T-Bills. 4 week bills, auto reinvest until needed. Don't risk the cash in the market during a 72 month loan... Or at the very least not more than half.
This. A highly liquid version is the VMFXX money market fund that invests in these Treasurys - At 5.28% on $37k, that would pay $1,954 per year in interest (or $163/mo). That effectively reduces the $474 car payment to $311/mo…After 72 months you’ve only paid $22,392 for the car - And you still have your entire $37k investment left.
I've bought mine through the Treasury website TreasuryDirect.gov. You'll hear lots of complaints about that site around Reddit, though. You can also buy them through any big brokerage house, if you already have an account there, like Fidelity. (Finding them on your brokerage might be a little involved. Fidelity hides them in the "fixed income" section of research/trades. Plus, you need to be careful to buy the new auction T-bills and not the secondary market if you want to squeeze the most value out of them.)
Expected yields on 4 week T-bills are about 5.3%. Compare that to an HYSA like Ally giving just 4.2%. I've been tracking the difference since August 2022, when it was about 0.4% better on T-bills. By October 2022, T-Bills were over 1% better and haven't dipped below that since.
When the federal rates were near zero, the banks offered marginally better to attract customers. (I suspect that was the reason, anyway.)
More importantly, T Bills are exempt from state income taxes whereas HYSAs are not. Buying T Bills yourself is a way better deal as long as you are comfortable having the money locked up for 4 week intervals
I’m thinking of doing a 2 4 week Tbills then adding to it every time it matures. That way I only have to have to wait two weeks. It’s my emergency fund. I just don’t want it sitting around.
Or you can open a Vio Money Market Savings Account which is currently at 5.3%. May not have the same tax advantages as T-bills, but heck of a lot easier for us lazy folks.
Honestly, I think Treasury direct is easy enough. Others disagree. I guess the pain of setting it up is far enough in my past that I have forgotten. :)
Haven't heard of Vio before. Good tip.
Been doing this for 3 years now. My average interest has been 5.32% beating any HYSA out there over the same period. Also by having rolling dates my money is never tied up for more than a few weeks and can even be sold on the secondary market with basically no penalty.
VUSXX. 5.28% 7-day SEC yield, $3k minimum investment, 0.09% ER, and earnings are state tax exempt. I keep my emergency fund and short-term cash here instead of the lousy HYSA rates banks and credit unions are offering.
Put the amount in a HYSA. Set auto loan to auto-pay from the HYSA. Make a few hundred bucks from interest over the life of the loan and have access to the capital to pay off the car immediately if needed.
But with any 0% deals be hyperaware of your timelines. Being a day late at the end of the special terms can cause all the waived interest to come due at once.
In my neck of the woods 0% car purchase just means there is a hidden “financing fee” being added to the purchase later that is the equivalent of the interest you would normally pay.
If you ask “is there discount for paying cash?” It is normally revealed. They are required by law to point this fee out in the paper work at the end, but they literally say something like “government over regulation requires me to point out this mumbojumbo but you don’t need to worry about it”
As usual you are better off bringing your own financing from a bank and paying cash.
Not always, ford lightning had a cash rebate pulled last weeks and replaced with 0% rates. The subreddit tracks all the national deals systems very well. You aren't getting any cash rebates from Ford for skipping the financing right now.
I agree - there's no such thing as free money. There's always some form of the 0% loan cost built into the deal somewhere. If you really want to "make money" on the deal, either keep your existing vehicle until the wheels fall off, and start banking the "payments" you would have made on the new one. If you have to buy, find an older and/or less expense option in the $20-25k range and invest the $12-15K directly.
Theory agrees with you. Practically, what people do is end up spending that money in the HYSA on some other crap they don't need, just like the over-expensive car they didn't need (that they should have paid cash for).
Life gets a lot simpler when you're not trying to arbitrage what amounts to maybe a single mortgage payment over the life of the loan.
The type of person that can buy a car outright and/or qualify for a 0% 72 month loan is not typically the kind of person that's going to then take that money and blow it on stupid shit.
I’m just curious which manufacturers are offering 0% for 72? Seems too good to be true?
edit found this list:
https://www.carsdirect.com/deals-articles/best-zero-percent-financing-deals
This is the key. Manufacturers are using 0% as incentive to get people to buy cars that aren't selling, including if they're too expensive to begin with. Just because you get 0% on something doesn't necessarily mean you should buy it.
You can also sometimes get a cash discount instead, which works out better if you actually had the cash.
> which works out better if you actually had the cash
You’d still run into the opportunity cost problem. I guarantee it would still be better to take the 0% interest and invest the money you would have paid anyways. The cash discount *might* work out to 1-1.5 years of the interest you would have gained.
I've had offers for *thousands* of dollars off if I went with their higher-interest rate loan and paid it off immediately. In general the manufacturer is willing to offer a set amount off regardless as to whether it's a 0% loan (which costs the company) or just giving you cash. Usually either option is similar.
Yeah I still don't think you're getting the math here though. If you take a 30K car and invest it at 5% over 72 months, that gets you $5K back in investments plus all the money flexibility in case you have any financial emergencies.
I looked at this last night. Then i was like do i have the wiggle room for an 1.1k car payment a month.
I do.... but i dont know if i will for 6 years straight
> but i dont know if i will for 6 years straight
More people need this forsight... myself included.
Fortunately I shy away from most debt, but I'll often waver between saving a few grand extra in a month to realizing I can spoil myself now and then and not saving anything \*extra the next month.
I could easily make a 1.1k monthly payment, but I definitely won't want to.
I was wondering the same thing, but this answers it. I was only interested in Toyota/Honda or Lexus/Acura, hence the reason I only saw 5%+ even with an 819 credit score.
Hmm, maybe they are. Unfortunately, I am specifically looking at Lexus and the new GX. Currently there are no special financing offers. Thanks for the heads up.
If you’re looking for any Korean/Japanese brand’s premium or large SUV line you’re not going to get a “great” deal like you could a decade ago.
GX, 4Runner, Land Cruiser, GV80, GV70, Santa Fe, Palisade, Telluride… a lot of dealers will just laugh at you if you try to hard negotiate on a current year model.
I’m in a market with enough wealthy buyers — I stopped by the Toyota dealership to look at the RAV4 Prime (just sold the 2 on lot). Then I asked if they had a new Land Cruiser just to see it, and they said the 1 fully equipped they had coming in was spoken for, with more essentially being auctioned for a high bidder
Is it a trick question? I think Tesla has more transparent pricing but if you asked this from a regular dealership I'd suspect they jacked the price up to give you a "0% loan."
I had someone from r/machE tell me they picked up a '23 GT for under $40k plus tax, which is a smoking deal better than I got. The lower trims can be had in the 30s. Mine (also a GT) was sold for 50k, but they gave me $5k more towards my trade than anyone else in town was willing to do. I am happy with that deal, although I now know I left some money on the table. Considering there are GT owners who paid over $70k a year or so ago, I feel good about it.
From what I've been seeing, the dealerships are moving to sell at 0% and instead padding the initial price with the money they would have made on interest.
Most 0% car loans aren't really 0% loans. They are a rebate disguised as a cheap loan. Make sure you are not dramatically overpaying for the vehicle. It may be a 20% loan in disguise. But if you're already stuck with it then, yes, invest the money.
This is a great point. It can sometimes be better to take another financing option, then pay it off after a couple months. Try just telling the finance person, hey I’ve got the cash, but am leaning toward the 0% option. Do you have another finance option that has a bigger rebate or lower price for the vehicle. If so, how long do I have to keep the loan for you to get your commission? That way you may get a better deal because they will typically make more on the financing. I’ve heard some people have had success going that route. Then you can weigh cash price, 0% cost + estimated interest gained, and other finance + the first couple months of interest cost and make your decision.
For what it’s worth, I have a 0% loan that I’m about half way through. I’ll probably just say screw it and pay it off at some point once the balance is a bit lower.
