Looking at buying a new vehicle and trying to decide if I should take the Toyota .9% financing for 72 months or a $2000 cash rebate. For $30,000 financed at my credit union rate of 2.5% do you calculate the interest as .025 * 30,000 = $750? Or is it more complicated than that? I thought car dealers use simple interest but not sure. The difference in interest rates would be 2.5% - .9% = 1.6% or a savings of $480 (.016 * $30,000). So in this case I should take the cash rebate since $2000 > $480. Correct?
Auto Financing Question
- Thread starter Dunn_IU
- Start date
Well, you need to remember that the interest is calculated on the balance owed each month over the entire six year period. So it's more complicated than you've indicated here, and more expensive.
You need to get an amortization schedule from your credit union.
Or better yet, you might pick up an HP12C, which is an old financial calculator that I've been using to calculate the cost of loans for years.
If you want a quick and dirty shorthand, you gotta remember that the interest will accrue over 6 years, and your balance will decline over that same six year period. So you could do $750 x 6 = $4500, and then divide by two (because you'll be paying interest on a declining balance). So a quick and dirty estimate would be $2250 total payment on the credit union loan. A quick and dirty estimate on the Toyota loan would be $30,000 x 0.09, or $270, and take that x 6 = $1620 and then divide by two = $810. So you'll be paying about $1440 more in interest over the 6 years (quick and dirty) . . . I'd get the credit union loan and take the $2000. Just like MrsSope did with Toyota in December.
What car are you buying?
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Looking at a 2017 Avalon XLE Premium. Thanks for the info. We usually pay cars off early anyway once the balance gets under about 10K so we can just get rid of the monthly payment. I don't mind financing something long term around 1.5-2.5% since we can invest cash at a higher rate than that.
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A quick Google search for auto loan calculator is your best bet. With that said, $30K @ .9% for 72mos you pay $828 in interest. At 2.5% for 72mos you pay $2,337 in interest. If you're good at paying it off early, I would probably take the $2K and go with your credit union. Play with the calculator and use different scenarios and see what works best for you.
If you can do that, then it would be smarter to pay that 10K up front as a bigger down payment rather than wait until the end after you've paid interest on that money.
