Skip to main content
No. of Recommendations: 0
Bit of back round:
Opened a $14k HELOC in 2009, so it will convert such that I can't withdraw from it as needed. Only about $5 k outstanding. So I have to do something (renew, go to another bank, etc) by March of 2019. Anticipate that I would have about $200k in equity in the house.

I am considering buying the car I am currently leasing. However,I am also not in love with the car so might look at something else.

My question is which is better option from a personal finance perspective:

- Finance the car through manufacturer (at a good rate compared to average from banks )
- Finance the car through primary bank (bundle with other products to get better HELOC rate)
- Finance the car by doubling the amount of HELOC available to pay for the car plus $5k

What's say you?
Print the post Back To Top
No. of Recommendations: 4
My question is which is better option from a personal finance perspective:

- Finance the car through manufacturer (at a good rate compared to average from banks )
- Finance the car through primary bank (bundle with other products to get better HELOC rate)
- Finance the car by doubling the amount of HELOC available to pay for the car plus $5k

What's say you?


Maybe start with what you can afford to pay for a car and if you have to finance it, do it with the lowest interest rate that doesn't involve your house.
Print the post Back To Top
No. of Recommendations: 3
Opened a $14k HELOC in 2009, so it will convert such that I can't withdraw from it as needed. Only about $5 k outstanding. So I have to do something (renew, go to another bank, etc) by March of 2019. Anticipate that I would have about $200k in equity in the house.

So this sounds like you are pretty set on having some type of HELOC in place going forward, so I will base my answers on that assumption.

My question is which is better option from a personal finance perspective:

- Finance the car through manufacturer (at a good rate compared to average from banks )
- Finance the car through primary bank (bundle with other products to get better HELOC rate)
- Finance the car by doubling the amount of HELOC available to pay for the car plus $5k

What's say you?


From a personal finance perspective? None of the above. Have cash to pay for the car. If you can get a 0% deal at the same price then finance with that, otherwise pay cash.

If you don't have cash and, therefore, do have to finance, financing with a variable rate HELOC vs. a fixed rate auto loan is a bet that rates will either stabilize or start to decrease. I would suggest financing with the fixed rate, and then if rates do go down, you can always pull money from your HELOC to pay off the fixed rate loan.

AJ
Print the post Back To Top
No. of Recommendations: 2
Personally, using a HELOC to pay for a car is not something I would consider. Your bank would love you do it because they make money off your interest payments, but to me, a HELOC should be used for improvements to your home, not for discretionary spending.

As for the car, whether your financing a buyout or a new car or a previously owned car, if you don't have cash, I'd talk to a credit union about a loan before I commit to a regular bank or the dealership. In some cases, the credit union may offer a better rate and can be easier to deal with than the dealership.

If you don't buy out your lease, consider using the Costco Auto Program or research your vehicle through the Consumer Reports Auto Service. You may be able to get your car at a better price than if you just walked onto the lot. Every discount helps.

The Fed seems inclined to continue slowly raising rates, so if you do take a loan, a fixed rate could save you money should variable rate loans experience rate creep over the course of the term of the loan. Given the state of the economy, I do not think it is likely the Fed will lower rates, so I wouldn't go with a variable rate in the hopes it could go down.

Lastly, I would not finance a vehicle purchase over more than 48 months. 36 would be better (24 months would be best but very aggressive). Dealerships may try to convince you to take on a 60 or 72 month loan in order to lower your monthly payments to something you can afford but what they are really doing is trying to talk you into buying more car than they can afford. They make more money the longer the term loan, plus they get to move an expensive piece of inventory.

Fuskie
Who notes that the price of automobiles could be going up in the near future as the effects of recent tarrifs on steal and aluminum drive up the cost of manufacturing either through the use of higher priced American made metals or more costly imports, so it may be better to buy a new car now if you were on the bubble...

