[MTHRAR]

Originally Posted by twin fed

I put down a little more than half in cash and financing the rest through a credit union.

I basically did the same. I put exactly half down and financed the rest over a long term with a low rate. I plan on keeping the car a while too.

[jtfields]

Depends on your situation. Everyone that says to finance and invest your money are exactly right from a textbook standpoint. However, I plan on putting $20K down but there is still a part of me that says "just pay for it and be done with it." If you really just kind of fell into this money and aren't used to it then going into debt might not be a good idea. You need to have a solid financial plan or you may think you have a lot of money but wake up broke one day. Been there, done that. In fact, don't even buy the car if your current income can't easily afford it (unless this "circumstance" is really a lot of money.) Don't mean to preach to someone I know nothing about but, seriously, be smart.

[CosmosMpower]

Originally Posted by blackholescion

Yep. Just to add a bit, due to compound interest it's 1500 the first year, 1575 the second, 1653.75 the third, 1736.44 the fourth, and 1823.26 the fifth. Which means you've made (after interest costs), 6688.45 over the course of a 5 year loan. Not exactly chump change and much better in your pocket than in BMWs. That's a lot of scratch for mods, cheeseburgers, video games on Steam, or whatever else.

And yes, if you choose an index fund, you will get 5% over time easily. Even if the market tanks tomorrow and your 30k goes to 15k over night, it will rebound in 5 years and be worth exactly as much as it should have been and potentially more as the economy gets stronger. Take a look at your 401k and look at the dip in 2008 compared to 5 years later. That dip could have easily wiped out half of your value in the short term but in the long term, your money is worth more.

If you don't know what index fund to invest in, give Vanguard a call and talk to someone. Pick one they recommend with the lowest fees and don't touch it again until 2021.

It's not 6685 over the course of the loan. If you finance 30K over 5 years at 1.99 you'll pay a total of 1542 over the entire life of the 5 year loan.

[PackPride85]

Originally Posted by CosmosMpower

It's not 6685 over the course of the loan. If you finance 30K over 5 years at 1.99 you'll pay a total of 1542 over the entire life of the 5 year loan.

I think he was referring to the compounded interest you would make from investing, not the interest paid for the loan.

[Lo0mis]

Originally Posted by jtfields

Depends on your situation. Everyone that says to finance and invest your money are exactly right from a textbook standpoint. However, I plan on putting $20K down but there is still a part of me that says "just pay for it and be done with it." If you really just kind of fell into this money and aren't used to it then going into debt might not be a good idea. You need to have a solid financial plan or you may think you have a lot of money but wake up broke one day. Been there, done that. In fact, don't even buy the car if your current income can't easily afford it (unless this "circumstance" is really a lot of money.) Don't mean to preach to someone I know nothing about but, seriously, be smart.

I appreciate your candor! "Just pay for it and be done with it" was my initial plan, and I may still take that route. However, the suggestions for investing is giving me pause. I think it will depend on how involved I would need to be. I'm not a professional money manager or day trader, and I would rather not try to switch careers at this point. Don't take this to mean that I'm careless with money or completely ignorant of how to ensure my financial stability. I know my limits and tendencies, which is why I will make use of a financial advisor. I believe that would be the /smart/ thing to do.

[blackholescion]

Originally Posted by Lo0mis

I appreciate your candor! "Just pay for it and be done with it" was my initial plan, and I may still take that route. However, the suggestions for investing is giving me pause. I think it will depend on how involved I would need to be. I'm not a professional money manager or day trader, and I would rather not try to switch careers at this point. Don't take this to mean that I'm careless with money or completely ignorant of how to ensure my financial stability. I know my limits and tendencies, which is why I will make use of a financial advisor. I believe that would be the /smart/ thing to do.

Yep, that is a great point too. You want to make sure you're financially set regardless of the decision made. If you end up investing, you still want to be able to afford the car payments regardless of the market.

If you choose an index fund, it's passive. Index funds try to match the market or get really close. There's no need to become a day trader since you know you will get pretty solid returns since the whole goal of the fund is to match the market. So, it's a set it an forget it solution, which is why I originally suggested to not even look at it or touch it until 2021 (when most car loans are paid off, 5 years).

Regardless of what you choose, talk to a financial professional, watch this video from John Oliver about retirement, and good luck!

[Lo0mis]

Originally Posted by blackholescion

Yep, that is a great point too. You want to make sure you're financially set regardless of the decision made. If you end up investing, you still want to be able to afford the car payments regardless of the market.