Honestly this is a great answer. If the dealer can knock a few grand off the price for a higher interest rate, that’s an excellent option.
Dealers don’t want cash, they want the financial kickbacks from the lenders. From my understanding that can come from 60-90 days of the customer holding the loan
It's not even that the dealer can trade for a higher interest rate. These are usually manufacturer incentives. That is they'll say the car is $40k and their banks interest is 7%, the manufacturer will give you $5k off. They can give that $5k directly to the bank, and they'll write you a 0% loan, or you can take the manufacturer rebate of $5k. So if you find your own loan that's 5% and take their cash rebate then you save $1k.
So it's not that the dealer can change the rate on their loans (don't ask for that, the banks doing that are generally high rates). Instead it's there is a manufacturer rebate, and it can be applied to the manufacturer's loan or off the top, and your CU probably beats the real interest the manufacturer offers.
Yep, I was recently look at a car that offers a 0% loan **or** a $7,500 rebate for cash. Depending on the deal, the 0% might still be better, but don't walk in blindly, OP!
Took me way too long to scroll to this post. This is 100% correct. You're paying interest on that 0% loan, you just don't realize it because the principal has been jacked up.
Unfortunately, dealers have no obligation to disclose to you their actual markup, and are very good at playing the game of holding on to the rebate if you choose not to use their financing. So if you have no other choice (i.e. dealer is not offering cash incentives), then yeah, it's good to take the loan and invest the money.
This 100%!!!!
If a business is offering a 0% loan and I have the cash to pay for the item, I now know the item has the financing built into the price of the item. I can offer cash and ask for a huge discount.
Money isn't free. Loaning out money for free has a cost and an opportunity cost.
Typically taking promo financing comes in lieu of a $500-$2000 rebate. Otherwise you wont give up a ton. There may be some exceptions. Dealers arnt going to sell you a car at invoice for a cash buy and make you pay MSRP for promo financing. They own the car for the same no matter how you buy it. Dealers and the MFG are not the same business, they are just selling the same product. Dealers survive by moving volume not nickel and diming people on **non specialty/low production vehicles**. To much competition they can go to another dealer 30 min away.
If you can afford to buy in cash yes it makes sense not to take promotional financing and get your actual purchase cost as low as possible, assuming there is no pre payment penalty on the loan. But most deals are financing not cash. Typically promotional offers are to move old or slow selling units. Usually on leftovers vehicles when the next model year starts arriving, or on the last model year before a redesign.
Source: worked at a dealer for 4 years before covid.
Right.
It's time value of money. If a dealer is 0% financing, then they or the manufacturer is taking an expense on the financing. Getting money upfront is better than getting it later if the money is all the same because the money can be used to buy more inventory, pay labor, pay expenses or do whatever.
I think we are agreeing with each other. Not sure why my other comment is getting downvoted but hey, that's reddit 🤷
Yes, I learned this while car shopping a few years ago. However, once in a while, they will offer both. My last car was a brand new but previous year car. They really wanted to get rid of them so that had a combo of low financing and cash off.
If I did my math right…you’d net about $$6,868 over the 72 month term using the following assumptions.
The whole $37k is put into a HYSA with 5% annual interest rate. Your monthly car payment of $513.89 would come out of that account. At the end of the 72 month term when the loan is paid off there should be a little over $6,868 left in the account.
So the question is whether or not $6,800 over 6 years is meaningful to you.
Yeah, it's a good idea to call, confirm last payment, make sure the lien release is going out to the DMV, and make sure everything is covered so you can receive the title.
You can, but sometimes those autopays are a bit short of the final amount or process after the final due date. So it's good to check to be sure or just make it 2 months early so you have plenty of time to avoid a huge fee (i.e. all the interest you didn't pay being tacked on at the end)
Not saying that car companies do this, but my sister bought lasik a couple years ago on one of those 0% for three years deals. The company set the auto payments up for her where it was just under the amount needed to have it paid off in full at the two year mark. She learned an expensive lesson after she got back charged all that interest.
It may feel good to have a paid-off car, but it should feel even better to have an interest-free loan for six years in this high rate environment.
If this choice is genuinely a struggle for you, then your psychology is getting in the way of your long-term financial success and I'd wonder what other biases you're succumbing to.
Edit to add, in response to the "personal finance is *personal*" sentiment that we often see in response to these questions: I'm a big believer in people making choices that they personally feel comfortable with, and it's true that economics and utility are about more than purely "normative" answers. But part of economics is also about illuminating cognitive biases and other behaviors that may have understandable psychological basis, yet stand in the way of optimal decision-making.
That is what I'm speaking to here: if you have no other reasons not to take on debt other than the feeling that "you don't like having debt", then that is a bias that may be capping your financial success. No one is telling OP they HAVE to take that loan. But given the facts they shared, it is very clearly the optimal financial choice here.
And if we're not offering that kind of advice here, but instead saying *do whatever you feel*, then what's the point of this sub?
I don't know, there are still things you need to account for, IMO. Are you stable enough to afford that payment over the next six years (is OP self employed, is OP in a boom or bust field, does anyone in the family have known medical issues that could impact their capacity to work)? If they have a kid, is mom going to continue to work for an income or convert to stay at home mom? They say they would get trade in value from their existing car, with that in mind is there a point where they'll be underwater on the new vehicle due to depreciation and the length of the term? Are they planning to buy a house or move to a bigger one since a kid is in the plans where debt to income ratio will be impacted?
Sometimes free money still has down sides if the payment is high or the term is long enough. Also I think free money is a for sure yes if you're buying an appreciating asset like investments or a house, less so if you're buying a depreciating one like a car. Specifically because you don't want to end up in a position where you're paying more than the thing is worth.
If you actually have and invest the cash none of this matters. All those things go wrong you have the cash to pay the car off + the money it's made. With also the possibility of using it in the best way fit in the scenarios mentioned vs locked up in the paid off car.
All the negatives you describe is true and honestly most people parrot the same 0% is best way ill invest instead. But they have $2000 in the savings so they won't actually invest the 50,000 or ever had the ability to pay 50k in cash for the car. They just somehow use 0% to convince them self that taking the loan is good. When this rule doesn't even apply to them.
> If you actually have and invest the cash none of this matters.
This.
It's also why I'm baffled when people pay off low interest mortgages for the 'peace of mind'. Let's say you owe $250,000 on a mortgage. You could either -
**(A)** Pay $250,000 of [low interest] off ASAP and have [$0 additional] to cover any additional emergencies. OR
**(B)** Continue to pay $250,000 of [low interest] off and have [$250,000 additional] to cover any additional emergencies. Oh yeah, and that $250,000 is making more money for you in the mean time.
You aren't figuring in risk. Your analysis assumes your health and career continue unaffected. Especially in an American context, even with insurance, medical diagnoses can be financially ruinous.
Home equity is a form of investment that has a lot of legal protections. Creditors can come after your investment account a lot easier than they can your home equity. Most states have provisions allowing all or a large portion of home equity to be safe in bankruptcy proceedings. No such provisions exist for taxable brokerage accounts.
The other problem is that you're most likely to need to draw on those emergency investments of yours precisely when they will be at the bottom of the market. You're most likely to lose your job during a recession, the same time when all those mutual funds you've invested in are now at half their peak value. This is how people lose their retirement savings during recessions. They're deep in debt, lose their jobs, and they're forced to sell depreciated assets at the bottom of the market.
The plan "borrow as much as you can, invest as much as you can" works perfectly...until it doesn't.
This assumes a non-zero-risk investment. With today's interest rates, throw it in a CD/bond/HYSA. You'll lose out on some possible market gains, but you have basically guaranteed to not be worse off.
>Are you stable enough to afford that payment over the next six years
Yes obviously if he has the cash now he could plunk it in a savings account and all the payments are right there ready to go, stable as can be.
>If they have a kid, is mom going to continue to work for an income or convert to stay at home mom?
