I'm buying a new car this weekend and not really sure I understand the financing options that are available to me. Hoping someone with more fluency around this stuff can check my math and logic and let me know if my thinking & numbers make sense.

TL;DR: I'm trying to understand how loans work over the long term & find the optimal balance between cash payments vs. loan amounts.

Let's say the cost of the car is $24,000.

My two options are:

  1. Getting a $1,500 manufacturer incentive for the cost of the car (bringing the price down to $22,500) and borrowing through them: $22,500 at 2.99% apr for 66 months.

or

  1. Instead taking the other incentive, which is the full cost of the car (24,000) at 0% apr for 66 months.

With Option 1, I think the breakdown is this:

Amount of loan needed: $24,000

Amount of loan needed after $1,500 dealer incentive: $22,500

Total Interest paid at 2.99% apr for 66 months on a $22,500 loan: $1,928.70

Total paid: $24,428.70

With Option 2, the cost is $24,000, and 0% apr for 66 months is … $24,000.

So all other things being equal, I'm paying $428.70 more with Option 1. Is that right?

Now…does that logic break down if the cost of the car drops?

Changing assumptions, let's say I intend to put $15,000 cash towards the purchase price of $24,000, making the potential loan amount be $9,000.

With Option 1:

Amount of loan needed: $9,000

Amount of loan after $1,500 dealer incentive: $7,500

Total Interest paid at 2.99% apr for 66 months on a $9,000 loan: $642.90

Total paid: $8142.90

With Option 2:

the cost is $9,000, and 0% apr for 66 months is … $9,000.

In this scenario, if I take advantage of Option 1, I'm coming out ahead $875.10. Is that right?

Finally, is my best move here to balance my cash down to amount borrowed such that I wind up paying an amount in interest equal to the $1,500 dealer cashback incentive? So:

Cost of car: $24,000

Cost of car after $1,500 dealer incentive: $22,500

Upfront cash payment of $5,000 of the available $15,000 = $17,500 to borrow

Total Interest paid at 2.99% apr for 66 months on a $17,500 loan: $1,500.10

Total paid: $22,500

Then use the remaining $10,000 in cash I have to cover ~35 monthly payments of $288.

If you take the time to think through this and give me advice, you're a saint!

TIA,

-X

submitted by /u/x_l_c_m
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