Car Loan

[LivingAlmostLarge]

We're debating taking out a car loan. Well my DH is pretty much set on yes and I'm a bit hesitant. We want, not need, but want a new car. We'd both like something with 4 doors and safer than what we both currently drive. And we both feel his car is on it's last legs. We've started car shopping and I think we're both leaning to borrowing between $15-20k for a new or a used car.

Is this a terrible idea? My DH wants a 3 year car loan. We do drive somewhat older cars a 2000 Focus and 1999 Corolla, so we aren't going crazy, just larger, newer, and safer (side airbags).

Some Details

Cash $20k - 4 month EF
Taxable Stocks ~$22-25k - student loan savings earmarked, due 9-2010
Short Term Savings - $5-10k Annually for home repairs, property taxes, car repairs, etc
I also work a month ahead in budgeting so I have an extra $5k in float in my checking
Retirement $170k

Owe
Mortgage - $420k
Student Loans $25.5k - DH's recently finished MBA in December

As of 10-2009 we had saved $15k cash for a car, but we spent it on extra home repairs for the baby (born January 2010) and dog surgery. Please don't reprimand me for spending it on our pet, it's over and done with. It was not a smart financial move, but an emotional decision. We usually save the max 401k and IRAs and that's it for retirement savings because we've been paying for my DH's private tuition for an MBA.

This decision will occur later in the year, but I'm researching cars, loans, and trying to make the money work out now rather than last minute. The plan is to build more of a cash EF instead of using it for a car.

One suggestion my DH threw out is not paying off the student loans and instead using that money. The student loans are stafford subsidized loans @ 6.8% however. I am sure we can beat that with a car loan.

What are the pros and cons? Should we do it? Should we borrow less?

[disneysteve]

What is your household income?

[LivingAlmostLarge]

$150k

[maat55]

I would buy it with the taxable stock money and rebuild those stocks with your payments.

Are you buying from an lot or individual? What is the interest rate on the loan?

You can save money by paying cash to an individual and still borrow at an low rate. I would not do it, it is against my financial religion. But, you have enough spare cash available if necessary to pay it off if you wanted later.

[LivingAlmostLarge]

Maat the taxable stock money is earmarked for our student loan payback. That has a rate of 6.8% if it matter. Are you suggesting Student Loan debt is better?

[creditcardfree]

I really think you could get a better auto rate loan than 6.8%. The student loans interest is deductible right? I have an auto loan from two years ago that is 3.9%...so I'd think things would still be in line there.

I would save up as much cash as you can that is earmarked specifically for the car and borrow the remaining. I would keep your float money, too, if that is what really works for you.

[LivingAlmostLarge]

Float money is built into the budget. Known expenses like property taxes, home repairs, cars, vet etc.

The student loan is not deductible, our income is too high. I'm wondering if i could get a low rate auto loan. What about for a used car?

[dfeucht]

Float money is built into the budget. Known expenses like property taxes, home repairs, cars, vet etc.

The student loan is not deductible, our income is too high. I'm wondering if i could get a low rate auto loan. What about for a used car?

New car loans from local credit union in MN are around 3.99% for 36 months and 4.49% for 60 months. Used car defined as 2005 and older are almost 2% higher (although most used car rates I had seen were 2008 and older). Not sure on geographical differences, but I would bet you can significantly beat the student loan rate at least on a new car since it is non-deductible.

[LivingAlmostLarge]

My DH wants a 0% new car loan. I think probably could land it, he did when he first bought his care 10 years ago.

[creditcardfree]

Maybe think certified used. Our van was this way: less than a year old, 4500 miles and an interest rate of 3.9%. I do think you are better off financing the vehicle and getting the student loans paid off as planned.

[watsoninc]

Given your income, would saving for the car(s) take too long?

[LivingAlmostLarge]

20 months? $1k/month probably. This savings has been long time in the making. We save, but slowly. It's not like we have tons of extra money every month. Unless I stop doing home repairs, car repairs, etc.

[disneysteve]

My DH wants a 0% new car loan.

There is no such thing as a free lunch. In other words, 0% financing isn't really free. First, it is only offered on new cars. Why is that? Because new cars are already not a great deal. Second, you often end up paying more for the car than you would otherwise because the dealer knows he won't make any money on the financing.

I'd go with the lightly used car, 2-3 years old, certified is fine though you pay a little extra for it. We got both of our current cars as certified used. That was 10 and 12 years ago and they're still going strong.

[disneysteve]

20 months? $1k/month probably.

You said you wouldn't be making a purchase until later in the year. That give you several months to save up part of the purchase. If you can save 6K or 7K and only have to borrow 8K or 9K, that would be great.

[cschin4]

The student loans are stafford subsidized loans @ 6.8% however. I am sure we can beat that with a car loan.

What is "beating" a loan? You don't beat any loan. It doesn't matter what the interest rate is another loan even if 0% because it is still money you are spending and owe. I think you would be better off to pay off your loan and start knocking out some of your debt. You have a very high mortgage of almost half a million. I don't know what your income is but that would scare the bejeepers out of me. And, you have way too little in your EF. certainly not 6 months of expensives if you factor in your mortgage payment.