Cash or finance dilemma: Replace 12-yr-old SUV. $45K cash vs. down payment & 5% interest?

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  • #91335 Reply

      We are in the market for a new car to replace our 12-year-old SUV. I am facing a dilemma, whether to pay cash (likely somewhere around $45000) for this new car, or whether to put a substantial down payment and pay the interest (likely somewhere around 5%) on the 60 months.

      As a background, we are in our early 40s both with about 400,000 in our 401(k)s, about 45,000 in a brokerage, a small Roth and about $110,000 in a high yield (emergency fund/money being held for possible down payment on rental property… But we could use some of this money for the car).  We have no other debt other than our mortgage, which is at about 3% interest.

      We have excellent credit, but the rates are just awful right now.   Thanks!!

      #91336 Reply

        We just bought our new Outback last Sunday, 1.9% for 48 months (Subaru goes through Case). No idea what the qualifying score needs to be with it but, they said I was 866 and wife was 850. Didn’t quite understand as I was under the impression 850 was maxed out nowadays.

        We opted do only do $3k down and finance the rest as as it’s a business expense/ writeoff. To me it makes sense as to finance at 1.9% and let your other funds grow at a 6-8% in an investment.

        #91337 Reply

          We have financed before in order to take advantage of some incentives that were offered through the dealer, then just paid it off when the first payment was due.

          Just do the math first, because sometimes this makes sense and sometimes it doesn’t.

          Explore these too: We need another older used vehicle. midsize SUV (Acura MDX maybe?)

          #91338 Reply

            Cash. But maybe a less expensive car. Maybe used for 40%-50% off new price. Some will always argue for new, but that’s a different conversation.

            #91339 Reply

              I believe if you look around there are several companies offering 1.9% right now… I wouldn’t exactly call that awful…

              #91340 Reply

                Cash, but maybe research a quality car, with a history of being reliable, then look for a certified used. Or used, still under warranty. Newish, instead of new off the lot.

                #91341 Reply

                  Is there a reason why you are replacing your SUV other than its age? My SUV is 18 years old and I intend to drive it for another 5 or so.

                  #91342 Reply

                    I decided to lease 2 1/2 years ago, trading in my 12 yr old Corolla as my down payment and Prius prime has been $149 month. Not sure if there’s still good deals like that. I’ll have to return in 6 months. I’ve kept mileage under 20k and looks like places like caravana will buy it first more that I’ll have to pay the dealership to keep.

                    Technology is just changing so much that I couldn’t make another 12 year commitment.

                    Also, check out: Is there a way to check why my car insurance is so high?

                    #91343 Reply

                      Buy it outright. I only lease because it’s a benefit to my company, but with car loan interest rates right now, if you have the cash, use it.

                      #91344 Reply

                        If you buy used, those are the rates. For me, when I ran the numbers, I REALLY wanted slightly used, with my GM discount, it was better to buy brand new and get the 1.9 for 36 months (which made a $1k/month payment) and keep my $ in HYSA.

                        #91345 Reply

                          Some car makers offer incentives. If you know the make and model you can look it up. Two years ago I bought a Toyota RAV p, put a nice chunk down and was given 1.9% interest.

                          It cost the same as a newer used with the break in interest.

                          #91346 Reply

                            Sometimes it’s best to take the financing (bc they get better incentives that way) and pay the loan off the 2nd payment. I’ve known a few ppl that have done that. Just be sure there is no prepayment penalty. There usually isn’t.

                            Also check your local credit union.

                            They generally have the best rates and are so easy to deal with

                            Don’t forget to take a look at: How do I decide what to spend on a car?

                            #91347 Reply

                              A lot of cars manufacturers have finance deals going on if you hv great credit scores. Do your due diligence. I had also gone with the intention of buying cash or atleast 50% cash but ending up getting all financed at 1.49% for 60 months in Dec last week.

                              It didn’t make sense for me to even give a down payment since the benefit of just keeping it in a HYSA was higher than keeping all cash.

                              #91348 Reply

                                Don’t tell dealership you’re paying in cash. See what incentives and offers they have. Go around 6 pm on a Friday or Saturday and wait till closer to the end of the month.

                                Whatever their best and final deal is, ask for something else and then…..walk away when they no. That night. Promise you. Some of them won’t let you out the door, some will cave and call on Sunday.

                                I’ve gotten dealerships to pay doe my tag, title, and tax this way everytime.

                                Besides you can always leverage you’re paying cash against their “best and final”.

                                Get it in writing. And don’t fall for the $800 break lights that blink three times. That’s a $50 par on eBay. 🤣 best of luck to you.

                                #91349 Reply

                                  I am in a similar situation. I traded my old car in and got a brand new car with 4 years warranty and free service plan for $30.000. I don’t have to worry about any service or repair $ for the next years, and that eases my mind.

                                  Buy cash and be done with it, is my best advice.

                                  #91350 Reply

                                    Pay cash. Your net worth, even not including your home equity, is about $1M. Spending less than 5% ($50K) of that net worth on a new vehicle is reasonable and within bounds mathematically.

                                    You’re finally at a place in your life where you don’t have to borrow for a depreciating asset. Real the benefits of that hard work and enjoy your new vehicle payment free!!

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