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I am buying a vehicle that offers 0 percent APR for 60mths. I would like to put 20% cash down to decrease the monthly payment, plus avoid gap insurance. Based on my research, there are thoughts on both sides, for and against down payments for 0% APR loan.

What side of the fence are my fellow Fatwallet members on?

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Then just negotiate the deal as if you are paying cash and before you sign tell them you want 0%.  If they say no, say b... (more)

MisterEd (Dec. 20, 2016 @ 8:12p) |

What advantage does a dealer have if you're paying cash or you get a loan through Toyota, I assumed that they still get ... (more)

BarneyFife (Dec. 20, 2016 @ 8:28p) |

Dealerships get commission/kickbacks for every loan created. Also some manufacturer rebates require financing through th... (more)

devyanks90 (Dec. 20, 2016 @ 8:59p) |

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spydermonkey said:   I am buying a vehicle that offers 0 percent APR for 60mths. I would like to put 20% cash down to decrease the monthly payment, plus avoid gap insurance. Based on my research, there are thoughts on both sides, for and against down payments for 0% APR loan.

What side of the fence are my fellow Fatwallet members on?
 

  There maybe some minimum downpayment required by the lender. That said, I see no reason to put down anything more than what is mandatory and what is needed to avoid extra insurance cost. It is 0% APR.

Keep the extra amount that you plan to put down in a bank account and use that to cover the higher monthly payment. You get liquidity and small interest from bank.

How much is gap insurance? I'd compare the cost of gap insurance versus the amount of interest you could make off the money.

I put zero down on my 60 month loan. No regerts.

However much they will allow charged on a cc, put that amount on a card that gives 2% cashback

spydermonkey said:   I would like to put 20% cash down
 
 
0% APR!
Borrow >100% of purchase price

I wouldn't put anything close to 20% down on a 0% loan. You won't be upside down too much, given 100% of payments are going towards the vehicle, with no outside costs. I'd put as close to 0% as possible, especially into a vehicle.

spydermonkey said:   I am buying a vehicle that offers 0 percent APR for 60mths. 
  Probably just a gimmick and they jacked up the total price of the car. Bet you could get it cheaper paying cash.

Thats where research and knowing the true MSRP comes into play.  The reason they are offering 0% is they are trying to get rid of the 2016 model.   Sure, it would be cheaper with cash but Id rather not drain my bank account.

spydermonkey said:    The reason they are offering 0% is they are trying to get rid of the 2016 model.   

Sure, but in a year and a half the 2016 will be 2 years old and worth well over $2,000 less than the 2017. You don't save much or anything over a 2017 if you look at the big picture. Now if you drive it till the wheels fall off then it doesn't matter.

And the 2017 will be older than a 2018. I'm not sure what your point is. The 2017 isn't due out until January and there won't be any incentives or special financing.

Just bought a new car and dealer was offering 0% financing also, worked out a great price for car and told them I wanted the 0% financing and they said price I got was not using that promo. So yes car would be cheaper if you didn't take 0% financing.

brucesprings said:   Just bought a new car and dealer was offering 0% financing also, worked out a great price for car and told them I wanted the 0% financing and they said price I got was not using that promo. So yes car would be cheaper if you didn't take 0% financing.

So how much was the APR on your loan? The incentives Toyota is giving is $1,500 rebate OR 0% APR. Depending on the amount financed and the APR you get, the rebate may be the better way to go.

spydermonkey said:   
brucesprings said:   Just bought a new car and dealer was offering 0% financing also, worked out a great price for car and told them I wanted the 0% financing and they said price I got was not using that promo. So yes car would be cheaper if you didn't take 0% financing.

So how much was the APR on your loan? The incentives Toyota is giving is $1,500 rebate OR 0% APR. Depending on the amount financed and the APR you get, the rebate may be the better way to go.

  Yes it depends on the amount.  

60 month auto loans seem standard at ~1.9% (Didn't care to search much, I see lightstream's unsecured auto loan at 1.99% and the credit union where I have my car loan is still at 1.9% for up to 66 months.).  Since it's only amortized for 60 months and because the interest component of the early payments is so small, a rough estimate is that that's equivalent to 2.5 years of the whole principle being financed.  So, total interest paid on a 60 month 1.9% loan is roughly 4.8%,
$10k financed:  $482 total interest paid
$30k financed: $1445 total interest paid
$60k financed: $2890 total interest paid

So, if it's over $30k then the 0 APR offer might appear to be preferable.  Except...
1. The rebate comes back immediately, in today's dollars.  The payments in the loan are in future dollars (which are worth less, although it's arguable what discount factor to use).  
2. If you sell the car, or it's in an accident and totalled, or if you were to refinance it, then the benefit of the 0% offer is less.

