topic Re: Down Payment Vs. Trade Value in Auto Loans

Down Payment Vs. Current Loan Payoff

TSlop — Thu, 24 Sep 2020 14:29:09 GMT

I'll be trading in my current vehicle in approximately 3 years for a 2024 model year vehicle. I'll likely still owe some on it, which will be tacked onto the next loan. I have a car fund started that is collecting funds to go towards a down payment. However, I've been concentrating more on whittling down my current loan. What are your thoughts on what will give me the best bang for my buck to help keep my next loan as low as possible? Applying extra money to my current loan or saving extra money for a down payment? TIA.

*EDIT* Updated the title since the trade value of the vehicle isn't actually affected by this.

Re: Down Payment Vs. Trade Value

ccquest — Wed, 23 Sep 2020 23:27:01 GMT

Depends on the state, some give tax benefits for higher trade in value others don't. Saving the extra money prepares you for either situation and any other hardship that might appear along the way though.

But if your rate is high, paying it down faster will make it cheaper. In my eyes, (assuming a loan at 0%) whether you pay it now as additional payments, just before trading it in, or roll it into the new car loan, you're still spending the money so it's just a matter of when.

Re: Down Payment Vs. Trade Value

TSlop — Thu, 24 Sep 2020 01:49:58 GMT

@ccquest wrote:
Depends on the state, some give tax benefits for higher trade in value others don't. Saving the extra money prepares you for either situation and any other hardship that might appear along the way though.

But if your rate is high, paying it down faster will make it cheaper. In my eyes, (assuming a loan at 0%) whether you pay it now as additional payments, just before trading it in, or roll it into the new car loan, you're still spending the money so it's just a matter of when.

Thanks for your input. In PA, the trade-in takes down the price of the new car, so it ends up as a tax savings. The more I think about it, the more I think it won't matter which route I go, unless I'm able to pay off the current loan before the next purchase.

Whittling down the current loan won't have an affect on the value of the trade-in, which is what will be generating tax savings on the new car. I don't have 0% on my loan, but I now believe paying early won't help with the interest, since the loan will be paid off early by the dealership, which would save on whatever interest is left on the rest of the payments anyway. That's assuming I still owe on the car in 3 years; if I whittle it down to nothing before I trade it in, I'd save on any interest on my current loan between that payoff day and the purchase of the new car.

I suppose the real question I should ask myself is if I can pay it off before then. If I don't think I can, it might be best to stop paying extra and just put that in my back account. Time to do some math with my finances!

Re: Down Payment Vs. Trade Value

ccquest — Thu, 24 Sep 2020 02:42:14 GMT

IIRC Florida just considers the value, regardless of equity in it - is PA the same?

Re: Down Payment Vs. Trade Value

TSlop — Thu, 24 Sep 2020 03:30:02 GMT

@ccquest wrote:
IIRC Florida just considers the value, regardless of equity in it - is PA the same?

I believe so.

I've traded in 2 cars so far, and I always see the full trade value, which then gets subtracted off the new car. That final amount gets taxed and then they'll add on your payoff amount on top of that in the next loan.

This made my most recent vehicle only cost $6k instead of $30k. Saved about $1,400 in sales tax. If other states don't do that, it would be a bummer.

Re: Down Payment Vs. Trade Value

chfenton — Thu, 24 Sep 2020 12:58:53 GMT

@ccquest wrote:
IIRC Florida just considers the value, regardless of equity in it - is PA the same?

I believe so.

This made my most recent vehicle only cost $6k instead of $30k. Saved about $1,400 in sales tax. If other states don't do that, it would be a bummer.

I think this is the most common approach...just did this in Georgia last week.