-----
Ticker Guide for The Walt Disney Company (DIS), Orbital ATK (OA), Titan International (TWI), Time Warner (TWX), Global Payments (GPN)
Disclaimer: This post is non-professional and should not be construed as direct, individual or accurate advice
Disclosure: May own shares of some, many or all of the companies mentioned in this post (tinyurl.com/FuskieDisclosure)
Fool Code of Conduct: http://tinyurl.com/FoolCode
Print the post Back To Top
No. of Recommendations: 10
Lastly, I would not finance a vehicle purchase over more than 48 months. 36 would be better (24 months would be best but very aggressive). Dealerships may try to convince you to take on a 60 or 72 month loan in order to lower your monthly payments to something you can afford but what they are really doing is trying to talk you into buying more car than they can afford. They make more money the longer the term loan, plus they get to move an expensive piece of inventory.

Personally, I will take the longest loan term possible if the interest rate is zero. I have a 5 year, 0% loan on my mattress.

PSU
Print the post Back To Top
No. of Recommendations: 2
The longer the 0% loan, the greater the risk that you miss a payment and then all the promotional terms of the loan are withdrawn and you are stuck with a high interest rate over a long period of time.

Fuskie
Who notes you may think you are good enough with your bills to never miss a payment, but life often makes other plans, so OP should ask if that is worth the risk...

-----
Ticker Guide for The Walt Disney Company (DIS), Orbital ATK (OA), Titan International (TWI), Time Warner (TWX), Global Payments (GPN)
Disclaimer: This post is non-professional and should not be construed as direct, individual or accurate advice
Disclosure: May own shares of some, many or all of the companies mentioned in this post (tinyurl.com/FuskieDisclosure)
Fool Code of Conduct: http://tinyurl.com/FoolCode
Print the post Back To Top
No. of Recommendations: 6
The longer the 0% loan, the greater the risk that you miss a payment and then all the promotional terms of the loan are withdrawn and you are stuck with a high interest rate over a long period of time.

Yes for the financially unsavvy.

Who notes you may think you are good enough with your bills to never miss a payment, but life often makes other plans, so OP should ask if that is worth the risk...

It's pretty simple with a 0% loan. Take amount of loan and put cash you would have used in bank account. Set up bill pay to make monthly automatic payments. Never touch bank account for anything else.

PSU
Print the post Back To Top
No. of Recommendations: 1
So I have to do something (renew, go to another bank, etc) by March of 2019. Anticipate that I would have about $200k in equity in the house.

Your other option is to pay off the loan and not take out another loan.
Print the post Back To Top
No. of Recommendations: 7
CMF_Fuskie,

You wrote, The longer the 0% loan, the greater the risk that you miss a payment and then all the promotional terms of the loan are withdrawn and you are stuck with a high interest rate over a long period of time.

I find that automatic bill pay at the bank is pretty good. Just set up a repayment schedule and forget about it. Or have the creditor pull the payments if you don't trust your own bank.

It's really not hard to eliminate most of the risk here. And getting an interest-free loan on a bunch of money often makes it worthwhile. In fact usually the larger the loan the better.

Consider a $10,000 load at 0%. Let's say you get that for 3 years. You can currently get 1.50% on a savings account. That's $225 in interest earned for the trouble of setting up the repayment schedule when you take out the loan. And $225 is probably the minimum you would earn since rates are on the rise. And savings rates should be north of 2% by the end of 2018.

BTW, before the Great Recession you poo-pooed me taking 0% BT offers. But back then I could get 0% BT offers with no transfer fees and 4% APY on savings. I twice exercised an offer from MBNA and the terms were more like $35 minimum payments on a $28K balance for 16 months.

Each time I exercised that offer, I netted something like $1,400! And you poo-pooed that! I mean come on! I made a lot less back then than I do now and that much additional income was material! And what risk did I assume? That my bank's bill payer wouldn't follow the schedule I set up in advance?

I mean I had the cash to pay it off. A mistake at most could cost a few days in interest. Basically the down-side was a mistake would wipe out some or all of the gains and I'd done it all for nothing. But the up-side was basically a small paycheck!

I think if you can play an interest rate arbitrage game at a bank's expense and make enough money to make it worth your time, you should seriously consider doing it. Just be sure to consider all the risks you're taking, be sure the rewards are worthwhile and that you have an exit plan if things go south.

