statement comes. Just make sure any loan you sign has no fees built in and no pre-payment penalty.

My husband does all of this over the phone or email. You can work with multiple dealers and have time to think without sitting in an office wasting a Saturday.

regularguy455 · Post by **regularguy455** » Sun Jun 20, 2021 8:23 am

In the grand scheme of things, you made a choice, not a mistake. The impact of this will likely have little to no bearing on your long term goals. By financing you gave yourself liquidity as a marginal cost. You might as well ride it out as the cost of financing is built into the loan.

If you encounter a financial hardship, you will be glad to have the liquidity.

firebirdparts · Post by **firebirdparts** » Sun Jun 20, 2021 8:26 am

indx wrote: ↑Sat Jun 19, 2021 10:36 pm
Should I pay off this car loan? This would leave me with a 5 month emergency fund.

In this case, all the paths forward have no consequences for you. Which is awesome. Well done.

We can only make decisions based on future effects, and there just aren't any here.

Freetime76 · Post by **Freetime76** » Sun Jun 20, 2021 12:22 pm

Life is too short. So. If I am debt averse (and I am), and this loan happened, and I have money to pay it off, and it is bugging me enough to post on a forum about it...then I am sending a check tomorrow. Done.

I am not going to tell myself that my feelings are dumb.
I am not going to talk myself out of what my gut instinct is telling me. . (Like being in the parking garage, alone, at night, and getting spooked by a weirdo...it’s not me, it’s the weirdo.

)
I am not going to make my life more complicated by doing math, automating payments, putting money in the market and/or trying to convince myself this is smarter. (Because to me, it’s not.)

It’s personal finance. Personally, I am not going to carry a debt that I can pay off.
K.I.S.S. The amount I might get “ahead” is negligible (and dubious) compared to my peace of mind.

Not to go all jumbo jumbo - if I feel i made a bad deal, I’m going to rectify it. I’ve bought new. The car never lasted (meaning I sold it, at a loss of course...and not too many years later. That may be your natural evolution, or if this really is bugging you - sell it to CarMax or whomever, and start over. No biggie. Good for you to be in a situation where you’ve given yourself options!

RXfiles · Post by **RXfiles** » Sun Jun 20, 2021 12:26 pm

RickBoglehead wrote: ↑Sun Jun 20, 2021 5:40 am
You have the funds to pay the loan off now, and you are worried that not doing so will impact you"impact your monthly cash flow?".

Agreed. Monthly cash flow doesn't really matter if you have a ton of cash saved. There isn't s flow of cash at all you're just keeping it.

indx · Post by **indx** » Sun Jun 20, 2021 1:10 pm

Thanks for all the advice so far.

It seems some of my options at this point are:
• Open a separate online savings account, set the car payments on autopay, and forget about it.
• Splitting up the cash between savings (50%) and investing (50%).
• Invest 100% of the cash. (Market returns will perhaps cover the $1,500 difference & then some)
• Pay the loan for 30 months, at which point pay off the car. (This would allow me to have the benefit of a car installment loan on my credit report.)
• Pay off car & consider the $1,500 tuition paid to the school of life. (This would also allow me to have a higher deductible on my insurance.)

I’ll have to think about this some more. I live in a very HCOL area so I’m not looking to buy a home for at least 5-10 years (if at all).

I’d like to provide some more info on my first new car buying experience.

Even though I negotiated by email, when I arrived at the dealership, they tried adding $6,000 to the price (‘market adjustment’ & dealer add-ons). They wanted $35,000 out-the-door! We had to go back and forth a couple of times to eliminate all of that.

To clarify the deal structures, it was either:
• $27,000 out-the-door with 0% for 60 months ($325/month with $7,500 down [27% down]). Total cost of car with interest over 60 months: $27,000.
• $25,500 out-the-door with 3.99% for 60 months ($331/month with $7,500 down [29% down]). Total cost of car with interest over 60 months: $27,385.
• $25,500 out-the-door cash.

The amount I owe is $19,500.

With the option I took, the pros and cons (in hindsight) were as follows:
• Pros: I ‘saved’ $385 over 5 years. I can earn interest on the cash (or invest). Liquidity.
• Cons: Doesn’t make sense to pay off the car early since I’m effectively paying the interest up front. If the car is ever totaled, I lose the 0%. I can’t refinance to a better rate.

Regardless of financing structures, I also did not want people (friends, family, coworkers, etc.) to know I could pay cash for the car. Right off the bat I had people asking me about how much my monthly payment was and how much I put down. One friend asked how much I put down, & when I told him, he was very surprised. He thought that was a lot of money to put down.

