Down Payment
10-20-2003, 10:14 PM
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Down Payment
What would be a good down payment for the RX-8? I'm already planning to get the car in a few months, maybe sometime during the winter season. I've already test driven the car, spoke to a salesperson, etc. Any suggestions or comments that I might know about going into this?
Last edited by Optimus; 10-20-2003 at 10:17 PM.
10-20-2003, 10:32 PM
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If you are buying, then you should put as much down as you can afford at the time to reduce balance. I would suggest that you consider what kind of monthly payment you can afford after you subtract for insurance, gas and oil, etc. Consider that figure as you hear what they tell you. If you can't get it yet - DON'T. Being strapped to a car "car poor" ruins the experience. Wait until your downpayment reduces the payment. Also, shop around for an interest rate on a simple interest loan and ask about loan app fees. Some have NO fees.
10-20-2003, 10:38 PM
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When buying a car it's usually best to put down as little as possible. Unless of course you get a really high interest rate. If you have a bunch of money laying in the bank invest it and make your higher monthly payments. 5 years from now you will end up ahead of the people that think dumping large amounts into a downpayment is the way to go.
Ike
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10-20-2003, 11:00 PM
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putting little down, why's that? so that i can get a higher monthly payment of the car?
I also have to...
So how does putting a smaller down work?
I also have to...
consider what kind of monthly payment you can afford after you subtract for insurance, gas and oil, etc.
10-20-2003, 11:09 PM
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Originally posted by pyrospawn
it only works if u can invest the money yor're not putting down wisely, to make even more money than would cost you by your loan interest.
it only works if u can invest the money yor're not putting down wisely, to make even more money than would cost you by your loan interest.
10-20-2003, 11:49 PM
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yah. that's true, so far, I have enough for 5 down, but I know IMO, that that isn't enough, so to speak. So you guys are saying that if I have the money to pay the car off monthly that'd be better? and just use the money that i'd put as the down as an investment...well, that sounds reasonable, but i figured that interest rates might be either a little up there or just right, so i might take various options on this
10-21-2003, 12:12 AM
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Originally posted by Optimus
yah. that's true, so far, I have enough for 5 down, but I know IMO, that that isn't enough, so to speak. So you guys are saying that if I have the money to pay the car off monthly that'd be better? and just use the money that i'd put as the down as an investment...well, that sounds reasonable, but i figured that interest rates might be either a little up there or just right, so i might take various options on this
yah. that's true, so far, I have enough for 5 down, but I know IMO, that that isn't enough, so to speak. So you guys are saying that if I have the money to pay the car off monthly that'd be better? and just use the money that i'd put as the down as an investment...well, that sounds reasonable, but i figured that interest rates might be either a little up there or just right, so i might take various options on this
10-21-2003, 12:23 AM
#9
Lets assume you buy the GT RX-8 for MSRP - $31,000 just to have a working number. Forget about any associated costs for this exercise (tax, registration, etc.).
Also, we will use a 60 month loan (5 years) and a 6% interest rate. I know it is possible to get rates as low as 2.5% and as high as 13%, depending on your resources and credit rating. However, 6% is pretty typical right now for people of average means and income. Also, it isn't unheard of to get a 6 year note. Many people (myself included) plan on, or even COUNT on keeping their vehicles more than 5 years. However, 5 years is still the norm right now.
I will also round the cents off to make the numbers more palatable.
If you finance the WHOLE amount, your monthly payment will be $602 and your total interest cost over the life of the loan will be $4975.
If you put $5000 down, your payment drops to $505 a month with a total interest cost of $4175.
That means you would save $800 in interest over 5 years. To put it in different terms, your $5000 investment will yield a simple 16% return or an effective return of - you guessed it - 6% annually.
Right now, the best you can possibly see in terms of safe investment (i.e. - savings accounts, CDs, etc.) over 5 years is about 2%.
Don't get started on the "high-risk" investment thing - most people don't have the stomach or the capital for it. $5000 is not really a useable stock investment. Even the higher-risk portfolio type annuities will, at best, yield effectively less than 4%.
OK. So we see that investing the money is not really a logical argument.
Most cars loose up to 1/4 of their value as soon as you drive them off the lot. As soon as you hit second gear and the Mazda sign is in your rear-view, your beloved new RX-8 is only worth about $24,000. You loose $7775 in 3 seconds. Even if it only lost 10%, you would still be out $3100 if you totaled it on the way home.
