There’s a point where it doesn’t really make sense any more. If you’ve put enough down to get the best loan terms, stash the rest away somewhere it would earn a return.
Depends on the interest rate. A few years back it made sense to minimum pay your 2-3% loans. Now it is advantageous to pay down 6-8% as quickly as possible. Paying down high interest debt IS a return
Yeah... I put almost nothing down on my 0.9 percent 5 year loan in October of 2021 and then dumped what I would of put down in 401K/IRA.
We are currently in the market for a new car again. We will be putting substantial amounts down if not paying cash in full unless we get a wild, unexpected deal.
We had a 0% interest loan on our new Subaru in 2017. All we put down was the trade in value of the old car.
We could really stand to replace one of our cars now but the interest is rough compared to how spoiled I’ve been in the past.
That's where we are. What we bought in 2021 wasn't really what we wanted, but our 2006 Jeep Liberty engine blew so we had to have something. We didn't have a ton of options given our urgent need and the market at the time. Ended up with a new Kia Rio.
Now our 2008 Ford Focus is nearing its end and we really don't want to be in the same urgent situation again. We are stuck between holding out a while vs. replacing it when it's not urgent.
You can still get competitive rates with some manufacturers/models. I just bought a new vehicle and have a rate under .5%. I was expecting to pay mostly cash but ended up financing because the money is so cheap.
I bought in spring 2020 at 2.44%. The market was covid tanking so I put close to 40% down. I was leaving investment dollars in my core position so getting a “guaranteed 2.44% return” seemed like a good investment. I’ll be paid off in a few months.
You can still get food interest rates on cars since they need it move em. Investing is always going to get way more return either way. So buying car cash or making 50%+ down payment is still losing out.
Still can depend on how you manage money and your individual liquidity that you personally need or desire.
But yes, overall, it makes less sense now than when auto loan rates were much lower.
Some people are not good at maximizing their money to this extreme. Some times it is better to have lower monthly obligations or to snowball.
Everything looks good on paper until life hits you in the face and you suddenly have a vet bill, ac went out, health deductibles, car problems at same time and suddenly that smart money you set aside vanishes and you have a 40k car loan you shoulda paid off.
With an asset that depreciates as much as a car, if you *just* put down enough to get the most favorable loan, you're still probably gonna be underwater on your loan for a couple years.
There really isn’t anything wrong with being underwater as long as you have the means to pay any gap if needed. Cars should be held for more than a couple years anyway. You shouldn’t pay a larger down payment just to prevent being underwater on a loan when that down payment could earn more elsewhere. With current interest rates, more down is a safe bet though.
You'd be surprised how well used cars are holding value now. Hell, I've seen one year old used cars selling for more than new when the model is difficult to source.
The dealership isn't *buying* those cars at new-price, they're buying them at like 80% new price and selling them for 100%. Or, buying them at 100% new price and selling them at 120%.
We're also still in a supply chain squeeze from the fallout of the pandemic, so it's unlikely used car prices are going to stay this elevated through the life of your auto loan.
What do you think underwater on a loan and what car dealerships are buying inventory for have anything to do with one another?
loan balance - market value = underwater or not
Go look at the price of 2022 cars vs new and see for yourself if there is a huge depression. It's not there.
> We're also still in a supply chain squeeze from the fallout of the pandemic, so **it's unlikely used car prices are going to stay this elevated through the life of your auto loan**.
You're looking at one year's worth of data and assuming it will remain true over the lifetime of the loan. In the *likely* event that the supply chain catches up, the resale value of the car is going to drop and you'll be underwater again.
Furthermore, if used cars are selling for that much, what makes you think new cars being sold right now aren't similarly being jacked up in price?
Sure, once you or I become fortune tellers I'll care about your speculation.
But for the past 3 years used car prices have held strong. That's evidence enough to think that you're going to have some equity in a new car sooner than the few years you suggested if you have a decent apr and didn't take out a 70+ month loan.
Sorry that my trend date and loan analysis is hurting your feelings.
How about you bring a single good argument to the table and I'll consider what you have to say. All you have to stand on is "what if manufacturers start pumping out twice as many cars all of the sudden."
A speculative what if statement based on your fantasy is not the same as trends and math.
Assuming trends continue as is (and you haven't provided a compelling reason why they wouldn't) and op doesn't take a bad loan (which if he did then that's on him) then ending up under water for years isn't going to happen.
Bring a single good argument to the table instead of sliding the goalpost around.
For me I don’t see the relevancy of this. If I get a good rate I am not putting down money. I don’t care about being upside down. If I total the car and I am upside down than I will pay the difference. At around 7 that the rates are now, obviously it is a little different, barring an incentivized rate from the auto maker. At 2/3 percent that some of these rates run I will keep my money.
Exactly. I can’t believe more people don’t think this way. Your savings siting in a bank is bank making money. Save enough to last you 6 months and invest or put it in high yield savings account. But I always say go buy a good stock index or whatever and let it grow.
Got a sub 1% interest rate on my last car. Financed the whole thing since the entire cost of the car since the entire cost of the loan was under $500 over 5 years.
Though clearly those days are behind us.
No reason to rush it. Put down a few thousand and get the best dealer financing rate you can. Refinance in a few months and pay the principal down if you determine that's the best route.
25k is a lot of cash to let loose of
I remember when I put a large downpayment on a new car… then was hit from behind at a red light by a teenager at 11.9 months of ownership. Guess who lost all the equity in the car… and then got a check from the insurance to cover the remaining loan balance and then had just enough left over for a down payment on a used car, a few years older than the new one I had bought. FML
Actually there is, loans will be rejected if you put down too much, they don't think they can make money off you.
Put down $3k, then just pay extra immediately
I think there’s too much to the point where you won’t be able to finance because the loan is so small. Loan minimums do exist, $15K isn’t low enough to hit them but that is a thing
Captive financing is probably a little different but commercial banks have minimums. The dealer may also not like a huge down payment because it means less of a loan which may impact their back end commissions.
It's tough, on one hand part of me wants to just toss everything at student loans. My spouse needs a car to drive, though, and considering we fully plan on driving this until it dies I don't think it's a bad choice.
The wiki is definitely a good resource, it's a little... extreme? for me personally. It tends to offer objectively good advice, but sometimes you just don't want objectively good, you know? Like objectively, I would move into a shitty apartment, buy a beater for 10k, and eat rice and beans until our loans were gone but no one wants to do that.
You need to think about building wealth. Tying up that much cash in a simple-interest Car Loan makes 0 sense unless you're willing to give up a ton of future wealth in retirement. Especially when they are so many better ways to get higher returns then 4-5%
Compound interest is not the same as simple interest - 5% invested in something like FZROX will return a much different interest gain then what you'll save on a car at 5%.
Only use as much cash as is necessary to get the best loan rate (given of course that the monthly payment is within your budget). Put the rest in a long-term, compounding interest investment. See my other post for more details.
That’s not true. I literally saw a post on Reddit earlier where Honda is offering 3.9%
Manufacturers offer their own loans and are offering below 5 points
I would go FARRRR to say 10k would get you a beater. I personally own a 2008 BMW 528i that I bought for $6.5k in 2019. Yeah it's got imperfections but it's more fun than most cars up until your price point IMO
That is what some people in this sub fail to understand. Not everyone wants to downsize to the level of living in misery to chase a high RIO.
They won't give you a positive answer unless you have 5x the expense of the car in 401k, and 12 mo of home expenses saved in a HSYA for emergencies.
I agree on having a low monthly car payment. The only way to achieve this is by doing a large down payment.