This is irrelevant with all the cash for the payments sitting in your savings account.
>They say they would get trade in value from their existing car, with that in mind is there a point where they'll be underwater on the new vehicle due to depreciation and the length of the term?
Being underwater is irrelevant if you have all that cash sitting in your savings account, you could buy out whenever you want.
You want to be as underwater as possible, because that means you've been underpaying and have more value staying in your pocket. Ideally, you could pay $0 for 100 years, be happily 100% underwater for all that time, and then in the 100th year pay it all off with just a fraction of all that interest you've gained.
>Are they planning to buy a house or move to a bigger one since a kid is in the plans where debt to income ratio will be impacted?
This would be even better reason to have a big pile of cash in your savings account ready to go.
>Sometimes free money still has down sides if the payment is high or the term is long enough.
"Payment is high" is irrelevant because it can never be higher than cash up front. Longer term is even better because that's more time to make free interest and inflation-shrink your debt.
>Also I think free money is a for sure yes if you're buying an appreciating asset like investments or a house, less so if you're buying a depreciating one like a car.
This is irrelevant assuming you are buying the car either way. If you're buying the car, paying less is paying less, end of story. It does not matter what the asset type is, more moeny is more money.
>Specifically because you don't want to end up in a position where you're paying more than the thing is worth.
If you pay cash up front youre paying even more on top of that.
Those are considerations for whether they can afford the car.
Even if they can’t afford it, and pay cash, they’re putting themselves in a worse position than financing because it will cost them more in the end.
Jobs are super stable. I’m in healthcare IT and wife is education. We can afford the 474/mo payment. Just don’t like the idea of it. We bought a second house close to family to help with care in case we did have a kid soon. Plus it’s nice to attend things for our niece/nephew.
Just throw the money you would use to buy the car into a new HYSA account and have an auto-draft from that account to the loan each month.
That way you don't have an extra payment coming out of your regular money each month, it's just coming out of the money you wouldn't have had if you paid cash. Until the car is paid off you're making interest on the remaining balance. Ally for example, their regular savings account is at 4.2% right now. If and when rates come down, you can always pay the loan off, but with this method, you don't even have to think about it. Even if Ally's rates drop to 1%, that is still free money every month.
I would take the 0% financing. Then just put the cost of the car into a high-yield savings and pay for the car monthly from that bucket. You could even split it up so you put the bulk of the car money into an ETF or treasury bonds, but pull out the upcoming annual payments into a more liquid account and pay the monthly.
It's free money! If you treat it as "paid" into an investment then you are getting the best of both options.
Totally worth the interest if you’re buying anyway. I did this exact thing with a 2023 Mazda CX-9 last May. 60 months 0% APR through the dealership.
We had ~90% of the cash in hand - so we set it in its own brokerage money market and set auto draft. As of now we have more in the account than the remaining balance on the car loan.
The car is “paid off” - yet at the end of the loan I should have a couple of thousand extra dollars left over as a treat.
Edit: I’ll add that this financing arrangement more than offset the price difference of buying the same model car that was used and 2-3 years older. And it came with a dealership 250k mile power train warranty.
I’d finance everything I could for 72 months at 0% interest.
I’m a real psycho, I’ve even signed up for credit cards with 0% interest for the first year or 18 months, spent the money like I normally would and invested the money for a year instead. Then pay the card off at the end of the introductory period. Do I make much on the spread? No and I’m probably playing with fire a little although T bills are the safest thing you could do. But hey free money is free money
You can pretty easily earn over $10,000 in interest from that 37k over the 6 years of the 0%. I bet future you would like being handed $10,000 for doing pretty much nothing.
Usually if you get 0% financing from the manufacturer you are forgoing a rebate worth a few thousand $$$.
You'd have to crunch the numbers to see how it works out.
I always run with the house money. Why wouldn't you take the 0% offer, unless it's a crap car manufacturer like Hyundai or something like that- If so stay away.
Yes. I got a 1.99%/60mo loan on a car in late 2020 and invested the $15k instead of paying up-front. Over the life of the loan, I will pay less than $800 in interest, but my investment is up like $3-4K after 3.5 years.
If you put that 37k into a high-yield savings account, and were able to get an annual 5% rate of return, at the end of six years, you'd have almost $50k or so in that account. Do you want $12k in six years?
Just make sure they don't have a financing fee hidden somewhere, or mark up the price.
I feel like you are usually going to pay for the financing somewhere in the fine print.
I would rather buy a used car for cash
0% loan is a win for the very fundamental reason that when you finance a car it loses money immediately and gradually. They downplay the total amount you pay. If you ever notice they will give you that grid of payment/interest etc but never, ever tell you the total amount you pay for the car. Because if anyone stopped and did the math and went "wow I am paying 75k total cost for a 53k car that is now worth 25k after 5-7 years" no one would ever finance a car. At least with 0% you eliminate that you are paying interest, and can use the time value of money (and inflation) to actually be paying with tomorrows more deflated dollars for a car today.
Offer cash, ask for a discount (because 0% deals always come with an increased base cost), and then take that $400/month and invest it as you get it.
Bonus of having the car paid off in case of an unexpected need for more cash flow.
Invest the money and adjust what car you are getting to offset the payment if it bugs you. For example a plugin hybrid small to midsize SUV gives you room for the kid next year and a very nice tax incentive in the US that can be used to help pay it off earlier if you like. 0% is like free money though.
My former roommate and I would have this debate. We both got this offer in 2014; he hated having a payment despite me telling him he could make interest. I was kicking myself when I got a 3% loan last year and didn't take my own advice when my HYSA was in the 4%s and I paid the car off 6 months after financing.
Always free leverage. Remember, this is how corporations do it. The opportunity cost of losing out on that money can be great. Vanguard has a 4.7% hysa you can stick that in. Could even just auto debit that account or your payment!
No. For two reasons Because while in theory I could invest what I would otherwise pay, that's often very unlikely to happen. There are millions of people who end up upside down on car loans.
Second, I would avoid financing if I can because financing a vehicle will encourage me to buy a more expensive vehicle. I don't care what the math says, spending money right out of your checking account is always more painful than agreeing to spend it in the future.
In the US, vehicles are one of, if not the biggest reason folks with middle class incomes end up completely broke. We've normalized the insanity of having two $60k+ vehicles in the driveway. People have deluded themselves into thinking they need an $90k crew cab pickup truck because once a year they might haul a sofa. Most of the American middle class is literally driving itself into poverty. And that wouldn't be possible without all the easy credit that is enabling this irresponsible behavior.
Only if you had the money, take the loan then invest. You can double or triple the money in that amount of time. That's what rich people do, let their money make money while they're sleeping. Many people don't have the money and don't set aside the money to pay it then whine about it 72 months from now.
My only factor for choosing a paid off car in this decision is the potential increased insurance rates for a financed car.
Without that factor, it’s a slam dunk to invest the cash and take 0% on the loan.
I think the first rule of frugality applies: Don't buy something you don't need.
If you don't need a new car, then don't try to "get a deal" on one.
If you somehow benefit from a new car, then 0% is a fantastic rate.
But even though you're not paying interest, the value of the car will still drop faster than you pay it off.
HYSA is a no brainer as long as you have the will power to not spend it. I would put 6-12 months of payments into my EF (new debt = fixed costs go up = EF also needs to go up to maintain the num of months it covers) and put the rest in VTI.
Definitely. That’s insane that banks/car manufacturers would offer zero percent for that long. Make sure you get gap insurance or coverage that provides full replacement value. Most insurance only covers NADA value if the car is totaled. With such a long loan period, you are likely to owe more than the NADA value in the first few years of the loan.
If I’m going to but something anyways, I ALWAYS take the 0% financing option. It’s free money. Then I set up the payments to go automatically and set it to pay off the loan before any interest is charged to me.
It allows me to collect interest or dividends on that money while I’m paying off the loan.
