Car loan at 3.9% worth it or cash purchase?

[suupertrump]

$30k out the door on a 2024 civic which includes tax, reg, and fees. I’m approved for 3.9% for 48 months with a $20k down payment but I do have the cash to buy the car outright.

Given that my state tax exempt money market gives me 5% right now, wouldn’t it would make sense to take the loan and possibly put less money down to pocket the interest?

 

[kellyw]

@suupertrump To me, it's close to a wash in terms of value.

Like either way is about the same cost.

Life happens fast; I would rather have $10k in my bank account tomorrow and a small car payment if something bad happens versus a paid off car and less money.

You can't eat car equity; you can trade cash for goods and services

Just a perspective.

 

[lyndam]

@kellyw Yeah same here. I bought a 26k truck (it’s not my daily driver). 14k down, 12k loan because I wanted to keep a lot of cash on hand because I’m also a home owner and shit can go wrong fast. Whether it’s house or health or anything else. Cash makes me feel safer.

I have 12k loan at 6% drawn out to like 72 months. Comes out to like $220 a month. That way if I have a tight month I can pay the minimum, otherwise I throw an extra $75 principal only at it each payment. I also have a side gig that lets me throw random hundreds at it.

So it’ll be paid off much shorter without having to commit to a lump sum payment to pay it off.

Works for me

 

[baruch_atah]

@suupertrump If you're getting 5% tax-free then I'd finance as much as they'll let you at 3.9%.

 

[suupertrump]

@baruch_atah Just state tax free. Fed still applies

 

[baruch_atah]

@suupertrump Either way I'd still borrow at 3.9% to earn 5% pre-tax on the money and to keep the liquidity. If the rate on the money market falls then you can always pay the loan off.

 

[suupertrump]

@baruch_atah That’s a good point. I will have to review the loan details to confirm no prepayment penalty.

 

[joe_raymond]

@suupertrump It's wild to me that a civic costs 30k now.

 

[grezia]

@joe_raymond $30k is the Touring trim, which is the top of the line. Base Civic is like $24k. For the money, it's not that bad for a highly reliable car compared to other cars in the compact sedan category.

 

[joe_raymond]

@grezia Oh I'm not faulting you for choosing the car, don't get me wrong. Just sticker shock from someone who hasn't been car shopping in a long time.

 

[abraham7777]

@joe_raymond Wait until you see the used market. A civic with 100k miles is at least $15k these days

 

[grezia]

@joe_raymond My 2016 Civic Touring was $27k out-the-door price, so in 8 years to go up $3k isn't that bad - also considering all the tech upgrades since then.

But, yes, car prices are quite out of sorts for buying brand new.

 

[brightmoon]

@suupertrump Take the loan. There are no prepayment penalties and the rate is fixed. If interests rates rise, you can make more on your savings. If they fall, you can pay off the loan early.

 

[vernonsog]

@suupertrump I'll take all the sub-4% money anybody is willing to lend me. That being said, this isn't very far below 4 so factors like convenience will dominate the decision.

 

[suupertrump]

@vernonsog What would you consider in the realm of convenience?

 

[vernonsog]

@suupertrump How much work I have to do to get/pay the loan and how much work I have to do to invest the money in the meantime.

 

[wynelle]

@suupertrump OK, all things being equal, I'd take the car loan. Right now it's basically a wash as interest rates on HYSA are above that, and probably about even with that when accounting for taxes.

However, I'd see if there was any benefit to going with a higher-rate car loan and then paying it off immediately. Most car loans are in the 7-8%+ range, which means that Honda is probably subsidizing the cost of the loan. As such, they may be amenable to lowering the price of the car (by $1,000? $1,500?) if you pay in cash or if you go for something with a higher interest rate. If you do the latter, pay it off immediately.

 

[marco_polk]

@suupertrump Would need more info. How much savings outside of the car down payment do you have, what other debt if any do you have, are you trying to save for something like a down payment on a house?

 

[suupertrump]

@marco_polk Already have a house. No debts outside of 0% apr cards which will be paid in full when that period ends.

12k cash for emergencies. 20k in HSA for medical. 75k in personal retirement. 25k in bonds.

 

[marco_polk]

@suupertrump Is the balance set aside for the cards not factored into the 12k? If you still have 12k after putting the 20 down on the car, so it's a 10k loan at the 3.9% I think I'd do that. You don't have a ton of cash on hand which is fine, but that gives you some breathing room for the financing. Would probably ideally want a little more cash on hand for home repairs, but looking at around 800-900 interest over four years really isn't bad considering you'll get more than that in the savings account. Ultimately this is a preference thing, I don't see either full cash or financing being wrong here.