Personally I'd only pick the 0% over $1500 if it was $45k+ financed based on the above.

spydermonkey said:   And the 2017 will be older than a 2018. I'm not sure what your point is. The 2017 isn't due out until January and there won't be any incentives or special financing.
The point is, the 2016 you think you are getting a great deal on at $30,000 for example with 0%, will on May 2018 be worth $20,000, while if you buy an identical 2017 with 1.9% interest, it will be worth $24,000 on May 2018. So while you save money by getting 0% on the 2016, a 2017 with a higher interest rate might be a better value. FWIW 2017's have been out since September for some models.

spydermonkey said:   I am buying a vehicle that offers 0 percent APR for 60mths. I would like to put 20% cash down to decrease the monthly payment, plus avoid gap insurance. Based on my research, there are thoughts on both sides, for and against down payments for 0% APR loan.

What side of the fence are my fellow Fatwallet members on?

  Since when is gap insurance required for a $0 down, 0% apr for a car loan?

speedracer714 said:   
Since when is gap insurance required for a $0 down, 0% apr for a car loan?


Since even with no interest the loan issuer needs a guarantee they'll get paid the total value of the loan if you total the car after driving it off the lot?
If I wreck a $30k car a month after I bought it with zero down, even with 0% interest I still owe $29,500 on it (assuming 60 month loan). Odds are the insurance company is going to come up short of $29,500 on value.

plastrd said:   speedracer714 said:   
Since when is gap insurance required for a $0 down, 0% apr for a car loan?


Since even with no interest the loan issuer needs a guarantee they'll get paid the total value of the loan if you total the car after driving it off the lot?
If I wreck a $30k car a month after I bought it with zero down, even with 0% interest I still owe $29,500 on it (assuming 60 month loan). Odds are the insurance company is going to come up short of $29,500 on value.

That potential shortage is why credit rating is used to set APR/terms/approval. If gap were "required" it would be just like requiring everyone to pay pmi regardless of ltv or credit rating.

The shortage you refer to its actually an extremely low risk and gap insurance is way overpriced and a horrible deal. The reason that the potential for gap is so low (excluding rolling in negative equity, etc) is that car loans are amortized over a relatively short period.
On a 5 year car loan, you've paid down the balance roughly 20% after just 12 months and the "gap" may already be approaching $0 on a 100LTV car loan. So, you're paying to insure against 12 months of gap averaging to 10% of the car value and probably paying 1%+ of the car value. In other words, the only way you come out ahead is if you have over 10% expectation of totalling the car in that first year. This is neglecting the fact that most (?) collision insurance will pay replacement costs which is full purchase price if you wreck a brand new car, and the collision insurance IS required.

plastrd said:   
speedracer714 said:   
Since when is gap insurance required for a $0 down, 0% apr for a car loan?


Since even with no interest the loan issuer needs a guarantee they'll get paid the total value of the loan if you total the car after driving it off the lot?
If I wreck a $30k car a month after I bought it with zero down, even with 0% interest I still owe $29,500 on it (assuming 60 month loan). Odds are the insurance company is going to come up short of $29,500 on value.

  
If you have to buy gap insurance for a $0 down car purchase then you're way overpaying.

speedracer714 said:   
plastrd said:   
speedracer714 said:   
Since when is gap insurance required for a $0 down, 0% apr for a car loan?


Since even with no interest the loan issuer needs a guarantee they'll get paid the total value of the loan if you total the car after driving it off the lot?
If I wreck a $30k car a month after I bought it with zero down, even with 0% interest I still owe $29,500 on it (assuming 60 month loan). Odds are the insurance company is going to come up short of $29,500 on value.

  
If you have to buy gap insurance for a $0 down car purchase then you're way overpaying.

  Huh? This is the main reason you buy Gap Insurance.
Unless you like having a wrecked credit score.

forbin4040 said:   speedracer714 said:   
plastrd said:   
speedracer714 said:   
Since when is gap insurance required for a $0 down, 0% apr for a car loan?


Since even with no interest the loan issuer needs a guarantee they'll get paid the total value of the loan if you total the car after driving it off the lot?
If I wreck a $30k car a month after I bought it with zero down, even with 0% interest I still owe $29,500 on it (assuming 60 month loan). Odds are the insurance company is going to come up short of $29,500 on value.

