Paying for a new car

[deadwing]

There are some very smart people on this board and I could use some advice.  I've been thinking about getting a new car that would fit my lifestyle better.  I do not NEED a new car.  I've always bought cars outright with cash.  Historically I've found gently used cars, but I'm having trouble finding those currently.  Used either seem to be beat to hell or high mileage or barely cheaper than new.  Anyhow, I've been debating the best way to pay for a new car since I don't quite have the cash reserves on hand to cover the full cost.  What says MM?

Approximate numbers

• Estimated cost of new car (out the door): $45k
• Estimated trade value of current car: $18-20k
• Cash I am comfortable spending: $10-12k
• Difference: $15k

Options as I see them

• Withdraw the difference from my investments.
• • Pro:  I buy the car outright, no financing
  • Con:  I'm losing out on interest and will have to pay taxes on the withdrawal
• Get a loan for the difference
• • Pro:  Not losing interest on investments, may get better pricing?
  • Con:  I'll pay more in total for the car
• Am I missing an option?

I'm hoping to go for a test drive on Friday.  I have zero plans to make any decisions on the spot.  I need to determine if what makes sense on paper is something I want to drive for the next 5-10 years and get some hard numbers from a dealer.

[goldengirlz]

One rule of the thumb is that if the interest rate is less than 8%, it makes more sense to finance the car because because you’ll make more money in the market, based on historical returns.

I ended up financing my car when interest rates were as low as 2%. In this interest rate environment, however, it would depend on what kind of financing package I could get.

[CrazyLucky]

Our goal is to have enough cash on hand to purchase a car outright, but only do so if we don't get good financing. The past two cars we purchased, both during the pandemic, we got 2.9% and 1.9%. So in that case, it's not really worth it to pay cash and we financed a big portion of it. I don't know what you're looking at, but I just looked at Honda and they are offering 3.9%. If I could get 3.9% or less, I'd but the car and finance it, maybe even more than the $15k you need. If I could get 5.9% or less, I'd probably still do it. If I couldn't get less than 5.9% and I didn't need a car, I'd wait. I would not withdraw from my investments.

What kind of car are you looking for?

[k3am]

Not including make/model specific dealer incentive rates, new car interest rates are generally in the 7-8+% range right now, with used car rates in the 14+% range.

If you decide to finance, get your financing lined up in advance so that you can run your models and make sure that it works for you. If you're lucky, the make/model you want might be running a lower interest promo.

The car market AND the auto finance market both suck right now.

[deadwing]

Aug 22, 2023 10:15:01 GMT -5 CrazyLucky said:

Our goal is to have enough cash on hand to purchase a car outright, but only do so if we don't get good financing. The past two cars we purchased, both during the pandemic, we got 2.9% and 1.9%. So in that case, it's not really worth it to pay cash and we financed a big portion of it. I don't know what you're looking at, but I just looked at Honda and they are offering 3.9%. If I could get 3.9% or less, I'd but the car and finance it, maybe even more than the $15k you need. If I could get 5.9% or less, I'd probably still do it. If I couldn't get less than 5.9% and I didn't need a car, I'd wait. I would not withdraw from my investments.

What kind of car are you looking for?

I'm looking at a a Honda Odyssey, which should be eligible for the 3.9% rate. The 2024 models should be starting to land soon, so I'm also kind of hoping to snag a deal on a 2023 (but I'm not holding my breath on that).

The other option, should I hate the Odyssey, would be a Subaru Ascent. I drive a Forester now. The minivan is the most practical choice for my needs on paper. I've had and liked Hondas in the past.

[Roc A Bee]

I’d get a loan. No question. Everywhere but on MM people get car loans for cars

[bee20]

There is nothing wrong with taking out a loan to keep cash invested. If you haven't borrowed before, be aware that you don't have to finance through the dealer. If they have a special interest rate as part of a promo it may be the best, but you can also check with your bank or local credit unions.

We've been casually shopping (current car is getting up there in mileage and we use it for road trips), and are also seeing that gently used cars aren't priced well compared to new.

[jewel]

Keep your investments and finance.

Shop around for an auto loan. The last time I bought, I told them that I’d use their financing if they could meet the rate my credit union was offering, and they did.