Not being upside-down is this argument for putting money down. It is certainly a good idea to not be in a position where you owe more on a vehicle than it is worth on the open market (or worth to your insurance underwriter).
However, most insurance companies offer what is commonly referred to as "gap" insurance. The is an added premium on your insurance that covers the difference between your vehicles value and your loan amount. It can be as little as $5 a month or $300 over the life of the loan. If you want your monthly payment to stay the same as it would be with the FULL amount financed, you should plan on making a down payment of about $180 or as much as $900 if you want the cost of the "gap" insurance to be totally covered by the loan.
So, really, the only argument that holds water (in my not-so-humble opinion) is the one based on what you can afford to spend.
If you have $31,100 burning a hole in your pocket, I'd suggest putting down about $26,000 and financing the remaining $5100. The interest cost will be about $800 over 5 years - better than that money could make in the bank based on the discourse above and you can always part with the RX-8 at will and with minimal loss.
If you have NO money on hand, I would plan on having $7224 a year available for the next 5 years just for the financing. For the average person with a mortgage, assorted loans, credit cards and revolving accounts as well as an affinity for eating, sleeping and enjoying enough free time to actually DRIVE your new Mazda (not to forget insure, clean, maintain and feed such a beast) that means having an annual income of $52,000 a year or more. That isn't intended to sound snobby - it is just a demographic that most manufacturers shoot for when pricing a car at $30,000 or so.
Of course, your mileage may vary as the cost of living is quite different from one place to the next.
When it comes right down to it, it all depends on your credit rating and your disposable income. Without knowing your means, it is hard to give a really comprehensive answer. It is possible to give a really LONG answer, however.:p
Sorry that was so long winded, but it was also an intellectual exercise for myself since I am contemplating the very same thing for my own circumstances.
Also, we will use a 60 month loan (5 years) and a 6% interest rate. I know it is possible to get rates as low as 2.5% and as high as 13%, depending on your resources and credit rating. However, 6% is pretty typical right now for people of average means and income. Also, it isn't unheard of to get a 6 year note. Many people (myself included) plan on, or even COUNT on keeping their vehicles more than 5 years. However, 5 years is still the norm right now.
I will also round the cents off to make the numbers more palatable.
If you finance the WHOLE amount, your monthly payment will be $602 and your total interest cost over the life of the loan will be $4975.
If you put $5000 down, your payment drops to $505 a month with a total interest cost of $4175.
That means you would save $800 in interest over 5 years. To put it in different terms, your $5000 investment will yield a simple 16% return or an effective return of - you guessed it - 6% annually.
Right now, the best you can possibly see in terms of safe investment (i.e. - savings accounts, CDs, etc.) over 5 years is about 2%.
Don't get started on the "high-risk" investment thing - most people don't have the stomach or the capital for it. $5000 is not really a useable stock investment. Even the higher-risk portfolio type annuities will, at best, yield effectively less than 4%.
OK. So we see that investing the money is not really a logical argument.
Most cars loose up to 1/4 of their value as soon as you drive them off the lot. As soon as you hit second gear and the Mazda sign is in your rear-view, your beloved new RX-8 is only worth about $24,000. You loose $7775 in 3 seconds. Even if it only lost 10%, you would still be out $3100 if you totaled it on the way home.
Not being upside-down is this argument for putting money down. It is certainly a good idea to not be in a position where you owe more on a vehicle than it is worth on the open market (or worth to your insurance underwriter).
However, most insurance companies offer what is commonly referred to as "gap" insurance. The is an added premium on your insurance that covers the difference between your vehicles value and your loan amount. It can be as little as $5 a month or $300 over the life of the loan. If you want your monthly payment to stay the same as it would be with the FULL amount financed, you should plan on making a down payment of about $180 or as much as $900 if you want the cost of the "gap" insurance to be totally covered by the loan.
So, really, the only argument that holds water (in my not-so-humble opinion) is the one based on what you can afford to spend.
If you have $31,100 burning a hole in your pocket, I'd suggest putting down about $26,000 and financing the remaining $5100. The interest cost will be about $800 over 5 years - better than that money could make in the bank based on the discourse above and you can always part with the RX-8 at will and with minimal loss.