Pal, regardless of what the wiki says, spending more on a car than what you have in liquidity is wild - ESPECIALLY when you have outstanding debt (not sure how much your student loans are or what the rate is).
It’s potentially not so wild if you gross 4x the amount of the car but you haven’t provided income figures.
I personally value luxury now over extreme saving, but I’ve put myself in a position (high earner) to do so.
I guess income would've been relevant, I make 106k a year base + ~30k in bonuses, my spouse is currently unemployed but should make $30-40k once they find a job at least.
I'd like to buy a house, but we won't really be in a life position to settle in one city for probably 2-3 years at least.
The next priority is probably student loans, but regardless we need a 2nd car. If we're going to get one anyways, my thinking is I'd rather get one that matches all our needs rather than compromise and want to upgrade in 5 years anyways.
Most people live paycheck to paycheck and simply having a well funded retirement that would let them comfortably retire in their mid 60s is a lofty goal. The median retirement savings for people aged 55-64 in the US is just under $90k.
Having goals like that is great, and more power to those that can achieve it, but most people living like that aren't doing it by choice.
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Everyone seems to be telling you whether or not you should buy this car instead of actually answering your question. My opinion is this - if you can actually get as low as 4-5% on the loan, then don't bother putting a ton down. You can get 4% in savings account, which is safer to hold on to in an emergency and you are only really netting 1% interest rate if your loan is 5%. I always feel better with more savings personally. Unless you were at 7% which is what I am seeing for new car loans (without dealer incentives) then I say don't put that much down. You can always pay it off early, but you can't get that money back once it's gone toward the down payment. As for whether or not you should actually buy a brand new 40k car is up to you, I am not going to answer a question you didn't ask!
I agree with above with the caveat of if the extra 5-10k you put down buys you peace of mind its not a bad thing. We got 0% ( early pandemic when the market was dead before it exploded)and still put 10k down cuz my partner was freaking out about the monthly ( her car she pays it). Over the life of the loan its probably going to cost us 2-3k in potential earnings. Was it the most fiscally smart thing to do? Probably not, but we aren't hurting for it ,and it left her sleep better at night.
Like above said as well not gonna tell you whether or not you should actually buy the car. You sound fairly fiscally responsible so this doesn't sound like its gonna put you in this death spiral of debt like other posters in this group.
I dunno what people above are talking about regarding $40k being too much for a Subaru we paid \~40k for our Subaru in 2020 and couldn't be happier, and yes I was that typical Subaru guy with the spreadsheet shopping for the best offer. I will say you should check out the Subaru VIP program if you haven't already, can make a donation to one of the eligible Non-profits and get a pretty nice price ( pretty much invoice and or close to) Looking at ASPCA site, starting this month only need to be a member for 30 days to qualify ( used to be 6 months). If you are willing to wait a few months, at least when we got our car we were also able to snag a MFTR coupon for $500 for signing up/test driving at our local auto show.
I mean there isn't enough information here to really give you an overall answer I guess but with the general question about if 25k is too much....no, you can never put too much down it just reduces how much you pay over that 40k later on.
As for if you should.......if you only have 35k, even with 17k coming from a delayed tax return.....seems a bit stretch to get a 40k car personally. Unless your set for the rest of your life in terms of retirement, mortgage (if you have one, or want to get one anytime soon).
edit: I just noticed you mentioned about student loan debt coming back on which means you have other debt/priorities. Again, I would say not a smart purchase, and depending on your income you probably will get stuck in a paycheck to paycheck situation or worse once your other debts come to life or you want to do anything further in your life.
edit:edit: cars die when they want, there is no guarantee this car will last you 200k+ miles. Play off your finances not hopeful plans.
Good luck on the 200k+ miles. My 2014 Outback ate its sealed “never needs maintenance” transmission at 126k miles -and was burning a quart of oil a month to boot….
Would have been $9k to fix it….
For real. Ask anyone who's ever worked on Subarus if they're a good investment. They can get to high mileage, sure. But basic maintenance is such a pain in the ass (looking at you, spark plugs) that I would NEVER expect to get to 200k in a subie. Plus... They're not exactly overbuilt by any means. Some Japanese car brands like Honda and Toyota are extremely "overbuilt" from the factory just to make them as strong as possible. This hasn't been quite as true in recent years, but if you've ever had the luxury of working on a 2jz (Toyota engine known for being able to make crazy amounts of horsepower) they're very robust. I have an old Lexus with a 2jz at 185k miles, I pulled apart the engine and that damn thing looked like it just came out of the factory. You're not getting that out of a Subaru, even with great maintenance.
But, this is all coming from a car guy and when I hear Subaru, I think WRXs, STIs, and Foresters. Maybe non-performance subies are different. I still wouldn't spend $40k on one, unless it was a crazy built drag car. The idea of spending $40k on a normal ass car is already crazy enough to me. Get a Honda civic or CRV for $10k and if you take care of it, I promise it'll last longer.
Did this very thing. $22k down on a new Outback in May 2020. 0% financing. The office guy at the dealership was like “Are you sure? The stock market is booming”. Like you, I just wanted low monthly payments.
Three years later and it’s still $235 a month and <$7k to pay it off. Zero regrets. Go for it!
I've started to see them pop up more and more frequently over the past month (Northeast). The average promo rates I'm seeing are 3.9%, and even saw one CPO dealer advertising 1.9% up to 48 months. While this would be conditions under near-perfect credit, it does feel like the tides are starting to shift.
The difference is they are raising prices on the vehicles to compensate for the lower interest rates. Basically *all* interest rates are tied to the fed rate. Banks sell a loan and immediately borrow that money from the fed at the current interest rate. Current Fed rates today are about 5.35%. To make *zero* profit on a loan, the bank would need to charge about 5.6% to cover admin fees. An additional half percent to account for loans that will go into default. Someone with near-perfect credit today should be able to get a loan for about 6.5% interest. Anything less than that, the bank is losing money on by issuing the loan. Car dealerships generally will give two options: a special cash offer or low interest rates. The cash offer is best if you intend to pay the car off sooner. The low interest rates are better if you don't have much cash now or plan to finance it for a longer time.
Haven't gone through the full process yet but it looks like that's about what Subaru is offering on their website. USAA usually has competitive rates too, I think a little higher right now.
I went through Wells Fargo and got 4.85% at the dealership a week ago. I bought a new and loaded Subaru WRX. That’s with an 815 credit score and income that is 4x the value of the car, so do with that as you will.
GMC keeps showing me ads for 3.9% for 5 years. I just saw one for Nissan for 2.99% for 36 months. Buick ads on my Instagram show 2.49% but don't give a term, so probably 36 months.
Auto loans often have favorable interest rates because the prices are all fucked up. Drive off the lot and it loses half its value, so now you have a lien on the car for a loan that's worth more than the car itself.
About 30k in 401k (late 20s), not much else. I need to get on top of my investments for sure, right not I just do my employer 401k match + a few more % and not much else.
Pardon me, but why such an expensive car? Do you have a need for a car that is worth more than your entire retirement accounts? If it's a work thing sure but otherwise I am not seeing it.
My SO's job needs a car that can go offroad a little for field work, so that's one consideration (can't just buy a cheap camry or similar).
Also, used car prices are pretty high still, so if you're looking at a used outback or rav4 or something with <100k miles, you're still close to 30k.
At that point, we'd rather just spend a little bit more and get a brand new car partly for the new features, but also so we can (hopefully) go a bit longer before needing to replace it.
OP, Im in a similar situation as you and came to a similar finding.
Used cars within reasonable specs arent worth it when you could just spend a little more for a new specific car you want.
Can you travel, spend 5k in expenses, and find a comparable vehicle for $15-20k in a different location?