These days I don't do 0% offers because the math (transfer fees and the like) generally doesn't work out for me. But last year I took 2 bank deposit offers, 1 credit card offer and 2 brokerage offers. I netted $2,450 - I think that's a personal record. This year I've taken one deposit offer for $400 and I expect to take one or two more before year-end. But if I have a 0% loan offer in front of me - BT or for a large purchase I was going to make anyway - and I think I can profit from it, I'm likely to take it.

- Joel
With all that said, debt-laden readers shouldn't fool themselves into believing that debt is smart simply because it's 0%...
Print the post Back To Top
No. of Recommendations: 2
That is assuming your income is consistent and reliable to the point you can just set it and forget it. but if for any reason the money isn't there to cover the automated payments, you're stuck with all the back interest owed. I agree that Fools who are able to meticuluously manage their credit and cash flow should be able to manage a 5 year 0% loan, but not every Fool is that careful or has cash flow that is steady and reliable.

So no, I'm not speaking for you and maybe not even for the OP. But I do think the risk is significant for the average Fool and anyone taking on a 0% promotion for that period of time needs to be fully aware of the risk and consequences. With these types of promotions, there are often no second chances.

Fuskie
Who fully agrees that promotional offers are intended to lure those who don't manage debt well as much as they are beneficial or those who do...

-----
Ticker Guide for The Walt Disney Company (DIS), Orbital ATK (OA), Titan International (TWI), Time Warner (TWX), Global Payments (GPN)
Disclaimer: This post is non-professional and should not be construed as direct, individual or accurate advice
Disclosure: May own shares of some, many or all of the companies mentioned in this post (tinyurl.com/FuskieDisclosure)
Fool Code of Conduct: http://tinyurl.com/FoolCode
Print the post Back To Top
No. of Recommendations: 3
mjdonadio,

You wrote, My question is which is better option from a personal finance perspective:

- Finance the car through manufacturer (at a good rate compared to average from banks )
- Finance the car through primary bank (bundle with other products to get better HELOC rate)
- Finance the car by doubling the amount of HELOC available to pay for the car plus $5k

What's say you?


Do you actually need to finance?

As a general rule of thumb leasing is rarely a good deal as the terms make it fairly easy to hide the real rate you are paying. With that said, there have been good deals available - especially for some vehicles like the Nissan Leaf and Chevy Bolt.

Also when you look at interest rates, you need to consider it from a risk-adjusted perspective. With a loan on a car, you risk losing the car if you find you cannot make payments. If you cannot make payments on a HELOC, you can lose your house. On a personal loan, it just means ruining your credit ... and eventually, possible wage garnishment.

Each of those things represent a risk with losing your house being most severe to the threat of a judgement and wage garnishment being the least. How severe those risks actually are depends on your personal situation. If you have loads of liquid assets, none of them are serious so you can almost compare them directly as long as you are diligent with your finances. But the closer to the edge you live, the more you should adjust for those risk factors.

This additional risk is why lots of people say you shouldn't borrow against your house to finance a car ... or pretty much anything else. However all things are relative, so in some situations it is possible to make a good case for doing exactly that. But I'm not saying you've made such a case so far. And most people live closer to the edge than they should.

- Joel
Print the post Back To Top
No. of Recommendations: 5
CMF_Fuskie,

You wrote, That is assuming your income is consistent and reliable to the point you can just set it and forget it.

No. You are changing the premise, creating a classical Straw Man argument. Some false alternative you've set up just so you could knock it down.

The alternatives were a 0% loan or pay cash. At no point were we discussing the need to rely on an income to repay the loan. And the cash doesn't just get to magically disappear, so the borrow *has* the cash to repay throughout the life of the loan ... unless they are simply irresponsible.

Of course it goes without saying that if you're irresponsible, you probably shouldn't be borrowing anyway. In fact if you're irresponsible, the borrowing part is likely resolve itself pretty quickly. Banks tend not to lend to irresponsible borrowers.