If you have NO money on hand, I would plan on having $7224 a year available for the next 5 years just for the financing. For the average person with a mortgage, assorted loans, credit cards and revolving accounts as well as an affinity for eating, sleeping and enjoying enough free time to actually DRIVE your new Mazda (not to forget insure, clean, maintain and feed such a beast) that means having an annual income of $52,000 a year or more. That isn't intended to sound snobby - it is just a demographic that most manufacturers shoot for when pricing a car at $30,000 or so.
Of course, your mileage may vary as the cost of living is quite different from one place to the next.
When it comes right down to it, it all depends on your credit rating and your disposable income. Without knowing your means, it is hard to give a really comprehensive answer. It is possible to give a really LONG answer, however.:p
Sorry that was so long winded, but it was also an intellectual exercise for myself since I am contemplating the very same thing for my own circumstances.
10-21-2003, 12:57 AM
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We're not talking savings accounts here, there are plenty of safe investments out there that will yield 10+% and many smart investors average 20+% with higher risk endeavors. Even if you only manage 3% annually you would make up the difference.
Ike
Ike
10-21-2003, 01:26 AM
#11
Originally posted by IkeWRX
Even if you only manage 3% annually you would make up the difference.
Ike
Even if you only manage 3% annually you would make up the difference.
Ike
I've got plenty of investments out there. You gotta give me the name of your broker if he can put me in an investment that will perform at the 10% level as safely as what I outlined.
You do realize that the prime rate is 4% now, right?
Think about the usury rate. Its like 24%. That is what the absolute worst credit cards can pull as an effective rate. I think CC companies have more than $5000 grand invested. :p
Loan sharks might be able to pull in 20%. I didn't think that busting knee caps was on the agenda.
Last edited by MazdaManiac; 10-21-2003 at 01:30 AM.
10-21-2003, 02:16 AM
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Maniac, you have a right way of putting this in words...I clearly understand where you're headed, but I've still got time on my hands and I'm in no rush whatsoever, so thanks for the tip. If anyone else wanna input on this, feel free...
10-21-2003, 02:39 AM
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We're not talking savings accounts here, there are plenty of safe investments out there that will yield 10+% and many smart investors average 20+% with higher risk endeavors. Even if you only manage 3% annually you would make up the difference.
Most high risk funds only yield about 14% (if not -14%); you think you've got a "safe" investment that yields 10%? Can you name one?
10-21-2003, 03:26 AM
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Originally posted by ToRX-8orToZ
Spoken like a true armchair financial analyst.
Most high risk funds only yield about 14% (if not -14%); you think you've got a "safe" investment that yields 10%? Can you name one?
Spoken like a true armchair financial analyst.
Most high risk funds only yield about 14% (if not -14%); you think you've got a "safe" investment that yields 10%? Can you name one?
With 5% you're looking at
Yr. 1 5250
Yr. 2 5562.50
Yr. 3 5790.63 (after 3 years you've already almost made your $800 extra in interest)
or if you want to just look at it as 250 annually...
6250 over 5 years.
10-21-2003, 04:06 AM
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Also, Just putting that $5000 towards a new home or towards upgrades to your home should yield a nice return and it certainly won't depreciate like a car.
Anyhow, it is fairly easy to get a 4-5% return on most investments (right now), but that is a big difference relative to 10%. I'd kill for something "safe" at 10%. :D
10-21-2003, 09:31 AM
#17
You know, I am under the distinct impression that you didn't actually read my post, Ike.
Putting your money almost ANYWHERE would be better than putting it into a car.
However, if you ARE going to buy a car, then you have choices that are dependant on what your financial position is.
My main points are that the price, depreciation and interest rate on a new car are going to remain constant for the term of the loan.
Any investment that will guarantee the return for the same period will not pay over the prime rate.
Apples to apples.
In addition, $5000 in home improvements will NOT increase the value of the house by $5000 plus 10% unless you live in the only ghetto house in Beverly Hills.
You bring up a good point in mentioning real estate.
At the moment, where I live, you couldn't have possibly made a better investment then in real estate. I made an effective 60% return in four years (59% annually) on my initial investment. If the market continues as such, my house will be worth twice what I paid for it by next year. I live just outside DC in a county that is only second to Beverly Hills for per capita income, so it isn't like we we're hayseed and then experienced a boom. This house has been here for 17 years and so has everything in site for 20 miles.
However, The people that owned my house before me bought it in 1990 and watched it LOOSE 1/3 of its value in 4 years. They had to hang on for another 5 years to break even on the purchase price and that was after sinking $15,000 into the place and paying something in the order of 10% on their mortgage. Current mortgage rates are about 1% over prime at 5%.