Some takeaways from this experience:
• There are many layers of obfuscation with internet dealer pricing. Don’t walk into the dealership until you have a price on an email.
• Always know exactly how you’re going to pay (cash, finance, etc.) before walking into the dealership. And acquire preapprovals beforehand.
• Going at the end of the month and at the end of a holiday weekend seemed to help. Staff all looked exhausted.
• While I did put most of the down payment on my 2% cash back credit card, I wish I opened a new credit card so I could get the sign up bonus (value of $500-1000 depending on the card)

Overall, I don’t think I did too bad for buying a new car for the first time (especially during this market), but I can’t help but to think of how I could have made the ‘perfect’ deal.

galawdawg · Post by **galawdawg** » Sun Jun 20, 2021 1:29 pm

It appears that your best option would have been to pay cash. Live and learn.

indx wrote: ↑Sun Jun 20, 2021 1:10 pm To clarify the deal structures, it was either:
• $27,000 out-the-door with 0% for 60 months ($325/month with $7,500 down [27% down]). Total cost of car with interest over 60 months: $27,000.
• $25,500 out-the-door with 3.99% for 60 months ($331/month with $7,500 down [29% down]). Total cost of car with interest over 60 months: $27,385.
• $25,500 out-the-door cash.

RickBoglehead · Post by **RickBoglehead** » Sun Jun 20, 2021 1:32 pm

There is no such thing as a perfect deal.

If you take 0% financing, there is no reason to put a penny down.

Halicar · Post by **Halicar** » Sun Jun 20, 2021 1:39 pm

indx wrote: ↑Sun Jun 20, 2021 1:10 pm
With the option I took, the pros and cons (in hindsight) were as follows:
• Pros: I ‘saved’ $385 over 5 years. I can earn interest on the cash (or invest). Liquidity.
• Cons: Doesn’t make sense to pay off the car early since I’m effectively paying the interest up front. If the car is ever totaled, I lose the 0%. I can’t refinance to a better rate.

This is all pocket change. Turning your thermostat up a few degrees in the summer and down a few degrees in the winter will have a greater financial impact over the course of 5 years. (or maybe not, depending on where you live, but you get the idea)

indx · Post by **indx** » Sun Jun 20, 2021 2:05 pm

On a nonfinancial note, I like the car a lot. It's very comfortable, drives well, has nice features (i.e. comfort & safety), looks nice, and is quite the upgrade from what I was driving before. At the same time, I feel like the car is too nice for me, and in some ways, I have new car guilt. I'm not sure I deserve to be driving a car this nice (at my age at least). I'm glad I didn't go above the base trim. I wonder when these feelings will subside?

TropikThunder · Post by **TropikThunder** » Sun Jun 20, 2021 2:36 pm

galawdawg wrote: ↑Sun Jun 20, 2021 1:29 pm It appears that your best option would have been to pay cash. Live and learn.

indx wrote: ↑Sun Jun 20, 2021 1:10 pm To clarify the deal structures, it was either:
• $27,000 out-the-door with 0% for 60 months ($325/month with $7,500 down [27% down]). Total cost of car with interest over 60 months: $27,000.
• $25,500 out-the-door with 3.99% for 60 months ($331/month with $7,500 down [29% down]). Total cost of car with interest over 60 months: $27,385.
• $25,500 out-the-door cash.

It’s not clear to me at least that the $1,500 rebate would be available to a cash buyer. Most of the rebates I’ve looked at recently required you to use the manufacturer’s finance arm. In fact most of the ones I’ve seen are a choice between a lower rate and no rebate, or a higher rate plus a rebate.

bluebolt · Post by **bluebolt** » Sun Jun 20, 2021 2:47 pm

indx wrote: ↑Sun Jun 20, 2021 1:10 pm • Always know exactly how you’re going to pay (cash, finance, etc.) before walking into the dealership. And acquire preapprovals beforehand.

I would qualify this one a bit to "Know your available options for payment before walking in the dealership." I've walked in prepared to pay cash only to take the dealer financing because it was such a good deal. I did research the best bank rates beforehand, so I knew what was competitive.

indx · Post by **indx** » Sun Jun 20, 2021 3:19 pm

TropikThunder wrote: ↑Sun Jun 20, 2021 2:36 pm
galawdawg wrote: ↑Sun Jun 20, 2021 1:29 pm It appears that your best option would have been to pay cash. Live and learn.

indx wrote: ↑Sun Jun 20, 2021 1:10 pm To clarify the deal structures, it was either:
• $27,000 out-the-door with 0% for 60 months ($325/month with $7,500 down [27% down]). Total cost of car with interest over 60 months: $27,000.
• $25,500 out-the-door with 3.99% for 60 months ($331/month with $7,500 down [29% down]). Total cost of car with interest over 60 months: $27,385.
• $25,500 out-the-door cash.

