Driven for advice

[plonq]

We have narrowed our car search down to a field of one for now, and I am going to be calling this morning to set up a test drive. The 2008 reviews are not out yet on this car, but last year's model (which is virtually identical) has garnered nothing but positive reviews. Unless something happens in the test drive that totally puts us off, then I think our main concerns will become those of colour and options; e.g., we really don't need the ski package.

The other, arguably more important question is how we are going to pay for it. Some of our options are:

- Cash. I have been putting money into company shares for the past couple of years. If we cash out about 3/4 of those, cash out atara's savings bonds and pull out about half of our savings, we could buy this car outright.

- ~75% down. Cash out a few less shares, cash out the savings bongs and leave the savings account alone. Put a 3/4 down payment and finance the balance at .9% over 18 months.

- ~40% down. Dip into all three cash reserves and put down about 40% on the car, then finance the rest over 36 months. The payments would be doable, but we would have to start budgeting ourselves when we dine out.

- Lease. We don't see any value in this if we plan to keep the car.

There are various benefits and pitfalls to each of the scenarios. If we pay cash, we have the benefit of clear title from the moment we leave the lot. On the other hand, if we blow our savings on the car then it means we may have to finance the work we are planning for the house (the roof if nothing else). At .9%, financing it would doubtless be much cheaper to borrow for the car.

If we got with 3/4 down, it still leaves us money to spend on the house, and we could have the car paid off before the end of 2009.

If we went with 40% down, we would still be paid off in a comparatively short time, and it would give us much more flexibility to do more on the house (like replace windows perhaps).

I can think of no compelling reason to lease a car, but if you have any persuasive arguments in favour I'd love to hear them.

One of the stronger arguments I have heard for using dealer financing for the majority of the purchase is, "your money will earn way more than .9% if you leave it where it is." While that is true for the money we have stocked away in RRSPs and mutual funds (which we won't be touching), that's not quite true with the company shares. The shares tripled in value over the first bit, but they have been virtually flat for the past 18 months. The dividends that I get on them are negligible, and most of the gain I have been getting on them is the 30% that the company matches for every dollar that I invest.

[Poll #1167168]

Thanks!

Comments

[shockwave77598.livejournal.com]

Finance it for 36 months. Build up a good credit score, which turns into a bad credit score only if you don't use credit from time to time.

[atara.livejournal.com]

Yeah, that's actually a problem for us. We need to borrow more often than we do. We usually pay cash for everything, and pay our credit cards the same month. The only debt we're carrying right now is the mortgage, and that'll be paid off in the next five years or so. :O

[amarafox.livejournal.com]

I say 75% down and finance the rest, still gives you decent credit.

Leasing is NOT a good option for you guys because you drive so much.

I leased and am planning, at this point, to buy out the lease because the monthly purchase payments were too high for me and I don't drive the 24k a year that I'm allowed.

[kfops.livejournal.com]

Cars are the necessary evil, but they're also the big money losing venture. I say pay it off as fast as possible to avoid paying as much interest on it as you can. That's why I'd go for the 3/4 option.

Leasing only makes sense if you are a business... then I believe you can write off a very large amount of the lease every year.

[warheart.livejournal.com]

The reason why I chose the 36 month option is because with house repairs you never know if something is going to come up. It's better to have exrra money saved in case they find another problem that needs fixing asap.

[pierrekrahn.livejournal.com]

I say 75% for 2 reasons:

Even though your shares have flatlined for now, you never know when they will go up. Plus: out of sight, out of mind. It's always good to have money stocked away somewhere for emergencies.

Also, 0.9% is negligeable. Let's say the car is $40,000 total. After the 75% downpayment (impressive, btw), you're left with $10,000. At 0.9% interest, that's $90 per year (ignoring the whole compound issue and possible fees). Skip two restaurant visits in the year and it will cover the cost of the interest. ...unless of course I'm not good at math, in which case ignore this entire paragraph...

[fuzzytoedcollie.livejournal.com]

40%, get the house fixed, then accelerate the payments with whatever's left after the house. Leaves room for big surprises.