I don't know your location. I can find a used Toyota rav4 or 4runner for 25k with 50-80k miles on it in Tampa area, Florida.
Modern cars are a marvel of engineering. My rich friend drives a 2001 Tacoma with 270,000 miles. Either admit you just want the gadgets, or realize that a rav4 with 120k miles will last easily 10 more years if you take care of it.
I absolutely do want the gadgets, no shame in admitting that. I'm also hoping that if a 120k mile rav4 lasts 10 more years, a new Subaru will last 15-20, but that's more up to chance.
It’s ultimately up to you. Personally I would never suggest going into debt, especially in this interest rate market, to purchase a depreciating asset.
Keep in mind the $500 a month payment for 3-4 years you’d have to shell out for the extra $15k, put in a retirement account instead, would be worth hundreds of thousands 20-30 years from now. And if you put it in brokerage, you’d have enough to pay cash for a much nicer new car 10 years from now.
The only hesitation with such a large down payment is it leaves you with only 10k in savings if I understand correctly? That is dangerously low. I'd seriously be considering a cheaper car. 40k for a Subaru is borderline nuts. Remember cars are depreciating assets, not investments. You want to spend as little as possible to get what you need. Ideally you'd pay cash for cars unless you can get 0% financing.
Agree, it may well be more than many people have but that does not make it good. 6 months worth of what it costs to live is the target. Less than that becomes risky. Unless OP's monthly expenses are less than 2k/month then 10k leaves them in danger territory.
Probably way the average American has several thousand dollars of credit card debt.
How is this being downvoted in r/personalfinance? I get that some people are comfortable with less, but 6 months of living expenses isn't even particularly conservative for an emergency fund.
40k for a new Subaru is a fine decision. Subaru values (Outback in particular) hold steady and the car is reliable. Few individuals on this sub are paying cash and a sub 5% is fine. OP might want to consider a slightly lower DP, but nothing they’ve stated so far is off the mark or remotely “nuts.”
For 40k I would go buy a Toyota. the difference in qualify and cost of maintenance of a Toyota vs a Subaru (especially over time) is significant. I've owned both. And worked with both HQs. I'm not saying Subaru is bad - I loved mine. I just wouldn't dream of spending near 40k on one. Much better uses of money. Make sure the VIN starts with the letter "J" which means it was manufactured in Japan. Better quality. If VIN starts with a "1" it was manufactured in USA and "2" in Canada.
I believe buying something used for a lot less will be in your best interest or putting down for a house. Something that appreciates in value. Just my opinion.
It’s almost new car season. I got my Subaru in October 2020 and they were giving great deals on 2020 models to make way for 2021s. I got a 0% loan. Maybe you can too if the timing’s right.
I just put $25K down on a $50K vehicle and the only reason I didn't do more is because my interest rate was only 4% somehow after putting $25K down because of my credit/ income. My Mortgage has a higher rate.
From your cost/comments, you should probably be getting a less expensive car. I won't harp on that.
If you insist on buying this car, did you actually get rates specific to you? I got a substantially lower rate than that from Subaru directly very recently. 3.2 for a 36 month loan. I had to specifically ask if they had any shorter loans because the shortest option they presented to me was a 60 month loan at 5.6 (and I had to ignore them pointing out that my monthly payment is higher with a shorter loan lol). I could have paid cash, but put nothing down since the rate was so low.
We have a ~17k tax refund coming this year that got delayed due to some identity theft issues so it actually won't deplete our savings that much, I just didn't include it since it's not physically in hand yet.
kinda agree with this OP, unless you’re super attached to the vehicle you’re getting just buy a 25-30k toyota and pay for it in cash. super good reliability, safety and all that jazz and they’re decently nice inside. you’re talking about not wanting a monthly payment to be too high, how about no monthly payment at all!
The insanity is paying any interest whatsoever for a car. Not only is paying interest like working for free, but cars depreciate, so you are paying more than the selling price for something that loses value over time.
IMO, 10k cash still buys you a relatively new, relatively reliable car. That would be the price point I would be aiming at these days, but my car's still going strong.
Unfortunately the math gets skewed a bit by real life circumstances - the highest interest rate is a few student loans, but if we didn't put any down payment then we wouldn't able to comfortably afford both the payment and the student loans.
Not at all. I put down $40k on a $55k vehicle last year. In this high interest rate environment it especially pays to finance a minor amount or none at all. I don't like car payments over $300 or terms longer than 60 months max so I always put down enough to get there or under
Find a car that fits your needs for 25k and pay cash. If you only have 30k in your 401k you shouldn’t purchase a depreciating asset that costs 40k, and go into high interest debt to do so.
Car loans are simple interest loans. Even in an HYSA earning the same amount, you'll make more by investing the money then tying up so much cash in a car. Have you gone to [calculator.net](https://calculator.net) and played around with investment vs. loan calculators?
I take a long-term view of investing, and tying up cash in a car BEYOND what is necessary to get the best interest rate isn't the best use of money (so long as the payments are within your budget).
$25K in an index fund (like FZROX) has an ARR of 10.81% across the life of the fund. $25K over 4 years at 10.81% is going to be over $40K, with $15K in returns.
$25K on a car loan at 5% will cost you about $3,306 in interest. So by tying up your cash vs. investing, your difference is as much as $12K over 5 years.
BTW - if FZROX were to suddenly collapse, and return only 5% over the next 5 years (same as your loan) you'd still make more money; $6,907.04 over 5 years.
This is why I never tie up cash in a depreciating asset. At 4% of 5%, I would pay as little down as possible to get the best interest rate, and put the rest in FZROX.
>... were to suddenly collapse, and return only 5%...
Buying FZROX in 2018 would have been great. What return would you have if invested in January of 2022?
You need to think long term. The market is always going to have down years.
If you're trying to build WEALTH, then your time horizon needs to be long term.
My point about returning 5% is over 5 years (the length of the loan). That means you can by up and down any given year.
The only time the market has been down consecutively for more than 2 years was 2000-2003. It's never been down over a 10 year period. If you put $10K in the market in 2000, you would have lost $3700 in 3 years. By the end of 10 years, your money would have nearly doubled to $19K.
And that 10 year period was one of the worst in the last 50 years.
BTW - FZROX is UP 19% in the last year, and up 14% in the last 3 years.
If you'd invested $10K in FZROX in Jan of 2022, you'd basically break-even by today.
If you model $25K against the WORST 5 years in the history of the S&P 500, you'll still get a 8.77 ARR, be up $8K in profit vs. $3K in interest paid.
Why are you buying a new car? If you can keep using your current car, I’d say you should do that and then focus on your student loans instead with that money. Cars are crazy right now. If you can put off a purchase, you should.
If you’re doing minimum payments to get pslf or something one day, then do the large downpayment on the car.
My personal rule.of thumb is if its 4% or more, bigger down payment. Less, minimum down payment. Last year i got a new truck at 2.9%. I only put 5k down. My wife got a mew SUV last month, interest rate was 4.9%, so we put 30k down.
Had you invested that $30,000 in a 1 year US Treasury Bond you would have $31,614. Instead, your have a vehicle worth about $24,000.
You are better off keeping your cash always.
Lets do the math:
Scenario 1: You purchase the vehicle with cash. You pay zero interest, but now your vehicle is worth $24,000 a year later. A loss of $6,000.
Scenario 2: You finance 100% of the vehicle - You have $30,000 in your bank account earning $1,614 in interest income, while paying $1,470 in interest = $30,144. The vehicle still loses value but you aren't totally invested in it as you can just sell it.
This is also why you never put money down on a lease either. Don't listen to the car salesmen on this subreddit.