It’s not clear to me at least that the $1,500 rebate would be available to a cash buyer. Most of the rebates I’ve looked at recently required you to use the manufacturer’s finance arm. In fact most of the ones I’ve seen are a choice between a lower rate and no rebate, or a higher rate plus a rebate.

It’s certainly possible that could have been the case, seeing as how I didn’t seriously consider paying cash at the dealership. But even if so, there weren’t any prepayment penalties on either loan so I could have paid off the 3.99% loan the day after buying the car (unless for some reason there was a 1-3 month clawback period for the rebates).

indx · Post by **indx** » Sun Jun 20, 2021 3:24 pm

bluebolt wrote: ↑Sun Jun 20, 2021 2:47 pm
indx wrote: ↑Sun Jun 20, 2021 1:10 pm • Always know exactly how you’re going to pay (cash, finance, etc.) before walking into the dealership. And acquire preapprovals beforehand.
I would qualify this one a bit to "Know your available options for payment before walking in the dealership." I've walked in prepared to pay cash only to take the dealer financing because it was such a good deal. I did research the best bank rates beforehand, so I knew what was competitive.

I agree. One has to walk in with an open mind. Always good to have options. At the same time, if you’ve already figured out how you’re comfortable paying, it can be stressful trying to reassess the deal & run the numbers again at the dealership instead of in the comfort of one’s home.

indx · Post by **indx** » Sun Jun 20, 2021 3:26 pm

RickBoglehead wrote: ↑Sun Jun 20, 2021 1:32 pm There is no such thing as a perfect deal.

If you take 0% financing, there is no reason to put a penny down.

I agree, but then I’d have to field questions from friends, family, coworkers, etc. as to how I could afford $450/month in payments (even though I know I’d be paying from my cash savings).

tashnewbie · Post by **tashnewbie** » Sun Jun 20, 2021 3:52 pm

indx wrote: ↑Sun Jun 20, 2021 3:26 pm
RickBoglehead wrote: ↑Sun Jun 20, 2021 1:32 pm There is no such thing as a perfect deal.

If you take 0% financing, there is no reason to put a penny down.
I agree, but then I’d have to field questions from friends, family, coworkers, etc. as to how I could afford $450/month in payments (even though I know I’d be paying from my cash savings).

You don’t owe any specific information to family or friends about the financial details of this purchase. I don’t know if you have a moral objection to stating something like, “my car payment is $400/month,” even if that’s not true. But that’s an easy way to get rid of those questions. Why do they care what you’re paying?

stoptothink · Post by **stoptothink** » Sun Jun 20, 2021 3:55 pm

tashnewbie wrote: ↑Sun Jun 20, 2021 3:52 pm
indx wrote: ↑Sun Jun 20, 2021 3:26 pm
RickBoglehead wrote: ↑Sun Jun 20, 2021 1:32 pm There is no such thing as a perfect deal.

If you take 0% financing, there is no reason to put a penny down.
I agree, but then I’d have to field questions from friends, family, coworkers, etc. as to how I could afford $450/month in payments (even though I know I’d be paying from my cash savings).
You don’t owe any specific information to family or friends about the financial details of this purchase. I don’t know if you have a moral objection to stating something like, “my car payment is $400/month,” even if that’s not true. But that’s an easy way to get rid of those questions. Why do they care what you’re paying?

I have never once asked a friend or relative how much their car payment is and it is blatantly obvious that many of them can't afford whatever it is. Don't think I've ever been asked either. What an odd thing to worry about.

fposte · Post by **fposte** » Sun Jun 20, 2021 3:59 pm

If this is the Toyota $1500 rebate, I got it without having to finance last week.

I sympathize with you in that that was a really big purchase for me and it's a big change from driving a beater that I enjoyed not worrying about. But it sounds like you're really looking for ways you could regret the purchase, and it seems like it was a perfectly reasonable thing to do. It doesn't have to be the best, most perfect decision for it to have been a fine one to take. This isn't a sport and we're not getting scored; we both walked away with cars that we will drive comfortably for years at an acceptable 2021 price. No need to find a reason to undermine that.

shess · Post by **shess** » Sun Jun 20, 2021 4:10 pm

indx wrote: ↑Sun Jun 20, 2021 3:26 pm
RickBoglehead wrote: ↑Sun Jun 20, 2021 1:32 pm There is no such thing as a perfect deal.