- Joel
Print the post Back To Top
No. of Recommendations: 2
So no, I'm not speaking for you and maybe not even for the OP. But I do think the risk is significant for the average Fool and anyone taking on a 0% promotion for that period of time needs to be fully aware of the risk and consequences. With these types of promotions, there are often no second chances.

Kind of hypocritical, isn’t it, since you just took a 0% offer ? Did you have issues in the past with paying bills on time ?
Print the post Back To Top
No. of Recommendations: 3
These days I don't do 0% offers because the math (transfer fees and the like) generally doesn't work out for me. But last year I took 2 bank deposit offers, 1 credit card offer and 2 brokerage offers. I netted $2,450 - I think that's a personal record. This year I've taken one deposit offer for $400 and I expect to take one or two more before year-end. But if I have a 0% loan offer in front of me - BT or for a large purchase I was going to make anyway - and I think I can profit from it, I'm likely to take it.

It's been awhile since you posted on the Credit as a Tool folder. I wouldn't mind hearing some of the deals you come across.

PSU
Print the post Back To Top
No. of Recommendations: 2
Not hypocritical at all. I've taken lots of short term 0% offers. I've been fortunate in that I've been able to manage my credit and debt effectively to my advantage. But not every Fool is able to do so to the same effect. Just because I have been able to do something doesn't mean everyone has the resources or mindset to do it. All I am doing is pointing out the risk, which is much higher when you're dealing with a multi-year promotion than with a 6 or 12 month promotion, and when you're dealing with tens of thousands of dollars rather than a couple hundred to a couple thousand.

Fuskie
Who thinks Fools should always be fully aware of all the conditions, risks and potential consequences of the financial decisions they make...

-----
Ticker Guide for The Walt Disney Company (DIS), Orbital ATK (OA), Titan International (TWI), Time Warner (TWX), Global Payments (GPN)
Disclaimer: This post is non-professional and should not be construed as direct, individual or accurate advice
Disclosure: May own shares of some, many or all of the companies mentioned in this post (tinyurl.com/FuskieDisclosure)
Fool Code of Conduct: http://tinyurl.com/FoolCode
Print the post Back To Top
No. of Recommendations: 2
All I am doing is pointing out the risk, which is much higher when you're dealing with a multi-year promotion than with a 6 or 12 month promotion, and when you're dealing with tens of thousands of dollars rather than a couple hundred to a couple thousand.

As joel mentioned, you built a strawman by mentioning loss of income to make payments. The scenario was cash or 0% interest rate. The only risk involved is taking the 0% loan and then taking the cash you had and spending it on something else. As long as you keep the cash to make the loan payments, there isn't any risk.

PSU
Print the post Back To Top
No. of Recommendations: 3
Yes, as long as you cross all the i's and dot all the t's, everything will be perfect. But we don't always live in a perfect world, and there is nothing wrong with pointing out the risks. If you want to pretend life doesn't interrupt the best laid plans, that's fine. You can call it a strawman, I call it covering all the bases. There is always risk, no matter how well you plan.

Fuskie
Who thinks we do Fools a disservice if we pretend otherwise...

-----
Ticker Guide for The Walt Disney Company (DIS), Orbital ATK (OA), Titan International (TWI), Time Warner (TWX), Global Payments (GPN)
Disclaimer: This post is non-professional and should not be construed as direct, individual or accurate advice
Disclosure: May own shares of some, many or all of the companies mentioned in this post (tinyurl.com/FuskieDisclosure)
Fool Code of Conduct: http://tinyurl.com/FoolCode
Print the post Back To Top
No. of Recommendations: 3
There is always risk, no matter how well you plan.

There is even more when encouraging things you can't afford and especially modeling that behavior.
Print the post Back To Top
No. of Recommendations: 8
Yes, as long as you cross all the i's and dot all the t's, everything will be perfect. But we don't always live in a perfect world, and there is nothing wrong with pointing out the risks. If you want to pretend life doesn't interrupt the best laid plans, that's fine. You can call it a strawman, I call it covering all the bases. There is always risk, no matter how well you plan.

