remnant

I have a lot of equity on my house. So, I took out a fixed rate HELOC at 6.5% for 5 years, which was only slightly higher than an auto loan. This way I can deduct the interest and have more flexibility. I also was able to get title on the car immediately.

Scooter24

I am doing basically what you are doing. About half in cash up front and then paying off the other half by the end of this year.

I just hate having debt.

kensteele

It's my intention, I planned this way so I am flexible for the 2007 and/or 2008 models; mainly the latter. I will probably order the 2008 or the 2009 which should give me about a year or two with no car payments. Plus I intend to purchase a condo in 2007, under construction: http://parkplaceleawood.com/

4TehNguyen

iTrader: (1)

yea im planning about 50% down payment or so. Dont want to drag out a loan

Lets Drive

iTrader: (3)

Then again, neither is paying interest on top of that depreciating vehicle. If you're going to buy the car, its better to pay less on the total 'cost' of the car by waiving the cost to borrow money by as much as possible. If anything, I'd finance to assist in building credit, but buying the car period isn't an investment, as the full cost must be payed sooner (less) or later (more).

diablo1

This is only true if you have nothing else to do with your money. If it's a question of paying upfront vs. getting a 6% loan and keeping the money in a 4% savings account, then paying upfront is better. However, if you get a 6% loan but you have your money invested in stocks and are expecting a return of 10%, then it makes sense to get the loan. Along the same lines, it pretty much always makes sense to take a 0% car loan, if it is being offered. Take the money and put it in a savings account, and you are guaranteed better off. But no one is getting 0% on a hot car like this one.

At the end of the day, different strategies are best for different people, and this is why so many options exist. If one thing were best for all car buyers, everyone would do it!

Lets Drive

iTrader: (3)

Yep, in a nutshell. I was looking more at the total cost of the car specifically, which won't get lower- added to that, its only indirectly affected by outside investments, save for the ability to pay the car off sooner (some loans have a pre-payment penalty). Given your hypothetical, unless it was absolutely necessary to buy a car now, I'd just wait until my investment saw its return, and then buy the car outright if possible, once again minimizing the cost to borrow. Other options should be explored if the safer finanicial move were critical enough that buying a car were to intefere with other abilities. As you say though, its whatever works.

tdog09

If u plan on getting something new in 2007, why not lease?

I ask bc i'm in that boat and dont know wut to do...also i can only out down about 10K as a downpayment, so not as much as u.

diablo1

I don't really agree with this. Right now, if you buy a car for $40k, you are giving up whatever return you could have had on that money invested elsewere. You can't think of your car as existing in a vacuum... It affects the rest of your finances because it takes up money you could use on other things.

Think about it this way.
Scenario 1: You pay $40k cash upfront. All of that money goes to Lexus. In 5 years you have a car and you owe no money, but you have no extra money.
Scenario 2: You take out a loan and pay off $8k per year for 5 years plus interest. You still have most of your money except the downpayment. You invest this money and it makes you $3k per year. You pay $2k per year in interest. Five years from now, you have the car, plus $15k from your investments, you have paid $10k in interest, and you are no longer in debt. You are better off than Scenario 1 because everything is the same except you have an extra $5k, whereas in Scenario 1 you made no extra money.

If you have a use for your money that you expect to have higher returns than your loan interest rate, you should take the loan, in most cases. If you have no better use for the money, you should pay cash upfront. I hope that makes sense.

Scooter24

Also - remember that you have to pay taxes on the 15K you have made in the investments. So subtract that from the 5 k you are up.

kensteele

I have never leased in my life...because of mileage restrictions. So far I seem to be doing ok with this car but I've never had a car that I didn't put 100k+ miles on. I don't plan on getting the 2007 unless it's totally compelling, otherwise I'm more interested in the 2008 or maybe 2009.

tracerit

how would the option to lease work out? would i be out less money than financing?

blacksc400

iTrader: (4)

cash all the way, never made a single payment for all my cars..

Lets Drive

iTrader: (3)

We'll just have to agree to disagree then- but I fully recognize your point. When it comes to cars though, if I plan on allocating a budget towards a vehicle, then I set my limit and thats that- otherwise I don' t buy a car where I can't control the total amount of finances. Whether its a loan or outright buying price, the car must be payed off, while interest just makes it that much more expensive. If your second scenario were to have that rate of success, the wisest choice would be to not buy a car at all, and just invest until you are in a better position to buy the car outright. For an investment, I play by the same rules- set my limit, and make it final. However, with a car as the value goes down, interest over time demands that you pay more. In the 5th year, the car is worth at least 10k less, while most will have payed around 10k give or take, on top of the selling price. When it comes time to trade/sell, you lose an incredible amount of money even with the car in its best condition. Interest is my bigger enemy (giving free money), while I'd shoot to control an investment budget independently. I'd say the different methods work for different people, but if you have 40k sitting, then go for that investment! lol.

Foxberry

Good points, but my only issue in Scenario 2 is that while you could potentially make 3K (or more) per year in investments, you could also potentially LOSE $$$ as well. Gotta throw that into the mix.