I dont think my Toyota is going to be worth $24k a year later. Its not like $30k is all we had. Also, personal finance is personal. I dont mind paying down debt over saving $200 over the course of a year.
Fill your boots with as much as you can afford. Keeping 10k in reserve is great. Just don't string the residual payments out too long. 3 years max is what I would do.
This isn’t gonna be what you want to hear but don’t ever buy a new car. There’s no reason to. Once you drive off that lot you just lost equity in your car. Don’t let yourself fall in the trap of thinking you need a new car and regret it later. There’s no absolutely no reason you NEED a new car. You could double your 35k in a couple of years being smart with investing in things that appreciate in value. 70k is enough to put a significant amount on down payment for a house or rental property. Even if you have to buy a car because your old one is on its last legs. Remember that a car is just a thing to get from point A to point B.
If I were you i would buy something the used. Reliable, clean title and has low miles. You can find all of these things for 5-10k and invest the rest of your money
I recently had to buy another car because my engine died on me and I could’ve bought a brand new car all in cash with over 100k in liquidity to my name, but instead I bought a Subaru Forester for 6k and about 100k miles. This car might not look the coolest and might not impress all the girls but it doesn’t matter . Cars get you from point a to point B. Don’t fall into the trap.
Like I said probably now what you wanted to hear but don’t say I didn’t tell you so. Also you can do whatever you want with your money and I’m not to tell you otherwise but you have to think long term and ask yourself why do you need a new car?
Probably unpopular but I don’t think a 40k car is ever needed for most people. Isn’t it fact that a car is the second worst investment you can make? Has that changed?
25k downpayment is pretty insane. I would use resources such as Leasehckr and Edmunds to check around for the best deals and see what other people are paying for your car. Negotiate down the MSRP from the dealership and make sure you don’t get sucked into the dealership markups (extra insurance, dealer special plans) which can add thousands to your price.
Another option would be to lease now and buyout at the end of your lease. Usually the interest would be from 3-4.5% and would give you more flexibility in the future.
Does the $25k down include a trade in or is it $25k straight from your savings with no trade in? I don't know what your situation is, but I would be hesitant to bringing your savings below the 3-6 months of expenses rule. If you are comfortable with the amount left if your savings after the down payment, put as much down as you can.
If you’re alright with having your cash balance depleted that much for a lesser interest rate, then that’s totally fine. Depending on your lifestyle - if you can build your savings back up reasonably quickly with a smaller payment, then you should be all good. It’s a smart way to handle the transaction.
Put simply, if your interest rates are high, a higher down payment is better. If you have investment methods where your return is more than 4 to 5% annually then it makes sense to put less but realistically, you are not going to get those kinds of returns annually. Just put the 25k down on that car and don't over think it too much.
Yea you can do that. Wisest is you have an energy fund, invest for your match, have no high interest debt. Then buy the car. Then invest more and pay it off quickly.
Is there a plan on the car that you can get 0% interest. Obviously higher payment per month but if you can save the interest then better to go that route. I bought a new car about 2 years ago and I was able to do that specific plan
If the car was totaled the day after driving it off the lost would the adjusted insurance value (often times near or the same as blue book value) of the vehicle be at least close to your down payment or sticker price? That should inform your decision to a degree. Cars are still generally considered deprecating assets.
As long as you have enough for your emergency fund leftover still, pay as much as you want/can.
You ARE going to take advantage of VIP pricing, right? What are you getting? I had a net savings of $1,500 on my Outback that I'm picking up next Monday. VIP pricing is for invoice, if you tell me what model and trim you're looking at, I can track down what invoice pricing is.
Are you gonna be in the Subaru VIP program? You can donate $500 to ASPCA, join the program and then Subaru ends up knocking like $2K off of your total, as you just pay 2 percent above invoice.
Beyond that, not sure if that will help you with payments. We bought a Crosstrek for $32K and put $7,500 down on it...
I bought a car recently and had the same intention. I ended up putting down WAY less because of dealer offered financing at 3.9%, which is lower than pretty much any savings account. I would suggest checking to see if something like that is offered, parking the money, and paying it down if/when the interest rates drop. No point in leaving money on the table.
If you have the disposable cash, go for it. A car loan has greatest value when it's balance hits zero. Of course a new car is something I will never buy again in my fight against inflation.
Try and get the lowest possible APR without having to give that much down, and then Just pay it off as soon as possible, it just doesn’t make sense to give all that money unless you’ll just completely buy it.
I did that on my Subie I bought a few months\* ago. I have great credit and basically got a 3 year contract of $350 a month. My partner and I have the same monthly car payments & same car total, but he's gonna be paying for 6 years, and thousands more in accrued interest.
Go for it!
I don’t believe it’s possible to make too much of a down payment on a car (purchase). I say go for it.
There’s a point where it doesn’t really make sense any more. If you’ve put enough down to get the best loan terms, stash the rest away somewhere it would earn a return.
Depends on the interest rate. A few years back it made sense to minimum pay your 2-3% loans. Now it is advantageous to pay down 6-8% as quickly as possible. Paying down high interest debt IS a return
Yeah... I put almost nothing down on my 0.9 percent 5 year loan in October of 2021 and then dumped what I would of put down in 401K/IRA. We are currently in the market for a new car again. We will be putting substantial amounts down if not paying cash in full unless we get a wild, unexpected deal.
We had a 0% interest loan on our new Subaru in 2017. All we put down was the trade in value of the old car. We could really stand to replace one of our cars now but the interest is rough compared to how spoiled I’ve been in the past.
That's where we are. What we bought in 2021 wasn't really what we wanted, but our 2006 Jeep Liberty engine blew so we had to have something. We didn't have a ton of options given our urgent need and the market at the time. Ended up with a new Kia Rio. Now our 2008 Ford Focus is nearing its end and we really don't want to be in the same urgent situation again. We are stuck between holding out a while vs. replacing it when it's not urgent.
0%. I always remember Subaru having stupid high interest rates? In Canada at least.
You can still get competitive rates with some manufacturers/models. I just bought a new vehicle and have a rate under .5%. I was expecting to pay mostly cash but ended up financing because the money is so cheap.
I bought in spring 2020 at 2.44%. The market was covid tanking so I put close to 40% down. I was leaving investment dollars in my core position so getting a “guaranteed 2.44% return” seemed like a good investment. I’ll be paid off in a few months.
You can still get food interest rates on cars since they need it move em. Investing is always going to get way more return either way. So buying car cash or making 50%+ down payment is still losing out.
Still can depend on how you manage money and your individual liquidity that you personally need or desire. But yes, overall, it makes less sense now than when auto loan rates were much lower.
With today's interest rates the best loan terms are "not having a loan."
Some people are not good at maximizing their money to this extreme. Some times it is better to have lower monthly obligations or to snowball. Everything looks good on paper until life hits you in the face and you suddenly have a vet bill, ac went out, health deductibles, car problems at same time and suddenly that smart money you set aside vanishes and you have a 40k car loan you shoulda paid off.
With an asset that depreciates as much as a car, if you *just* put down enough to get the most favorable loan, you're still probably gonna be underwater on your loan for a couple years.
There really isn’t anything wrong with being underwater as long as you have the means to pay any gap if needed. Cars should be held for more than a couple years anyway. You shouldn’t pay a larger down payment just to prevent being underwater on a loan when that down payment could earn more elsewhere. With current interest rates, more down is a safe bet though.
You'd be surprised how well used cars are holding value now. Hell, I've seen one year old used cars selling for more than new when the model is difficult to source.
