Author Topic: Car loans at 0.99%  (Read 9299 times)

StashOnTheInside

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Car loans at 0.99%
« on: July 03, 2012, 12:07:54 PM »
So I've read the guide on cars provided by MMM and I've found a good deal on a Toyota Matrix. The car is an 09, 50k miles, for about $11k; some of the depreciation has already occurred.

My local credit union just started offering a deal on auto loans for 0.99 percent interest. I know even considering a car loan is an insta-facepunch in most cases, but this makes me wonder.

0.99 beats inflation, so it'd be cheaper in the long run than even saving up and spending the cash (feel free to correct me there).

Is this even worth considering? Or going further, would a car loan ever be worth considering?

tooqk4u22

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Re: Car loans at 0.99%
« Reply #1 on: July 03, 2012, 12:15:26 PM »
Assuming of course you absolutely need to buy a car then yes as long as it is fixed for the term, no fees, and you don't have to keep deposits with them.  That is cheaper than a mortgage of any term after tax and you could put it in vanguard total getting just under 2% in dividends.

tannybrown

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Re: Car loans at 0.99%
« Reply #2 on: July 03, 2012, 12:28:36 PM »
The rub is that the car depreciates at a good clip.  That alone wipes out most possible gains w/investments, and while a total market fund would yield 2% in dividends, it could lose that amount or more in value (or, it could gain 12%...)

Most importantly, you want to make sure this great loan isn't influencing you to buy more car than you would normally. 

All things being equal, if you were going to spend $11k on this car either way, yes, the loan seems to be the better way to go.  Be cognizant of what happens to the interest rate with any late payment, and, presuming you have $11k in cash, be sure to actually put it in the index fund. ;)

BTW, I'm a Matrix owner (06) and highly recommend the car.  I would recommend the 4 cylinder manual, if it's available to you.
« Last Edit: July 03, 2012, 12:31:19 PM by tannybrown »

grantmeaname

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Re: Car loans at 0.99%
« Reply #3 on: July 03, 2012, 12:42:00 PM »
Are you talking about PenFed's Enterprise car loan, out of curiosity?

For every credit union in the world that isn't PenFed, the rates on used car loans are higher than the rates on new car loans. Does anyone have a guess why that is? I was thinking at first that it was related to creditworthiness of the borrowers, but then it would be considered once there and once with the credit score used to determine the rate, so I feel like that can't be it.

Sorry, back on topic:
If you're not buying more car than you would without getting the loan, I think it could potentially be a good idea. If you're buying an $11k Matrix instead of a $9k Matrix or a $7k Matrix, it's a bad idea.

StashOnTheInside

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Re: Car loans at 0.99%
« Reply #4 on: July 03, 2012, 01:41:33 PM »
The plan is here: http://www.abricu.com/home/accounts/loans/auto

It's got a few strings attached, such as forcing you to buy a 2007 or newer car, and one of 10k or more (to get that rate; 1.99% is still good...). This might be slightly more $ for the car than I was thinking... but at the same time, it'd be this or maybe like a 2004 matrix with 90k miles for 7-8k.

And yes, I agree about the manual. The 100-1 displacement to horsepower ratio is only on the manuals. 35+mpg, 180 horsepower, 2700 lbs curb... good stuff =)

James

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Re: Car loans at 0.99%
« Reply #5 on: July 03, 2012, 03:09:06 PM »
If you already owned the car paid in full, would it be worth it to you to go get the loan and then invest that $11k somewhere in order to try and beat the .99% and make money that way?  How much would that actually make?  If that would be worth it to you then go for it.  Otherwise I'd skip it and just pay cash.  Taking out the loan and making the investments costs more than money, it's paperwork and other frustrations that can weigh you down.  How much is your time worth?


Wouldn't be worth it for me, but I suppose it might be worth it for some.  I understand how the numbers make it sound good, but it just wouldn't float my boat.

tannybrown

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Re: Car loans at 0.99%
« Reply #6 on: July 03, 2012, 03:57:22 PM »
Th
This might be slightly more $ for the car than I was thinking... but at the same time, it'd be this or maybe like a 2004 matrix with 90k miles for 7-8k.



Given that response, I would not take the loan.   I would just buy the $7-8k car.

Guitarguy

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Re: Car loans at 0.99%
« Reply #7 on: July 08, 2012, 08:26:57 AM »

For every credit union in the world that isn't PenFed, the rates on used car loans are higher than the rates on new car loans. Does anyone have a guess why that is? I was thinking at first that it was related to creditworthiness of the borrowers, but then it would be considered once there and once with the credit score used to determine the rate, so I feel like that can't be it.


The simple answer is that, from a bank's perspective, lending money for a used car is riskier than lending money for a new car. So they charge a higher interest rate to offset the risk. Used cars are statistically more likely to need repairs, and people are less apt to pay a car payment on a car that is sitting in a repair shop.

MMM

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Re: Car loans at 0.99%
« Reply #8 on: July 08, 2012, 09:23:17 PM »
Hey Stashontheinside - great avatar, by the way.

I agree with the other wisdom already espoused above.

The big questions I would have asked are, how much do you drive, how wealthy are you already, and who do you transport?

A 2009 car that costs $11,000 is pretty high up on my own idea of the luxury scale. Definitely not ridiculous, but still more than the one I choose to run. With only 50k miles, you've got a hefty 150k miles of remaining "inventory" saved up in that car, and it's a pretty sweet ride.

If you are forced to drive a lot for work, or have a family you're carting around by road quite a bit, that would tilt the decision more towards owning a nicer car.

On the other hand, if you're still far from financial independence, and especially if you still have a mortgage or even more serious debts, it might make sense to drive a less sweet ride for a while. If you have no kids, that's even more reason to have an older and cheaper car.

I'm just mentioning this to help lower the bar of car expectations. Even with no money limitations and a 3-person family that likes roadtrips, I'm still feeling pretty fancy in my 2005 Scion worth somewhere under $7500. Do you have a different lifestyle that demands a fancier car than I can justify, or can I talk you down a few notches? :-)

sol

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Re: Car loans at 0.99%
« Reply #9 on: July 08, 2012, 10:56:56 PM »
If you have 11k sitting around, why not buy a $6000 car and invest $5k in a total market index fund?

That seems to me a better idea than buying an $11k car and then paying someone interest to make it cost even more.

If you don't have $11k to spend on a car, then you can't afford an $11k car.  The whole notion of getting a loan with a lower rate than you can earn on your investments is only relevant if you are investing the same amount of money instead.   If you're borrowing $11k because you don't have $11k, then you're just piling on debt.