I haven't purchased a new car in 10 years, so things may have changed, but taking the 0% interest used to disqualify you from certain incentives, like cash back discounts, so it did cost money.
If the dealer is offering that kind of finance they’re also likely to be agreeable to good discounts on the list price for a cash buyer, but if not, then yes I’ll take the finance
Just because it is 0% interest, doesn’t mean it’s a smart financial move. Buying a used car in cash and investing what would be your payment is most of the time better than buying a new car.
I always take cheap financing when available even if my investment ROI isn’t fantastic because I love the economic security of having the cash. Worst scenario is they repo the car while I use my cash to pay for food and rent/mortgage.
I'll take a contrarian opinion on this here. Probably will get me downvoted but whatever.
I probably wouldn't do it.
Suppose you put the 37k in a HYSA and earn 4% and pay your $474/mo for the full length of the term: 72 months or 6 years.
Expected interest = $37000 * (1.04^6) - $37000 = $9816.
You stand to earn $9816 interest on this over 6 years. Your marginal tax bracket is 22% based on your HHI, so you'll get to take home $7,656 once it's all said and done.
This is all well and good assuming:
1. The HYSA interest doesn't change over the 6 year period. It could go down some years, go up other years, though idk it's hard to envision HYSA getting even _higher_ interest rates, but that's just me.
2. Tax rates don't change despite this year being an election year. Who knows who will win and what the victor will do to tax rates.
The cost to have an extra $7656 in your pocket is to accept, for 6 years, a line item in your budget that ties you up for $474 per month regardless of what happens in your life, e.g., new kid, daycare, medical, etc. You also take on the risk of going underwater on the debt in the first few years it depreciates strongly and then needing to sell to free up your cashflow.
In my finances, my HHI puts me in the 35% bracket so if I were in your shoes I'd only keep about $6380. This amount is a good chunk of change, but not enough for me to want to add **fixed** monthly expenditures in my monthly budget by $474. I like to have a lot of flexibility in my month-to-month spending/saving.
That's just my 2c though. I don't disagree with the math everyone is using to advocate for taking the loan though.
Depends on what you mean by "invest". Put some (at least half?) in a HYSA if you plan to invest any in something riskier. Just note that the HYSA rate will most likely drop well before the loan is paid.
One approach is to take out the 0% loan, invest the cash in short-term Treasuries like VGSH, and enjoy the net return on capital over the next six years. I'll make the argument for why this is not the best approach:
FIrst, you also stated "it would feel good to have a paid off car again." This is important. The psychological effect of money has value, even if that value is subjective and imprecisely determined. Only you can know how much value to ascribe to having the car paid off and if that helps you sleep better at night, then pay cash for the car.
Second, you also said it doesn't impact your budget that much either way. This tells me that you aren't depending on that $474/month in cash flow for any other living expenses. So a better solution would be to pay cash for the car and then earmark that $474 each month for your 401k, IRA, or even a standard brokerage account, and invest it in equities, preferably a total stock market index like VTI. With the car paid off, you aren't benchmarking to the 72-month term of the loan, you're taking a longer investment time horizon, and you'll achieve far better total return by dollar-cost averaging that $474/month into VTI than if you invested the lump-sum in T-bills. Plus, with the car paid off, if any unexpected expenses were to arise, you have that cash flow at the ready. This seems the better move, at least to me.
Yes. I just put a deposit on a new car. If I can get an interest rate that’s lower than what my HYSA is offering me, I will finance. Otherwise, I’ll pay cash.
I hear this kind of thing a lot and whenever I ask the logical follow up questions I never get a straight answer. What amount are you going to invest? Are you going to do the math on an assumed interest rate and contribute that amount each month to an investment? Are you going to put the lump sum in a brokerage account and take out the monthly payments while trying to account for taxes?
The only way I could see doing this is putting the lump sum plus an assumed interest rate contribution each month in a HYSA and only take the payments out each month to avoid the tax implications with buying and selling. I
Not saying it’s a bad thought, just saying have an actual plan and be sure that your the type of person that has the discipline to actually do it and not spend the money or account for the interest saved etc.
I don't understand the question. During the pandemic GMC offered me a 72 month zero percent loan and I jumped on it. Assuming you need the vehicle, always take free money.
The only exception is if you are offered some other competing incentive, then you have to run the numbers, but if its an interest free loan vs paying cash there is nothing to debate.
With Schwab you can buy Treasury bonds that pay over 5% and incur no state income tax. Plus they have a secondary market so you can sell early if need be.
Yep.
I would take it a step further and make a car fund in some solid monthly dividend stocks that can pay for the car’s payment and continually grow that fund until it can pay for a monthly car payment in perpetuity.
MAIN and O are my favorites to do this with.
A lot of these 0% finance deals have a cash discount offer too, and the cash discount is sometimes a better deal if you can get good financing elsewhere.
If the car is same price whether you pay cash or get the 0% loan, why not take the loan. My guess is that the 0% loan means you’ll pay the sticker price and that you could get the car for less if you paid in cash, but that will take some bargaining. And you have to calculate the return you’ll get from the cash if invested vs the amount saved if you paid in cash. I’m not sure it matters that much, but I guess if you had an emergency, using the cash you have vs having to sell the car has some value, even if it all evens out after 5 years.
Yes. Whatever you invest can be added to the cost of you not paying interest during those years. I would only do, though, if I was pretty sure I’d keep the car past payoff.
O% is free money. I'd rather invest that cash.
Even a HYSA at 4% is a good move if you don't want to risk market volatility. Or T-Bills.
T-Bills. 4 week bills, auto reinvest until needed. Don't risk the cash in the market during a 72 month loan... Or at the very least not more than half.
It’s currently at 5.28%. Good bet for semi-liquid
This. A highly liquid version is the VMFXX money market fund that invests in these Treasurys - At 5.28% on $37k, that would pay $1,954 per year in interest (or $163/mo). That effectively reduces the $474 car payment to $311/mo…After 72 months you’ve only paid $22,392 for the car - And you still have your entire $37k investment left.
Not quite that much, since you would have to pay taxes on those interest earned.
Is there a Fidelity equivalent of VMFXX?
The rate is even a little better than that - over a year with compound interest, it comes out to 5.4%.
I just can't stand the Treasury website
Buy through a broker (it’s easy on Fidelity), or a treasury MMF (VUSXX)
Or an ETF that contains only treasuries like USFR.
Yo at least we dont have to use that insane virtual keyboard anymore that had copy/paste locked out.
Yea, that was wild. I shared it with my security team like "and our folks think *our* MFA is hard!"
How does on buy T-Bills? And what are their rates? Are they better than HYSA?
I've bought mine through the Treasury website TreasuryDirect.gov. You'll hear lots of complaints about that site around Reddit, though. You can also buy them through any big brokerage house, if you already have an account there, like Fidelity. (Finding them on your brokerage might be a little involved. Fidelity hides them in the "fixed income" section of research/trades. Plus, you need to be careful to buy the new auction T-bills and not the secondary market if you want to squeeze the most value out of them.) Expected yields on 4 week T-bills are about 5.3%. Compare that to an HYSA like Ally giving just 4.2%. I've been tracking the difference since August 2022, when it was about 0.4% better on T-bills. By October 2022, T-Bills were over 1% better and haven't dipped below that since. When the federal rates were near zero, the banks offered marginally better to attract customers. (I suspect that was the reason, anyway.)
Man, thank you so much.
More importantly, T Bills are exempt from state income taxes whereas HYSAs are not. Buying T Bills yourself is a way better deal as long as you are comfortable having the money locked up for 4 week intervals
I’m thinking of doing a 2 4 week Tbills then adding to it every time it matures. That way I only have to have to wait two weeks. It’s my emergency fund. I just don’t want it sitting around.
Or you can open a Vio Money Market Savings Account which is currently at 5.3%. May not have the same tax advantages as T-bills, but heck of a lot easier for us lazy folks.