If you take 0% financing, there is no reason to put a penny down.
I agree, but then I’d have to field questions from friends, family, coworkers, etc. as to how I could afford $450/month in payments (even though I know I’d be paying from my cash savings).

In the game The Last Of Us, in the opening scene a young girl gives her dad an expensive birthday present. He asks how she paid for it, and she says "Drugs. I sell hard-core drugs." I give you permission to use that line on when nosey friends, family, coworkers, etc ask how you can afford the princely payment on your new vehicle.

Impatience · Post by **Impatience** » Sun Jun 20, 2021 4:19 pm

The fun thing about 0% financing is that the value of the dollars you’re paying toward it is decreasing with each passing month thanks to inflation. Even with modest, ordinary inflation… it’s something!

My two cents - the difference between the options is negligible and not even really worth worrying about. I think you need to work on adjusting how you think about your obligations and finding a way to relax about it. You are spending and saving very wisely and will end up further ahead of the game than 99% of your peers. Don’t let that saving mindset dominate your life though.

indx · Post by **indx** » Sun Jun 20, 2021 4:59 pm

Impatience wrote: ↑Sun Jun 20, 2021 4:19 pm The fun thing about 0% financing is that the value of the dollars you’re paying toward it is decreasing with each passing month thanks to inflation. Even with modest, ordinary inflation… it’s something!

My two cents - the difference between the options is negligible and not even really worth worrying about. I think you need to work on adjusting how you think about your obligations and finding a way to relax about it. You are spending and saving very wisely and will end up further ahead of the game than 99% of your peers. Don’t let that saving mindset dominate your life though.

Thanks for providing that perspective. I think I do need to relax about financial matters sometimes. Large purchases in general cause me distress. In this case, this was probably the biggest purchase I’ve ever made.

dboeger1 · Post by **dboeger1** » Sun Jun 20, 2021 5:19 pm

I did a similar deal several years back when I bought my first new car. I passed on about $1k in cash rebates to get the 0% financing. While the appreciating stock market at the time certainly colors my perception, I don't really regret it one bit. Not only did I make way more than the $1k back in investments over the loan period, but I got to keep more liquidity for myself in the short term as kind of a pseudo emergency fund. I would do it again assuming the numbers were reasonable. You should be able to calculate the effective interest rate of a "0%" loan by treating the lost cash incentive as the total interest over the life of the loan. Most likely, it's extremely low, making it very attractive as part of a long term investment plan.

RickBoglehead · Post by **RickBoglehead** » Sun Jun 20, 2021 5:33 pm

indx wrote: ↑Sun Jun 20, 2021 3:26 pm
RickBoglehead wrote: ↑Sun Jun 20, 2021 1:32 pm There is no such thing as a perfect deal.

If you take 0% financing, there is no reason to put a penny down.
I agree, but then I’d have to field questions from friends, family, coworkers, etc. as to how I could afford $450/month in payments (even though I know I’d be paying from my cash savings).

You could say "none of your business" or make up any answer. To make a bigger down payment because of what someone would think?

stoptothink · Post by **stoptothink** » Sun Jun 20, 2021 5:42 pm

RickBoglehead wrote: ↑Sun Jun 20, 2021 5:33 pm
indx wrote: ↑Sun Jun 20, 2021 3:26 pm
RickBoglehead wrote: ↑Sun Jun 20, 2021 1:32 pm There is no such thing as a perfect deal.

If you take 0% financing, there is no reason to put a penny down.
I agree, but then I’d have to field questions from friends, family, coworkers, etc. as to how I could afford $450/month in payments (even though I know I’d be paying from my cash savings).
You could say "none of your business" or make up any answer. To make a bigger down payment because of what someone would think?

Somehow I think this is a personal issue; OP would be thinking about it, but nobody would ever actually ask. Really, who would have the nerve to ask how much you car payment is, even if they were thinking that you couldn't afford it? And if you had someone in your life that nosey and rude, just ignore them.

