Car loan question

[JTA Mom]

Ok, so Dh & I have saved up a nice chunk of change to buy a car. About 12,000. From doing lots of research, and with gas prices here already above $4, we decided on getting a Toyota Prius, either one that was a couple years old or a new one that is last year's model. We want the base model, don't give a hoot to color, or anything else that might jack up the price.

So, we are looking to finance a portion of the car. Dh & I have excellent credit. My question is this: should we sink all the money we have saved up into the car already, or should we only put a certain amount down & keep the rest in the bank? A part of me says to put it all down & do a small loan on the rest, but my mother and a family friend told me it is stupid to tie up that much money when I can get good terms and still have a lot of it in the bank *in case* I needed it.

What do you all think?

Ami

[Knittin' in the Shade]

Is the 12,000 all the money you have saved, or was it saved specifically for the car? If it's the only savings you have, then I'd keep a baby emergency fund of $1000-2000 from it, and use the rest for the car. But if you have additional savings beyond the 12K, then most definitely use it for the car. Whatever $ you might earn on interest by keeping a portion of it in the bank will be wasted on the additional interest you pay on the car.

[lightheart]

Do you have a few months worth of bills in savings already? if not then I would take some of that money and save it just in case.

If you own the car outright and don't have a loan on it then you don't have to carry full coverage insurance on the car, how much money would that save you and would you want to do that?

There were taxes/fees when we bought our car also and if I'm remembering correctly they take the downpayment off then figure things on the remaining amout.

[naupakamama]

Originally Posted by lightheart

If you own the car outright and don't have a loan on it then you don't have to carry full coverage insurance on the car, how much money would that save you and would you want to do that?

??? I am confused by this. Maybe this varies by state? My insurance didn't change when I was paying the car off vs after the car was paid off.

[Code Name Mama]

Originally Posted by naupakamama

??? I am confused by this. Maybe this varies by state? My insurance didn't change when I was paying the car off vs after the car was paid off.

You'd have to call your ins. co. and ask them to take it off of full coverage - they won't automatically change it once your loan is paid off. I'm sure most ins. companies will require full coverage while a car is being paid for, you can significantly lower your monthly ins. rates by doing something less than full coverage. The trade off, of course, is that you'll be paying more out of pocket if you ever get in an accident.

[holidaymama]

I completely agree with taking full coverage off an older car like ours which are 7 - 15 years old, HOWEVER, I would NEVER not have full coverage on an almost new car...unless you have another 12K saved up in case your car was totalled, you would be out A LOT of money.

We are in the same boat trying to save up for a car and you sound EXACTLY like us as we were planning on buying a prius...however, if you look it up online, you would save MORE money by paying your cash towards a car that you could completely pay for. If you found something that got around 30-35 mpg, you are only getting 10 (real miles they say a prius really gets around 45mpg) more miles to the gallon while you are paying about an $8-10K loan. Also, you must consider the maintance on a hybrid...those batteries don't last forever and any shop is going to charge you more for a car that is so new to the industry...unless you have a nice warrenty...which I guess you would for the first few years.

I completely understand why you want the prius...they are even pretty cute! But we decided to take the other route and have a paid off car...but that is just us...I just wanted to give you another option to think about if you really don't want a loan.

[nolansmummy]

Are you dead set on the prius? Because we just bought a corolla, for 12k just two years old, it gets awesome gas mileage, and its a great little car. It fits the two kids and their car seats just fine, and me (i;m 6'0) too. If you just bought a car outright then you wouldn't have to worry about a loan at all.

If you really want the prius then i say keep some money back for an emergency fund, if 12,000 is all of your savings. Car repairs can still happen even on a new car, and there is the insurance deductable if you get in a wreck, matinence, and tires and stuff.

Congrats on saving up 12,000 though, thats great, i wish we had been able to have that much saved before we bought our car.

[phathui5]

Like nolansmummy said, a Prius may not actually be the car out there with the best gas mileage. And even if another car only gets 2-3 miles a gallon less, it would be worth it not to have a car payment.

As to keeping some of the money, I would recommend having at least $1000 sitting in the bank that you don't touch unless it's an emergency.

[SeekingJoy]

Assuming you have an emergency fund already (if not see pp advice to get one quick), I would put as much down on the car as possible. Inflation is fairly high and likely to only get higher. Money in the bank "earning" 2% is actually losing ground when inflation is 4+%.

[JTA Mom]

Thanks for all the responses!

To answer a few questions:

1) The 12,000 will be separate from our other savings. It will leave about 1000 in each of our saving & checking accounts (so 2000 total)

2) The reason for the Prius is that we want to add in the EV button and a few other add-ons over time. The EV button comes standard in the Prius overseas, just not here. All it does is allow one to keep the car in electrical mode longer. We are also considering a plug in that will allow the car to be charged with electricity while we are home. We have a friend who has done this and he gets almost double the mpg due to it.

