Car Purchase Financing

[Feruk]

So I need to buy a vehicle. Have looked around and am probably gonna buy a used SUV in the 2-3 year range. I'm hoping for some feedback on which option to take to finance car:

1) I can pay cash
2) Dealership financing (assumes I go through a dealer)
3) Unsecured LOC
4) HELOC

What's the best strategy? I don't really want to fork over $25K - $30K at these low interest rates... What kinda rates can I expect from dealer vs unsecured LOC vs HELOC? Let's assume I have good credit and am not leveraged to the hills. Can I use a HELOC to finance a vehicle?

Also, for down payment can I use a credit card? If I'm gonna have to pay some money down, I might as well get some points for it.

[ExtraSlow]

On used vehicles, typically dealership financing rates are brutal. It doesn't hurt to ask, but if you have a HELOC, generally that's the lowest interest rate you can access for this type of purchase.

Although I'm a big fan of paying cash if you are able.

[max_boost]

I think you can deposit up to $5k on credit card.

What's heloc at now? 3-4% range? heloc is probably easiest and can pay at your own pace.

I think it just depends what you want to do.

[Buster]

Do you have something better to do with the cash?

[roopi]

Dealership Financing - Since it is a used vehicle most likely the rate will not be that good. Also they won't give you a rate until you submit a financing application to determine your credit.

Unsecured LOC - Do you have a LOC right now? If so what is your rate? LOC's can very from prime to over 10% depending on the type of customer you are. If you have one in the 3-5% range then this will most likely be a better option then dealership financing.

HELOC - If you have a HELOC setup currently then this is probably your lowest rate out of the options. If you don't have one setup then with many banks there are fees associated with setting it up (house appraisal). So take that into consideration. I'm not sure what the actual fees are.

Cash - If you can finance/HELOC in the 3% range then invest the cash elsewhere and finance the vehicle.

[shakalaka]

The only way it makes sense paying any interest is if you got better things to do with the cash like investing it elsewhere for more interest rate than you'd be paying for the car. If you're just gonna have cash sitting in the savings doing nothing then you might as well use that.

[ExtraSlow]

Or if you are going to just end up spending it on frivolous stuff, like a lot of people, then pay cash for the car for sure.

[tonytiger55]

If its used... Cash.
No cash... no buy. Simples.

[HiTempguy1]

Usually the banks offer 3.5% on used cars 4 years old or newer.

I bought my enclosed trailer that way. Would have been silly to not have done that

[Feruk]

Originally posted by Buster
Do you have something better to do with the cash?

I won't know for sure until about a month after I buy the car. About 50/50 whether I'll have a place to put the cash. Most likely, other investment will be a significant drain on cash position, so having a spare $30K around adds value.

Also, I'd look for a loan that I can pay off early with no penalty should I find no home for the cash.

Originally posted by tonytiger55
If its used... Cash.
No cash... no buy. Simples.

Why?

[BavarianBeast]

Buy new and go 0% financing. Still some offers out there with GM/Ford.

[killramos]

I say 1,2, or 4 and all depends on which rate is most competitive. If you don't like any of the rates then you go with 1

[Feruk]

Originally posted by BavarianBeast
Buy new and go 0% financing. Still some offers out there with GM/Ford.

Going 2 years old cuts down $10K to $15K on asking price. Going new won't make that up even at lower rate.

[Masked Bandit]

Pay cash. Spending interest on a depreciating asset is a waste of money if you can avoid it.

[killramos]

Originally posted by Masked Bandit
Pay cash. Spending interest on a depreciating asset is a waste of money if you can avoid it.

I have never really understood where people get this mindset from. Spending money in general is a waste of money, not like its any worse than paying interest on anything else in your life.

It's not like we can write off interest against gains or something.

[max_boost]

Originally posted by killramos


I have never really understood where people get this mindset from. Spending money in general is a waste of money, not like its any worse than paying interest on anything else in your life.

It's not like we can write off interest against gains or something.

I think everyone's view on money is bit different. personally I love leasing at low interest rates monthly payment vs paying the whole damn thing up front

[shakalaka]

If the interest rate is low enough and you have better ideas for the cash where you can earn more than the interest you'd be paying, I think it would be silly to not finance or lease.

[ercchry]

Any car loan or line of credit will be open (no penalty)

Secure line of credit is about P+0.5 to P +1

Used car financing will probably be in the 4.5-6% range, and unsecured line of credit will probably be 6%+

[leftwing]

When I bought new from Ford in Aug 2016 they let me pay $3000 via credit card.

On paper it would make more sense to keep the $30,000 and use credit/loan/loc to finance the car assuming you can get a good rate. Use online calculators to determine the interest you would pay over the term of the loan vs how much your money would grow depending where you keep it.

30k @ 3% and 3 year term you'd pay 1408$ in interest over the term.
30k @ 4% and 4 year term you'd pay 2514$ in interest over the term.

30K @ 2.5% GIC over 4 years you'd make 3115$...

In the end the difference is peanuts really, it depends on how you like to manage your money/debt.

[tonytiger55]

Originally posted by killramos


I have never really understood where people get this mindset from. Spending money in general is a waste of money, not like its any worse than paying interest on anything else in your life.

It's not like we can write off interest against gains or something.

It depends on many variables. But in short it comes down to financial planning, risk and cash flow/job security. A lot of these people don't have.

For example, my friends who are doctors lease their vehicles, they will always have a job, cash flow and cash flow reserves to deal with unexpected events and a financial planner to help with this.

I paid cash for my old vehicle, I was tempted to buy new and make payments. But ive lost my job in the last two years, dealt with a few life events and dealt with mini personal financial recessions. Ive not had the stress of loosing my vehicle as... its mine.
Its also a mindset. There seems to be a perverse obsession to pay Interest/give money away regardless of how low the interest rate is..when you can outright pay for the items.
Yes you can invest the money and make more in interest. But I would argue your average Joe (Or Jolene)is not in that position or has the financial know how.

Oddly enough most of my wealth clients had used vehicles and always paid cash.
Those that were in financial trouble had previously taken out a new vehicles and were making payments.