How to pay for a new car?

[kevman]

So I'm looking to take the plunge and buy my first new vehicle. I want a new truck and after looking at the used prices on the import compacts I've determined that I don't mind spending a little bit more to have a brand new vehicle. Now I haven't finalized any negotiations yet but when I go in to do that I want to know how exactly I intend to pay for it.

Background (round numbers for simplicity)
$40,000 All in price
$25,000 Liquid Cash
$25,000 LOC @ 3.5%
Incentive A - $5,000 cash incentive
Incentive B - 0% finnancing over 5 years.
Incentive C - Lease @ 4.9%

I want to drive this vehicle for at least 10 years so I'm pretty sure leasing is NOT the way to go but I threw it in there just in case someone begs to differ.

My heart tells me I should put $25,000 down, pay cash to get $5,000 back and finance the last $10,000 myself from my LOC. However 0% financing just seems so appealing... In a perfect world I would buy my new truck next summer like I planned and pay for it entirely with cash but my current truck just packed it in and fixing it does not seem practical.

So... thoughts? Opinions? and why?

Thanks.

[Diploneis]

I have a nice little online calculator that may help. It allows you to compare cashback vs. low/0% interest loan. Not sure if I'm allowed to post links, though... :confused: Will PM.

[CaptSmethwick]

$5,000 is a big incentive vs. 0% financing on $40k. That 3.5% interest you"ll pay on your LOC (for $10k) might increase in the short term but probably not by much. If you pay it down regularly and over the same 4 years that the 0% would have applied, you'll pay significantly less than 1/4 of that $5k incentive in interest to your LOC.

[macaximx]

$5,000 is a big incentive vs. 0% financing on $40k. That 3.5% interest you"ll pay on your LOC (for $10k) might increase in the short term but probably not by much. If you pay it down regularly and over the same 4 years that the 0% would have applied, you'll pay significantly less than 1/4 of that $5k incentive in interest to your LOC.

I agree with the Capt.

[Evil Baby]

I have a nice little online calculator that may help. It allows you to compare cashback vs. low/0% interest loan. Not sure if I'm allowed to post links, though... :confused: Will PM.

You are allowed to paste links. There is a an icon for that. It has a globe with a chain link on it.

[GTT1]

The interest you will pay at 3.5% to repay a $25000 is $2300 over 5 years so a discount of $5000 is worth doing it that way.

[number8888]

Don't want to do the calculation but if indeed the interest from the 3.5% on LOC is less than the 5000 then yeah take the incentive as others have mentioned. You are right forget about the lease if you are planning to keep the car.

[CaptSmethwick]

The interest you will pay at 3.5% to repay a $25000 is $2300 over 5 years so a discount of $5000 is worth doing it that way.

Except he's borrowing $10k, not $25k - making the argument even stronger.

[pitz]

Cash. Or you really can't afford it.

Why people buy depreciating, consumption items on credit is beyond me. If you can afford a $40k car, you sure as heck can afford to save $40k.

[Vladimir]

Cash. Or you really can't afford it.

Why people buy depreciating, consumption items on credit is beyond me. If you can afford a $40k car, you sure as heck can afford to save $40k.
I used to think like that, but that isn't true at all.

If you KNOW you are making $xx a month, and can budget $yy/month on a car payment... Then doing credit is fine.
Now I do agree that you should be able to do a large down payment, like OP is.
I bought a $28k car, put a $18k downpayment, and financed the other 10k over a 2 year term

[maniacshopper]

So I'm looking to take the plunge and buy my first new vehicle. I want a new truck and after looking at the used prices on the import compacts I've determined that I don't mind spending a little bit more to have a brand new vehicle. Now I haven't finalized any negotiations yet but when I go in to do that I want to know how exactly I intend to pay for it.

Background (round numbers for simplicity)
$40,000 All in price
$25,000 Liquid Cash
$25,000 LOC @ 3.5%
Incentive A - $5,000 cash incentive
Incentive B - 0% finnancing over 5 years.
Incentive C - Lease @ 4.9%

I want to drive this vehicle for at least 10 years so I'm pretty sure leasing is NOT the way to go but I threw it in there just in case someone begs to differ.

My heart tells me I should put $25,000 down, pay cash to get $5,000 back and finance the last $10,000 myself from my LOC. However 0% financing just seems so appealing... In a perfect world I would buy my new truck next summer like I planned and pay for it entirely with cash but my current truck just packed it in and fixing it does not seem practical.

So... thoughts? Opinions? and why?

Thanks.

depending on what kind of deal you can get with the cash route, factoring the cost of the line of credit. compare that with 0% interest financing. If it's not much of a difference, go the zero finance route. how long do you plan to keep your LOC? the rates on LOCs can go up. So you need to factor that in. can you risk it? How much will it cost more if the LOC goes up by 0.75%?

[kevman]

I plan to have the $10,000 I've borrowed via my LOC paid off in 1 year...

I should add some food for though... could I do better if I financed the entire cost of the vehicle at 0% and invested the 25,000 I planned to use as a down payment?

[Nyte]

Cash. Or you really can't afford it.

Why people buy depreciating, consumption items on credit is beyond me. If you can afford a $40k car, you sure as heck can afford to save $40k.

Even if you have the cash, it might not make financial sense to pay in cash. If the finance rate is low enough, you're better off investing the difference.

[pitz]

Even if you have the cash, it might not make financial sense to pay in cash. If the finance rate is low enough, you're better off investing the difference.

No, you're better off just forcing the vendor to give you an extra discount for the present-value of the financing, versus the true market rate for such financing.