Would you consider selling your current car privately? You could probably get a few thousand more than trading it in. You could also get easy quotes from caravana, car max, and other online places and use them to negotiate a better trade in amount at the dealership.

If you plan to use some cash at purchase and have a credit card that you use for rewards, put as much of the down payment on your CC as the dealer will allow. I think I did $3-4k last time, paid it off immediately, but got the points on my card.

[deadwing]

Aug 22, 2023 13:21:48 GMT -5 jewel said:

Keep your investments and finance.

Shop around for an auto loan. The last time I bought, I told them that I’d use their financing if they could meet the rate my credit union was offering, and they did.

Would you consider selling your current car privately? You could probably get a few thousand more than trading it in. You could also get easy quotes from caravana, car max, and other online places and use them to negotiate a better trade in amount at the dealership.

If you plan to use some cash at purchase and have a credit card that you use for rewards, put as much of the down payment on your CC as the dealer will allow. I think I did $3-4k last time, paid it off immediately, but got the points on my card.

I am open to a private sale.  I have researched the value of my current car and saw it's almost exact dupe for sale recently for $28k.  It was 1 year newer (same body style, trim level, color), but lower mileage than my car.  I've tried to estimate the trade in value conservatively for budgeting purposes.  I'm hoping I can get more than I'm estimating.

And I absolutely will put as much as I can on a card.  If memory serves, dealers do not like putting much on a card though.  I have tried asked every time I've paid cash for a car if I could put it on a CC and the dealer would only allow a small amount.  I want the points!

I needed to have multiple people tell me it's OK to leave my assets invested and get a small loan for the car.  It just feels wrong to me, which is dumb.  Thank you all.  I will shop around (a neighbor just got a car and made a recommendation).

[sparty04]

Have you looked into any financing incentives with the dealer? I've only ever bought GM new so
I don't know if Honda ever offers anything themselves, but I currently have a 0% interest loan for 3 years through the dealer. I will pay off my car at the end of that term.

[dr.girlfriend]

Just to play devil's advocate, how long would it take you to save up the part that you don't currently have in cash reserves? Is there any disadvantage to delaying your purchase and saving up?

[deadwing]

Aug 22, 2023 20:52:10 GMT -5 dr.girlfriend said:

Just to play devil's advocate, how long would it take you to save up the part that you don't currently have in cash reserves? Is there any disadvantage to delaying your purchase and saving up?

This is a good question.  I'm honestly not sure how long it would take to save the additional cash reserves.  Part of the uncertainty is there is a good chance I will be getting a title change and significant raise at work in a few months.  However, the timeline and percentage of increase are not definite at this time.  If this comes through, I might be able to pay off the balance of the loan in early 2024.  I don't want to count on that, though.

I expect to have a few days in the near future where the new car would be extremely useful, which is why I'm leaning towards buying soon.  I don't really feel like I need to justify myself to internet strangers, but here's where I'm coming from.

I do dog sports, which means I am often on the road with my two dogs.  This can be anywhere from a 15 minute drive to an 8 hour drive at a time.   As such, my dogs ride in a crash safety crate, which is very large.  When it was just 1 dog, there was plenty of room.  Now that there are 2 dogs, they each have significantly less space in the two-dog model of the crate that fits in my car.  For shorter outings, this is fine.  When we're in the car all day (and I mean 12-18 hours), they're clearly uncomfortable towards the end of the day.  I expect to have at least 2 full days on the road with them this fall.  I do not feel good about putting them in a situation where I know they are going to be cramped and uncomfortable when I have the means to offer them more space.  There's a longer list of reasons why the Odyssey makes sense, but this is the big one for me.

[niq]

What about taking out a $15K loan, but with a 2-3 year term instead of 5 or 7 years? Would your monthly budget have room for it?

[deadwing]

Aug 23, 2023 11:53:58 GMT -5 niq said:

What about taking out a $15K loan, but with a 2-3 year term instead of 5 or 7 years? Would your monthly budget have room for it?

I would not consider a loan with a term over 3 years.  The goal would probably be to pay it back within half the time.