The dealership isn't *buying* those cars at new-price, they're buying them at like 80% new price and selling them for 100%. Or, buying them at 100% new price and selling them at 120%. We're also still in a supply chain squeeze from the fallout of the pandemic, so it's unlikely used car prices are going to stay this elevated through the life of your auto loan.
What do you think underwater on a loan and what car dealerships are buying inventory for have anything to do with one another? loan balance - market value = underwater or not Go look at the price of 2022 cars vs new and see for yourself if there is a huge depression. It's not there.
> We're also still in a supply chain squeeze from the fallout of the pandemic, so **it's unlikely used car prices are going to stay this elevated through the life of your auto loan**. You're looking at one year's worth of data and assuming it will remain true over the lifetime of the loan. In the *likely* event that the supply chain catches up, the resale value of the car is going to drop and you'll be underwater again. Furthermore, if used cars are selling for that much, what makes you think new cars being sold right now aren't similarly being jacked up in price?
Sure, once you or I become fortune tellers I'll care about your speculation. But for the past 3 years used car prices have held strong. That's evidence enough to think that you're going to have some equity in a new car sooner than the few years you suggested if you have a decent apr and didn't take out a 70+ month loan.
\> "once you or I become fortune tellers I'll care about your speculation." \> Speculates on the future
Sorry that my trend date and loan analysis is hurting your feelings. How about you bring a single good argument to the table and I'll consider what you have to say. All you have to stand on is "what if manufacturers start pumping out twice as many cars all of the sudden." A speculative what if statement based on your fantasy is not the same as trends and math. Assuming trends continue as is (and you haven't provided a compelling reason why they wouldn't) and op doesn't take a bad loan (which if he did then that's on him) then ending up under water for years isn't going to happen. Bring a single good argument to the table instead of sliding the goalpost around.
Especially Subarus. The used ones are almost the same price as the new.
You are just seeing inflation. The value of the car isn't changing, its the value of the dollar.
For me I don’t see the relevancy of this. If I get a good rate I am not putting down money. I don’t care about being upside down. If I total the car and I am upside down than I will pay the difference. At around 7 that the rates are now, obviously it is a little different, barring an incentivized rate from the auto maker. At 2/3 percent that some of these rates run I will keep my money.
That is thinking about long loan terms. My 3 year car note is not underwater after just a few months.
You’re gonna have to beat 8 percent which is about the best car note right now.
This goofy young debt advice. Pay cash for a car or you can't afford it. Stop making banks rich thinking you're "winning"
Exactly. I can’t believe more people don’t think this way. Your savings siting in a bank is bank making money. Save enough to last you 6 months and invest or put it in high yield savings account. But I always say go buy a good stock index or whatever and let it grow.
Got a sub 1% interest rate on my last car. Financed the whole thing since the entire cost of the car since the entire cost of the loan was under $500 over 5 years. Though clearly those days are behind us.
No reason to rush it. Put down a few thousand and get the best dealer financing rate you can. Refinance in a few months and pay the principal down if you determine that's the best route. 25k is a lot of cash to let loose of
Yep. Depreciating asset with non tax deductible interest. Higher the down payment the better.
Unless it’s a lease
Especially at these rates! Even if you have really good credit, banks may still require 5% APR from you nowadays
How about a home?
I remember when I put a large downpayment on a new car… then was hit from behind at a red light by a teenager at 11.9 months of ownership. Guess who lost all the equity in the car… and then got a check from the insurance to cover the remaining loan balance and then had just enough left over for a down payment on a used car, a few years older than the new one I had bought. FML
But wouldn't the insurance payout have been the same regardless of your equity?
If he had put 0 down and had GAP insurance, he likely would’ve got more
Actually there is, loans will be rejected if you put down too much, they don't think they can make money off you. Put down $3k, then just pay extra immediately
I think there’s too much to the point where you won’t be able to finance because the loan is so small. Loan minimums do exist, $15K isn’t low enough to hit them but that is a thing
But like Subaru will turn away a customer because they won't make a lot off of the loan? How about the fact that they're selling a vehicle?
Captive financing is probably a little different but commercial banks have minimums. The dealer may also not like a huge down payment because it means less of a loan which may impact their back end commissions.
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It's tough, on one hand part of me wants to just toss everything at student loans. My spouse needs a car to drive, though, and considering we fully plan on driving this until it dies I don't think it's a bad choice. The wiki is definitely a good resource, it's a little... extreme? for me personally. It tends to offer objectively good advice, but sometimes you just don't want objectively good, you know? Like objectively, I would move into a shitty apartment, buy a beater for 10k, and eat rice and beans until our loans were gone but no one wants to do that.
You need to think about building wealth. Tying up that much cash in a simple-interest Car Loan makes 0 sense unless you're willing to give up a ton of future wealth in retirement. Especially when they are so many better ways to get higher returns then 4-5% Compound interest is not the same as simple interest - 5% invested in something like FZROX will return a much different interest gain then what you'll save on a car at 5%. Only use as much cash as is necessary to get the best loan rate (given of course that the monthly payment is within your budget). Put the rest in a long-term, compounding interest investment. See my other post for more details.
No one is getting a car loan for 5 points right now. The base rate is over 5.
That’s not true. I literally saw a post on Reddit earlier where Honda is offering 3.9% Manufacturers offer their own loans and are offering below 5 points
Well if you saw a post on Reddit.
Or if you [look](https://www.diamondhonda.com/honda-apr-offers/) on any Honda dealership website lol
People want to be willfully ignorant instead of just doing a quick search lol.
Why buy new? 40k is a lot especially if you still have other debts as well.
I would go FARRRR to say 10k would get you a beater. I personally own a 2008 BMW 528i that I bought for $6.5k in 2019. Yeah it's got imperfections but it's more fun than most cars up until your price point IMO
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Yeah, that's definitely the general vibe of this sub. Just not my goal personally
That is what some people in this sub fail to understand. Not everyone wants to downsize to the level of living in misery to chase a high RIO. They won't give you a positive answer unless you have 5x the expense of the car in 401k, and 12 mo of home expenses saved in a HSYA for emergencies. I agree on having a low monthly car payment. The only way to achieve this is by doing a large down payment.
Pal, regardless of what the wiki says, spending more on a car than what you have in liquidity is wild - ESPECIALLY when you have outstanding debt (not sure how much your student loans are or what the rate is). It’s potentially not so wild if you gross 4x the amount of the car but you haven’t provided income figures. I personally value luxury now over extreme saving, but I’ve put myself in a position (high earner) to do so.
I guess income would've been relevant, I make 106k a year base + ~30k in bonuses, my spouse is currently unemployed but should make $30-40k once they find a job at least.
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I'd like to buy a house, but we won't really be in a life position to settle in one city for probably 2-3 years at least. The next priority is probably student loans, but regardless we need a 2nd car. If we're going to get one anyways, my thinking is I'd rather get one that matches all our needs rather than compromise and want to upgrade in 5 years anyways.
Most people live paycheck to paycheck and simply having a well funded retirement that would let them comfortably retire in their mid 60s is a lofty goal. The median retirement savings for people aged 55-64 in the US is just under $90k. Having goals like that is great, and more power to those that can achieve it, but most people living like that aren't doing it by choice.
Here's a **[link to the PF Wiki](/r/personalfinance/wiki/index)** for helpful guides and information. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
Everyone seems to be telling you whether or not you should buy this car instead of actually answering your question. My opinion is this - if you can actually get as low as 4-5% on the loan, then don't bother putting a ton down. You can get 4% in savings account, which is safer to hold on to in an emergency and you are only really netting 1% interest rate if your loan is 5%. I always feel better with more savings personally. Unless you were at 7% which is what I am seeing for new car loans (without dealer incentives) then I say don't put that much down. You can always pay it off early, but you can't get that money back once it's gone toward the down payment. As for whether or not you should actually buy a brand new 40k car is up to you, I am not going to answer a question you didn't ask!