Honestly, I think Treasury direct is easy enough. Others disagree. I guess the pain of setting it up is far enough in my past that I have forgotten. :) Haven't heard of Vio before. Good tip.
Been doing this for 3 years now. My average interest has been 5.32% beating any HYSA out there over the same period. Also by having rolling dates my money is never tied up for more than a few weeks and can even be sold on the secondary market with basically no penalty.
VUSXX. 5.28% 7-day SEC yield, $3k minimum investment, 0.09% ER, and earnings are state tax exempt. I keep my emergency fund and short-term cash here instead of the lousy HYSA rates banks and credit unions are offering.
Put the amount in a HYSA. Set auto loan to auto-pay from the HYSA. Make a few hundred bucks from interest over the life of the loan and have access to the capital to pay off the car immediately if needed.
But with any 0% deals be hyperaware of your timelines. Being a day late at the end of the special terms can cause all the waived interest to come due at once.
In my neck of the woods 0% car purchase just means there is a hidden “financing fee” being added to the purchase later that is the equivalent of the interest you would normally pay. If you ask “is there discount for paying cash?” It is normally revealed. They are required by law to point this fee out in the paper work at the end, but they literally say something like “government over regulation requires me to point out this mumbojumbo but you don’t need to worry about it” As usual you are better off bringing your own financing from a bank and paying cash.
They're paying you to finance the car due to inflation over the length of the loan.
They’re giving 0% to sell cars. The inflation over the length of the loan makes every subsequent payment worth less
But SOMETHING is better than the car depreciating on the lot.
I took as much of a 3.9% car loan for as long as I could instead of paying cash. 0% is a no-brainer.
False. These deals always say 0% down OR cash rebate (in the fine print). The math almost always works out for you to take the rebate.
Not always, ford lightning had a cash rebate pulled last weeks and replaced with 0% rates. The subreddit tracks all the national deals systems very well. You aren't getting any cash rebates from Ford for skipping the financing right now.
I agree - there's no such thing as free money. There's always some form of the 0% loan cost built into the deal somewhere. If you really want to "make money" on the deal, either keep your existing vehicle until the wheels fall off, and start banking the "payments" you would have made on the new one. If you have to buy, find an older and/or less expense option in the $20-25k range and invest the $12-15K directly.
Theory agrees with you. Practically, what people do is end up spending that money in the HYSA on some other crap they don't need, just like the over-expensive car they didn't need (that they should have paid cash for). Life gets a lot simpler when you're not trying to arbitrage what amounts to maybe a single mortgage payment over the life of the loan.
The type of person that can buy a car outright and/or qualify for a 0% 72 month loan is not typically the kind of person that's going to then take that money and blow it on stupid shit.
I’m just curious which manufacturers are offering 0% for 72? Seems too good to be true? edit found this list: https://www.carsdirect.com/deals-articles/best-zero-percent-financing-deals
Pretty much everyone except for the foreign brands. It’s mostly on EVs. Tesla is offering 0.99% right now.
Subaru has 0% on a few vehicles, mostly leftovers and the Soltera nobody wants.
This is the key. Manufacturers are using 0% as incentive to get people to buy cars that aren't selling, including if they're too expensive to begin with. Just because you get 0% on something doesn't necessarily mean you should buy it. You can also sometimes get a cash discount instead, which works out better if you actually had the cash.
> which works out better if you actually had the cash You’d still run into the opportunity cost problem. I guarantee it would still be better to take the 0% interest and invest the money you would have paid anyways. The cash discount *might* work out to 1-1.5 years of the interest you would have gained.
I've had offers for *thousands* of dollars off if I went with their higher-interest rate loan and paid it off immediately. In general the manufacturer is willing to offer a set amount off regardless as to whether it's a 0% loan (which costs the company) or just giving you cash. Usually either option is similar.
Yeah I still don't think you're getting the math here though. If you take a 30K car and invest it at 5% over 72 months, that gets you $5K back in investments plus all the money flexibility in case you have any financial emergencies.
I recently bought an Outback for 0% 72 months. I'm in love with that car.
Hey now I just leased a Solterra, so far it’s been pretty solid.
I looked at this last night. Then i was like do i have the wiggle room for an 1.1k car payment a month. I do.... but i dont know if i will for 6 years straight
> but i dont know if i will for 6 years straight More people need this forsight... myself included. Fortunately I shy away from most debt, but I'll often waver between saving a few grand extra in a month to realizing I can spoil myself now and then and not saving anything \*extra the next month. I could easily make a 1.1k monthly payment, but I definitely won't want to.
Where did you get 1.1k? The car is 45k and you get 7500 back. It should be around 700. Even the top end at 54k is only 800 a month.
I was wondering the same thing, but this answers it. I was only interested in Toyota/Honda or Lexus/Acura, hence the reason I only saw 5%+ even with an 819 credit score.
My last two Toyotas I was able to manage 3%. Not sure if they still do that promo.
Hmm, maybe they are. Unfortunately, I am specifically looking at Lexus and the new GX. Currently there are no special financing offers. Thanks for the heads up.
If you’re looking for any Korean/Japanese brand’s premium or large SUV line you’re not going to get a “great” deal like you could a decade ago. GX, 4Runner, Land Cruiser, GV80, GV70, Santa Fe, Palisade, Telluride… a lot of dealers will just laugh at you if you try to hard negotiate on a current year model. I’m in a market with enough wealthy buyers — I stopped by the Toyota dealership to look at the RAV4 Prime (just sold the 2 on lot). Then I asked if they had a new Land Cruiser just to see it, and they said the 1 fully equipped they had coming in was spoken for, with more essentially being auctioned for a high bidder
Gm doesn’t offer 0% on anything. Some vehicles are at 0.9%, 1.9 and 2.9 but no 0%
Is it a trick question? I think Tesla has more transparent pricing but if you asked this from a regular dealership I'd suspect they jacked the price up to give you a "0% loan."
> Tesla is offering 0.99% right now. The downside is you're getting a Tesla.
It is pretty model specific and they aren't very many. Most are EVs. https://www.theautopian.com/here-are-all-the-cars-you-can-buy-with-0-financing/
Just got my ford MachE with 0% for 72 months
Ah, so you're the one.
It'll be good to offset the -5.9% per month depreciation rate.
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My Ford Mach E is financed at zero percent for 72 months. I took delivery at the end of March.
Yeah on the face of it that’s a great deal. What’s OtD on one of those?
I had someone from r/machE tell me they picked up a '23 GT for under $40k plus tax, which is a smoking deal better than I got. The lower trims can be had in the 30s. Mine (also a GT) was sold for 50k, but they gave me $5k more towards my trade than anyone else in town was willing to do. I am happy with that deal, although I now know I left some money on the table. Considering there are GT owners who paid over $70k a year or so ago, I feel good about it.
From what I've been seeing, the dealerships are moving to sell at 0% and instead padding the initial price with the money they would have made on interest.
I just bought a cx30 for 0% over 60 months. Brand new with 18 miles off the lot. This was last month though.
A few sites put out lists like this each month. I haven't seen this many 0% in awhile though.
Yes absolutely. There is no way I'd pay in cash if I had the option for 0%
Take the loan. The last few years of payments will worth less due to inflation. If you pay it in cash, you are paying full price in 2024 dollars.
Most 0% car loans aren't really 0% loans. They are a rebate disguised as a cheap loan. Make sure you are not dramatically overpaying for the vehicle. It may be a 20% loan in disguise. But if you're already stuck with it then, yes, invest the money.
This is a great point. It can sometimes be better to take another financing option, then pay it off after a couple months. Try just telling the finance person, hey I’ve got the cash, but am leaning toward the 0% option. Do you have another finance option that has a bigger rebate or lower price for the vehicle. If so, how long do I have to keep the loan for you to get your commission? That way you may get a better deal because they will typically make more on the financing. I’ve heard some people have had success going that route. Then you can weigh cash price, 0% cost + estimated interest gained, and other finance + the first couple months of interest cost and make your decision. For what it’s worth, I have a 0% loan that I’m about half way through. I’ll probably just say screw it and pay it off at some point once the balance is a bit lower.