If you choose an index fund, it's passive. Index funds try to match the market or get really close. There's no need to become a day trader since you know you will get pretty solid returns since the whole goal of the fund is to match the market. So, it's a set it an forget it solution, which is why I originally suggested to not even look at it or touch it until 2021 (when most car loans are paid off, 5 years).

Regardless of what you choose, talk to a financial professional, watch this video from John Oliver about retirement, and good luck!

Thank you so much for the video; hilarious and informative!

I have one more point that I'm not clear on. The idea of putting 50% down and parking the remainder in another account to maintain some liquidity made perfect sense to me (vs. paying for the car outright). I could then just automate the monthly payments and forget about it (and gain that juicy .02% interest). So now if I decide to invest the remaining 50%, would I be able to pull funds from it on a monthly basis to make my payments? Also, would it even be worth doing this since the balance of the account would be (probably) dropping at rate higher than the accrual of the investment returns?

Side question: Does anyone know if the mutual fund gains in my 401k would be impacted by the glut of fees referred to in the video, or is this just something I would need to investigate?

[M3 Adjuster]

Originally Posted by Lo0mis

Thanks for all the suggestions everyone! I'm starting to like the idea of putting half down and investing the balance. I'll get with a financial adviser about the specifics.

Keep thinking on it and maybe you'll come up with the best idea - finance all of it and invest the cash...

Auto Interest rates below 2 percent right now are insane- almost free money.

[M3 Adjuster]

Originally Posted by guarnibl

You don't need to talk to a financial advisor to invest $30k. Do your own homework first and foremost but personally I'd finance every penny of it if the rate is 2% or less. Even a very conservative portfolio of a few index funds in vanguard should out earn that interest rate. You can always pay it off in the future if you need to. Rarely do you come across pre payment penalties in auto loans.

[blackholescion]

Originally Posted by Lo0mis

Thank you so much for the video; hilarious and informative!

I have one more point that I'm not clear on. The idea of putting 50% down and parking the remainder in another account to maintain some liquidity made perfect sense to me (vs. paying for the car outright). I could then just automate the monthly payments and forget about it (and gain that juicy .02% interest). So now if I decide to invest the remaining 50%, would I be able to pull funds from it on a monthly basis to make my payments? Also, would it even be worth doing this since the balance of the account would be (probably) dropping at rate higher than the accrual of the investment returns?

Side question: Does anyone know if the mutual fund gains in my 401k would be impacted by the glut of fees referred to in the video, or is this just something I would need to investigate?

Investments are there to leave to accrue interest. If you're thinking about using this money to pay for the car, and can't afford the payments otherwise, it may be in your best interest to just buy the car outright. It all depends on your situation. I wouldn't put your 30k in a fund just to grab $600 or w/e a month from the account. Defeats the purpose.

Those fees he's talking about are in every investment account, including your 401k and Roth/Traditional IRA. There will be a breakdown of fees somewhere in your 401k. Some funds are higher than others. Generally, Vanguard has the lowest fees so they are the best to move your money into. If you don't have Vanguard options in your 401k, find another one with good returns and low fees. They say 1%, but even that is too high. Then again, you may not have a choice. All depends on your employer and what that plan offers.

[Lo0mis]

Originally Posted by blackholescion

Investments are there to leave to accrue interest. If you're thinking about using this money to pay for the car, and can't afford the payments otherwise, it may be in your best interest to just buy the car outright. It all depends on your situation. I wouldn't put your 30k in a fund just to grab $600 or w/e a month from the account. Defeats the purpose.

Ok got it. That clears it all up. I could afford the payments, but I would rather not adjust my financial situation from "comfortable" to "a little less than comfortable".

Thanks again for all the input and suggestions, it's really been a big help!

[confusion]

Originally Posted by Lo0mis

Ok got it. That clears it all up. I could afford the payments, but I would rather not adjust my financial situation from "comfortable" to "a little less than comfortable".

Thanks again for all the input and suggestions, it's really been a big help!

The other thing that you need to consider aside from all of the investment advice is liquidity and cost of funds. You touched on liquidity briefly but let me give you a more detailed example. Imagine you paid for the car outright and had $0 in the bank and then suddenly found yourself needing access to $20k. You'd have to sell your car (which would likely not be that hard but you'd also have the hassle of replacing it with something cheaper). Or, you'd need to take out a loan. If the loan were unsecured, you would suffer a much higher interest rate. If it were secured (like a HELOC), you'd have a better rate but the hassle of lining up the loan and dealing with those payments as well.

Personally, I agree with the people saying to put $0 down. That's what I did. I financed the entire amount at 1.55%. The cost of the interest over the life of the loan is negligible. I'm now free to do whatever I want with the money. Don't discount the value of flexibility. You never know when you're gonna need access to funds, quickly and cheaply.