dragontales

How many % should one be paying on a 35k car?

geekybiker

Rule of thumb? As much as you can afford. Financing a depreciating asset is generally a bad idea.

verse101

Yes, one rule of thumb is whatever you can afford to put down. The other is to make it whatever payment you're comfortable paying each month. Cashflow is just as important as how much you have in assets.

I got 4.9% financing, put only $4k down because that's what I plan to get when I sell my old car. Oh, and I charged it to my credit card first then paid it off because I get 1.5% cash back I can get over 5% right now in money markets, so I don't see why I should pay down more of the car. I use the extra money to invest, so I'd hope to return better than 5% with that $. And if I feel like paying it off faster, I'll just make extra payments.

HiTEC

Whatever you can spare. I wrote a check and paid for mine in full, but no everyone can do that.

Only exception would be a lease, and you really don't want to put much of anything down.

Navy TL

I put down 20K but should of just paid for the whole thing. Just figured i would get more on my credit report since i plan on paying it off way before hand.

geekybiker

You're more disciplined than most. If you can get a ROR on your downpayment greater than your finance rate, you're better off investing, but I think that's generally pretty rare.

For the OP.
Here's a interesting calculator that helps you determine how much car you can afford based on your post tax income. (basically 15% of your post tax income it thinks is reasonable.)
http://www.bankrate.com/brm/auto-adv...uto-afford.asp

2002Dawg

Here's the deal...

Leases -- NEVER PUT MONEY DOWN. $500 down will drop your payment approx. $10/month on a 48 month lease. $10 x 48 = $480, so you've lost $20. As you go up in down payment, you go up in money lost. Bank your downpayment and take it out little by little.

Purchases - It depends on the interest rate of your savings account vs. your car note. For me, I got the 4.9% financing for 60 months. Since my downpayment is in an account earning (currently) 5.25%, it would be stupid for me to take that money out and put it down on the car. If interest rates go down again (not really likely any time soon), I can always make a principle-only payment which would shorten my term. If your interest rate on your car note is higher (a point or more) than your bank account, put down as much as you can afford. There's no point in paying the interest on the car note if you don't have to.

PM me if you want to talk details...

johnny--2k

agreed with above....I had $10,000 in equity in my 2 trade's, and another $1300 out of pocket, so it worked out perfect as to where I wanted payments to be.

poncekim

Wrong. If you have 4.9% financing and you currently earn 5.25% on your cash, you're better off paying off your car loan. You forgot about taxes. That 5.25% is actually much less than 4.9% after paying taxes on the interest you're earning.

At the end of the day, it's not alot of money, so it really doesn't matter. But technically, you should be paying off your loan.

verse101

I don't put the extra money in a money market, mine's invested. The money market is the minimum you should do. Of course we're all in different financial situations, but my feeling is that using $20k-35k to pay for a car up front is a waste of opportunity cost. People that like to finance rather than pay in full know there are costs involved with financing. No, the money market won't completely cover your finance charges, money markets don't always stay at 5%, few years ago they were at 2%.

Axis Blunts

2002Dawg hit the nail on the head.

If you are leasing, basically a long term rental, don't put down a penny. I used to sell cars for Boch Honda, second largest Honda dealer in the world next to Norm Reeves. We used to try to get down payments out of Leasee's (sp?) by getting them to put down the money for taxes on the car. Don't do it, the taxes are included in the monthly payment.

If you are financing put down as much as you can afford. If you have excelent credit then the more you put down the better off you are. Luckily I have a 735 fico and got 4.9% financing. I got my TL for 31500, got 9,000 for a 2000 Lexus RX300 with 110,000 miles on it and put a down payment of 8,000. If you have equity in a trade in and/or a down payment then you can beat the dealer. Good luck.

Not to hijack the thread, but it is a great feeling when you go in to meet the business manager and the first thing he tells you is that he has no sort of angle to get money out of you in the back end. He had no control when I met with him and basically told me that I just needed to tell him what I wanted to put on my TL in the back end of the purchase.

Budman231

I disagree with most folks here... Put down as little as possible and Keep your cash (invest it in a 5.5% CD) which will offset the interest you will pay on a loan. Tie up someone else's money for 5 years, not yours...!

Not sure what deals on new car loans there are now but it doesn't make sense to part with all your investment capital. Of course you need to be able to afford the monthly payments so in the end, that is king.

2002Dawg

I don't really want to argue the tax thing because it involves effective rates and things that give me a headache. I was using the savings account as an example; you could do much better if you were or knew of an expert in the stock market.

Given the excellent interest rate on the car, and what I could make investing, I'd rather have the cash in my pocket. Even if it's costing me a little more, I have more control and more buying power. In the event that I lose my job or hit some huge unforseen cost, I'll have cash to dole out then, rather than having a slightly lower car payment. Remember - $1000 down is $10/month on 48 months. I think that's an awful lot down for a small reduction in payment, but everyone's situation is different.

Just avoid money down on leases - you'll never get it back.

LittleCarp04

yeah i agree with not putting anything down, its just stupid. Even if you only invest in CD's and such (which if youre lucky you can get 6% on) its better than wasting it on the downpayment, just to save an extra 20 bux a month or something, I took my money for a down payment (about 4k) and invested it into government tax liens, and am now returning about 18% on it, doing this will allow me to pay the car off like half a year early over the life of the car, and i got mine at 0% interest, so really down payment wasnt an option for me.

verse101

I was reading this statement again, and I think the opposite can be said. Paying in full for a depreciating asset could be a bad idea as well. Although none of us here would ever want to default on our loan and ruin our credit, we are a little more leveraged in the fact we have less capital devoted to a depreciating asset (one that could be totaled in an accident).