I've had siblings and my in-laws ask how much we make or how much we're worth; I just answer "enough".

indx · Post by **indx** » Sun Jun 20, 2021 6:10 pm

dboeger1 wrote: ↑Sun Jun 20, 2021 5:19 pm I did a similar deal several years back when I bought my first new car. I passed on about $1k in cash rebates to get the 0% financing. While the appreciating stock market at the time certainly colors my perception, I don't really regret it one bit. Not only did I make way more than the $1k back in investments over the loan period, but I got to keep more liquidity for myself in the short term as kind of a pseudo emergency fund. I would do it again assuming the numbers were reasonable. You should be able to calculate the effective interest rate of a "0%" loan by treating the lost cash incentive as the total interest over the life of the loan. Most likely, it's extremely low, making it very attractive as part of a long term investment plan.

Any APR less than 3.195% (from a 3rd party lender) would have beaten the 0% manufacturer financing given the above deal structures. The 'interest charges' on this '0%' loan come out to approximately 3.195% APR for 60 months paid upfront ($1,500).

I suppose there would have been an opportunity cost had I paid cash; if I can find a way to make more than 3.195% each year, then I would be ahead.

indx · Post by **indx** » Sun Jun 20, 2021 6:17 pm

RickBoglehead wrote: ↑Sun Jun 20, 2021 5:33 pm
indx wrote: ↑Sun Jun 20, 2021 3:26 pm
RickBoglehead wrote: ↑Sun Jun 20, 2021 1:32 pm There is no such thing as a perfect deal.

If you take 0% financing, there is no reason to put a penny down.
I agree, but then I’d have to field questions from friends, family, coworkers, etc. as to how I could afford $450/month in payments (even though I know I’d be paying from my cash savings).
You could say "none of your business" or make up any answer. To make a bigger down payment because of what someone would think?

I know, it sounds absurd when I think about it.

But I also wanted to put enough down to cover tax & license and the first year of depreciation. In case the car gets totaled, I won't be underwater on it. Since I have the cash in the bank to cover in that scenario, however, this concern becomes immaterial.

galawdawg · Post by **galawdawg** » Sun Jun 20, 2021 6:40 pm

TropikThunder wrote: ↑Sun Jun 20, 2021 2:36 pm
galawdawg wrote: ↑Sun Jun 20, 2021 1:29 pm It appears that your best option would have been to pay cash. Live and learn.

indx wrote: ↑Sun Jun 20, 2021 1:10 pm To clarify the deal structures, it was either:
• $27,000 out-the-door with 0% for 60 months ($325/month with $7,500 down [27% down]). Total cost of car with interest over 60 months: $27,000.
• $25,500 out-the-door with 3.99% for 60 months ($331/month with $7,500 down [29% down]). Total cost of car with interest over 60 months: $27,385.
• $25,500 out-the-door cash.

It’s not clear to me at least that the $1,500 rebate would be available to a cash buyer. Most of the rebates I’ve looked at recently required you to use the manufacturer’s finance arm. In fact most of the ones I’ve seen are a choice between a lower rate and no rebate, or a higher rate plus a rebate.

I was assuming that the OP stated his purchase and financing options correctly. There are a number of auto manufacturers who are currently offering cash back incentives that do not require financing as a condition of the offer.

Tingting1013 · Post by **Tingting1013** » Sun Jun 20, 2021 6:46 pm

indx wrote: ↑Sun Jun 20, 2021 4:59 pm
Impatience wrote: ↑Sun Jun 20, 2021 4:19 pm The fun thing about 0% financing is that the value of the dollars you’re paying toward it is decreasing with each passing month thanks to inflation. Even with modest, ordinary inflation… it’s something!

My two cents - the difference between the options is negligible and not even really worth worrying about. I think you need to work on adjusting how you think about your obligations and finding a way to relax about it. You are spending and saving very wisely and will end up further ahead of the game than 99% of your peers. Don’t let that saving mindset dominate your life though.
Thanks for providing that perspective. I think I do need to relax about financial matters sometimes. Large purchases in general cause me distress. In this case, this was probably the biggest purchase I’ve ever made.

If your car is $20k then the annual cost is probably $2k. You probably have other living expenses that cost more.

Hyperchicken · Post by **Hyperchicken** » Sun Jun 20, 2021 9:38 pm

indx wrote: ↑Sat Jun 19, 2021 10:36 pm [...] But I think I want to pay it off because I don’t like the effect it’s going to have on my monthly cash flow. [...]

This argument makes no sense. You have less cash flow now, but you have more cash.

