Curses! 0.0% Financing!

I've been debt-free for about 10 years. No home mortgage, no car loans, nothing. I love it that way; I've said I never want another car payment again. It's all part of my financial preparation for retirement, which is now about 3 years away. The other part of the financial preparation is to take care of the big ticket items now while I have substantial income. In the last 6 years, we've paid out of pocket for a kitchen remodel, a new roof, and a new high-efficiency furnace. The last big ticket item is a new car; and I've set aside $40K to buy a decent one.

So, after a few months of evaluating options, last weekend I bought a new 2014 Toyota Avalon Hybrid. I love this car -- roomy, comfortable, three-tone leather interior, sun roof, no road noise. AND it gets 40 mpg. And I got a great deal.

But just when I was going to sign on the dotted line, they threw in a curve ball. That's right, 0.0% financing for 60 months. Free money! I tried to justify in my mind saying no, but it was free money! So I signed up.

So I've got buyers remorse. No, not for buying the car -- I love it. But for taking the financing. Now I have car payments! Even though I still have that $40K in the bank (earning 0.8%), I have car payments! And they're scheduled to last until 2 years past my retirement date.

So I've been sitting here trying to figure out what to do. (a) Pay their calculated payments for 3 years, then pay it off in a balloon. (b) Calculate an increased monthly payment in order to pay it in full in 3 years. (c) Keep the normal 5 year payment schedule; I'll still have the principal to draw on for the last 2 years of payments.

Yeah I know -- first world problems. It's a good problem to have. But it just bugs me -- I have car payments, something I thought I had sworn off for good.

Thanks for listening to me rant.

-Bob

I pretty much did (b) on my Toyota Tundra. I wanted new wheels when I retired, and had set aside enough to accomplish it. Toyota didn't offer 0.0%, but 0.9 was close enough. I just doubled up payments to final it in 2.5 years. Seemed like a compromise we could both live with.

BTW that new Avalon is a sweet ride. May it treat you well.

Jim

If it bugs you, go ahead and pay it off (provided there is no pre-payment penalty). Otherwise, continue to receive 0.8% interest on the 40K and increase the monthly payments so the car payments end at or before your retirement.

Nice problem to have! I recently bought a car and also have a very low loan. It's my plan to double the payments to pay it off fast. I hate being in debt for my mortgage but that's a bit harder for me to get rid of quickly, though I am quite pleased that I refi'd earlier this year and am on track for paying it off in nine years.


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The answer is "C"! If you're not paying anything to borrow (since you're already secured the loan at 0%), and you're making money on your banked cash, I would just get over the psychological payment aversion and be happy that you'll save a few $ in the long run.

I too, do not believe in financing things or running credit card balances.

However, just bought new SUV and dealer offered .9% financing and then another $500 reduction in sales price, so I bit. I have them charge to my air line credit card each month and over 3 years will get a free plane ticket.

I am more risk prone and money is in Vanguard Total Market Admiral Index fund. No way do I advocate anyone investing that makes them not sleep at night!


See below:

Price and performance details


Fund average annual returns (fee-adjusted)
VTSAX Benchmark
Spliced Total Stock Market Index

YTD 4.31% 4.34%
1 year 20.53% 20.57%
3 year 14.81% 14.83%
5 year 18.92% 18.93%
10 year 8.37% 8.38%

Chrispee said:

The answer is "C"! If you're not paying anything to borrow (since you're already secured the loan at 0%), and you're making money on your banked cash, I would just get over the psychological payment aversion and be happy that you'll save a few $ in the long run.

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Absolutely agree. Taking the emotion out, it's a no-brainer.

Passepartout said:

BTW that new Avalon is a sweet ride. May it treat you well.

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Thanks Jim. I agree. I'm replacing my old 1997 Avalon. 17 years old, and no repairs other than standard maintenance stuff. I'm really impressed with the reliability of these cars. And the ride, of course.

Chrispee said:

The answer is "C"! If you're not paying anything to borrow (since you're already secured the loan at 0%), and you're making money on your banked cash, I would just get over the psychological payment aversion and be happy that you'll save a few $ in the long run.

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Elan said:

Absolutely agree. Taking the emotion out, it's a no-brainer.

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I agree that mathematically, the correct answer is C. But this post, partially tongue-in-cheek, was more about the emotional reaction. Of course, I am also emotionally against paying more than I need to for anything

Oh well, I'll figure it out as it goes. So far, I haven't paid a penny yet for this car. Did I mention it was zero down as well as zero percent? I'm expecting mail from Toyota Financing any day now...

-Bob

Blues said:

I agree that mathematically, the correct answer is C. But this post, partially tongue-in-cheek, was more about the emotional reaction. Of course, I am also emotionally against paying more than I need to for anything

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Ha, I figured you were either venting, gloating or something. As smart as you've been with your finances so far, I don't think you need any financial advice from us! Great job Blues!

Blues said:

Oh well, I'll figure it out as it goes. So far, I haven't paid a penny yet for this car. Did I mention it was zero down as well as zero percent? I'm expecting mail from Toyota Financing any day now...

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I bought a Toyota with a similar deal a few years ago. I have made the monthly payments and haven't paid anything extra on it. The 0% interest is just too attractive when dividing up money for bills each month. Of course, we have more bills than it sounds like you do. It's still nice to make payments without paying anything for that privilege, though.

