Unsure if a car loan is the best or if paying in full is better. Nor is havibg a impulse buy to cover the off chance i dont find a deal later on.

Submitted by BallPlayer13 t3_127kr82 in personalfinance

I am in the market for a new mk8 or maybe the 24 models coming. I do not need a vehicle until my registration expires in Dec 2023. I could afford the car in cash now but have basically zero emergency funds. I hope to save $1000-1500 a month, so in the coming months, I will be in a much better position financially to cover any hard comings.

Really what to avoid the crazy interest rates of 7-8%? (credit about 740)

My original plan was only to put 25-30k down and finance the rest of the car. However, with the excessive interest rates, regardless of what investment I put in that remaining $25k, I would not make a 7-8% return avg for the next 4-5 years.

With this, I am still investing $500~ bi-weekly (6% company match) into an IRA.

My question is should I start the search to find an MK8 at Msrp now? Then what should I do if I find a car at MSRP before I have saved a sizeable emergency fund of 8k? (covering 3 months)

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BoxingRaptor t1_jeei326 wrote

You said yourself it's an impulse purchase, meaning that you don't actually "need" it right now. Do not leave yourself with no emergency savings for this.

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BallPlayer13 OP t1_jeeika3 wrote

I agree. The issue is this car has been hard to get for MSRP. So, many people have been paying over sticker (craziness to me). So I am unsure if meeting an MSRP vehicle pass is the best move since it's not a 100% guarantee I will find another one at MSRP.

What are your thoughts on taking an auto loan for 20k at this 7 % apr?

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BoxingRaptor t1_jeek1js wrote

Honestly, it sounds a lot like you're getting caught up in FOMO with this car. Is there any reason why you can't wait until the apparent public hysteria about this model dies down, and then see if you're still 100% into the idea? This will give you more time to save, as well.

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BallPlayer13 OP t1_jeeklev wrote

This model of vehicles has been “sold out” for two years, going into it's 3 year of being sold. I am not sure if the “hype” for this vehicle will die down. I understand your outlook.

What is your outlook on not spending all my cash, and receiving a auto loan at the 7%~ interest rates for $20k?

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rc4915 t1_jeeq81n wrote

Is there any cost of getting the loan? Fee for paying it off early? And credits/rebates for using dealer financing? You can always get the loan and pay it off the next month if you have the cash on hand. It’s much harder to get equity out of your car.

But you’re paying 7% on money you likely have sitting in a savings account making much less… paying 7% with post-tax money is like turning down a guaranteed 9% return. The only time that makes sense is if you are avoiding a higher interest rate elsewhere (need an unsecured loan for a home improvement, would use a CC with a high rate to cover expenses if you lost your job, etc).

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BoxingRaptor t1_jeepzk6 wrote

Well, you haven't really said anything about your income, other than that you put into an IRA bi-weekly.

What is your annual income, and what do your current expenses per month look like?

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alexm2816 t1_jeej32m wrote

I wouldn't go rushing out to get a loan or to wipe my cash reserves when waiting 9 months wouldn't impact you at all. Revisit then and in the meantime take a step back and avoid the impulsivity.

Cars are fun but marketing executives are paid looooots of money to convince you that the feature you've lived without for your entire driving career and then 7 more you can't explain are NEEDS and not wants. Sometimes just putting it down for a bit and revisiting can clear your head and help make a choice about things that actually matter to you.

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BallPlayer13 OP t1_jeelksq wrote

I agree. I do plan on waiting a couple of months at a minimum. The main issue I foresee is if I wait too long, I could be rushed into needing a new vehicle and given if I do not have one spoken for at the end of the year.

What are your thoughts on keeping some cash and receiving a loan for $20k with the current interest rates?

The little back story is I have a 2013 chevy cruze that needs about $5k in repairs to pass inspection for registration. The vehicle is only worth about $2k. It doesn't make sense to repair the car when I already don't fully trust its longevity.

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ahj3939 t1_jeesyc0 wrote

Maybe you can find someone to "pass" the inspection for $500.

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