3) The only other cars that come close to the Prius in MPG are the Toyota Yaris and the Honda Fit. I would totally go for the other two cars, but I don't think a Britax car seat will fit, not to mention fitting another baby in a few years time. With gas prices the way they are going, I am not sure 10mpg less is sustainable. We have the highest gas prices in the nation in this area. Shoot, it's broken $4/gal already and I feel it's going to go a lot higher very quickly. lol

3) With regards to insurance, I am going to have total coverage. It's taken us quite some time to save this up, being super thrifty & everything.

Now to my more refined questions, lol:

1) I thought the APR on car loans was fixed, so even if inflation is going crazy, I am still only going to pay a certain interest rate, right? (I've never taken out a car loan, so please forgive my ignorance).

2) I am more scared about losing the liquidity of having money in the bank. Then again, if times became that tough, we would definitely need the car even more and wouldn't want to lose it. So I would still keep that money in the bank and pay the loan with it rather than giving it all up at once.

3) Dh is graduating this may, and is searching for a much better job. I'll start looking for a part-time job this June too, and we plan to pay as much towards the loan as possible, so that it is paid off quickly. Are there any penalties to paying it off faster? If so, I'll just put the extra into an account just for that.

It's just sooo much money. I feel scared to give it all away, ya know?

Ami

[airmide_m]

I think with that much saved and probably even using way less as a down payment you should be able to get excellent financing if your credit is otherwise ok. In my experience our car loan was a fixed rate and is less than our bank interest rate. So in that case I think it makes the most sense to put as little down as possible and keep the rest sitting in your account earning interest and designated for only that. If the interest is higher on your car loan I'd say either pay off as much as you can afford, and/or look for a savings account or some other way to invest your money where you can make more.

Also I HIGHLY recommend using an auto broker!! They can save you thousands of dollars, make sure you get the *exact* car you want, and save you lots of time and hassle. The guy we used had a guarantee that if you could find a better deal than he could, you paid him nothing! We didn't have a car at the time so he drove us around to all the different lots to test drive, and it was a much nicer experience without all the car sales people salivating over us the entire time lol. He also made sure we got the exact car we wanted, which meant having it shipped in from a small town a little ways from us. If we'd gone locally we would not have gotten the side airbags that were important to us. The car was delivered right to our door. And he even found a great insurance broker for us and drove us there as well. He got us the best price possible, including maximum cash back and 1.9% apr. I think we ended up spending around 2k under MSRP if I remember right.

That was a few years ago but I believe he works out of state sometimes so I could even give you his contact info. He might be able to help you out, or recommend someone who could. Come to think of it, you might want to look into how much a mini-vacation to Oregon would be, to avoid sales tax!

[jaye]

Originally Posted by airmide_m

I think with that much saved and probably even using way less as a down payment you should be able to get excellent financing if your credit is otherwise ok. In my experience our car loan was a fixed rate and is less than our bank interest rate. So in that case I think it makes the most sense to put as little down as possible and keep the rest sitting in your account earning interest and designated for only that.

I agree. My dh recently bought a new truck and got 0% interest for 36 months. We still put some $ down but not as much as we would have if the interest were higher.

[MacroMama]

We just bought a Prius and apparently just in the nick of time because the dealership we went to is sold out for the next several weeks. We had to wait a week as it was to pick ours up.

As for the APR, it is fixed, but you can shop around for better rates. What interest rate you get depends on your credit score and whether the dealership is having any deals. Since Prius' are really hot now, there aren't that many deals. However, if you belong to a credit union, you may be able to find a better rate.

As for paying it off early, double-check first, but our loan does not have fees associated with it. When you're signing the papers, they'll also try to sell you everything from an extended warranty, LoJack, chemicals to make your vehicle stain free inside and out, and perhaps more. By the way, they told us that if we bought LoJack, it would lower our monthly insurance comprehensive insurance by 35%, which would equal $10-12/month. When I asked my insurance company how much it would really save us, it was a whopping $7/year.

As for how much money to put down, if you're not comfortable putting down the whole $12000, why not put down half of it? It doesn't have to be an all or nothing deal.

Financially, it makes more sense to put the most down because as others have mentioned, you'd be paying more in interest than what your money can make right now. However, the most important thing is to do what YOU are more comfortable with. If you're going to be worried about $$, then however much you save by not paying the interest is not worth it. Peace of mind is priceless.

By the way, if you install the EV button yourself (or anyone outside Toyota) you'll probably void the warranty on your car.

Good luck and I hope you enjoy your Prius as much as we enjoy ours.

[SAHDS]

We just went through this last week when we bought our Pilot. We went back and forth with paying with cash or financing some of it at a great rate. Even if we'd have chosen the 2.9% they were offering, we couldn't find a savings account with a high enough % to make up the difference on interest, if that makes sense. We went with paying with cash since we had the money to do it, why not?

That way, like you said, if something does happen, you'll know you have your car. That's worth it, imo, having that piece of mind.

Also, even with our car paid outright, we went with full coverage. Even on our other cars, we have full coverage. You never know...