You keep mentioning risks....blah...blah...blah. Well, let's look at the risks. We'll use a $20k, 0%, 60 month car loan.

Option #1: Pay cash for car. You now have $20k less in bank accounts.
Option #2: Take $20k, 0% loan. Leave $20k in bank accounts. Monthly loan payments are $333.33.

Scenario #1: Life is wonderful. Set up automatic monthly bill pay from $20k bank account. At the end of 60 months, a few dollars are left in bank account from interest earned. Car loan paid off.

Scenario #2: Life throws a curveball one week after buying car. Could be lost job, medical issue. Under option #1, you have $20k less in cash to use towards life curveball. Under option #2, you have a choice. Take $20k out of bank account and pay off car loan. You are left in same position as option #1. Or keep $8000 in bank account for 2 years of car loan payments and have access to $12k for expenses from life curveball event. You have 2 years to find a new job or recover from medical event.

So if life interrupts the best laid plans, it seems the less risky thing to do is to take the 0% loan. It allows a person to recover from their setback. If they don't recover, it's not much different from paying cash for the car. Eventually, you'll run out of cash and need to sell the car. The loan at least provides some cushion to recover from your setback.

PSU
Print the post Back To Top
No. of Recommendations: 0
"Personally, I will take the longest loan term possible if the interest rate is zero. I have a 5 year, 0% loan on my mattress."

Yes to that.
Print the post Back To Top
No. of Recommendations: 1
Howdy :-)

What does it take to get a 0% loan? I see the ads:

"0% for 60 months, etc. Come on in and see if you qualify!"

When I ask my friends and acquaintances who've bought new cars, they invariably do NOT get the 0% rate due to FICO scores.

So, is FICO the only qualifier? If so, what is the needed score?
What other conditions would effect a non0% loan?

tia
ralph - bluebonnets are blooming in North Austin! :-)
Print the post Back To Top
No. of Recommendations: 3
So, is FICO the only qualifier? If so, what is the needed score?
What other conditions would effect a non0% loan?


Each lender runs their own criteria, so the answers would be specific to that promotion and that lender. That said, most lending is done based on the combination of 2 things:

- credit score (may be FICO, Vantage, or a custom scoring model specific to that lender) - this will provide the lender with an estimate of the propensity to repay the loan (akin to 'will' in management coaching speak)

- debt to income ratio - this will provide the lender with an estimate of the ability to repay the loan (akin to 'skill' in management coaching speak)

AJ
Print the post Back To Top
No. of Recommendations: 2
In fact if you're irresponsible, the borrowing part is likely resolve itself pretty quickly. Banks tend not to lend to irresponsible borrowers.

Credit cards to irresponsible borrowers can be very profitable. They are charged late fees and high interest rates.
Print the post Back To Top
No. of Recommendations: 8
Yes, as long as you cross all the i's and dot all the t's, everything will be perfect. But we don't always live in a perfect world, and there is nothing wrong with pointing out the risks. If you want to pretend life doesn't interrupt the best laid plans, that's fine. You can call it a strawman, I call it covering all the bases. There is always risk, no matter how well you plan.

Fuskie
Who thinks we do Fools a disservice if we pretend otherwise...


I agree with PSU and RAD here. You reiterated the risk and that's prudent. But I see no need to discourage people from taking advantage of these promotions. The whole idea here is to try to be smart with money. That's a prerequisite for doing this.

I managed a major home renovation over three years on zero interest card promotions from '06-08 and never paid a fee or a penny of interest. I'm not too bright but it's not difficult to manage, especially when one is cognizant of the risk, as you say. So let's not set that bar too high.
Print the post Back To Top
No. of Recommendations: 4
PSUEngineer,

You wrote, It's been awhile since you posted on the Credit as a Tool folder. I wouldn't mind hearing some of the deals you come across.

Most of the stuff I've come across lately has been through targeted mailings or from institutions I have an existing relationship with.

The targeted mailings tend to have these long offer codes you have to enter to validate the deal. I've always assumed they pre-screened me through a credit reporting agency and the code was a one-time use.