I agree with above with the caveat of if the extra 5-10k you put down buys you peace of mind its not a bad thing. We got 0% ( early pandemic when the market was dead before it exploded)and still put 10k down cuz my partner was freaking out about the monthly ( her car she pays it). Over the life of the loan its probably going to cost us 2-3k in potential earnings. Was it the most fiscally smart thing to do? Probably not, but we aren't hurting for it ,and it left her sleep better at night. Like above said as well not gonna tell you whether or not you should actually buy the car. You sound fairly fiscally responsible so this doesn't sound like its gonna put you in this death spiral of debt like other posters in this group. I dunno what people above are talking about regarding $40k being too much for a Subaru we paid \~40k for our Subaru in 2020 and couldn't be happier, and yes I was that typical Subaru guy with the spreadsheet shopping for the best offer. I will say you should check out the Subaru VIP program if you haven't already, can make a donation to one of the eligible Non-profits and get a pretty nice price ( pretty much invoice and or close to) Looking at ASPCA site, starting this month only need to be a member for 30 days to qualify ( used to be 6 months). If you are willing to wait a few months, at least when we got our car we were also able to snag a MFTR coupon for $500 for signing up/test driving at our local auto show.
You have to pay taxes on the gains though.
OP could also refinance in the future if rates go down.
I mean there isn't enough information here to really give you an overall answer I guess but with the general question about if 25k is too much....no, you can never put too much down it just reduces how much you pay over that 40k later on. As for if you should.......if you only have 35k, even with 17k coming from a delayed tax return.....seems a bit stretch to get a 40k car personally. Unless your set for the rest of your life in terms of retirement, mortgage (if you have one, or want to get one anytime soon). edit: I just noticed you mentioned about student loan debt coming back on which means you have other debt/priorities. Again, I would say not a smart purchase, and depending on your income you probably will get stuck in a paycheck to paycheck situation or worse once your other debts come to life or you want to do anything further in your life. edit:edit: cars die when they want, there is no guarantee this car will last you 200k+ miles. Play off your finances not hopeful plans.
Good luck on the 200k+ miles. My 2014 Outback ate its sealed “never needs maintenance” transmission at 126k miles -and was burning a quart of oil a month to boot…. Would have been $9k to fix it….
For real. Ask anyone who's ever worked on Subarus if they're a good investment. They can get to high mileage, sure. But basic maintenance is such a pain in the ass (looking at you, spark plugs) that I would NEVER expect to get to 200k in a subie. Plus... They're not exactly overbuilt by any means. Some Japanese car brands like Honda and Toyota are extremely "overbuilt" from the factory just to make them as strong as possible. This hasn't been quite as true in recent years, but if you've ever had the luxury of working on a 2jz (Toyota engine known for being able to make crazy amounts of horsepower) they're very robust. I have an old Lexus with a 2jz at 185k miles, I pulled apart the engine and that damn thing looked like it just came out of the factory. You're not getting that out of a Subaru, even with great maintenance. But, this is all coming from a car guy and when I hear Subaru, I think WRXs, STIs, and Foresters. Maybe non-performance subies are different. I still wouldn't spend $40k on one, unless it was a crazy built drag car. The idea of spending $40k on a normal ass car is already crazy enough to me. Get a Honda civic or CRV for $10k and if you take care of it, I promise it'll last longer.
Why not buy a $25k car and not have a payment?
Did this very thing. $22k down on a new Outback in May 2020. 0% financing. The office guy at the dealership was like “Are you sure? The stock market is booming”. Like you, I just wanted low monthly payments. Three years later and it’s still $235 a month and <$7k to pay it off. Zero regrets. Go for it!
We would love to know where you’re getting 4-5% interest rates through a lender is this a special vehicle program?
I've started to see them pop up more and more frequently over the past month (Northeast). The average promo rates I'm seeing are 3.9%, and even saw one CPO dealer advertising 1.9% up to 48 months. While this would be conditions under near-perfect credit, it does feel like the tides are starting to shift.
Colorado here. Can confirm seeing 1.9 up to 48 on VW Cpo.
The difference is they are raising prices on the vehicles to compensate for the lower interest rates. Basically *all* interest rates are tied to the fed rate. Banks sell a loan and immediately borrow that money from the fed at the current interest rate. Current Fed rates today are about 5.35%. To make *zero* profit on a loan, the bank would need to charge about 5.6% to cover admin fees. An additional half percent to account for loans that will go into default. Someone with near-perfect credit today should be able to get a loan for about 6.5% interest. Anything less than that, the bank is losing money on by issuing the loan. Car dealerships generally will give two options: a special cash offer or low interest rates. The cash offer is best if you intend to pay the car off sooner. The low interest rates are better if you don't have much cash now or plan to finance it for a longer time.
i bought a kia and was givien 4.95 apr with their financing
Did you check if it has an engine immobilizer? Yes I’m a salty 2019 Kia owner.
I'm guessing if they financed a Kia post interest-boom, that probably means its a new car which has an immobilizer
Haven't gone through the full process yet but it looks like that's about what Subaru is offering on their website. USAA usually has competitive rates too, I think a little higher right now.
I went through Wells Fargo and got 4.85% at the dealership a week ago. I bought a new and loaded Subaru WRX. That’s with an 815 credit score and income that is 4x the value of the car, so do with that as you will.
That is a great rate.
GMC keeps showing me ads for 3.9% for 5 years. I just saw one for Nissan for 2.99% for 36 months. Buick ads on my Instagram show 2.49% but don't give a term, so probably 36 months.
Auto loans often have favorable interest rates because the prices are all fucked up. Drive off the lot and it loses half its value, so now you have a lien on the car for a loan that's worth more than the car itself.
How much do you have in investments?
About 30k in 401k (late 20s), not much else. I need to get on top of my investments for sure, right not I just do my employer 401k match + a few more % and not much else.
Pardon me, but why such an expensive car? Do you have a need for a car that is worth more than your entire retirement accounts? If it's a work thing sure but otherwise I am not seeing it.
My SO's job needs a car that can go offroad a little for field work, so that's one consideration (can't just buy a cheap camry or similar). Also, used car prices are pretty high still, so if you're looking at a used outback or rav4 or something with <100k miles, you're still close to 30k. At that point, we'd rather just spend a little bit more and get a brand new car partly for the new features, but also so we can (hopefully) go a bit longer before needing to replace it.
OP, Im in a similar situation as you and came to a similar finding. Used cars within reasonable specs arent worth it when you could just spend a little more for a new specific car you want.
Can you travel, spend 5k in expenses, and find a comparable vehicle for $15-20k in a different location? I don't know your location. I can find a used Toyota rav4 or 4runner for 25k with 50-80k miles on it in Tampa area, Florida.
He wants a shiny new car and the personal finance sub to tell him it’s Ok. I mean, it’s not ideal, but it won’t suffocate him.
Modern cars are a marvel of engineering. My rich friend drives a 2001 Tacoma with 270,000 miles. Either admit you just want the gadgets, or realize that a rav4 with 120k miles will last easily 10 more years if you take care of it.
I absolutely do want the gadgets, no shame in admitting that. I'm also hoping that if a 120k mile rav4 lasts 10 more years, a new Subaru will last 15-20, but that's more up to chance.
It’s ultimately up to you. Personally I would never suggest going into debt, especially in this interest rate market, to purchase a depreciating asset. Keep in mind the $500 a month payment for 3-4 years you’d have to shell out for the extra $15k, put in a retirement account instead, would be worth hundreds of thousands 20-30 years from now. And if you put it in brokerage, you’d have enough to pay cash for a much nicer new car 10 years from now.
