Downpayment or not

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

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@Anonymous wrote:

Strickly from the value down the road aspect, the car would be paid off by the time you decided to sell it or trade it in. If lets say, you only wanted to keep the car for 3 years, then the depreciated value of the car in 3 years could show that a down payment would be perferred so there wouldn't be any negative equity at time of selling or trade in.

There are other aspects that still need to be looked at as well.

- What would your payment be without a down payment?

- What would your payment be with a down payment?

- Between each of the forementioned senarios, would yo be ok with either payment or do yo need to be around a specific monthly payment?

- Would putting the down payment help you receive a better apr?

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Is going to be $436 with down or $575 w/o down payment. My concern is that if I put a down payment and the car is totaled I will lose it. Thats what is shown by the calculations, but If instead I take does 10k and pay the difference only in m/payments the GAP will kick in saving me a couple thausands.

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That is correct. With the monthly payment there is a $139 difference. Does that bother you at all? Can you handle the higher payment without  worrying about it? If you can, due to you wanting to keep the car for a long period of time, I say no down payment.

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but what if I take every month that 139 difference from the 10k balance I put aside, bringing me back as if I would have put the downpayment, but in the case of a total loss I only lose the amount taken month by month from the 10k (example 10k-139(month 1)-139(month 2)-139(month 3) etc)

[Chris679]

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@Anonymous wrote:

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@Anonymous wrote:

Strickly from the value down the road aspect, the car would be paid off by the time you decided to sell it or trade it in. If lets say, you only wanted to keep the car for 3 years, then the depreciated value of the car in 3 years could show that a down payment would be perferred so there wouldn't be any negative equity at time of selling or trade in.

There are other aspects that still need to be looked at as well.

- What would your payment be without a down payment?

- What would your payment be with a down payment?

- Between each of the forementioned senarios, would yo be ok with either payment or do yo need to be around a specific monthly payment?

- Would putting the down payment help you receive a better apr?

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Is going to be $436 with down or $575 w/o down payment (want to stay at $500max). My concern is that if I put a down payment and the car is totaled I will lose it. Thats what is shown by the calculations, but If instead I take does 10k and pay the difference only in m/payments the GAP will kick in saving me a couple thausands.

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Why would you lose the down payment if the car is totaled?  The insurance company pays out the value of the vehicle and if that is more than what you owe you pocket the difference correct?  If have seen this mentioned before and as I understand it there is no risk of losing any equity in your vehicle.  Yes the vehicle can depreciate quickly and you always run that risk when you buy new but I don't see how a down payment changes that either way. 

[Anonymous]

As someone who's car was totaled 3 weeks ago, I don't know that it really makes a difference. I bought a 2015 Nissan Altima in October of 2014 with no down payment but I DID get GAP through my CU. I'd had my car 16 months when a truck pulled out in front of me and smashed the the front of my car. The other insurance company valued my car at roughly 19K and my payoff was about $21,500. The difference of course was covered by GAP. If I had put say, 3K down on my car then I would have received the difference back at payout time instead of my CU so I would not have really been "out" my down payment. With that being said, I bought a 2016 Honda Accord and put down 3K simply to keep my payment where I wanted it. I could've very easily kept the 3K and used it each month with my payment to keep it where I wanted it. Unless I am completely looking at this the "wrong" way then I don't really think it makes a difference unless it affects the APR you get. Good luck with whatever you decide.

[Revelate]

Discounting inflation here for a bit: fact is you can get better than 1.5% return on that 10K, so when we're at prevailing interest rates if you're holding the car for a longer period than the loan anyway why put anything down?

Unless you have a habit of totalling cars, and it's being your fault... in which case fix that part of the equation and put yourself in a better financial situation later since odds are once these rates go away they're never coming back in our lifetime.  They may well stick around for a while though.

[Anonymous]

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@Anonymous wrote:

The other insurance company valued my car at roughly 19K and my payoff was about $21,500. The difference of course was covered by GAP. If I had put say, 3K down on my car then I would have received the difference back at payout time instead of my CU so I would not have really been "out" my down payment. 

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If you had put $3k down, your payoff would have been $18,500. You car was valued at $19K, so you would have recieved a check for $500....... so yes, you'd be out an $2,500.

[Chris679]

If gap insurance was worth the investment they wouldn't make so much money on it. He's "out" the $2500 in the above example only because he paid for the insurance. If you rely on gap and don't pay down the loan to match the depreciation your paying out the ass. Better to finance the full amount and pay ahead on the loan, the best of both worlds,

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

The other insurance company valued my car at roughly 19K and my payoff was about $21,500. The difference of course was covered by GAP. If I had put say, 3K down on my car then I would have received the difference back at payout time instead of my CU so I would not have really been "out" my down payment. 

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If you had put $3k down, your payoff would have been $18,500. You car was valued at $19K, so you would have recieved a check for $500....... so yes, you'd be out an $2,500.

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Right, I just meant I wouldn't have been "out" the full amount but of course everyone's situation is different and there is no "right" or "wrong" answer to the question. Others in a similar situation may get the full down payment back depending on the payout. I'm generally in the camp that if a down payment isn't necessary then I don't do it unless it affects APR. With my husband's truck, we skipped the down payment but apply extra to the principal to cut the life of the loan. 

As for GAP, it costs me $8 every 6 months so I will continue to purchase it. I'm sure most people never have to use it but for less than $2 a month, I'll keep it. ;-)

[Anonymous]

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@Chris679 wrote:
If gap insurance was worth the investment they wouldn't make so much money on it. He's "out" the $2500 in the above example only because he paid for the insurance. If you rely on gap and don't pay down the loan to match the depreciation your paying out the ass. Better to finance the full amount and pay ahead on the loan, the best of both worlds,

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this makes zero sense

[Chris679]

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@Anonymous wrote:

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@Chris679 wrote:
If gap insurance was worth the investment they wouldn't make so much money on it. He's "out" the $2500 in the above example only because he paid for the insurance. If you rely on gap and don't pay down the loan to match the depreciation your paying out the ass. Better to finance the full amount and pay ahead on the loan, the best of both worlds,

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this makes zero sense

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OK, ask yourself why banks or insurance companies offer gap insurance.  Are they just looking out for your best interests?  No, it is because it is profitable for them not you.  Most people who purchase gap insurance never use it and just throw away that money.  The argument for paying for gap insurance is that you don't want to be upside down on the loan.  Well if you don't want to be upside down on the loan you can simply pay it off faster to make sure you are never upside down.  This gives you the added benefit of saving on interest.  So not only do you save any money that you would have spent on gap insurance but you are also saving money on interest.  If you choose to purchase gap insurance and also choose not to pay the loan off fast enough to match depreciation on the vehicle you are paying out the ass. 

Many would use those reasons as an argument for a down payment and that would not be the worst idea in the world.  However, I argue that you can gain all of the benefits stated above and then some by simply financing the full purchase price and then paying down the loan quicker afterwards.  By doing that you gain all of the benefits I mentioned above but you also are now ahead on the payment schedule of the loan.  That means that if you were say 6 months ahead on the loan, you could stop making payments for 6 months.  This could come in handy if an unforeseen financial crisis came up and you needed to divert cash somewhere else.  I treat this as another layer of my emergency fund. 

Your credit score also benefits from the accelerated loan payoff because the % of remaining loan balance is a factor in your FICO score.  

How quickly you want to pay off the loan depends on the interest rate of the loan and whether or not that money could be put to better use elsewhere.  At the very least though you should be paying it off fast enough to match the depriciation of the vehicle.