Blues said:

Oh well, I'll figure it out as it goes. So far, I haven't paid a penny yet for this car. Did I mention it was zero down as well as zero percent? I'm expecting mail from Toyota Financing any day now...

-Bob

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Presumably, there was no cash incentive? There often is when 0% financing is available.

BTW, I knew you were just rehashing the mental/emotional aspect. I do the same thing continually with paying off my mortgage.

Elan said:

Presumably, there was no cash incentive? There often is when 0% financing is available.

BTW, I knew you were just rehashing the mental/emotional aspect. I do the same thing continually with paying off my mortgage.

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Yes, the actual deal was $500 cashback + 0.0% financing. The $500 then became the down payment.

There was an alternative factory incentive of $1000 cashback with no financing. So technically, the financing deal cost me $500. But it was still too good to pass up.

Yep, I confess to all of you, I was just venting my emotional reactions. In my head, I know the right thing to do. But I'm still having a hard time getting over having a car payment, after not having one for at least 20 years. Not only that, but a car payment that continues after retirement. After I've worked so hard to have no such commitments as I approach retirement. So yes, it was a vent.

-Bob

I hope I have a similar vent when I'm at retirement age!

I haven't had a car payment in over 10 years and am facing the prospects of buying and financing (because I haven't been able to squirrel away money to pay cash). I would suggest you keep on your plan and get over the remorse over making a monthly payment.

pacodemountainside said:

...I have them charge to my air line credit card each month and over 3 years will get a free plane ticket...

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I like this! ^^^

I agree that it's great to be debt free, but you still have monthly bills to pay (utilities, phone, insurance, etc.). Since you obviously have the financial discipline needed, keep the bulk of your money working for you, and take advantage of the 0% offer as long as you can.

Blues said:

Yep, I confess to all of you, I was just venting my emotional reactions. In my head, I know the right thing to do. But I'm still having a hard time getting over having a car payment, after not having one for at least 20 years. Not only that, but a car payment that continues after retirement. After I've worked so hard to have no such commitments as I approach retirement. So yes, it was a vent.

-Bob

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May you have a retirement long enough to need another new car!

I would invest the 40k somewhere that pays more than .8%.

Elan said:

Presumably, there was no cash incentive? There often is when 0% financing is available.

BTW, I knew you were just rehashing the mental/emotional aspect. I do the same thing continually with paying off my mortgage.

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This is usually the case. 0% auto loans are really where one is just paying points up front to reduce the interest rate to 0%. In fact, even those .9% loans are the same. The lender is just getting their interest upfront in the form of points. I am surprised that the cash incentive was only $1000. I would have expected more. When we did 0% several years ago the cash incentive was something like $2500.

At a simple interest rate of 0.8%, the $40,000 in a bank account over five years will earn about $1600. So the OP will come out about $1100 ahead in this transaction.

dioxide45 said:

I am surprised that the cash incentive was only $1000. I would have expected more.

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That was my thought also. Seems like the cash incentive should have been greater than $1K if the financing incentive was $500 & 0%.

SmithOp said:

May you have a retirement long enough to need another new car!

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Or two- or three. At 17 years each. That oughtta be close enough and with enough saved to have a chauffeur after that.

Jim

We did the same thing and it didn't sit well with me. When DH bought his car, there was a $1000 discount if we financed at some ridiculously low rate. We ended up paying 50% down and financed the rest for 3 years (the minimum they allowed).

I have the payments automatically deducted from our savings account so that I don't have to deal with it.

Deb

I love using 0% financing money to buy things, many things I could never had afforded if it were not for the financing. We time many purchases to when companies are offering their longest financing period.

I can honestly say we wouldn't have our Marriott portfolio if it were not for 0% financing which we used for all of our direct purchases. First we would use the Marriott Visa for the points then flip it to a 0% card. Back then they didn't even charge a transfer fee. The money was readily available and It was like taking candy from a baby. We used well over $100k of the bank's money to build our portfolio.

I didn't have the capital but had the cash flow so the financing made it all happen.

Now even with the 2 or 3% transfer fee its worth it to defer paying for 12-15 months. I also wait to buy any big ticket item like a PC, TV, furniture or services.

Currently I have the following on 0% financing

Sony 4k 60" TV 36 month 0% financing
Daughter's college tuition balance of $2k 0% 15 months and 1% transfer fee
Iron patio table Walmart credit card 0% 12 months
PowerWasher Lowes 18 month 0%
Shed Lowes 0% 18 month 0%
Marriott MOW OF units $15k balance from $30k 0%. 2nd 0% used Southwest credit card 2% fee
Electric guitar Guitar Center 18 months 0%

To me its a no-brainer to use some else's money to purchase goods.

Here's how I see it.

Having a loan is not the problem, paying interest on a loan when you have the money in the band is a problem.

You are making your plans similar to the way i did it before I retired. What you haven't talked about is the unexpected big payment that comes around the corner out of no where and hits you head on.

By keeping your money in the bank and not paying off that loan early you have a wonderful emergency backup!

To go further, I would attempt to make the payments out of my current income rather than taking it out of that account.

csxjohn said:

To go further, I would attempt to make the payments out of my current income rather than taking it out of that account.

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I suspect this was meant for me because I posted that the payments were automatically withdrawn from by savings account. I didn't also mention that my whole pay check is deposited in this same savings account so it really is coming out of current income.

I agree that it makes sense to take advantage of these offers. Still, it often rubs the wrong way.

Deb

To the OP you have a good problem. No debt !!