Auto Financing Options - would love an opinion

[iheartwings]

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@pipeguy wrote:

Personally I'd go with option 1 or at least look to finance it for 48 months, some credit unions offer very low rates on used cars (1.74 for new at DCU, I'd have to check their used rates). If you get a loan for 1.99% and you are earning 1.00% on that money you are paying less than 1% to borrow and it leaves you more liquid should you need it. You can make $1000 payments or if you'd be replacing the $30+ K within a year, you can just use those funds to make $2500 or $3000 payments and pay it off in a year while maintaining a good cash fall back position - if you come up short one month, you'll be so far paid ahead you can skip a payment. I think if you look at the math you'll pay very little in interest and this way anytime you decide to pay it off, you always have that option.

If you can pay it in full and still have a good solid cash position that you can fall back on, say at least 6 months, better 12 months for all expenses, okay option 3.  

Edit / Add - just looked DCU will give you upto 65 months at 1.74% new or used

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Thanks for this viewpoint. I appreciate your POV. 

I guess my question is how liquid do I really need to be? The amount for the car is less than half of what I have put away in savings and easily liquidated investments (excluding my retirement funds) with replenisment in about 10 months (I actually sat down and figured this out). 

[iheartwings]

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@Anonymous wrote:

I'm a firm believer in cash-reserve/nest egg maintenance, myself - but, that being said, I'd totally take number 3.

Assuming you are in a solid, predictable position to replenish at least most of these funds by the end of one year, you win on both ends - less "lost" interest on the cash than you would pay out in a year on the loan amounts, and a car to which you hold clear title immediately.

If a disaster struck, heaven forbid, in addition to liquidating funds and having at least a partially-rebuilt savings account (an account which, as you pointed out earlier, would not have a zero balance after taking out the car money, in the first place) you'd have an asset which could be used as collateral for a loan or could be sold if the situation was dire.  And, if life just carries on as expected, you'll have clear title, you'll rebuild your savings to pre-car-purchase level, and you'll still have the car you love at the end of the year.

Being conscious of savings and trying to maintain them long-term is financially healthy, but you are in a position to buy yourself out of needing a loan/paying interest and have a solid plan for replacing the funds in a short period of time.  And, if something was to happen, you have reserves and availble credit to handle that if/when the time comes.  I don't really see any need to incur a new loan in your situation.  

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I'm becoming more committed to paying this off for the very reasons you mention above. Sometimes I just need to think about this in various ways out loud to get to my answer.

I ran my numbers not even considering interest and growth of my investment accounts and realize that be back to prepayment balances at about 10 months. That's excluding any additional deposits from bonuses (a new thing for me this year). 

[pipeguy]

I just added some numbers to my second post, just something to consider....

[surferchris]

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@Anonymous wrote:

I would go with option 3 and pay cash.  (Though it's easy enough to float a zero interest loan for 12-21 months using credit cards.)

It depends also on how secure is your income stream.  Keep in mind if you have a short term cash flow problem, you can apply for zero interest credit cards that would allow you to put most of your daily expenses on a card, pay the min and not pay any interest for 12-21 months depending on the card.  It is sort of like a short term emergency fund, though morel like an emergency loan.

For me, it's more comfortable to not have any debt than to have a lot of cash, or at least have debt that is zero interest and flexible payment plan.  Right now I carry a balance on my credit cards, but it's at zero interest and I have more than enough cash to pay it all off, but it feels better to have the cash and just make min payments until it gets closer to having the zero interest period elapse.

You could apply for one or even two zero interest card like say US Bank cash plus, use it at near the max credit limit they give you to pay part of the car payment, say they give you 15K, pay 14K wiht the card and keep more cash around for a year or more.  Or if you get two, then that is 28K in cash on a credit cards at zero interest.  I am asusming the car dealer won't mind taking a credit card, which you would need to check first.

Your credit rating would take a hit, but it would recover as you paid down the cards, and you do get all sorts of points.  You could use the Cite Double, but I think they usually only give 9 months of no interest in the mailers I get.   2% in cash back would beat your 1% savings rate.

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Good advice and analysis.

[iheartwings]

@pipeguy -

Thanks so much for your analysis! That was super helpful. 

I have an odd emotional (for lack of a better word) attachment to putting $$$ toward a savings account rather than funneling it all toward an auto loan for 12-months. Also, paying off the car sooner means that I have a clear title while I'm paying myself back. 

Then, there's convenience. That said, there are no local CUs offering that rate. The 1.74% rate requires that I open another chcking account, meet the requirements for relationship checking, and have funds auto drafted (or be subjected to an additional 0.5% added to the rate). To join DCU, I'd have to join another organization to become eligible to join (costing anywhere between $10 and $120).  

Perhaps I'm lazy, but I really don't want to open another checking account (I've been trying to close deposit accounts to simply things). If there were more substantial savings, then joining an organization that I have no real interest in and opening another account could be worth it. Based on your work, however, the savings are not great enough for the work (or, as my SO says, "the juice isn't worth the squeeze" - at least in this situation).

So, in the end, I'm going with option 3.