So it also comes down to this: How do you perceive your automobile purchase?
If you are looking at it like an investment, you are a fool. Nothing looses value like a car. Nothing. A dead, rotting llama doesn't loose value like a car. Except, potentially, real estate. :p
It is a toy with some utility for most people otherwise we would all be on bikes or driving Kias.
If you are liquid enough to buy a car with cash, your best bet is to buy the car en totem or at least more than 70% down.
If not, don't sweat the interest if it is near prime and put down only enough to keep your cash flow where you want it.
If you have to pay 13% for the loan, I'd rethink the purchase altogether.
If you know a loan shark that is looking for investors, let me know. Until then, there are no sure investments except the FED stuff as far as I've seen. Rolls the dice and moves 'yo mice.
Putting your money almost ANYWHERE would be better than putting it into a car.
However, if you ARE going to buy a car, then you have choices that are dependant on what your financial position is.
My main points are that the price, depreciation and interest rate on a new car are going to remain constant for the term of the loan.
Any investment that will guarantee the return for the same period will not pay over the prime rate.
Apples to apples.
In addition, $5000 in home improvements will NOT increase the value of the house by $5000 plus 10% unless you live in the only ghetto house in Beverly Hills.
You bring up a good point in mentioning real estate.
At the moment, where I live, you couldn't have possibly made a better investment then in real estate. I made an effective 60% return in four years (59% annually) on my initial investment. If the market continues as such, my house will be worth twice what I paid for it by next year. I live just outside DC in a county that is only second to Beverly Hills for per capita income, so it isn't like we we're hayseed and then experienced a boom. This house has been here for 17 years and so has everything in site for 20 miles.
However, The people that owned my house before me bought it in 1990 and watched it LOOSE 1/3 of its value in 4 years. They had to hang on for another 5 years to break even on the purchase price and that was after sinking $15,000 into the place and paying something in the order of 10% on their mortgage. Current mortgage rates are about 1% over prime at 5%.
So it also comes down to this: How do you perceive your automobile purchase?
If you are looking at it like an investment, you are a fool. Nothing looses value like a car. Nothing. A dead, rotting llama doesn't loose value like a car. Except, potentially, real estate. :p
It is a toy with some utility for most people otherwise we would all be on bikes or driving Kias.
If you are liquid enough to buy a car with cash, your best bet is to buy the car en totem or at least more than 70% down.
If not, don't sweat the interest if it is near prime and put down only enough to keep your cash flow where you want it.
If you have to pay 13% for the loan, I'd rethink the purchase altogether.
If you know a loan shark that is looking for investors, let me know. Until then, there are no sure investments except the FED stuff as far as I've seen. Rolls the dice and moves 'yo mice.
Last edited by MazdaManiac; 10-21-2003 at 09:45 AM.
10-21-2003, 12:33 PM
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I still hold that you would be better off to take your $5000 and save as much as possible between now and the purchase date and put it all toward a downpayment. A car is not an investment. It is a consumable. If you plan on buying a car then the next step is to consider what you can afford. How much can you scrape together in 2 months? Do you have a trade? What will be the total amount of assets? Are you planning on a GT? Here, in FL, there is $2000 in taxes on such a car. I would wait until you have enough money to pay for at least one third of the car and the purchase expenses before even considering buying one. I know it is your decision but just be careful. $11,000 will be one third or so and you still would owe about $22,000. That would still be a lot and only cushion you for the immediate depreciation.
10-21-2003, 12:52 PM
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Put as much down as you can afford.
Although investing is often touted as a positive advantage to paying cash or coming up with a large down payment, the reality is this: people who are not currently investing do not start socking money away in investments. They just don't do that.
I've been with home mortgage companies for decades and have found the same scenario. It's true if you pay even a little extra on your loan each month, you can save money at the end of the loan term (the same goes for a simple interest auto loan). Most people argue that the "little extra" would do better if invested. That is true - but they sit on their butts and do neither. Hence my opening sentence....
Although investing is often touted as a positive advantage to paying cash or coming up with a large down payment, the reality is this: people who are not currently investing do not start socking money away in investments. They just don't do that.
I've been with home mortgage companies for decades and have found the same scenario. It's true if you pay even a little extra on your loan each month, you can save money at the end of the loan term (the same goes for a simple interest auto loan). Most people argue that the "little extra" would do better if invested. That is true - but they sit on their butts and do neither. Hence my opening sentence....