That is not to say that taking out the loan was in your best interest. But if it was not, then it is not due to the reduced cash flow.

gobel · Post by **gobel** » Sun Jun 20, 2021 10:02 pm

indx wrote: ↑Sun Jun 20, 2021 1:10 pm To clarify the deal structures, it was either:
• $27,000 out-the-door with 0% for 60 months ($325/month with $7,500 down [27% down]). Total cost of car with interest over 60 months: $27,000.
• $25,500 out-the-door with 3.99% for 60 months ($331/month with $7,500 down [29% down]). Total cost of car with interest over 60 months: $27,385.
• $25,500 out-the-door cash.

The amount I owe is $19,500.

Sounds like you took an 18k loan for 5 years at 3.2% according to this calculator https://extloancalculator.com/calculato ... lator.html
so I agree not a great deal.

softwaregeek · Post by **softwaregeek** » Sun Jun 20, 2021 10:05 pm

Nobody has ever asked me what my car payment is or if I have paid cash, and I am middle aged. That being said, I have always driven common mass market autos.

aristotelian · Post by **aristotelian** » Mon Jun 21, 2021 7:40 am

jebmke wrote: ↑Sun Jun 20, 2021 6:07 am I did similar financing a couple of years ago. Put the full cash price in my online savings account and the payments hit that account automatically. I don’t even notice it.

I did this as well when interest rates were like 2%. Probably not worth the effort right now. l

aristotelian · Post by **aristotelian** » Mon Jun 21, 2021 7:40 am

jebmke wrote: ↑Sun Jun 20, 2021 6:07 am I did similar financing a couple of years ago. Put the full cash price in my online savings account and the payments hit that account automatically. I don’t even notice it.

I did this as well when interest rates were like 2%. Probably not worth the effort right now. l

Rus In Urbe · Post by **Rus In Urbe** » Mon Jun 21, 2021 8:43 am

Last time we bought a car, I called Amex in advance to warn them, and then we put the total cost of the car on the Amex card, got a whole bunch of doubled points that we'll use for travel, and paid off the Amex the next month as usual. Like getting a 30-day float that pays points. We might do this next time too. The car salesman would MUCH rather have financed us....of course.

indx · Post by **indx** » Mon Jun 21, 2021 9:53 am

aristotelian wrote: ↑Mon Jun 21, 2021 7:40 am
jebmke wrote: ↑Sun Jun 20, 2021 6:07 am I did similar financing a couple of years ago. Put the full cash price in my online savings account and the payments hit that account automatically. I don’t even notice it.
I did this as well when interest rates were like 2%. Probably not worth the effort right now. l

Yeah, the interest rate arbitrage is not great. High yield online savings accounts pay like 0.50% or so. After taxes even less. Over the course of 5 years we’re talking less than a few hundred dollars. And it seems rates will be low until 2023.

The argument then centers mostly around liquidity and/or market returns.

indx · Post by **indx** » Mon Jun 21, 2021 9:58 am

Rus In Urbe wrote: ↑Mon Jun 21, 2021 8:43 am Last time we bought a car, I called Amex in advance to warn them, and then we put the total cost of the car on the Amex card, got a whole bunch of doubled points that we'll use for travel, and paid off the Amex the next month as usual. Like getting a 30-day float that pays points. We might do this next time too. The car salesman would MUCH rather have financed us....of course.

The dealership didn’t give you grief over this? Part of the negotiation process?

RXfiles · Post by **RXfiles** » Mon Jun 21, 2021 10:00 am

indx wrote: ↑Mon Jun 21, 2021 9:58 am
Rus In Urbe wrote: ↑Mon Jun 21, 2021 8:43 am Last time we bought a car, I called Amex in advance to warn them, and then we put the total cost of the car on the Amex card, got a whole bunch of doubled points that we'll use for travel, and paid off the Amex the next month as usual. Like getting a 30-day float that pays points. We might do this next time too. The car salesman would MUCH rather have financed us....of course.
The dealership didn’t give you grief over this? Part of the negotiation process?

I tried to do this and the dealership added a fee which offset all the rewards

stoptothink · Post by **stoptothink** » Mon Jun 21, 2021 10:01 am

indx wrote: ↑Mon Jun 21, 2021 9:58 am
Rus In Urbe wrote: ↑Mon Jun 21, 2021 8:43 am Last time we bought a car, I called Amex in advance to warn them, and then we put the total cost of the car on the Amex card, got a whole bunch of doubled points that we'll use for travel, and paid off the Amex the next month as usual. Like getting a 30-day float that pays points. We might do this next time too. The car salesman would MUCH rather have financed us....of course.
The dealership didn’t give you grief over this? Part of the negotiation process?

I've purchased 5 cars in my life and never been allowed to put more than $3k on a CC no matter how much I bargained.