Cash vs Financing

[SoTX_WestTX]

I was on the same boat as you and the Tesla was the first car I had ever financed. I really don't like being in debt and was considering just buying the car outright, but rates are so low now that it really does make financial sense for me to get a loan. I ended up doing 20% down, investing the rest of the money, and just doing a 5 year loan. In total, I think I'm only paying 8k more than if I had paid full, which seems plausible to make back or at least break even with just investing the money for 5 years.

I've been going back and forth for months on this exact point. I'm not a fan of debt, but I'm also not completely allergic to it. My first thought was to put more down to bring my monthly payment down from "Holy crap!" to "Geez, that's a lot". But with rates so low, I'm sacrificing $10,000 in liquidity to save something like $700 in interest paid over six years. If I did the math right (or, more accurately, if the website calculator I found did the math right), a mere 2% return on that $10k over that 6 years is all that's needed for that $10,000 to last the entire term of the loan if I am pulling out the amount the bigger down payment would have saved me from the account every month. Heck, at 4% it would end up over by enough to make up for the increased interest paid.

I don't like arguing a position in favor of taking out debt, but I'd rather have my own money so that it's available to me than lock it into a car. My only other debt is student loans and my house. My loans are at 1.9% so I'm not in a rush to pay those off. My house is around 4.75% so it does make financial sense to put extra money on that debt over a lower rate car or student loan. However, I'm not planning on being in this house forever so I kinda prefer to put my money somewhere I can get to it a little more easily than into my house.

Does that make sense? Having a car payment over $1,000 just gives me the heebie-jeebies, even though I can afford it, and my brain still doesn't believe that not putting more down to reduce that is "better". Am I missing something big?

 

[tiblot]

I've been going back and forth for months on this exact point. I'm not a fan of debt, but I'm also not completely allergic to it. My first thought was to put more down to bring my monthly payment down from "Holy crap!" to "Geez, that's a lot". But with rates so low, I'm sacrificing $10,000 in liquidity to save something like $700 in interest paid over six years. If I did the math right (or, more accurately, if the website calculator I found did the math right), a mere 2% return on that $10k over that 6 years is all that's needed for that $10,000 to last the entire term of the loan if I am pulling out the amount the bigger down payment would have saved me from the account every month. Heck, at 4% it would end up over by enough to make up for the increased interest paid.

I don't like arguing a position in favor of taking out debt, but I'd rather have my own money so that it's available to me than lock it into a car. My only other debt is student loans and my house. My loans are at 1.9% so I'm not in a rush to pay those off. My house is around 4.75% so it does make financial sense to put extra money on that debt over a lower rate car or student loan. However, I'm not planning on being in this house forever so I kinda prefer to put my money somewhere I can get to it a little more easily than into my house.

Does that make sense? Having a car payment over $1,000 just gives me the heebie-jeebies, even though I can afford it, and my brain still doesn't believe that not putting more down to reduce that is "better". Am I missing something big?

Absolutely agree. Debt is a good thing given a few prereqs:

1. You can pay it all off, but CHOOSE not to because ..
2. You can do something BETTER with your money (much like you've calculated)
3. Why would you place a huge sum of money into a deprecating asset with zero return?
4. Large payment will not prevent you from qualifying for something else more important, such as a mortgage.

I personally got .99% from DCU and have no interest whatsoever in putting a large sum of cash down into the car.

Large corps with plenty of cash, use loans smartly and *borrow* to do things - they are able to then invest their cash, keep it liquid, put it back into the company, boost value, or any combination ...

 

[bryenz]

Large corps with plenty of cash, use loans smartly and *borrow* to do things - they are able to then invest their cash, keep it liquid, put it back into the company, boost value, or any combination ...

Exhibit A: Apple.

I'd venture a guess that since we can afford a $100k car, we can responsibly consider lending as part of a sensible asset/liability strategy. It's always better to get credit when you don't need it, because when you do need it, it is not usually easily available. Responsibly using leverage to get the car allows you to deploy liquid assets elsewhere...

 

[tiblot]

Exhibit A: Apple.

I'd venture a guess that since we can afford a $100k car, we can responsibly consider lending as part of a sensible asset/liability strategy. It's always better to get credit when you don't need it, because when you do need it, it is not usually easily available. Responsibly using leverage to get the car allows you to deploy liquid assets elsewhere...

100% agree. Use someone else's money before yours. Simple as that. Same reason you use credit cards instead of cash (even though you pay it off every month).

 

[Thud]

My plan would be to pay cash (and trade in my current car) up to the after-tax-incentive prices, and then finance the remaining $12500. And then pay that off the following April after the tax refund comes in. That's what bugs me about the Design Studio-- you have to do your own math, don't trust the "effectively monthly cost."

 

[tnagpal]

Not taking financing at under 2% is penny wise - pound foolish. They are practically giving you money to do it. If you are concerned about going in debt - take all that cash and put it away somewhere and arbitrage the difference in interest rates secure in the knowledge you could pay off the debt at any time.

 

[tga]

Full disclosure - nearly 20yr DCU member here...

Thanks for the tip on DCU, that's a great rate, I'd finance half for that, will check it out. Wonder how they make $$ with those rates?

I'm pretty convinced that they've been using their auto loans as a loss-leader to pull in new business for a while now. They've been advertising hard for their "second chance car loan" program - ie, refinance an existing car loan with them.

<rant>IMHO, DCU's only two faults are (a) they spend why to much money on marketing, and (b) their mortage rates aren't really competitive. Re marketing - increased business doesn't really benefit me personally, and that's just money that could be returned to me as a membership refund at the end of the year. I think at the time they bought the naming rights to the former Worcester Centrum (now "DCU Center") that was $20 out of every member's pocket.</rant>

THey require 100% direct deposit - thats why I didn't do it. Wasn't going to use them for my primary bank either.

Not true - several people here have said they qualified for the discount by splitting their direct deposit between their existing bank and DCU. $500 to DCU seems to be the cutoff. A friend of mine did this several years ago as well. (See "second chance car loan", above!)

I went to grad school out of state, and kept using DCU for all my banking. It wasn't as bad as I thought it would be. The only downside was needing to deposit checks (everything else I could do on line), but now I just deposit checks with the phone app (plus the hold on a large check is shorter, because it is already scanned into the system).

 

[golfski]

While the rates are extremely low and yes you can earn more on that money by yourself than tying it up in a car, I didn't want a car payment over what I am used to. So, I put down enough money and got a loan with a payment that was no more than my current car payment + gas expenses. Even then, I will end up paying less monthly because the maintenance should be lower.