10-21-2003, 03:45 PM
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I still hold that you would be better off to take your $5000 and save as much as possible between now and the purchase date and put it all toward a downpayment. A car is not an investment. It is a consumable. If you plan on buying a car then the next step is to consider what you can afford. How much can you scrape together in 2 months? Do you have a trade? What will be the total amount of assets? Are you planning on a GT? Here, in FL, there is $2000 in taxes on such a car. I would wait until you have enough money to pay for at least one third of the car and the purchase expenses before even considering buying one. I know it is your decision but just be careful. $11,000 will be one third or so and you still would owe about $22,000. That would still be a lot and only cushion you for the immediate depreciation.
Is there any debate on saving for the down rather than just putting little down? I know there might be some other people out there that might think that saving is just not their way. But in actuality, a bigger down payment may save a few people from making the most out of their new car, in my case----the RX-8.
"Got Rotary?"
10-21-2003, 04:19 PM
#21
Having given all of this blatherly dissertation, I figured I should at least give example by mentioning what I have decided to do.
First I analyzed my vehicle spending per you up to this point.
I have been laying out $300 a month for my Miata (now finished with that) and spending about $500 a month on customizing my MX-3 and to some extent the Miata as well (FI, suspension, all the other goodies as outlined on my WEB page).
That means, up to this point, I have been spending about $9600 a year on the car thing, not including maintenance, fuel or insurance.
That means without changing anything, I can afford to spend $800 a month on the RX-8 and forget about it.
My insurance is going to go up about $50 a month, so lower that figure to $700 to give me a few extra nights out burning gas.
That means I can finance the WHOLE THING (price of the vehicle, tax, tags, MS front bumper and side skirts, other OEM aero bits and all) and still an extra $130 to $150 a month in my pocket (based on a 6 year note at 5.5% to 4%).
It just doesn't pay for me to pull a few grand out of hand for a down payment - or even for mods since I will end up ahead of the game without modifying one thing in my cash flow.
Your mileage may vary.
First I analyzed my vehicle spending per you up to this point.
I have been laying out $300 a month for my Miata (now finished with that) and spending about $500 a month on customizing my MX-3 and to some extent the Miata as well (FI, suspension, all the other goodies as outlined on my WEB page).
That means, up to this point, I have been spending about $9600 a year on the car thing, not including maintenance, fuel or insurance.
That means without changing anything, I can afford to spend $800 a month on the RX-8 and forget about it.
My insurance is going to go up about $50 a month, so lower that figure to $700 to give me a few extra nights out burning gas.
That means I can finance the WHOLE THING (price of the vehicle, tax, tags, MS front bumper and side skirts, other OEM aero bits and all) and still an extra $130 to $150 a month in my pocket (based on a 6 year note at 5.5% to 4%).
It just doesn't pay for me to pull a few grand out of hand for a down payment - or even for mods since I will end up ahead of the game without modifying one thing in my cash flow.
Your mileage may vary.
10-22-2003, 11:30 PM
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Originally posted by Maniac
I've got plenty of investments out there. You gotta give me the name of your broker if he can put me in an investment that will perform at the 10% level as safely as what I outlined.
I've got plenty of investments out there. You gotta give me the name of your broker if he can put me in an investment that will perform at the 10% level as safely as what I outlined.
10-23-2003, 12:50 AM
#24
Originally posted by dvarapala
Check out SoCal real estate sometime. Annual appreciation is in the 20+% range.
Check out SoCal real estate sometime. Annual appreciation is in the 20+% range.
Didn't I also just write that the previous owner watched the same property loose 33% of its value ?!?
Is it a reading comprehension issue or are you just being torpid?
REAL ESTATE IS NOT SAFE/GUARANTEED INVESTMENT!
You can't use it as an example of where you should put your little $3k to $5k auto down payments, anyway. Go try to purchase an appreciable property for $5k.
Please - all potential pundits: read and fully comprehend the thread before commenting again.
- SAFE INVESTMENT - Has a guaranteed or insured performance with no risk. Savings, deposit accounts, etc. This is conversant to a safe debt like a fixed rate mortgage or a fixed rate credit card. Both have absolute performance parameters that will not be altered over the lifetime of the investment/debt and will usually pay/charge at or under/over the prime rate respectively.
- AT-RISK INVESTMENT - This is EVERYTHING ELSE! Stocks, futures, real estate, etc.
