Buy a car with no downpayment?

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berg
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Buy a car with no downpayment?

Postby berg » Mon Sep 24, 2012 11:19 am

I'm considering buying a slightly used 2012 car for $22,100 w/ tax included. Subaru is offering 0.9% financing for terms of 3 years with no down payment required. I could pay cash or make a large downpayment. However, at this interest rate, would it make sense to take the loan and keep the liquidity? The payment would be like $650 per month, which is a ton, but in 3 years I will only have paid about $300 in interest which doesn't seem like much to be flexible...

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Re: Buy a car with no downpayment?

Postby DoingHomework » Mon Sep 24, 2012 11:26 am

There's a good chance I would do that. If you put the total price of the car into a safe investment like a short term bond fund and make the payment out of that fund it will be essentially a wash. The bond fund will pay you about 1% which will cover the interest.

If you are responsible enough to make the payments and not incur extra fees and if you can truly qualify for a rate below 1% and have most of the money available in cash to put into the bond fund on the same day you buy the car, it makes sense.

If you do not have at least 75% of the cash then you should wait and save that up first.

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Re: Buy a car with no downpayment?

Postby Tightwad » Mon Sep 24, 2012 11:36 am

As someone who loans money for a living....I would do it as well. That's super cheap financing if you can get it. I suspect your credit would have to be sterling in order to qualify. I would be sure to read all of the fine print.

It's a little surprising that a dealer would offer that rate on a used car though.

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Re: Buy a car with no downpayment?

Postby Northern light » Mon Sep 24, 2012 1:31 pm

Skip the downpayment - buy the car with cash.

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Re: Buy a car with no downpayment?

Postby stannius » Mon Sep 24, 2012 3:07 pm

I would do it too. However, are you sure that you wouldn't be giving up any other discounts? Sometimes you have to choose between an up front discount and a below market interest rate.

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Re: Buy a car with no downpayment?

Postby DoingHomework » Mon Sep 24, 2012 4:21 pm

stannius wrote:I would do it too. However, are you sure that you wouldn't be giving up any other discounts? Sometimes you have to choose between an up front discount and a below market interest rate.


That's a good point. And I just realized this is a used 2012 car. That raises potential red flags. Was it a "lemon" that someone brought back? A repo? I'm not sure that it being a repo is bad but certainly you will want to be careful if it is a returned lemon.

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Re: Buy a car with no downpayment?

Postby MoneyMaster » Mon Sep 24, 2012 5:27 pm

I'm always a fan of low/no interest finance. The key though is that you are good with your cashflow.

If $650 is too much to pay, then don't even bother buying something for $22k. Cause with that interest rate you are simply paying it off in installments. The interest is negligible.

IF you are in fact good at managing your money, AND you stay ahead of your repayments, then go with the finance option. The BEST thing you can do though is, take the cash you were going to use to buy it outright, and invest it. Don't touch it, don't use it for anything else. At the very least you can put it in a high-interest savings account and draw the loan repayments out of it. If you have other alternatives, specifically ones that can get you 5-20% per year return, then this is the best option. (At the very least you need to earn more than $300 back on your cash)
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Re: Buy a car with no downpayment?

Postby dontgopoor » Mon Sep 24, 2012 5:34 pm

If you can buy the car with cash but are, in a way, choosing to borrow money at a rate below a return you could make elsewhere, it's a good choice.

But are you sure the price of the car is right?

My guess is that the low interest rate is being bought by a higher price on the car or a trap in the loan conditions.

Do your homework on the price of the car through a private seller.
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Re: Buy a car with no downpayment?

Postby berg » Mon Sep 24, 2012 5:56 pm

Thanks guys! All great points. The car seemed to run great and is a certified pre owned. I'll be taking it to my own mechanic in the morning. The dealer told me the owner traded it in for a fast car (a Subaru WRX), which are a bit pricier.