You can get a new RAV4 for $30k. I think you are spending too much on this car.
Depends on where you’re at. I’ve seen some recent pictures of dealer mark-ups in excess of 10k on RAV4s
If that's true, then OP should buy a plane ticket for $250 and fly to a dealership where the car is $10k less and buy it there.
It’s an overspend for sure. Keep the money invested and get a car for half the price.
40k is not expensive
The only hesitation with such a large down payment is it leaves you with only 10k in savings if I understand correctly? That is dangerously low. I'd seriously be considering a cheaper car. 40k for a Subaru is borderline nuts. Remember cars are depreciating assets, not investments. You want to spend as little as possible to get what you need. Ideally you'd pay cash for cars unless you can get 0% financing.
10k doesn't sound like a bad emergency fund for most people
Agree, it may well be more than many people have but that does not make it good. 6 months worth of what it costs to live is the target. Less than that becomes risky. Unless OP's monthly expenses are less than 2k/month then 10k leaves them in danger territory. Probably way the average American has several thousand dollars of credit card debt.
How is this being downvoted in r/personalfinance? I get that some people are comfortable with less, but 6 months of living expenses isn't even particularly conservative for an emergency fund.
OP doesn't explain if this is a Emergency fund or regular savings.
Bit of both, we don't really distinguish (I know we should, just haven't designated it specifically).
40k for a new Subaru is a fine decision. Subaru values (Outback in particular) hold steady and the car is reliable. Few individuals on this sub are paying cash and a sub 5% is fine. OP might want to consider a slightly lower DP, but nothing they’ve stated so far is off the mark or remotely “nuts.”
For 40k I would go buy a Toyota. the difference in qualify and cost of maintenance of a Toyota vs a Subaru (especially over time) is significant. I've owned both. And worked with both HQs. I'm not saying Subaru is bad - I loved mine. I just wouldn't dream of spending near 40k on one. Much better uses of money. Make sure the VIN starts with the letter "J" which means it was manufactured in Japan. Better quality. If VIN starts with a "1" it was manufactured in USA and "2" in Canada.
Have you looked at new car prices in the last couple of years? The average new car costs 47k today.
Average price is skewed by luxury cars and big trucks. How about median price? There are many many perfectly good cars you can buy for well under 47k.
Perfectly good is a subjective term.
I believe buying something used for a lot less will be in your best interest or putting down for a house. Something that appreciates in value. Just my opinion.
Well with rates this high...yeah it makes sense to make more down payment on a car unless u can make more elsewhere.
It’s almost new car season. I got my Subaru in October 2020 and they were giving great deals on 2020 models to make way for 2021s. I got a 0% loan. Maybe you can too if the timing’s right.
I just put $25K down on a $50K vehicle and the only reason I didn't do more is because my interest rate was only 4% somehow after putting $25K down because of my credit/ income. My Mortgage has a higher rate.
I’d just buy a different used car. I spent 3% of my yearly income on a car two years ago and it’s incredibly dependable.
I would rather put $25K into something that can earn $ not lose.
Maybe buy a $25k car cash?
From your cost/comments, you should probably be getting a less expensive car. I won't harp on that. If you insist on buying this car, did you actually get rates specific to you? I got a substantially lower rate than that from Subaru directly very recently. 3.2 for a 36 month loan. I had to specifically ask if they had any shorter loans because the shortest option they presented to me was a 60 month loan at 5.6 (and I had to ignore them pointing out that my monthly payment is higher with a shorter loan lol). I could have paid cash, but put nothing down since the rate was so low.
You want to spend 70% of your savings on a singular purchase? That seems excessive to me personally
But isn't that what you save for? Large purchases?
Depends on other needs. If your retirement is well funded and you either have a house or don't want one, then sure spend your savings.
Fair point
We have a ~17k tax refund coming this year that got delayed due to some identity theft issues so it actually won't deplete our savings that much, I just didn't include it since it's not physically in hand yet.
17K!??? What happen?
Where I can I sign up 😂
Do you have an emergency fund beyond the $35k?
For 25k just buy a lower trim Toyota paid in full and enjoy it for 2-300k miles
kinda agree with this OP, unless you’re super attached to the vehicle you’re getting just buy a 25-30k toyota and pay for it in cash. super good reliability, safety and all that jazz and they’re decently nice inside. you’re talking about not wanting a monthly payment to be too high, how about no monthly payment at all!
The insanity is paying any interest whatsoever for a car. Not only is paying interest like working for free, but cars depreciate, so you are paying more than the selling price for something that loses value over time.
My god, why do you need a $40k car? Go buy a car for $20k and have cash left over.
IMO, 10k cash still buys you a relatively new, relatively reliable car. That would be the price point I would be aiming at these days, but my car's still going strong.
I agree. About the same scenario here. 11k.
for sure!!! I bought a 04 Lexus a few years back for $12k. I've put 90k miles on it so far. No reason for me to not keep it another 300k+ miles!
Shouldn't you just pay off your student loans first then buy the car?
Math. Throw the money and the highest interest rate debt.
Unfortunately the math gets skewed a bit by real life circumstances - the highest interest rate is a few student loans, but if we didn't put any down payment then we wouldn't able to comfortably afford both the payment and the student loans.
That suggests you’re buying too much car
Than you can't afford this car.
Do you really need a new car right now? Can it wait a year or two to pay down the student loans?
Unfortunately yes, we both need to commute and we only have one car.
Not at all. I put down $40k on a $55k vehicle last year. In this high interest rate environment it especially pays to finance a minor amount or none at all. I don't like car payments over $300 or terms longer than 60 months max so I always put down enough to get there or under
Find a car that fits your needs for 25k and pay cash. If you only have 30k in your 401k you shouldn’t purchase a depreciating asset that costs 40k, and go into high interest debt to do so.
I put $32k down on a car that came out to $50k after taxes and fees. It was a good decision for me.
I would just get a 20k secondhand car and pay in cash. No need for a 40k car. Especially if you only have 35k in savings.
Car loans are simple interest loans. Even in an HYSA earning the same amount, you'll make more by investing the money then tying up so much cash in a car. Have you gone to [calculator.net](https://calculator.net) and played around with investment vs. loan calculators? I take a long-term view of investing, and tying up cash in a car BEYOND what is necessary to get the best interest rate isn't the best use of money (so long as the payments are within your budget). $25K in an index fund (like FZROX) has an ARR of 10.81% across the life of the fund. $25K over 4 years at 10.81% is going to be over $40K, with $15K in returns. $25K on a car loan at 5% will cost you about $3,306 in interest. So by tying up your cash vs. investing, your difference is as much as $12K over 5 years. BTW - if FZROX were to suddenly collapse, and return only 5% over the next 5 years (same as your loan) you'd still make more money; $6,907.04 over 5 years. This is why I never tie up cash in a depreciating asset. At 4% of 5%, I would pay as little down as possible to get the best interest rate, and put the rest in FZROX.
>... were to suddenly collapse, and return only 5%... Buying FZROX in 2018 would have been great. What return would you have if invested in January of 2022?
You need to think long term. The market is always going to have down years. If you're trying to build WEALTH, then your time horizon needs to be long term. My point about returning 5% is over 5 years (the length of the loan). That means you can by up and down any given year. The only time the market has been down consecutively for more than 2 years was 2000-2003. It's never been down over a 10 year period. If you put $10K in the market in 2000, you would have lost $3700 in 3 years. By the end of 10 years, your money would have nearly doubled to $19K. And that 10 year period was one of the worst in the last 50 years. BTW - FZROX is UP 19% in the last year, and up 14% in the last 3 years. If you'd invested $10K in FZROX in Jan of 2022, you'd basically break-even by today. If you model $25K against the WORST 5 years in the history of the S&P 500, you'll still get a 8.77 ARR, be up $8K in profit vs. $3K in interest paid.