[deadwing]

One other fairly important factor in the timing is Honda is expected to refresh the Odyssey in 2025. Historically, the first year or two of a refreshed model have a number of issues. So I'm looking at buying within the year or waiting until the 2027s come out. The Odyssey is the only minivan I am considering because it is designed to remove the 2nd row seats easily and it has a high safety rating. Nothing else hits both of those criteria, hence my second choice being a larger SUV.

[livinitup]

Could you divert earned income from investments (I assume you have an auto transfer situation) to saving to build up the 15K faster? This way, you don’t get a penalty to withdraw funds.

How long would that take to get the cash on hand you need?

[k3am]

Aug 23, 2023 12:03:45 GMT -5 deadwing said:

Aug 23, 2023 11:53:58 GMT -5 niq said:

What about taking out a $15K loan, but with a 2-3 year term instead of 5 or 7 years? Would your monthly budget have room for it?

I would not consider a loan with a term over 3 years.  The goal would probably be to pay it back within half the time.

Don't rule it out immediately. There is nothing stopping you from making additional principal payments. The last car I bought, a 5 year loan had an interest rate lower than the 3 year loan, and I still had it paid off in 1. If the interest rates work in your favor, it would make sense to consider something longer if you have the discipline to pay it off sooner, which it sounds like you do. 

[lessel]

I don't know about desirability right now, but when we got our Odyssey in 2018 it was like a hot ticket and we had no negotiating leverage. Just something to factor in the wider climate could impact your strategy.

[ellipses84]

I don’t have an issue with a low interest car loan in a time of high inflation or when it doesn’t make sense to take the money out of investments. I ask if the dealer to finance me with a low interest rate based on an excellent credit score. I don’t know what car interest rates are right now but in the past I’ve had 0-3.5%. Sometimes they’ll only do 0%-1.99% on a new car if it’s a deal supported by the manufacturer and/or financing the whole amount. In my back pocket, I have a pre-approval from my credit union, say for 3% and if they say the best they can do is 5%, I’ll pull that out and they’ll usually match it (or you can finance via your credit union). I also don’t say I’m going to trade in my old car for sure, I’ll tell them once we are into negotiations that I’m thinking about it and ask them to run the numbers. Again, so research ahead of time to know what a fair trade in is, or consider selling it yourself. Don’t hesitate to ask them to do better or run the numbers again.

[dr.girlfriend]

Aug 23, 2023 7:38:46 GMT -5 deadwing said:

Aug 22, 2023 20:52:10 GMT -5 dr.girlfriend said:

Just to play devil's advocate, how long would it take you to save up the part that you don't currently have in cash reserves? Is there any disadvantage to delaying your purchase and saving up?

This is a good question.  I'm honestly not sure how long it would take to save the additional cash reserves.  Part of the uncertainty is there is a good chance I will be getting a title change and significant raise at work in a few months.  However, the timeline and percentage of increase are not definite at this time.  If this comes through, I might be able to pay off the balance of the loan in early 2024.  I don't want to count on that, though.

I expect to have a few days in the near future where the new car would be extremely useful, which is why I'm leaning towards buying soon.  I don't really feel like I need to justify myself to internet strangers, but here's where I'm coming from.

I do dog sports, which means I am often on the road with my two dogs.  This can be anywhere from a 15 minute drive to an 8 hour drive at a time.   As such, my dogs ride in a crash safety crate, which is very large.  When it was just 1 dog, there was plenty of room.  Now that there are 2 dogs, they each have significantly less space in the two-dog model of the crate that fits in my car.  For shorter outings, this is fine.  When we're in the car all day (and I mean 12-18 hours), they're clearly uncomfortable towards the end of the day.  I expect to have at least 2 full days on the road with them this fall.  I do not feel good about putting them in a situation where I know they are going to be cramped and uncomfortable when I have the means to offer them more space.  There's a longer list of reasons why the Odyssey makes sense, but this is the big one for me.

Thanks for answering, and sorry if that sounded judgey.  It's more like I could tell there was probably some reason for wanting to pull the trigger now rather than waiting and was just wondering if it was something else to factor into the equation.  

[deadwing]

dr.girlfriend, the question wasn't necessarily judgy, I just anticipated my reasons being judged. My dogs are my world.

[dr.girlfriend]

Aug 24, 2023 6:04:30 GMT -5 deadwing said:

dr.girlfriend , the question wasn't necessarily judgy, I just anticipated my reasons being judged. My dogs are my world.