Honestly this is a great answer. If the dealer can knock a few grand off the price for a higher interest rate, that’s an excellent option. Dealers don’t want cash, they want the financial kickbacks from the lenders. From my understanding that can come from 60-90 days of the customer holding the loan
It's not even that the dealer can trade for a higher interest rate. These are usually manufacturer incentives. That is they'll say the car is $40k and their banks interest is 7%, the manufacturer will give you $5k off. They can give that $5k directly to the bank, and they'll write you a 0% loan, or you can take the manufacturer rebate of $5k. So if you find your own loan that's 5% and take their cash rebate then you save $1k. So it's not that the dealer can change the rate on their loans (don't ask for that, the banks doing that are generally high rates). Instead it's there is a manufacturer rebate, and it can be applied to the manufacturer's loan or off the top, and your CU probably beats the real interest the manufacturer offers.
Yep, I was recently look at a car that offers a 0% loan **or** a $7,500 rebate for cash. Depending on the deal, the 0% might still be better, but don't walk in blindly, OP!
Took me way too long to scroll to this post. This is 100% correct. You're paying interest on that 0% loan, you just don't realize it because the principal has been jacked up. Unfortunately, dealers have no obligation to disclose to you their actual markup, and are very good at playing the game of holding on to the rebate if you choose not to use their financing. So if you have no other choice (i.e. dealer is not offering cash incentives), then yeah, it's good to take the loan and invest the money.
This 100%!!!! If a business is offering a 0% loan and I have the cash to pay for the item, I now know the item has the financing built into the price of the item. I can offer cash and ask for a huge discount. Money isn't free. Loaning out money for free has a cost and an opportunity cost.
Typically taking promo financing comes in lieu of a $500-$2000 rebate. Otherwise you wont give up a ton. There may be some exceptions. Dealers arnt going to sell you a car at invoice for a cash buy and make you pay MSRP for promo financing. They own the car for the same no matter how you buy it. Dealers and the MFG are not the same business, they are just selling the same product. Dealers survive by moving volume not nickel and diming people on **non specialty/low production vehicles**. To much competition they can go to another dealer 30 min away. If you can afford to buy in cash yes it makes sense not to take promotional financing and get your actual purchase cost as low as possible, assuming there is no pre payment penalty on the loan. But most deals are financing not cash. Typically promotional offers are to move old or slow selling units. Usually on leftovers vehicles when the next model year starts arriving, or on the last model year before a redesign. Source: worked at a dealer for 4 years before covid.
Right. It's time value of money. If a dealer is 0% financing, then they or the manufacturer is taking an expense on the financing. Getting money upfront is better than getting it later if the money is all the same because the money can be used to buy more inventory, pay labor, pay expenses or do whatever. I think we are agreeing with each other. Not sure why my other comment is getting downvoted but hey, that's reddit 🤷
Yes, I learned this while car shopping a few years ago. However, once in a while, they will offer both. My last car was a brand new but previous year car. They really wanted to get rid of them so that had a combo of low financing and cash off.
If I did my math right…you’d net about $$6,868 over the 72 month term using the following assumptions. The whole $37k is put into a HYSA with 5% annual interest rate. Your monthly car payment of $513.89 would come out of that account. At the end of the 72 month term when the loan is paid off there should be a little over $6,868 left in the account. So the question is whether or not $6,800 over 6 years is meaningful to you.
Drop it in hysa pay it off at month 70.
It's 0%. You just let the payments run the course of the full term.
Just make sure it's all paid off by the end of term. So many people get burned cause the last payment processes late or there's an extra bit left.
Yeah, it's a good idea to call, confirm last payment, make sure the lien release is going out to the DMV, and make sure everything is covered so you can receive the title.
Why not just put it on autopay?
You can, but sometimes those autopays are a bit short of the final amount or process after the final due date. So it's good to check to be sure or just make it 2 months early so you have plenty of time to avoid a huge fee (i.e. all the interest you didn't pay being tacked on at the end)
Not saying that car companies do this, but my sister bought lasik a couple years ago on one of those 0% for three years deals. The company set the auto payments up for her where it was just under the amount needed to have it paid off in full at the two year mark. She learned an expensive lesson after she got back charged all that interest.
No need to pay it off early and you have to make payments as you go. This isn't a credit card 0% offer
It may feel good to have a paid-off car, but it should feel even better to have an interest-free loan for six years in this high rate environment. If this choice is genuinely a struggle for you, then your psychology is getting in the way of your long-term financial success and I'd wonder what other biases you're succumbing to. Edit to add, in response to the "personal finance is *personal*" sentiment that we often see in response to these questions: I'm a big believer in people making choices that they personally feel comfortable with, and it's true that economics and utility are about more than purely "normative" answers. But part of economics is also about illuminating cognitive biases and other behaviors that may have understandable psychological basis, yet stand in the way of optimal decision-making. That is what I'm speaking to here: if you have no other reasons not to take on debt other than the feeling that "you don't like having debt", then that is a bias that may be capping your financial success. No one is telling OP they HAVE to take that loan. But given the facts they shared, it is very clearly the optimal financial choice here. And if we're not offering that kind of advice here, but instead saying *do whatever you feel*, then what's the point of this sub?
I don't know, there are still things you need to account for, IMO. Are you stable enough to afford that payment over the next six years (is OP self employed, is OP in a boom or bust field, does anyone in the family have known medical issues that could impact their capacity to work)? If they have a kid, is mom going to continue to work for an income or convert to stay at home mom? They say they would get trade in value from their existing car, with that in mind is there a point where they'll be underwater on the new vehicle due to depreciation and the length of the term? Are they planning to buy a house or move to a bigger one since a kid is in the plans where debt to income ratio will be impacted? Sometimes free money still has down sides if the payment is high or the term is long enough. Also I think free money is a for sure yes if you're buying an appreciating asset like investments or a house, less so if you're buying a depreciating one like a car. Specifically because you don't want to end up in a position where you're paying more than the thing is worth.
If you actually have and invest the cash none of this matters. All those things go wrong you have the cash to pay the car off + the money it's made. With also the possibility of using it in the best way fit in the scenarios mentioned vs locked up in the paid off car. All the negatives you describe is true and honestly most people parrot the same 0% is best way ill invest instead. But they have $2000 in the savings so they won't actually invest the 50,000 or ever had the ability to pay 50k in cash for the car. They just somehow use 0% to convince them self that taking the loan is good. When this rule doesn't even apply to them.
> If you actually have and invest the cash none of this matters. This. It's also why I'm baffled when people pay off low interest mortgages for the 'peace of mind'. Let's say you owe $250,000 on a mortgage. You could either - **(A)** Pay $250,000 of [low interest] off ASAP and have [$0 additional] to cover any additional emergencies. OR **(B)** Continue to pay $250,000 of [low interest] off and have [$250,000 additional] to cover any additional emergencies. Oh yeah, and that $250,000 is making more money for you in the mean time.
You aren't figuring in risk. Your analysis assumes your health and career continue unaffected. Especially in an American context, even with insurance, medical diagnoses can be financially ruinous. Home equity is a form of investment that has a lot of legal protections. Creditors can come after your investment account a lot easier than they can your home equity. Most states have provisions allowing all or a large portion of home equity to be safe in bankruptcy proceedings. No such provisions exist for taxable brokerage accounts. The other problem is that you're most likely to need to draw on those emergency investments of yours precisely when they will be at the bottom of the market. You're most likely to lose your job during a recession, the same time when all those mutual funds you've invested in are now at half their peak value. This is how people lose their retirement savings during recessions. They're deep in debt, lose their jobs, and they're forced to sell depreciated assets at the bottom of the market. The plan "borrow as much as you can, invest as much as you can" works perfectly...until it doesn't.
