Car Purchase Financing

[Ben]

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My philosophy is that don't buy a vehicle that you can't buy it with cash out right.

How you go about owning it will depends on what deals are on the table. But investing cash on hand that may/may not beat borrowing rate sounds a lot better than tying it to a depreciating asset. But for some cars, especially used, depreciation is not a big of a factor, so cash on them isn't that bad of an idea.

Sometimes there are killer CPO deals out there that give you excellent factory financing that will beat HELOC.



Because people paying cash knows what they are getting into. People who lease tends to overbuy which lead back to my original philosophy.

Both my vehicles were CPO. Bought them used but were both latest model year with a few thousand k on the odometer. All the benefits of buying new and an additional year on the warranty, 0% financing, factory incentives costco discount etc and saved a good 10-15k on depreciation.

Its my preferred way to go. Its free money.

Anyhing under 3% in my opinion from the dealer is better than any loan from the bank or heloc type stuff. Paying cash outright only makes sense if you have LOTS of it. Id rather have it available for emergencies or invested and making me a return.

Lots of great finance rates out there from the dealers if youre not a roach.

[RX_EVOLV]

I don't want to start a new thread so going to ask a question here.

I bought my car new at VW and got it financed, which ended up being with BMO. To clean up the books a little bit and to save on interest cost, I want to pay off the loan early. Is there any advantage in paying it off early if I'm more than half way into the terms? is it like mortgages where the interest cost is front-end loaded, rather than divided evenly across all the payments?

[ercchry]

Not as drastic as a mortgage as full amortization on a vehicle loan is usually under 5yrs vs 25.... but as your payments are calculated off the initial loan and stay the same, and the annual interest is based off outstanding loan balance... yes, it’s similar

Vehicle loans are usually open though, so no penalty to pay off early. The real question is what else would you do with that money instead of paying it off? That’s what will tell you if it’s worth while or not

[rx7boi]

+1 with what erchhry said. Car loans are open so you can pay them off as quick as you'd like but it depends on what you want to do with the money. You bought a new vehicle which is a depreciating asset so right off the bat you're losing money in the long term anyway.

Assuming your OTD price is around $35000 @ 2.49% APR for 60 months and $0 down, you're only paying $2373 in interest over 5 years. Interest is calculated based on remaining balance.

There's always an advantage to paying a loan off early, like freeing up cashflow. I'd be interested in hearing other people's perspectives on paying off a loan early.

[tonytiger55]

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I don't want to start a new thread so going to ask a question here.

I bought my car new at VW and got it financed, which ended up being with BMO. To clean up the books a little bit and to save on interest cost, I want to pay off the loan early. Is there any advantage in paying it off early if I'm more than half way into the terms? is it like mortgages where the interest cost is front-end loaded, rather than divided evenly across all the payments?

Vehicle loans are usually open though, so no penalty to pay off early. The real question is what else would you do with that money instead of paying it off? That’s what will tell you if it’s worth while or not

I would say always avocate paying off your debit if you can. Ive seen too many former clients being held back at stages of thier life due to car payments. But look at your financial profile. Where are you in your age range, what are your future goals...? If you pay it off are you financially ok..?

Supposing if you did not pay it off and something happens? There is a important vairiable that is never calculated when talking about debit. Its metal health. The debit might be ok, but if a life event happens and you have this debit. Your mind and emotions start to control you.

Its a depreciating asset. I would say if you have the dosh, clear it off. Contact BMO, they should be able to tell you straight.

[Mitsu3000gt]

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I don't want to start a new thread so going to ask a question here.

I bought my car new at VW and got it financed, which ended up being with BMO. To clean up the books a little bit and to save on interest cost, I want to pay off the loan early. Is there any advantage in paying it off early if I'm more than half way into the terms? is it like mortgages where the interest cost is front-end loaded, rather than divided evenly across all the payments?

Can you make more money using the money needed to pay off the vehicle elsewhere, such as investments, than it costs you in interest? --> Don't pay it off

If you can't make more than the interest you are paying on your loan by investing that cash elsewhere --> Pay it off ASAP if its an open loan

It should be a fairly simple calculation, just make a quick spreadsheet or something.

[Sugarphreak]

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[Xtrema]

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I don't want to start a new thread so going to ask a question here.

I bought my car new at VW and got it financed, which ended up being with BMO. To clean up the books a little bit and to save on interest cost, I want to pay off the loan early. Is there any advantage in paying it off early if I'm more than half way into the terms? is it like mortgages where the interest cost is front-end loaded, rather than divided evenly across all the payments?

Interesting that it's a BMO loan instead of VW Finance Canada.

Anyhow, it you think you can easily achieve 2x return of your borrowing rate, why pay it off early.

If you are 1/2 way thru, I assume you have around $24-$27K left. If you have room in RRSP and your income is high, that $27K could net you some serious saving from income tax.

On the flip side, if you DO have $27K left, and given 2016 Golf R has a street value around $30-$32K. If are not upside down on the loan and do have an asset worth more than what you pay for at this point. Than the lack of car payments can be diverted to cost average investing into your RRSP for similar effect.