The existing relationships were with Bank of America and Wells Fargo. At the beginning of 2017, I had one credit card at BofA and my mortgage at Wells. I've decided I actually *like* my Bank of America + Merrill Edge accounts, so I'm keeping them.

Wells Fargo offered me $250 to open a checking account right when they were losing accounts because they opened fraudulent ones. I figured why not? I just had to make a direct deposit of $500/month and keep the account open for 90 days. I closed it around day 100. Fun fact: I told the bank rep I was going to do this going in and I told the teller the same thing when I closed the account.

This year's first offer was $350 at Key Bank. Have to do direct deposits of $500 each (not per month) for 3 months, but keep the account open at least 181 days to avoid an early termination charge.

This isn't every interesting offer I've received in the past year or so. Some I just let slide for no good reason.

I suppose I could post all of these on the Credit as a Tool board as I get them just so we have a running list. Hopefully others would post their offers too.

- Joel
Print the post Back To Top
No. of Recommendations: 3
Wasmick, I do not disagree with you. I am neither encouraging nor discuraging using 0% promotional offers. I am saying that the longer the term, the higher the risk simply due to the length of time you have to be on top of things and the greater the chance that life intervenes. Considering these risks is Foolish. Dismissing them just because you think your process is foolproof is not. It is the external events you cannot predict or may not have planned for that can trip you up. Each Fool needs to decide for themselves how high the bar should be set for themselves.

Fuskie
Who congratulates all Fools who are able to successfully able to navigate the narrow paths that financial institutions set up for these promotional programs, but as has been noted, the banks are hoping consumers stray and they are able to collect back interest and fees as otherwise their only revenue driven by the transaction is from merchant fees...

-----
Ticker Guide for The Walt Disney Company (DIS), Orbital ATK (OA), Titan International (TWI), Time Warner (TWX), Global Payments (GPN)
Disclaimer: This post is non-professional and should not be construed as direct, individual or accurate advice
Disclosure: May own shares of some, many or all of the companies mentioned in this post (tinyurl.com/FuskieDisclosure)
Fool Code of Conduct: http://tinyurl.com/FoolCode
Print the post Back To Top
No. of Recommendations: 1
>>The longer the 0% loan, the greater the risk that you miss a payment and then all the promotional terms of the loan are withdrawn and you are stuck with a high interest rate over a long period of time.<<<


The longer I live the more I realize that this, and similar hiccups are a "fact" of life and while the numerical calculations might suggest one course of action factoring in these hiccups can sometimes suggest a different approach.

As a case in point. I have set up most of my bills to go to my AMEX card, and have it, and most of the other bills, paid automatically from my checking account. As I get cash back from the AMEX and pay it off in full each month avoiding any interest payments the number crunching suggests this is the "best" approach. The events of last month are instructive as to why not factoring in life can result in less than optimal performance. I was very busy with work and took many trips as a result I "missed" my monthly check of Quicken and the bills. But hey everything is paid on auto so no worries right? Wrong for some reason at some point I either selected OR the bank changed the AMEX autopay from "always pay in full" to "pay in full if the balance is less than X otherwise pay nothing." Last month with all the traveling, the charges from Christmas travel, my annual property taxes, annual life insurance, and annual home insurance, all hitting the card, my bill was for considerably more than X. So it did not get paid. I caught it the day after the payment was due. As a result I get to pay a late fee, and probably deal with interest for a month or so. Note sure what the damage is yet, I hope it is less than what I "earned" on the card in the last year.
Print the post Back To Top
No. of Recommendations: 6
So it did not get paid. I caught it the day after the payment was due. As a result I get to pay a late fee, and probably deal with interest for a month or so. Note sure what the damage is yet, I hope it is less than what I "earned" on the card in the last year.

You may see it on the next bill but you will likely not pay it unless you decide not to pick up the phone. In the past, I've been late on a credit card bill. It just happened again in January. I don't have this happen often. Maybe every 4-5 years. I called the credit card customer service and told them I had misplaced my bill so that was why I was 2 days late paying. The representative said the late fee and interest would be reversed and I would see the credit on the next bill which I did. They have always reversed it for me. Now if I was late several times per year, I would guess that they could see that in their records and not offer to reverse the charges.