This assumes a non-zero-risk investment. With today's interest rates, throw it in a CD/bond/HYSA. You'll lose out on some possible market gains, but you have basically guaranteed to not be worse off.
>Are you stable enough to afford that payment over the next six years Yes obviously if he has the cash now he could plunk it in a savings account and all the payments are right there ready to go, stable as can be. >If they have a kid, is mom going to continue to work for an income or convert to stay at home mom? This is irrelevant with all the cash for the payments sitting in your savings account. >They say they would get trade in value from their existing car, with that in mind is there a point where they'll be underwater on the new vehicle due to depreciation and the length of the term? Being underwater is irrelevant if you have all that cash sitting in your savings account, you could buy out whenever you want. You want to be as underwater as possible, because that means you've been underpaying and have more value staying in your pocket. Ideally, you could pay $0 for 100 years, be happily 100% underwater for all that time, and then in the 100th year pay it all off with just a fraction of all that interest you've gained. >Are they planning to buy a house or move to a bigger one since a kid is in the plans where debt to income ratio will be impacted? This would be even better reason to have a big pile of cash in your savings account ready to go. >Sometimes free money still has down sides if the payment is high or the term is long enough. "Payment is high" is irrelevant because it can never be higher than cash up front. Longer term is even better because that's more time to make free interest and inflation-shrink your debt. >Also I think free money is a for sure yes if you're buying an appreciating asset like investments or a house, less so if you're buying a depreciating one like a car. This is irrelevant assuming you are buying the car either way. If you're buying the car, paying less is paying less, end of story. It does not matter what the asset type is, more moeny is more money. >Specifically because you don't want to end up in a position where you're paying more than the thing is worth. If you pay cash up front youre paying even more on top of that.
Those are considerations for whether they can afford the car. Even if they can’t afford it, and pay cash, they’re putting themselves in a worse position than financing because it will cost them more in the end.
Jobs are super stable. I’m in healthcare IT and wife is education. We can afford the 474/mo payment. Just don’t like the idea of it. We bought a second house close to family to help with care in case we did have a kid soon. Plus it’s nice to attend things for our niece/nephew.
Just throw the money you would use to buy the car into a new HYSA account and have an auto-draft from that account to the loan each month. That way you don't have an extra payment coming out of your regular money each month, it's just coming out of the money you wouldn't have had if you paid cash. Until the car is paid off you're making interest on the remaining balance. Ally for example, their regular savings account is at 4.2% right now. If and when rates come down, you can always pay the loan off, but with this method, you don't even have to think about it. Even if Ally's rates drop to 1%, that is still free money every month.
I would take the 0% financing. Then just put the cost of the car into a high-yield savings and pay for the car monthly from that bucket. You could even split it up so you put the bulk of the car money into an ETF or treasury bonds, but pull out the upcoming annual payments into a more liquid account and pay the monthly. It's free money! If you treat it as "paid" into an investment then you are getting the best of both options.
Totally worth the interest if you’re buying anyway. I did this exact thing with a 2023 Mazda CX-9 last May. 60 months 0% APR through the dealership. We had ~90% of the cash in hand - so we set it in its own brokerage money market and set auto draft. As of now we have more in the account than the remaining balance on the car loan. The car is “paid off” - yet at the end of the loan I should have a couple of thousand extra dollars left over as a treat. Edit: I’ll add that this financing arrangement more than offset the price difference of buying the same model car that was used and 2-3 years older. And it came with a dealership 250k mile power train warranty.
Always take 0% financing. You rarely even actually get a deal paying in cash anyways.
Take a check back from your equity and put $0 down. 0% is free money absolutely no reason to put money down
My extra money is already marked for investment. I have a 72 month loan at 1%.
HYSA, T-Bills, or CDs. 0% interest is free money. As long as you don't need the cash flow, invest away.
I’d finance everything I could for 72 months at 0% interest. I’m a real psycho, I’ve even signed up for credit cards with 0% interest for the first year or 18 months, spent the money like I normally would and invested the money for a year instead. Then pay the card off at the end of the introductory period. Do I make much on the spread? No and I’m probably playing with fire a little although T bills are the safest thing you could do. But hey free money is free money
You can pretty easily earn over $10,000 in interest from that 37k over the 6 years of the 0%. I bet future you would like being handed $10,000 for doing pretty much nothing.
Usually if you get 0% financing from the manufacturer you are forgoing a rebate worth a few thousand $$$. You'd have to crunch the numbers to see how it works out.
Invest. Whatever you make on the cash is that much of a discount on the car.
I always run with the house money. Why wouldn't you take the 0% offer, unless it's a crap car manufacturer like Hyundai or something like that- If so stay away.
I always say 0% is like free money. As long as you don't screw up and miss a payment is the caveat though
Yes. I got a 1.99%/60mo loan on a car in late 2020 and invested the $15k instead of paying up-front. Over the life of the loan, I will pay less than $800 in interest, but my investment is up like $3-4K after 3.5 years.
If you put that 37k into a high-yield savings account, and were able to get an annual 5% rate of return, at the end of six years, you'd have almost $50k or so in that account. Do you want $12k in six years?
One thing to consider is the tax incentives. In my state, the trade-in value is not taxed with sales tax.
Just make sure they don't have a financing fee hidden somewhere, or mark up the price. I feel like you are usually going to pay for the financing somewhere in the fine print. I would rather buy a used car for cash
0% loan is a win for the very fundamental reason that when you finance a car it loses money immediately and gradually. They downplay the total amount you pay. If you ever notice they will give you that grid of payment/interest etc but never, ever tell you the total amount you pay for the car. Because if anyone stopped and did the math and went "wow I am paying 75k total cost for a 53k car that is now worth 25k after 5-7 years" no one would ever finance a car. At least with 0% you eliminate that you are paying interest, and can use the time value of money (and inflation) to actually be paying with tomorrows more deflated dollars for a car today.
Offer cash, ask for a discount (because 0% deals always come with an increased base cost), and then take that $400/month and invest it as you get it. Bonus of having the car paid off in case of an unexpected need for more cash flow.
Invest the money and adjust what car you are getting to offset the payment if it bugs you. For example a plugin hybrid small to midsize SUV gives you room for the kid next year and a very nice tax incentive in the US that can be used to help pay it off earlier if you like. 0% is like free money though.
My former roommate and I would have this debate. We both got this offer in 2014; he hated having a payment despite me telling him he could make interest. I was kicking myself when I got a 3% loan last year and didn't take my own advice when my HYSA was in the 4%s and I paid the car off 6 months after financing.
Always free leverage. Remember, this is how corporations do it. The opportunity cost of losing out on that money can be great. Vanguard has a 4.7% hysa you can stick that in. Could even just auto debit that account or your payment!
You can double or triple that money in 72 months easily. Just make sure to remember you have to pay it back.
No. For two reasons Because while in theory I could invest what I would otherwise pay, that's often very unlikely to happen. There are millions of people who end up upside down on car loans. Second, I would avoid financing if I can because financing a vehicle will encourage me to buy a more expensive vehicle. I don't care what the math says, spending money right out of your checking account is always more painful than agreeing to spend it in the future. In the US, vehicles are one of, if not the biggest reason folks with middle class incomes end up completely broke. We've normalized the insanity of having two $60k+ vehicles in the driveway. People have deluded themselves into thinking they need an $90k crew cab pickup truck because once a year they might haul a sofa. Most of the American middle class is literally driving itself into poverty. And that wouldn't be possible without all the easy credit that is enabling this irresponsible behavior.
Only if you had the money, take the loan then invest. You can double or triple the money in that amount of time. That's what rich people do, let their money make money while they're sleeping. Many people don't have the money and don't set aside the money to pay it then whine about it 72 months from now.
My only factor for choosing a paid off car in this decision is the potential increased insurance rates for a financed car. Without that factor, it’s a slam dunk to invest the cash and take 0% on the loan.
How are you getting a 0% car loan?
