I am new to finances / buying cars as i have used my high school car i got for the past 15 years and wanted to buy a truck. I’ve been putting money aside in a single register investing account saving up for it. My question is, now that i have enough to buy a new truck outright, should i just take out 20% of the new truck’s down payment out of my single register investing account and then just finance it for a lower APY than the interest im making on the investment account? I make enough to afford the “finance for 4 years and make sure my monthly payment is no more than 10% of take home money (total cost of ownership)” rule. If so, I know that it’s generally advised against buying a NEW car but i am the type of person that will just drive it til it dies or some accident forces me to buy another vehicle. I have a steady job as a Navy Pilot so i know that i can make payments on the vehicle reliably and consider myself financially disciplined. I apologize in advance if something similar has been asked but I couldn’t find any specific post that was similar to my situation.
Saved enough to outright buy a truck for $40k in an investment account. Should I touch it or not when financing my next truck?
byu/flyinhawaiian58 inpersonalfinance
Posted by flyinhawaiian58
10 Comments
i am not a “all debt is bad, avoid all debt at all costs” person.
I think if you can put 30-100% and the financing is under 6% itll be fine
If the loan APR is low and you can easily afford the monthly payment in your budget, yes it makes sense to take a loan and keep your $ invested.
“Low” is difficult to define though. One of the benefits of buying new is you can sometimes get rates way below market rate.
For me, if it was 2.99% interest or less, I would probably finance 80% of the cost. If over, pay cash. You’ve been making interest on the money as you saved it, and its purpose is predefined.
I’d keep it invested because it’s probably making you more than your interest on your truck will be costing you.
You might do better with a low APR financing incentive and leaving the investments to keep growing. When you withdraw, you will create taxable income. The taxes and lost time compounding will likely cost more than the interest. You could also sell the investments in pieces over the course of a loan. There is value to liquidity.
It sounds like you have a good plan. L
It sounds like you understand this is not an absolute necessity, but trying to cover a want with a smart way of paying for it.
I’d say – start a cash fund for the truck.
1. if you can just let your investments compound and not touch it – you’ll be much happier.
2. taxes. If you did take money from your investments you’ll have to pay capital gains.
My perspective is that you shouldn’t get in the habit of using investments for purchases. But my goals are aligned to retiring early.
If your investments purpose wasting the truck – then maybe that’s a different story.
Hope that was helpful.
You could buy model year new if you want. But there’s a good savings in the 40-60k mileage area 2-3 years old and most cars have near 200k miles left at that point if maintained.
Do you need a truck?
It’s just a math problem. If you’re in can finance the truck at 2%, and your $ is earning 4%, then finance it. However, if the truck loan is 6% and your $ is earning 4%, just pay for the truck in full. The math gets a little harder when you can finance at a low % or take a rebate, but it’s still really just a math problem.
My thoughts – if you can stay invested and earn more than the interest rate, take the debt on and accrue the interest. I bought my last 3 vehicles with below 3.5% interest, one was at 0%. My money earns around 11-13% over the last 5 years so I am fine taking out loans if it does not mess with ability to make payment and keep investing.