Car payment calculation

[HiSpec]

I am looking into purchase a new Civic in the near future (~ $23, 000 OTD), right now I am trying to calculation which is the best option for me:

A) I have a LOC available for me $25, 000 @ about 5.6% which I can use to purchase the vehicle as 'cash'. Because this is a LOC, I believe the monthly payment will be cheaper because it'll only be 10% of the balance.

B) I have a LOC available for me $25, 000 @ about 5.6% which I can use part of it as down payment, this will minimize the buy-out cost at the end and lower monthly payment.

C) Take advantage of Honda's 0.9% finance rate, which comes to about ~420/mth.

I would like to get some suggestion on which path would be the most economical for me in the short term and long term.

[Xtrema]

Stick with Honda finance unless you get $2K to $3K off with LOC cash deal.

LOC rate is based on prime with will keep going up during your ownership next few years.

Honda finance rate is fixed.

Either way you can pay off early if you have extra $.

[JordanAndrew]

At 0.9% you're better off with going through the dealership rate. There is no penalty when you pay the extra payments either so if you can make a lump sum payment, do it.

Don't use your line of credit unless you really really have to because the interest rate is still quite high. If you can afford the $420/month, just go with this route assuming you don't have to use your LOC for a down payment. You have to consider the monthly payment on the LOC as well which you have to pay every month.

If you look at the bigger picture, calculate how much interest will you be paying in the end. Obviously the lesser the interest, the better off you are.

[Aleks]

Go here and play with different scenarios. If they give you more off the price of the car if you pay cash you can figure out how much you need to make the higher interest rate worth it.

http://www.canadiandriver.com/tools/loan.htm

[MDO_Calgary]

He's right! The bank of canada plans in raising the cost of borrowing for all the banks from .25 percent, to .5 percent by june, and the bank of canada plans on raisingthe cost of borrowing to 2.25 by next summer. In a nut shell this guarantees the prime lending rate will go up, most likely to 4.5 within a year or so. The interest rate on your line of credit will go up quite a bit. Nothing beats .9 percent financing right now, provided the dealership doesn't have any hidden fees. Going through honda is your best bet.

[LMVantage]

Also keep in mind the financing terms. I imagine the $420 is for 60months? If you used your LOC and paid it off over 60 months as well, you'd pay much more.

I agree with the others that a financed down payment doesn't make sense, and you're better off not putting anything down if that's the only place it would come from.

[Cos]

My loc is calculated over 36 months. Not sure if that can be changed but just something to think about if you think you can take 60 months to pay it off.


Actually my payment is 3% or calculated over 36 months from your last withdrawl or whatever is bigger.

[Skyline_Addict]

if you can lock into a fixed rate and term under what prime rate is right now...you basically win.

prime rate's going up, and for a line of credit right now, the best you're going to get is around prime +1.

[HiSpec]

if I can be locked into a fixed rate and terms that will still be over 0.9% won't it?

seems like Honda's rate is the best.

[Skyline_Addict]

Originally posted by HiSpec
if I can be locked into a fixed rate and terms that will still be over 0.9% won't it?

seems like Honda's rate is the best.

You mean at a bank? It'll be waaay over 0.9%. It'll likely be alot higher than any Line of Credit too.

Think of it this way. The reason they (Honda) are able to get a finance rate that low is because they offer incentive to the lender (the Bank they work with) to offer that rate (i.e paying them a lump sum of cash to get that rate approved). If you walked into a bank today, they'd have no incentive to offer you a really low rate, not being wholesale and being retail. This is why for new car purchases...you either get a low financing rate, or if you pay cash, you get a lower sticker price. To get the low rate, the car dealer has to eat up some costs..probably around the same amount as the price they knock off if you paid cash.


Unless the rate you're getting through Honda is around 3-5%, I wouldn't even consider the bank as an option.

[Sorath]

definately, go with honda's rate. Doesn't make sense to go with a LOC/bank finance. All of honda loans are open loans and you can pay it off anytime or add extra money towards it.

[LMVantage]

Originally posted by Skyline_Addict


You mean at a bank? It'll be waaay over 0.9%. It'll likely be alot higher than any Line of Credit too.

Think of it this way. The reason they (Honda) are able to get a finance rate that low is because they offer incentive to the lender (the Bank they work with) to offer that rate (i.e paying them a lump sum of cash to get that rate approved). If you walked into a bank today, they'd have no incentive to offer you a really low rate, not being wholesale and being retail. This is why for new car purchases...you either get a low financing rate, or if you pay cash, you get a lower sticker price. To get the low rate, the car dealer has to eat up some costs..probably around the same amount as the price they knock off if you paid cash.


Unless the rate you're getting through Honda is around 3-5%, I wouldn't even consider the bank as an option.

Exactly, the manufacturer buys down the bank rate. It's a form of marketing/advertising budget. What often happens with manufacturer who aggressively market their cars with low rates is they run out of money before year end. Honda did just this not too long ago, which is why you saw regular rates from Jan-March of last year across most (if not all) of their lineup.
That also explains why you rarely see low rates with rebates - both options cost the manufacturer money. Hyundai and Kia are the only companies who regularly offer the two together.

[jonnycat]

Even if you paid 10% of the original balance ($23,000) every month ($230/mo) it would take you more than eleven years to pay off the LOC, and that's if Prime doesn't change for the next 11years.
Same scenario with using it as a downpayment, 10% payments of original balance still leaves you with 11 years of payments.

If you can't afford the $420/ month at 0.9%, try leasing it. It'll probably drop your payment about $80/month