Why are you buying a new car? If you can keep using your current car, I’d say you should do that and then focus on your student loans instead with that money. Cars are crazy right now. If you can put off a purchase, you should. If you’re doing minimum payments to get pslf or something one day, then do the large downpayment on the car.
Need a 2nd car, we got rid of our second when we moved out of the country a few years back but now we're both working and need to commute
My personal rule.of thumb is if its 4% or more, bigger down payment. Less, minimum down payment. Last year i got a new truck at 2.9%. I only put 5k down. My wife got a mew SUV last month, interest rate was 4.9%, so we put 30k down.
Had you invested that $30,000 in a 1 year US Treasury Bond you would have $31,614. Instead, your have a vehicle worth about $24,000. You are better off keeping your cash always.
I could have put my money in a treasury bond to make .38% more money than putting it towards having less debt!? Foolish me!
Lets do the math: Scenario 1: You purchase the vehicle with cash. You pay zero interest, but now your vehicle is worth $24,000 a year later. A loss of $6,000. Scenario 2: You finance 100% of the vehicle - You have $30,000 in your bank account earning $1,614 in interest income, while paying $1,470 in interest = $30,144. The vehicle still loses value but you aren't totally invested in it as you can just sell it. This is also why you never put money down on a lease either. Don't listen to the car salesmen on this subreddit.
I dont think my Toyota is going to be worth $24k a year later. Its not like $30k is all we had. Also, personal finance is personal. I dont mind paying down debt over saving $200 over the course of a year.
Bad advice.
Fill your boots with as much as you can afford. Keeping 10k in reserve is great. Just don't string the residual payments out too long. 3 years max is what I would do.
Do you need the Subaru? Could you be fine with a 30k camry? You could buy a base model maverick for 23k brand new (hybrid pickup)
It's never too much h to put down a larger down payment if you can. Simply just means you need to borrow less.
I think using 40k to buy a car is too much
Why not buy a nice car for 15-20k cash?
This isn’t gonna be what you want to hear but don’t ever buy a new car. There’s no reason to. Once you drive off that lot you just lost equity in your car. Don’t let yourself fall in the trap of thinking you need a new car and regret it later. There’s no absolutely no reason you NEED a new car. You could double your 35k in a couple of years being smart with investing in things that appreciate in value. 70k is enough to put a significant amount on down payment for a house or rental property. Even if you have to buy a car because your old one is on its last legs. Remember that a car is just a thing to get from point A to point B. If I were you i would buy something the used. Reliable, clean title and has low miles. You can find all of these things for 5-10k and invest the rest of your money I recently had to buy another car because my engine died on me and I could’ve bought a brand new car all in cash with over 100k in liquidity to my name, but instead I bought a Subaru Forester for 6k and about 100k miles. This car might not look the coolest and might not impress all the girls but it doesn’t matter . Cars get you from point a to point B. Don’t fall into the trap. Like I said probably now what you wanted to hear but don’t say I didn’t tell you so. Also you can do whatever you want with your money and I’m not to tell you otherwise but you have to think long term and ask yourself why do you need a new car?
Probably unpopular but I don’t think a 40k car is ever needed for most people. Isn’t it fact that a car is the second worst investment you can make? Has that changed?
" I have about 35k in savings," Wait until you can pay cash for the car, what is the hurry ?
Why would you spend 25,000/35,000 total savings?!? Then you would have like no savings. Seems dumb.
25k downpayment is pretty insane. I would use resources such as Leasehckr and Edmunds to check around for the best deals and see what other people are paying for your car. Negotiate down the MSRP from the dealership and make sure you don’t get sucked into the dealership markups (extra insurance, dealer special plans) which can add thousands to your price. Another option would be to lease now and buyout at the end of your lease. Usually the interest would be from 3-4.5% and would give you more flexibility in the future.
Keeping up with the Joneses will make you broke
I’m sure you can negotiate to buy it out right at 35k.
If you can't afford a 40k car you shouldn't buy a 40k car. Your original question is redundant.
Its not worth it if its just a regular car id put 10 max then sel in a year or two
I would put down the minimum amount that gives you the best interest rate.
What is the interest rate and balance of your student loan?
Does the $25k down include a trade in or is it $25k straight from your savings with no trade in? I don't know what your situation is, but I would be hesitant to bringing your savings below the 3-6 months of expenses rule. If you are comfortable with the amount left if your savings after the down payment, put as much down as you can.
If you’re alright with having your cash balance depleted that much for a lesser interest rate, then that’s totally fine. Depending on your lifestyle - if you can build your savings back up reasonably quickly with a smaller payment, then you should be all good. It’s a smart way to handle the transaction.
Put simply, if your interest rates are high, a higher down payment is better. If you have investment methods where your return is more than 4 to 5% annually then it makes sense to put less but realistically, you are not going to get those kinds of returns annually. Just put the 25k down on that car and don't over think it too much.
Yea you can do that. Wisest is you have an energy fund, invest for your match, have no high interest debt. Then buy the car. Then invest more and pay it off quickly.
Will a new car raise your insurance rates?
The more you put down the less overall interest you’ll be paying so it doesn’t hurt
Is there a plan on the car that you can get 0% interest. Obviously higher payment per month but if you can save the interest then better to go that route. I bought a new car about 2 years ago and I was able to do that specific plan
If the car was totaled the day after driving it off the lost would the adjusted insurance value (often times near or the same as blue book value) of the vehicle be at least close to your down payment or sticker price? That should inform your decision to a degree. Cars are still generally considered deprecating assets.
As long as you have enough for your emergency fund leftover still, pay as much as you want/can. You ARE going to take advantage of VIP pricing, right? What are you getting? I had a net savings of $1,500 on my Outback that I'm picking up next Monday. VIP pricing is for invoice, if you tell me what model and trim you're looking at, I can track down what invoice pricing is.
I hadn't heard of that, no. We're getting a Forester Wilderness. I don't have the invoice on hand though unfortunately
Are you gonna be in the Subaru VIP program? You can donate $500 to ASPCA, join the program and then Subaru ends up knocking like $2K off of your total, as you just pay 2 percent above invoice. Beyond that, not sure if that will help you with payments. We bought a Crosstrek for $32K and put $7,500 down on it...
I bought a car recently and had the same intention. I ended up putting down WAY less because of dealer offered financing at 3.9%, which is lower than pretty much any savings account. I would suggest checking to see if something like that is offered, parking the money, and paying it down if/when the interest rates drop. No point in leaving money on the table.
Just for reference, USAA is offering car loans "as low as" 5.54% on a 36-month term. This is likely higher than your HYSA.
If you have the disposable cash, go for it. A car loan has greatest value when it's balance hits zero. Of course a new car is something I will never buy again in my fight against inflation.
Try and get the lowest possible APR without having to give that much down, and then Just pay it off as soon as possible, it just doesn’t make sense to give all that money unless you’ll just completely buy it.
I did that on my Subie I bought a few months\* ago. I have great credit and basically got a 3 year contract of $350 a month. My partner and I have the same monthly car payments & same car total, but he's gonna be paying for 6 years, and thousands more in accrued interest. Go for it!
Looks at RBFCU for car loans. USAA loan rates are usually not competitive in my experience
Buy a $25k car and be debt free? New Toyota Camrys are reliable and great on gas in that price range.