PSU
Print the post Back To Top
No. of Recommendations: 1
Of course I will call and request the reversal of the charge and the interest, should it be assessed. My point was that even well oiled machines breakdown from time to time and that assuming everything will go as planned with a loan leaves one a little more exposed than you may have intended.
Print the post Back To Top
No. of Recommendations: 3
Of course I will call and request the reversal of the charge and the interest, should it be assessed.

I would have suggested calling in to make the payment, and requesting then, rather than waiting to see if charges are assessed.

AJ
Print the post Back To Top
No. of Recommendations: 2
vkg,

I wrote, In fact if you're irresponsible, the borrowing part is likely resolve itself pretty quickly. Banks tend not to lend to irresponsible borrowers.

To which you replied with this gem of conventional wisdom, Credit cards to irresponsible borrowers can be very profitable. They are charged late fees and high interest rates.

That worked out well for companies like Providian.

Subprime lending tends to be a house of cards. And when markets go against the lender, that house tends to collapse.

I still say banks tend to not lend to irresponsible borrowers. At least that's true over the long-term.

- Joel
Print the post Back To Top
No. of Recommendations: 1
It's pretty simple with a 0% loan. Take amount of loan and put cash you would have used in bank account. Set up bill pay to make monthly automatic payments. Never touch bank account for anything else.


Perfectly understandable and Easy McCheesy.

But I thought the whole reason to borrowing cheap money even when you don't need to was so that your own cash could be earning something decent for you during the loan term. If you're only going to stick it into a regular bank account to facilitate auto-pay, then what's the point? Might as well just pay the cash for the car up front and erase all that Easy McCheesy trouble.

Depending upon the value of said car and maybe some other personal factors, that might free you up from carrying full coverage insurance too.

xtn
Print the post Back To Top
No. of Recommendations: 1
most lending is done based on the combination of 2 things:

- credit score (may be FICO, Vantage, or a custom scoring model specific to that lender) - this will provide the lender with an estimate of the propensity to repay the loan (akin to 'will' in management coaching speak)

- debt to income ratio - this will provide the lender with an estimate of the ability to repay the loan (akin to 'skill' in management coaching speak)



And...

- down payment - putting more skin in the game makes the lender feel like you're more committed

- collateral - assets they can take away from you if you default might make them happier too
Print the post Back To Top
No. of Recommendations: 3
But I thought the whole reason to borrowing cheap money even when you don't need to was so that your own cash could be earning something decent for you during the loan term. If you're only going to stick it into a regular bank account to facilitate auto-pay, then what's the point? Might as well just pay the cash for the car up front and erase all that Easy McCheesy trouble.

I can make 1% on the money at the credit union. That's not much but then 1% cash back on credit cards isn't much but I still do it.

Depending upon the value of said car and maybe some other personal factors, that might free you up from carrying full coverage insurance too.

I've only seen 0% financing on new cars, not used ones. I keep my cars fully insured during the first five years.

PSU
Print the post Back To Top
No. of Recommendations: 1
xtn,

You wrote, But I thought the whole reason to borrowing cheap money even when you don't need to was so that your own cash could be earning something decent for you during the loan term. If you're only going to stick it into a regular bank account to facilitate auto-pay, then what's the point? Might as well just pay the cash for the car up front and erase all that Easy McCheesy trouble.

I think the point is to keep the money in an interest bearing account. You can get up to 1.50% APY on high-yield savings. Technically those are still regular bank accounts.

It depends on the amount of money we're talking about, but for most new cars ($20K range) I'd say anything below ~1% rate spread is too little reward for the risk and hassle.

- Joel
Print the post Back To Top
No. of Recommendations: 2
It depends on the amount of money we're talking about, but for most new cars ($20K range) I'd say anything below ~1% rate spread is too little reward for the risk and hassle.

- Joel



I feel that you are correct.

My wife occasionally suggests some crappy CD earning something pathetic, and I always feel that the return just isn't worth it.

xtn
Print the post Back To Top