Based on that, I judge you to be awesome!  

[ellipses84]

ETA to elaborate on borrowing during high inflation periods, it’s possible your money is worth more today than it will be if you wait 2 years to buy. If you borrowed today at low interest and paid a couple thousand in interest over the life of a loan but the SUV prices go up more than that, you’ll save by borrowing and can have a new car that meets your needs now.

[deadwing]

Well I went for the test drive this morning and I didn't love the Odyssey. I've had Hondas before and liked them. I guess I just like mu Subaru better? So I went next door and drove an Ascent. I liked it a lot. Unfortunately, the seat configuration that is better for my needs is the harder to find option. Subaru is also offering 3.9% on new models. Tomorrow I have an appointment to drive a gently used 2023 Ascent in my preferred configuration at another dealership. It's low mileage and the price is discounted just enough to be appealing. But it wouldn't be eligible for the promo rate, I'm sure. We'll see how it goes.

[deadwing]

Update: I've put a deposit on a Subaru Ascent that should be delivered in 4-6 weeks. I was able to get exactly what I want and came in just a shade under MSRP. Right now trading in my Forester is part of the deal, but I think they really low balled me on it and I'm going to shop that around. It does have some cosmetic flaws, but it's in mechanically excellent shape. I am qualified for the 3.9% financing, but I also have time to run numbers and figure out exactly how much I'm going to pay up front vs finance and end up somewhere I'm comfortable. And I can walk away at any time and get my deposit back.

[expectantsteelerfan]

I hope you are still looking forward to getting your Ascent! I test drove one when I was car shopping a few years ago and was *thisclose* to buying one, but the salesperson actually had me drive it to my house to see something, and when we got there, we realized it was too tall to fit in my garage! That was a dealbreaker for me, and I had to go with something a few inches shorter, so I ended up with a Highlander, which I am also happy with.

But there were also posts in the ML randoms recently about cars that were supposed to be delivered on certain dates and then just not showing up and the dealerships just not knowing where their cars were or why they were being delayed, and I really hope that doesn't happen to you!

[macmars45]

H and I have bought 3 cars brand new since 2014. We always put at least a few thousand down, get a 5 year loan and pay it off early.

[deadwing]

Sept 1, 2023 19:38:11 GMT -5 expectantsteelerfan said:

I hope you are still looking forward to getting your Ascent! I test drove one when I was car shopping a few years ago and was *thisclose* to buying one, but the salesperson actually had me drive it to my house to see something, and when we got there, we realized it was too tall to fit in my garage! That was a dealbreaker for me, and I had to go with something a few inches shorter, so I ended up with a Highlander, which I am also happy with.

But there were also posts in the ML randoms recently about cars that were supposed to be delivered on certain dates and then just not showing up and the dealerships just not knowing where their cars were or why they were being delayed, and I really hope that doesn't happen to you!

I've seen those posts. At this point, it's out of my control. The first long day I'm expecting to be on the road with the dogs is Oct 15, which is after the delivery estimate I was given.

My garage is fairly small, but I've measured it and the Ascent *should* fit. The real question is if I will be able to open the door wide enough to get in/out. It's probably a 1950s era single car garage.

[FishChicks]

I haven't posted on here in forever, but had the rare moment free to read this and thought I'd offer my two cents. I drive an Odyssey, after debating between that and the Ascent. I used to drive an Outback, it's still my commuter/non-kid car. I have the Odyssey because we have to haul 3 kids still in car seats and 3 adults all together several times a week, and the three kids plus 4 adults several times a month.

The gas mileage is so terrible that if it was one fewer adult on a regular basis, I think I'd probably have been better off financially sticking with my Outback for the 3 kids and 2 adults, and just renting a van when I needed to haul an extra adult. As it is, we inherited a 2012 Odyssey from family, and we'll keep driving that until the wheels fall off or there are 3-row hybrid options to consider, because we don't want to pay new prices now when hybrid technology/gas mileage is probably in the relatively near future. Locking ourselves into this mileage/gas cost for the length of time we usually keep cars would not be my preference. The Ascent had relatively similar mileage when we test drove. You may have already considered this, if so, please disregard and enjoy your car - we did love it when we test drove it!