Put My Equity into House or Car

[wetbirks]

I am about to sell my home. I will have 50K in equity towards my next home. New home purchase will be about 300K.

I also need to purchase a new car. I have 8K saved. I hope to spend about 20k for the car.

What is the best thing to do:

Should I take 12K out of my equity and pay cash for the car?

Should I put the 8K(car savings) into the home purchase and finance 100% of the car?

Should I leave my equity alone and finance 12k for the car?

Any help would be appreciated. I want what is best long-term.

Thanks

[rf134a]

If you can get financing for your car less than your mortgage rate, put everything into the mortgage. It's hard to beat "employee pricing" plus 0% for 72 months.

[pitz]

Cars typically will be much more expensive to finance than houses. You may see such things as "0% financing", however that is a misnomer -- it just means that you're paying 20-30% too much for your car up-front, just to save that on interest later.

Auto finance companies are having a considerably difficult time borrowing for much less than 7-8% in the markets today. Whereas you can get housing-backed loans for under 6% fairly easily.

So basically, you'd want to drive an extremely hard bargain on the auto purchase (ie: if they offer 0% financing, discount your cash offer by 20-30% to compensate), and take out a larger loan on a house because of the (relatively) lower borrowing costs.

Of course, this assumes that you can actually afford it. If you don't make >$100k/year, you have no business, IMHO, buying a new car and a $300k house.

*However* do you think you can have $60k saved up, in addition to paying for your car, by the time you get around to purchasing the new house? Avoiding CMHC insurance *might* be a good reason to use financing on the car. The implied cost of CMHC insurance is quite high if you amortize it over a relatively short period of time.

[rf134a]

Good point about the CMHC insurance. However, I have yet to hear of any dealers giving 20-30% off the MSRP for cars purchased in Canada. Maybe it's because I'm in Oilberta where the elite / ballers / players / whatever are still paying retail for big trucks and buying $2,800,000 cottages.

[coolspot]

Cars typically will be much more expensive to finance than houses. You may see such things as "0% financing", however that is a misnomer -- it just means that you're paying 20-30% too much for your car up-front, just to save that on interest later.


That's why you NEVER tell the sales guy you want to finance the car during the deal. Negotiate a firm CASH price, then talk about financing.

[pitz]

That's why you NEVER tell the sales guy you want to finance the car during the deal. Negotiate a firm CASH price, then talk about financing.

Well, you could negotiate a price with the 0% financing, and then come back with a cash offer that is, say, 20% less.

Assuming financing costs the manufacturer 8%, and over 72 months, a 20% discount (from the best negotiated price with 0% 72-month financing with no down payment) means the manufacturer is making an equivilant amount of money from the actual sale of the car. Theoretically, the manufacturer should be indifferent to receiving cash or financing the purchase in such an instance.

Of course, some manufacturers and/or dealers can't perform basic arithmetic, so they might go "OMG, my kids won't eat if I sell this to you for 20% off", but don't worry -- its just a salesman's trick. Show them the money, and they'll eventually come around.

[pitz]

Good point about the CMHC insurance. However, I have yet to hear of any dealers giving 20-30% off the MSRP for cars purchased in Canada.


Well when they give out 0% financing over 72 months, that's the same as 20% off.

If your (proposed) car vendor can't do basic math....would you really trust them to sell you a car or to be in business a couple years from now when you need parts?



Maybe it's because I'm in Oilberta where the elite / ballers / players / whatever are still paying retail for big trucks and buying $2,800,000 cottages.

Paying retail for a truck? Lol.

[William W]

Well, you could negotiate a price with the 0% financing, and then come back with a cash offer that is, say, 20% less.

Assuming financing costs the manufacturer 8%, and over 72 months, a 20% discount (from the best negotiated price with 0% 72-month financing with no down payment) means the manufacturer is making an equivilant amount of money from the actual sale of the car. Theoretically, the manufacturer should be indifferent to receiving cash or financing the purchase in such an instance.

Of course, some manufacturers and/or dealers can't perform basic arithmetic, so they might go "OMG, my kids won't eat if I sell this to you for 20% off", but don't worry -- its just a salesman's trick. Show them the money, and they'll eventually come around.

I think an easier way would be just to go get a carcostcanada report. Find out exactly how much the car cost the dealer and work your way up. That way, you're not negotiating blindly, at the end of the day you know you paid a fair priced, and the dealer made a little profit to cover their Overhead cost and you wouldn't hear the sad story about not able to feeding the kids. :D

[sjweyman]

I still haven't figured out the whole buying a car thing. I know I paid cash for my car and I had a hard time negotiating even $500 off at one dealership. They flat out said they wouldn't do it. I went to another dealership and I was able to get a small savings for paying cash. I didn't know as much then as I know now so I may have been screwed over a bit. It was also a low end low markup car.

However, I still don't understand the best way to get the best deal on a new car because even if you look at reports that tell you supposedly how much the dealer paid for the car there are still a lot of variables like manufacturer incentives, financing incentives (these do exists don't they?), and other kickbacks that the dealer may get for selling one (or several) cars. In short what I'm saying is you may think you got the deal of the century and the dealer is still laughing all the way to the bank.

Plus, there are still some pretty hard-nosed people out there that don't like getting a minimum payout on a sale and will hold their line even if they can afford to sell the car for less.