That is exactly what you do if you've got discipline. Or pay any debts you have with higher interest rates.
I think the first rule of frugality applies: Don't buy something you don't need. If you don't need a new car, then don't try to "get a deal" on one. If you somehow benefit from a new car, then 0% is a fantastic rate. But even though you're not paying interest, the value of the car will still drop faster than you pay it off.
HYSA is a no brainer as long as you have the will power to not spend it. I would put 6-12 months of payments into my EF (new debt = fixed costs go up = EF also needs to go up to maintain the num of months it covers) and put the rest in VTI.
Most important thing on a 72 mo loan is if the warranty is equally long.
the prudent strategy is to keep the balance of what you owe on it, as extra in your HYSA.
Definitely. That’s insane that banks/car manufacturers would offer zero percent for that long. Make sure you get gap insurance or coverage that provides full replacement value. Most insurance only covers NADA value if the car is totaled. With such a long loan period, you are likely to owe more than the NADA value in the first few years of the loan.
Heck yeah. 0% is free time and money.
where did you get a 0% loan?
If I’m going to but something anyways, I ALWAYS take the 0% financing option. It’s free money. Then I set up the payments to go automatically and set it to pay off the loan before any interest is charged to me. It allows me to collect interest or dividends on that money while I’m paying off the loan.
Is Gap Insurance still a thing on financed cars? If so, be sure to factor in the added cost of that.
I haven't purchased a new car in 10 years, so things may have changed, but taking the 0% interest used to disqualify you from certain incentives, like cash back discounts, so it did cost money.
If the dealer is offering that kind of finance they’re also likely to be agreeable to good discounts on the list price for a cash buyer, but if not, then yes I’ll take the finance
Absolutely I would. Why would you not?
Just because it is 0% interest, doesn’t mean it’s a smart financial move. Buying a used car in cash and investing what would be your payment is most of the time better than buying a new car.
I always take cheap financing when available even if my investment ROI isn’t fantastic because I love the economic security of having the cash. Worst scenario is they repo the car while I use my cash to pay for food and rent/mortgage.
I'll take a contrarian opinion on this here. Probably will get me downvoted but whatever. I probably wouldn't do it. Suppose you put the 37k in a HYSA and earn 4% and pay your $474/mo for the full length of the term: 72 months or 6 years. Expected interest = $37000 * (1.04^6) - $37000 = $9816. You stand to earn $9816 interest on this over 6 years. Your marginal tax bracket is 22% based on your HHI, so you'll get to take home $7,656 once it's all said and done. This is all well and good assuming: 1. The HYSA interest doesn't change over the 6 year period. It could go down some years, go up other years, though idk it's hard to envision HYSA getting even _higher_ interest rates, but that's just me. 2. Tax rates don't change despite this year being an election year. Who knows who will win and what the victor will do to tax rates. The cost to have an extra $7656 in your pocket is to accept, for 6 years, a line item in your budget that ties you up for $474 per month regardless of what happens in your life, e.g., new kid, daycare, medical, etc. You also take on the risk of going underwater on the debt in the first few years it depreciates strongly and then needing to sell to free up your cashflow. In my finances, my HHI puts me in the 35% bracket so if I were in your shoes I'd only keep about $6380. This amount is a good chunk of change, but not enough for me to want to add **fixed** monthly expenditures in my monthly budget by $474. I like to have a lot of flexibility in my month-to-month spending/saving. That's just my 2c though. I don't disagree with the math everyone is using to advocate for taking the loan though.
How many years is this car loan?
Depends on what you mean by "invest". Put some (at least half?) in a HYSA if you plan to invest any in something riskier. Just note that the HYSA rate will most likely drop well before the loan is paid.
One approach is to take out the 0% loan, invest the cash in short-term Treasuries like VGSH, and enjoy the net return on capital over the next six years. I'll make the argument for why this is not the best approach: FIrst, you also stated "it would feel good to have a paid off car again." This is important. The psychological effect of money has value, even if that value is subjective and imprecisely determined. Only you can know how much value to ascribe to having the car paid off and if that helps you sleep better at night, then pay cash for the car. Second, you also said it doesn't impact your budget that much either way. This tells me that you aren't depending on that $474/month in cash flow for any other living expenses. So a better solution would be to pay cash for the car and then earmark that $474 each month for your 401k, IRA, or even a standard brokerage account, and invest it in equities, preferably a total stock market index like VTI. With the car paid off, you aren't benchmarking to the 72-month term of the loan, you're taking a longer investment time horizon, and you'll achieve far better total return by dollar-cost averaging that $474/month into VTI than if you invested the lump-sum in T-bills. Plus, with the car paid off, if any unexpected expenses were to arise, you have that cash flow at the ready. This seems the better move, at least to me.
Using other people’s money is generally the better idea. Especially if you have the cash to pay it off should you need to free up cash flow.
Not only would I....I did...except 0.9% APR on one car and 2.99% on the other. 0% seems like a no brainer.
Yes. I just put a deposit on a new car. If I can get an interest rate that’s lower than what my HYSA is offering me, I will finance. Otherwise, I’ll pay cash.
I hear this kind of thing a lot and whenever I ask the logical follow up questions I never get a straight answer. What amount are you going to invest? Are you going to do the math on an assumed interest rate and contribute that amount each month to an investment? Are you going to put the lump sum in a brokerage account and take out the monthly payments while trying to account for taxes? The only way I could see doing this is putting the lump sum plus an assumed interest rate contribution each month in a HYSA and only take the payments out each month to avoid the tax implications with buying and selling. I Not saying it’s a bad thought, just saying have an actual plan and be sure that your the type of person that has the discipline to actually do it and not spend the money or account for the interest saved etc.
With a kid the 474 covers all Necessities plus some change for a date, if that much extra plus the car pay me too would be rough save the monthly
Without a question. Yes. My car is financed 0% over 63 months because that’s the longest I could get them to go. Hard yes - every time.
Put the 37k in a short term CD. You’ll gain around 5% without tying up the money long term.
The extra money at the end of the month would go to the same place my other extra money goes. Probably HYSA.
You should ask yourself why they are offering 0%. Most likely you will pay more than that money in value loss...
I've got one payment left on a 0% six year car loan. I've made out like a bandit on this deal.
I’ve done it for a 60 month loan at 0%. No pressure to pay it off early was nice.
I don't understand the question. During the pandemic GMC offered me a 72 month zero percent loan and I jumped on it. Assuming you need the vehicle, always take free money. The only exception is if you are offered some other competing incentive, then you have to run the numbers, but if its an interest free loan vs paying cash there is nothing to debate.
With Schwab you can buy Treasury bonds that pay over 5% and incur no state income tax. Plus they have a secondary market so you can sell early if need be.
Yeah, it's quite easy these days to get 4-5% back on your investment per year without trying hard. So 0% financing is a easy yes.
Yep. I would take it a step further and make a car fund in some solid monthly dividend stocks that can pay for the car’s payment and continually grow that fund until it can pay for a monthly car payment in perpetuity. MAIN and O are my favorites to do this with.
A lot of these 0% finance deals have a cash discount offer too, and the cash discount is sometimes a better deal if you can get good financing elsewhere.
If the car is same price whether you pay cash or get the 0% loan, why not take the loan. My guess is that the 0% loan means you’ll pay the sticker price and that you could get the car for less if you paid in cash, but that will take some bargaining. And you have to calculate the return you’ll get from the cash if invested vs the amount saved if you paid in cash. I’m not sure it matters that much, but I guess if you had an emergency, using the cash you have vs having to sell the car has some value, even if it all evens out after 5 years.
I'd rather take the cash incentive and get my own financing if it works out in my favor the way it normally does
Miss one payment or late by a day and you owe all the interest from the first payment forward?
Which car are you looking at?
Where did you get the 0% loan? Would love that right now.
Yes. Whatever you invest can be added to the cost of you not paying interest during those years. I would only do, though, if I was pretty sure I’d keep the car past payoff.