Personal Finance

Buying car in cash vs house downpayment

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  • Feb 22nd, 2010 8:18 am
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Feb 7, 2008
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Paulfistinyourface wrote:
Feb 19th, 2010 4:10 pm
What? The dealer doesn't actually provide the financing so why would they try to recoup the cost of something that costs them nothing? You make it sound like the dealer is charged a fee by GMAC/Ford/whoever whenever they sell a vehicle at the low rates.

I can only speak for GM, but the dealer is given cash incentives to push the low borrowing rates. Matter of fact, a lot of time the customer is further ahead to take the 0% as opposed to paying cash because the dealer will often take this free cash into consideration when working out a deal. We get incentives not only from GM, but also from GMAC or whoever else might be providing the finance special of the week.

I should add that the worst thing a person could do is to sit at a dealer and pretend like you know all about how the financing works and dealer incentives and rebates and tell them how you should be getting this and that and the other thing. Trust me, the F&I people will laugh at you in the other office and this attitude will do more harm than good. They get the biggest laughs when somebody says "okay, but I read on the internet..."

Yeah, the F&I guys where I work can be jerks. But it's pretty much the same all over the place.
What this has to do with the is the cash purchase incentives given to the dealer(buyer) from the manufacturer.

If you finance, you don't qualify for the cash purchase discount. Which means you will be paying more for the car buy financing than by doing a cash purchase.

You are rarely ahead by going with the 0% over the cash purchase incentives... The dealer incentive to push the low finance rate is nowhere near the incentives for a cash purchase. This may be different on > 0% financing though...
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crimsondr wrote:
Feb 19th, 2010 4:06 pm
Yup. My mortgage is at 1.5% now, so it's always the last thing I pay. Although that may bite me later when P goes up :cheesygri
i think its the right way to do it

low interest -> only pay monthly minimum, save money and invest, get returns that cover your interest 2-4 times over

high interest -> pay monthly + extra from the interest earned in the lower mortgage period

whenever you have a chance to get more money <safely>, take it. :cheesygri
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Buggy166 wrote:
Feb 19th, 2010 4:27 pm
i think its the right way to do it

low interest -> only pay monthly minimum, save money and invest, get returns that cover your interest 2-4 times over

high interest -> pay monthly + extra from the interest earned in the lower mortgage period

whenever you have a chance to get more money <safely>, take it. :cheesygri
I would agree if you are investing the 'extra' temporarily, and when the mortgage rate rises, you make lump sum payments. However, there are many who use low mortgage rates to ATTACK the principal, because when rates do rise, you're going to pay less interest (and this has a compounded effect over many years). It depends on your goals. I want to attack my mortgage. So, when my variable rate went from over 4% to where it is now (really low), I don't mind seeing over $1100/month going towards the principal (instead of lowering my payment and investing the difference).
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Nov 27, 2005
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onlineharvest wrote:
Feb 19th, 2010 5:06 pm
I would agree if you are investing the 'extra' temporarily, and when the mortgage rate rises, you make lump sum payments. However, there are many who use low mortgage rates to ATTACK the principal, because when rates do rise, you're going to pay less interest (and this has a compounded effect over many years). It depends on your goals. I want to attack my mortgage. So, when my variable rate went from over 4% to where it is now (really low), I don't mind seeing over $1100/month going towards the principal (instead of lowering my payment and investing the difference).
But this was my point. You should always attack the principle of the loan with the highest rate. If you don't have any other loans then paying your mortgage is fine and is like a guaranteed investment.
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asmielia wrote:
Feb 19th, 2010 3:15 pm
I think the total savings on buying the car with cash would be about $1000-1500, based off the cars we're looking at.

We'd have to pay the cars off in 3-5 years to get 0% financing. Hope this next section doesn't confuse too many people but I think I've figured it out.

I used this calculator:
http://www.tdcanadatrust.com/docs/mortC ... ulator.jsp

Compared the following:
$400,000 mortgage, 25 year amortization, 5 year fixed at 4.09% with extra monthly payments of $350 (amount we'd be paying if financing the car)

Gave monthly payments of $2,123.64 and an end of term balance of $325,541.21 after 5 years.

TO

$380,000 mortgage (assuming $20,000 car), 25 year amortization, 5 year fixed at 4.09%, extra monthly payments of $106.18 (difference in mortgage monthly payments between $400k and $380k mortgage)

Gave monthly payments of $2,017.46 (+ 106.18 = $2,123.64) and an end of term balance of $324,288.26

So it's fairly close. Basically, if the cash price is anything over $1,000 less than the finance price, it's probably worth doing due to less hassle. And this is assuming a best case scenario of a 5 year financing term at 0%, which very few cars are eligible for. I think the answer is in favour of paying cash for the cars in almost all circumstances.
I agree with your assessment. There is also the "psychological" aspect of having something paid off in full -- I call it relief from financial prison. With a mortgage and a brand new home I certainly would want to keep those monthly bills down.
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crimsondr wrote:
Feb 19th, 2010 5:55 pm
But this was my point. You should always attack the principle of the loan with the highest rate. If you don't have any other loans then paying your mortgage is fine and is like a guaranteed investment.
I don't agree that it is all about rate. It is more about loan term. If you have:
- a 4 year car loan with 2 years left at 7%
- a 25 year mortgage with 23 years left at 5%,

$1000 paid to your car loan will end up saving you $1000 * 7% * 2 years = $140
$1000 paid to your mortgage will end up saving you $1000 * ((1+5%)^23-1) = $2071.

