Help! Best car payment strategy needed...

[SDTopless]

Scenario:

My brother (current owner) is paying
~$400/mo @ 4.8% (i think)
~$11,000 is left

I will be taking over and I have
~$11,000 available


So what would you do? I have considered these options:

a. pay it all off & be debt free (of at least the car), but then again I would like to keep some left over as an emergency fund

b. payoff $5,000 & keep $6,000, thus funding $6,000 through the bank over say 2 yrs (24 pymts @ ~6%) and payments would be $265.83/mo (i would like to keep payments under $300/mo)

c. or do the same as above, but w/ one of those 0% balance transfers over 12-15mo & pay it off asap

Thanks in advance!

[pbdm4k]

Pay it all off.
Credit cards, Line of Credits, and other various loans can be used in the event of an emergency.

[Z FORE]

SDTopless has been listening to Dave Ramsey.
Pay cash or don't buy it. Just wait a couple of more months so you can have $1k in the bank as a beginner emergency fund.

[Spaceman Spiff]

It depends on your opportunity cost for the cash. What are you going to do with the $11K if you don't spend it on the car? Put the $11k in a short term CD with rollover (so that you can have access to it in case of need) and take out a car loan from the SAME bank that you open the CD at. Because you are opening the CD, the bank will be willing to offer you a lower interest rate on the car loan and with a combination of right bank + negotiation you can get an interest rate that's a wash with the CD rate, e.g. 4% interest on CD and 4% interest on the car loan. That way you have your money for emergency use and won't be burned with interest payments either

[SDTopless]

hrmm... the negotiating w/ a bank doesn't sound bad. im starting to think of combining everything.

payoff some of the car, pull loan from same bank & put some into a cd, then accelerate my payments while still keeping some leftover.

or i could play roulette all on 1 spin

[Hawkeye]

Originally Posted by Spaceman Spiff

It depends on your opportunity cost for the cash. What are you going to do with the $11K if you don't spend it on the car? blah blah blah

Economists... pffft.

Just buy it. You are not going to find ANY account right now that guarantees enough to cover the interest on the car loan. Open a CC incase of emergency in the first month or so. You'll be fine.

Plus with a CD you are allowed like 1 withdrawal a month then you get penalized. Not that great for emergencies.

[jamboMR]

Buy it outright. Loans are for emergency situations and appreciating assets - a Z4 is neither of those

[Spaceman Spiff]

I must admit it may be better for many people to just pay cash, again depending on what's the next best use for that cash. HOWEVER given the current economy I personally would like to keep my cash handy and hedge my future financial position as much as I can!

I did a quick search online and found several credit unions that have auto loans between 3.75-5%. A good open membership rate was PenFed with 4.75% on used cars. On the CD side, GMAC has APY of 4.25% on 12mo CD, with quarterly compounding I believe. This was of course the result of a 5 min search and loand and CD from different institutions. I am sure better deals can be found with a little bit of work.

BUT AGAIN, this takes some efforts and depending on how important it is for you to have access to your cash, you might be better off paying cash for the car as Hawkeye and Jambo recommended

[rc'Z]

Find out how much the cheapest monthly loan is for the 5k down 6k finance. Then pay cash for the car and make monthly payments to yourself. Pay yourself the interest.

[3002 tii]

paying debt off always "feels" good and simple logic would make you think not having to pay interest is the way to go, but in these times, you have to consider other factors. savings, emergency stash, rainy day fund, liquidity... whatever you want to call it is pretty necessary. in times like this, it's best not to take on additional debt, but if it's existing debt or something unavoidable, your best bet is to try to extend those payments enough so that you do have that liquidity you need.

but seeing how you have the option to pay off all that at once, have you considered putting a lump payment on a credit card? credit cards are offering 0% interest for 1 year all over... if you have the 11k, why not put that in a bank, cd, bond... let it earn interest and make the payment a year from now while enjoying 0% financing?

or a do a combo as you suggested, put down 5, hold 6, and put the remaining 6 on a credit card?

[Hawkeye]

Originally Posted by Dubbedown

paying debt off always "feels" good and simple logic would make you think not having to pay interest is the way to go, but in these times, you have to consider other factors. savings, emergency stash, rainy day fund, liquidity... whatever you want to call it is pretty necessary. in times like this, it's best not to take on additional debt, but if it's existing debt or something unavoidable, your best bet is to try to extend those payments enough so that you do have that liquidity you need.

but seeing how you have the option to pay off all that at once, have you considered putting a lump payment on a credit card? credit cards are offering 0% interest for 1 year all over... if you have the 11k, why not put that in a bank, cd, bond... let it earn interest and make the payment a year from now while enjoying 0% financing?

or a do a combo as you suggested, put down 5, hold 6, and put the remaining 6 on a credit card?

That is not a bad idea at all. Although it may be difficult to get a new card with a limit that high depending on the situation. That and you have to make sure you are responsible enough to actually use the money to pay off the card and for nothing else. After the 12 months of 0% the cards do different things (I have seen some that do well over the 'normal' 14% interest after the 12 months)

[marcus1701]

Pay the car off!!...if you want my take on CD's and mutual funds, all I can say is you need a LOT in them like 20k to see a sizeable return and that is after an x amount of time. Now this is me...and some people spend all day saving, when they should be trying to figure out more ways of making more money. 401Ks are good, and RA's are good. Personally I play Black Jack....name an investment that gives an oportunity to double your money on one hand....lol jk I go for fun, which is the only time you should go! Seriously pay the car off....as I can tell you really want it. Make payments only to build your credit.

[marcus1701]

I'd be extremely cautious about Credit cards advertising 0% interest for 1 year. Most often if you miss just one payment the interest will go up! Read the fine print.

[triton.]

Originally Posted by marcus1701

I'd be extremely cautious about Credit cards advertising 0% interest for 1 year. Most often if you miss just one payment the interest will go up! Read the fine print.

Yeah they usually jump to 15-20 percent if you miss a payment. Also you still have to pay the minimum per month.

[PKL]

Originally Posted by triton.

Yeah they usually jump to 15-20 percent if you miss a payment. Also you still have to pay the minimum per month.

I have a CC with 0% interest and yes if you miss the minimum monthly payment even ONCE the interest rate jumps sky high.