I am going to be financing $24,000 US. Saab offers 1.9% for 36 month or $3,000 cash. Well, the dealer will give me 4.9% over 36 month so if I take the cash my month to month payment is less. But going to an outside financial loan house like Capital One, what is the best rate I could expect if my credit rating is excellent? Would I be better going with a 48 month if I expect to keep the car at least for years? Any advice appreciated.
Dan
Basic rules for those with a choice about how to finance (i.e. you have a little financial flexibility):
- only borrow if you don't have the cash on hand to pay cash *or* you can get more money (interest/dividend/capital gain) on the money you don't spend vs. the interest rate they charge you.
I assume you need to borrow the 24K... so let's talk about the $3K. If you take it, you can invest it. How much can you make on the investment (per year)? Compare that to the difference in interest rate. In other words (effectively), Saab will give you $3K to pay the 4.9% rate. How much more does that cost you vs. the 1.9% rate per year? How much can you make on the $3K ? Pick the best number.
Also... consider what happens if you take the 3K and just pump it back into the car. Since your rate on that 3K is 4.9%, I'm guessing that you can only beat it with a stock type investment. So, it might make sense to do take it and reduce the loan amount.
As to 3 vs. 4 years, it's really the same calculation for the raw $'s. How much does it cost, how much do you make on the money you don't pay out each year by taking a 4 year vs. 3 year loan ? You are getting a lower payment... you can make money off the money you don't give to the bank - but it cost you for more years. If you're losing money, you want to lose it for as short a time as possible. ALl of this ignores the bigger issue: do you need the longer loan or a lower payment to make your finances work in the short term (knowing it is costing you more in the long term).
I take it that you are in the US. Capital One is not the place to borrow!
Where do you bank? (The question is rhetorical) Try some of your locallly chartered banks. Your own local pewrsonal bank. You could be very pleased. And if you are a property owner, try a home equity lonan. Mine is at 4.5% and that interest is tax deductable too.The purpose of such a loan based on your home equity is not limited to home improvement.
Malcolm Mason
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