Alright guys, I need opinions/advice...

I might pick up my scooby in 2 weeks. http://www.i-club.com/ubb-files/smilies/biggrin.gif I have enough in savings to pay for it outright (believe me - sweat and tears and very little luck) and enough left over to be safe for about 2-3 years should something happen.

Now I'm wondering if it makes more sense to finance part of it anyway, to be even safer and possibly build a garage.

Here's the tricky part. Let's say I finance $15,000. At 7.25% for 48 months, the sum of payments is $17,325. That means I'm paying $2,325 for the loan, but this is not present value. Assume that I keep the $15,000 in a short CD or bank account at 5% (forget stocks), the cost of the loan is now probably about $700 (?- please tell me if I'm way off).

You guys have any advice or more info on what I should do? If I pay it all out at once, I don't pay interest, but I might be in a bind when a baby comes by or I want the garage, etc. http://www.i-club.com/ubb-files/smilies/confused.gif TIA

P.S. - Sorry, didn't mean for it to be such a brain-buster High School math problem! http://www.i-club.com/ubb-files/smilies/tongue.gif

In my opinion. . .
. . . You should do what you feel comfortable with. If that means that you pay it off, then that's what you do, otherwise, finance the difference. Surely you have a preferrence and are looking for some kind of support here; am I right?

Play the "What's more likely game" from Dilbert fame. (no, really!) If you will most likely have a baby in the next 2 years or the garage is better than a 50% done deal, you would be better to finance part of it for safety sake. This will mean that you will have a $400+ payment for the next 3 years? Is this in the ballpark, realistically? Is your job secure? These are all questions that you have to answer.

When I looked at the same question, I considered the condition of the stock market, interest rates, loan term, state laws on consumer loans and my job. I ended up financing everything beyond what I thought I would get for my current car. I can pay it off at anytime without penalty where I live (Alaska). That was the determining factor for me, kind of a safety net if I feel that I need to reduce overhead.

Let me tell you, the WRX made this decision a lot easier than the S4 I was considering. http://www.i-club.com/ubb-files/smilies/biggrin.gif

Good luck

There was a post earlier about a question of financing. You should try to find it. There was some useful information there and a lot of it would be repeated. As for your situation, I know I posted some information there and alternative costs. Deductibility and non-deductibility of interest, assumptions on interest rates, etc. Its a useful thread. http://www.i-club.com/ubb-files/smilies/smile.gif

Keenan

You might be better served getting a home equity loan if it is at a comparable rate, and if you can deduct the interest from your taxes.

Me, I don't believe in borrowing money. If the time comes when you want a garage, or need to pay for a baby, you'll have some time to put financing togther then. Meanwhile it will be YOUR WRX, not the bank's!

Here's my suggestion.

1) Since you're considering building a garage, I assume it's your house.
2) Plunk all but 5k or so into your mortgage to gain more equity.
3) Open a home equity line of credit. Not a loan, a line of credit.
4) Pay for the WRX with the LOC. Your interest may be tax deductible (speak with your accountant/tax advisor) AND, if for some reason, you can't come up with the 400 for a monthly payment... You only have to pay the interest every month. Sure, it adds up, but if you have a baby and need to lower the amount of cashflow, you can just pay less. It's easier than refinancing. Pay as fast or as slow as you want. It will be a higher rate, but by making a lump payment on the house like that you'll take YEARS off the mortgage. http://www.i-club.com/ubb-files/smilies/biggrin.gif
If you don't have a mortgage, nevermind. Put some of the money in a high-yield account and buy the car. Get a low interest loan for the balance. Check out the credit unions you might be able to join.

I disagree. An automobile is not an asset that will appreciate in value. Any money spent on financing is money lost. Buy the car outright, and shop around for the best deal you can find.

If you do finance some of the cost of the car. Finance it for as long a period as possible, but pay it off as quickly as possible. You will greatly reduce the amount of interest paid, that way.

[This message has been edited by gavin (edited April 18, 2001).]

Buy the car outright, especially if you own a home. Your car loan will cost you (say) 7.5% APR; your savings are probably earning you maybe 3-4% tops after taxes. So you're borrowing at a high interest rate and saving at a low interest rate. Not good.

If one of your "what if" scenarios comes to pass, you can take out a home equity line of credit to cover that emergency.

If you don't own a home, it's more complicated. Ditto if you have lots of high-rate credit card debt.

Good luck,

Don

PS: I teach finance for a living.

I would go with Don's advice.

Also, if you're paying for a car with cash outright instead of financing, you might be able to leverage a better price on the car. Don't take my word for it, but that's what I've heard. Now if only I'd follow sound advice, and make wiser choices, maybe someday I could pay for a car w/cash outright. Don't know if it'll matter. I think I'll stay with my Sube for as long as it'll run. I should've done that with my Cavalier, but I had a circumstance and my patience had run out.

Brian

Sooberman - If you can pay for something up front without harming your long term financials, DO IT! Not having a $300/mo car payment hanging around is a VERY nice thing.

Wow! I knew it was a heavy question. http://www.i-club.com/ubb-files/smilies/confused.gif Thanks everyone! You guys are great at giving new perspectives. I have a house and mortgage and I'd fogotten the consequences of defaulting on a loan in a worse-case scenario (must factor that in too).
I am married as well and my wife and I keep somewhat separate accounts.
I'm thinking of a third option: Pay for it outright and if I get into trouble, see the wife! http://www.i-club.com/ubb-files/smilies/tongue.gif Only problem is that it would be quite a heavy price to pay. http://www.i-club.com/ubb-files/smilies/eek.gif I'd be "paying for it" for many years after that!

I dunno... call me paranoid, but with the economy the way it is, I wouldn't feel comfortable dropping all that cash. Actually I didn't, so I didn't pay cash for my WRX either.

Being in the computer field, and having recently had to change jobs to stay employed, and with the economy looking as crappy as it is, it may be a good time to sit on your funds for a little while until things start to look a little more rosy (hopefully today was the beginning of something good!).

SO, here's what I did. Got a 48 month loan and paid a pretty good chunk of a down payment. If the economy picks up, or if my job security becomes incredibly good, I'll simply pay off the loan. But, if things keep going to the crapper, I'll just have a smallish monthly payment that I can probably deal with, and will still have money in the bank to cover any unemployment.

That's my situation. I guess if you've got solid job security, pay it off. Otherwise, I dunno... (-:

-tim