… Or just funny math
Which is better?
.5% off the interest rate on 20,000 over 60 months
Or $1500 off the purchase price
Or depleting your savings and pay in full because you don’t want to eff with the financing?
Thing is this money is just sitting around in a savings account getting peanuts for interest. The interest rate on the truck loan is way more than we’re earning. Seems like financially paying cash would be better. But having less than five grand in liquid savings is scary. Technically we do have other savings but we can’t touch that without penalty. Maybe we should live on the edge?
Asking for a friend.
As always, more to come.
J-Dub's Grin and Bear It 
Assuming the rate is 7%:
$20000 over 60 months at 6.5%, your monthly payment is $391.32 and you pay $3479.38 in interest.
$18500 over 60 months at 7%, your monthly payment is $366.32 and the interest paid is $3479.33.
Regardless of which of those two options you choose, you pay pretty much the same interest over the life of the loan. You save $25 on your monthly payment, though, with the second option.
Pay the $20,000 up front, you don’t have a monthly payment and won’t pay interest, but you don’t have the $20000 in cash if you need it.
I’d go with the second option and find a better option for the $20k (eg money market, CD, short-term mutual fund). But that’s just me…
I used the calculator at https://www.bankrate.com/calculators/mortgages/loan-calculator.aspx to figure all this out.
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I used the calculator to run some more options. Janet tossed out changing the down payment to leave a cushion in savings. Better option is 2 to me too. Thanks John I appreciate the help.
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Maybe not all or nothing? Make a bigger down payment so as not to deplete your savings bringing everything down. Good choice to use credit card with money back! Love your QQ’s. I learn so much from all the responses 🙂
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Thanks Janet! That’s a good idea to adjust how much we put down. I’m learning so much too.
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I would never deplete my savings unless I needed to help out one of my kids. I’d take the discount off the overall value and then shop around for the best interest rate. then I would check to see the monthly price difference between 48 months vs. 60 months (assuming this is purchasing a vehicle). the monthly payment at 48 months would be higher but it could save you hundreds overall.
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Yes it’s a vehicle. Thanks Jim!
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Always pay cash. 😬
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You’ve answered your own question…..and I agree with you.
Generally we use credit card for everything, get cash back, and pay off in full so as not to incur charges.
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I hadn’t thought of using a credit card with cash back but that’s a great idea. Bill mentioned it too. Great minds…
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You need to work out the interest carefully so as not to be overcharged.
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I would take the price reduction and shop for an interest rate to match the .5 reduction. However, your point on using cash is a good one. My first choice would be a credit card for cash back (and because I like to see them try to get out of that). Cut cost in as many places as you can, but I know you would do that.
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Ohh yes! the credit card cash back is an excellent idea. I just ran some numbers. The life of the loan difference was @ $205. The $1500 off is much better.
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Good to know.
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Loans help your credit score (if you pay them on time). Using up almost all your available cash is not good. My opinion. Lower interest probably better than the 1500 off the top of my head.
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Thanks!
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