  
If you have to buy gap insurance for a $0 down car purchase then you're way overpaying.

  Huh? This is the main reason you buy Gap Insurance.
Unless you like having a wrecked credit score.

If a loss of a small percentage of the car cost (even 30%) will bankrupt you, then you're spending too much on a car purchase. There's no credit hit from not having gap insurance unless the loss will bankrupt you and you won't pay it. The maximum gap loss is so small relative to the gap premium that it's silly not to self insure. Maybe different if talking about $100ks cars or a $1M+ car, but $30k car is such a small potential loss.

I was commenting on speedracer's comment that $0 down means No Gap insurance.
I wasn't commenting on the whole reason for Gap.

If you are talking about pay $0 down, then that's the best time for Gap, if you put money down, then the need for Gap is lessened.

That's all I was pointing out.

forbin4040 said:   If you are talking about pay $0 down, then that's the best time for Gap, if you put money down, then the need for Gap is lessened.
 


I agree with the latter, but the former is not true if you got a really good deal on the car, in which case the difference between the "market value" when you drive off the lot vs. your purchase price is at a minimal.

If you want smaller payments, put down a larger down payment. If not, save that money to invest elsewhere.

Some auto insurance companies cover 100% of purchase price for the first two years so you don't "need" the gap insurance from dealer/finance co... Could that be a cheaper way to go? I'm guessing finance co won't say 'Okay gap insurance for 2 years then no more insurance', you'll just get to pay it throughout each month for the entire term.

If you're putting 20% down, you're just self-insuring the GAP, and paying it in advance of any potential claim.

Is it a matter of the 0% APR lender demanding you have GAP insurance without the down payment, or you just prefer a 100% chance of putting up the money now to a possible need to put up less money later?

taxmantoo said:   If you're putting 20% down, you're just self-insuring the GAP, and paying it in advance of any potential claim.

Is it a matter of the 0% APR lender demanding you have GAP insurance without the down payment, or you just prefer a 100% chance of putting up the money now to a possible need to put up less money later?


Nope, lender didn't require it.

Forgot to post an update:
I put money down so I could have a lower note, which also get me "insurance" for the gap.

spydermonkey said:   
taxmantoo said:   If you're putting 20% down, you're just self-insuring the GAP, and paying it in advance of any potential claim.

Is it a matter of the 0% APR lender demanding you have GAP insurance without the down payment, or you just prefer a 100% chance of putting up the money now to a possible need to put up less money later?


Nope, lender didn't require it.

Forgot to post an update:
I put money down so I could have a lower note, which also get me "insurance" for the gap.

  Wait, what? I thought the rate was at 0% anyway?

imbatman said:   However much they will allow charged on a cc, put that amount on a card that gives 2% cashback
 Amount to be paid up front =MAX("maximum amount allowed to be put on credit card","minimum amount needed to avoid GAP")

I'm sure I'll get some red for saying this, but taking a loan on a rapidly depreciating asset like a car is usually a poor choice.

My advice?

Buy a car for whatever you were planning to spend on a down payment (yes, it may be a beater), then put the money you would otherwise have spent on a car payemnt into your 401K or a taxable investment account.

You'll have enough money for larger, better car in no time.

Some people have a car payment and max out their 401k/IRA/HSA (not just put in what they're saving by not having a car payment).

atikovi said:   
spydermonkey said:   I am buying a vehicle that offers 0 percent APR for 60mths. 
  Probably just a gimmick and they jacked up the total price of the car. Bet you could get it cheaper paying cash.

  
Then just negotiate the deal as if you are paying cash and before you sign tell them you want 0%.  If they say no, say buh-bye. 

What advantage does a dealer have if you're paying cash or you get a loan through Toyota, I assumed that they still get the cash either way.

imbatman said:   However much they will allow charged on a cc, put that amount on a card that gives 2% cashback

Or for an even better return, use it to hit minimum spend on a new credit card sign up bonus and get $100-$250 back + cash back.

Super bonus points if you have an Amex signup bonus and the dealership counts under the Small Business promo (some do in my neck of the woods)

BarneyFife said:   What advantage does a dealer have if you're paying cash or you get a loan through Toyota, I assumed that they still get the cash either way.

Dealerships get commission/kickbacks for every loan created. Also some manufacturer rebates require financing through their own finance arm.



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