Anyway, you are right on the loan -- the 0.9% is only for new 2012 models. This is technically used. However, since it is certified, they website says 1.9% APR. The 0.9% seemed more like a no brainer. The car is a good value from the research I have done and I am prepared to pay cash, but considering the loan to stay more liquid. It would still be only $600 to finance, $300 if I put $12k down. I like the idea of not having a payment, but what do you guys think of 1.9%?

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Re: Buy a car with no downpayment?

Postby MoneyMaster » Mon Sep 24, 2012 6:11 pm

Just do the calculations for the interest cost (plus any loan establishment fees etc), at 1.9%

$22k * 0.019 = $418 per year. If you invest the cash, can you find a better return than 1.9% on your $22k invested (while you are driving your nice near-new car around).

If you can get a better return than 1.9%, then you are still better off.

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Re: Buy a car with no downpayment?

Postby timwalsh300 » Tue Sep 25, 2012 3:18 am

DoingHomework wrote:And I just realized this is a used 2012 car. That raises potential red flags. Was it a "lemon" that someone brought back? A repo?

berg wrote:The dealer told me the owner traded it in for a fast car


I always wonder where these "slightly used" cars come from. Has anyone here ever traded a car back in within a year? Does anybody know a friend or family member that has done so? What was the story?

I also wonder where you can find these cars for 20-30% off the price of a new one, as many people believe is possible. I've never seen it. How does the quoted $22k price compare to the cost of a new one?

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Re: Buy a car with no downpayment?

Postby DoingHomework » Tue Sep 25, 2012 6:53 am

timwalsh300 wrote:
DoingHomework wrote:And I just realized this is a used 2012 car. That raises potential red flags. Was it a "lemon" that someone brought back? A repo?

berg wrote:The dealer told me the owner traded it in for a fast car


I always wonder where these "slightly used" cars come from. Has anyone here ever traded a car back in within a year? Does anybody know a friend or family member that has done so? What was the story?


I do. The car was a lemon and needed numerous repairs in the first few months. The repairs were covered by warranty but still...

Berg, you can ask the dealer for contact information for the guy who turned it in and call him. The dealer can refuse or give you some BS story. But he has it. If he won't give it to you then you shouldn't buy the car. Don't buy some story about privacy either.

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Re: Buy a car with no downpayment?

Postby berg » Wed Sep 26, 2012 6:59 am

Quick update -- the car checked-out at my own mechanic. Said he would buy it himself, so I think I'm going to pull the trigger.

In terms of financing, sounds like I can get a 1.99% APR with no origination fees.

I'm on the fence here. Part of me says just pay cash and get it done with. But if I take a loan out for $10k of the price, I'll only pay about $310 in financing (so about $100 per year). Even financing $20k would only be about $619 total.

What would you do given the rate? 0.9% seemed like a no brainer. This has me a bit more on the fence since the cash wouldn't be doing better in the savings account, but does sound nice for some liquidity. (Though mostly I think it would be nice to be loan free every month, even though it's a big check to write right now).

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Re: Buy a car with no downpayment?

Postby Kate1 » Wed Sep 26, 2012 1:54 pm

Personally, I would pay cash and be done with it, but that is as much a comfort thing as a numbers decision. Although, if I was going to do a loan, I'd want the cash sitting in something guaranteed like a savings account or GIC. With interest rates so low, I doubt I'd earn enough after taxes to pay the 1.9%. So even with the numbers if might make sense to just pay cash for it anyway.

To me it is just simpler to have no loan payment to deal with.
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Re: Buy a car with no downpayment?

Postby peachy » Wed Sep 26, 2012 3:07 pm

I was in a very similar predicament that you are in, and I ended up taking the loan and not putting anything down. The payment is a bit steep, but I'm a hoarder of cash, so I like having my full piles of cash here and there. I am paying extra on the loan so that I have it paid off sooner, but I feel like you can't beat 1.9%. I'm sure when I get a bonus or a few extra dollars, I'll get tired of sending a payment every month and pay it off, but for now, I decided to keep the cash in my bank account.

It does seem strange that the guy is already turning in a 2012, but whatever. Your gain.


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