Are there any disadvantages to putting a huge down payment on a new car? Example: 2002 Nissan Altima 2.5S $18,000 Drewdog puts down $10,000 Finance $8,000 over 36 months. Comments?
What rate are you getting? Instead of putting that $10000 down, invest it in something safe, returning 8-12% interest, then finance the car at a lower rate (I got 5.75 over 60 months). Let your money work for you instead of putting it into someone's else's pocket.
I think I can get around 5-6% because I really dont have any credit blemishes. I always thought that the more you put down, the less your payment/loan agreement would be. Im kind of new to this whole car buying process and what it entails.
I have a 401k managed by Fidelity with about 40 funds to choose from. I just talk to my advisor and let him decide. I'm not a financial guru, I just know who to ask.
8-12% is not that hard to accomplish. Like I said, I have a variety of funds to chose from. I put high and low limits on some of my favorites, and go in and out of those funds as they fluctuate up and down. To me, the trick is to not try to make a killing all at once, but keep taking little bits of profits as they come. Over time (9 years in my case, with 19 to go) those little profits really add up.
When can you touch those funds? 20... 30 years? Most of the IRA's (Roth, Simple) you cant touch until you are retired and they fluctuate frequently. The thing is to have access to funds whenever you want, but I guess the intrest isnt as much
I have two, one is, for lack of a better term, a profit sharing fund. I can get to the portion I put in myself. The other is long term (401k). I can borrow from it, under the agreement that I pay back the loan and the money I would have made if I had left it there. However, except for taking some to buy a house, I've never had to touch it.
Drewdog: Just from a non-debt perspective, I'm of the mind that you want to eliminate the debt as quickly as possible. If you can pay $10K down on an $18K car, could you really push yourself on the length of time? If you could pay off your car in fewer than 36 months, you could get out quickly and avoid long-term debt. One other consideration... I don't know if you have looked for it, but $10K is actually quite a bit of money for a nice used car. If you are only planning on spending $18K on a new car (a relatively moderate amount), you might consider saving a little more and bridging that gap by spending $12K on a car only 2 years old - say a former lease car. If you are only adding say 30 thousand miles or less, it might be worth it. Just some things to consider.
I agree with Jeff,. A new car loses 25% in value the second you drive it off the lot. A one or 2 year old car is a much better deal. I bought a new car a few years ago, and I vowed never to do it again. DD
I have really been going back and forth between new and used, but I would rather not have a car payment and save money for a house in 2-3 years here in Austin.
The biggest disadvantage of putting down a huge downpayment is simply they have the money in their pockets and you don't... If you get a good interest rate you can do more with your money by investing, as everyone else has said. But you give up flexibility, with a larger monthly note....
I haven't had a car payment . . . my new one was only $500 BUT, from what I have learned in the past, you ALWAYS want to get that debt off of your back ASAP. Not all debt is like that, at least in business. Floating debt is a very common and smart thing to do in many areas. But this isn't one of them. And actually, I don't believe in holding personal debt at all. Floating debt is fine for businesses, but not for individuals. Get it paid off as quickly as you can. Theoretically, you could make your money work for you rather than pay someone else. BUT, then you are beholden to someone else. I am of the opinion that you have as LITTLE debt as possible at all times.
Also, don't forget that that if you invest your $10,000 elsewhere you will have to pay tax on that 8-12% interest you earn. Saving 5-6% interest by making the $10k downpayment is the equivalent of getting 8-9% return elsewhere.
Drewdog: One other thing you might consider if a home is in your future. There is a lot of talk of investing the money here, etc. If you really want a home, you should buy used and not make payments. You can absolutley live with a less-than-perfect new car if it means owning a great home later. Keep in mind that a car well taken care of should run 120,000 to 150,000 miles with a few minor part changes as they wear out. If you really do want a home, you would be better off saving every penny you've got (with interest) so you have a big down payment for a house. My wife and I pay less than $600 per month for our mortgage AND insurance (on a home that would sell for $180,000 easily) because we paid a big chunk down on the house. If it is down to investing as a way to beat out an interest rate by 2 or 3 percent and removing debt, go for the removing debt. You can make 15 percent in a good mutual fund if you have no debts at all.