So you can save a lot more if take term into account.

You can do better overall just paying attention to rate ONLY IF you are disciplined enough to do the following:
- pay $1000 off your car loan (assuming the terms allow it) and save $140
- if your car payments are $500/month, once you pay off your car loan, still make your next 2 car payments to your mortgage. So it is like you are paying all the car payments you originally planned and are transferring the extra $1000 to the mortgage.
- take the interest you would have saved on your car loan during the 2 years ($140) and pay it on the mortgage.

By doing this you will save an extra $40 + compounding over the term of the mortgage = $71.
Jr. Member
Jan 30, 2010
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Calgary, AB
When we bought our Ford Van 10 yrs ago they were offering 0% financing for 48 months. We found out the cost price of the van though one of those cdn edmunds type websites (which I dont think is around anymore :cry: ) and we went into the dealer, asked if we could buy the van for 500 bucks over cost. Our salesman agreed then tried to sell it to us for 3000 over cost. We proved cost price was lower, the manager agreed with us and we got the van 500 bucks over cost with 0% financing through ford credit. So it was possible to get a deal on a vehicle and still get the great 0% offer on top of it. :)
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JWL wrote:
Feb 21st, 2010 10:32 am
I don't agree that it is all about rate. It is more about loan term. If you have:
- a 4 year car loan with 2 years left at 7%
- a 25 year mortgage with 23 years left at 5%,

$1000 paid to your car loan will end up saving you $1000 * 7% * 2 years = $140
$1000 paid to your mortgage will end up saving you $1000 * ((1+5%)^23-1) = $2071.

So you can save a lot more if take term into account.
This comparison is flawed. It's like comparing apples to oranges. When you compare you should compare with respect to the same payment amount and see which gives you the better savings. But with your different terms the payments are different.

With your logic if I had a $1000 loan @ 0.1% and term of 1000 years, then it would be better to pay off this loan than the car loan. I personally wouldn't mind borrowing money at 0.1% for basically forever.
JWL wrote:
Feb 21st, 2010 10:32 am
You can do better overall just paying attention to rate ONLY IF you are disciplined enough to do the following:
- pay $1000 off your car loan (assuming the terms allow it) and save $140
- if your car payments are $500/month, once you pay off your car loan, still make your next 2 car payments to your mortgage. So it is like you are paying all the car payments you originally planned and are transferring the extra $1000 to the mortgage.
- take the interest you would have saved on your car loan during the 2 years ($140) and pay it on the mortgage.

By doing this you will save an extra $40 + compounding over the term of the mortgage = $71.
I agree with this. The total paid to debts should remain unchanged even after a particular loan has been paid off. The amount originally paid to the finished loan should be shifted to the next loan with the highest rate.
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crimsondr wrote:
Feb 21st, 2010 12:00 pm
This comparison is flawed. It's like comparing apples to oranges. When you compare you should compare with respect to the same payment amount and see which gives you the better savings. But with your different terms the payments are different.

With your logic if I had a $1000 loan @ 0.1% and term of 1000 years, then it would be better to pay off this loan than the car loan. I personally wouldn't mind borrowing money at 0.1% for basically forever.
My logic is not flawed but it is based on the expectation that most people will not be disciplined to continue to make the car payment equivalents to their mortgage after their car payments end early. That's why I explained that you have to do that in order to make the car payment alternative work.

I haven't had a car loan in a while, but I don't think they are generally open to extra payments like mortgages are. If your loan isn't open to extra payments it makes the which loan should I pay off first question moot.

Let me know when you get the 0.1% loan for 1000 years. :rolleyes:
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JWL wrote:
Feb 21st, 2010 10:12 pm
I haven't had a car loan in a while, but I don't think they are generally open to extra payments like mortgages are. If your loan isn't open to extra payments it makes the which loan should I pay off first question moot.
FYI, I have a car loan and it is completely open. I can pay off the entire balance whenever I want, without penalty.
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Dec 28, 2007
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crimsondr wrote:
Feb 21st, 2010 12:00 pm
I agree with this. The total paid to debts should remain unchanged even after a particular loan has been paid off. The amount originally paid to the finished loan should be shifted to the next loan with the highest rate.
Agreed. Also, in the formula above that is taking into consideration term, in order to be 100% accurate you need to factor in Time value of money, IE if I save $100 in interest this year, its much better than saving $100 in 25 years due to inflation and opportunity cost.

I always like to look at my different debts as one large sum, I know how much I pay each month on reduction, then pay minimum on everything except the highest rate, which gets paid off faster with the surplus, and knock them off as i go.
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May 8, 2005
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You pay cash for an asset that depreciates - i.e the car.

You borrow for an asset that appreciates - i.e the house.

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