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We need to purchase an SUV for reasons I will not get into here, but would like opinions on the best option of financing a later model used vehicle between the following (amount financed ~15k):
Dealer Financing (0.9%)
Car loan from bank (~3%+)
Car loan from credit union (~1.49%)
Home Equity Line of Credit (Tax advantages?)
Borrowing from 401K (not sure what the re-payment requirements are, but essentially paying myself back with interest)
I only have experience in getting financing from the dealer with my first car (0% interest) and have no idea/experience with the other options so would like to know out of these options, what would be the smartest/least expensive way of financing my future care purchase.
Ideally I would pay off the loan in 3 years.
To throw another scenario in the situation, I may have move out of the country so with any of the options, would I be forced to pay off the loan in full at the time I leave the US, or can I continue paying in regular installments for the period of the loan (I guess it's the home equity LOC and 401K borrowing that will most likely force me to pay back the loan in full)?
401K borrowing has its downsides. For one, you will be paying back pre-tax dollars with post-tax dollars (Later, when you actually withdraw the funds, you will pay taxes again. Secondly, while the loan is outstanding, you will lose the potential earnings in your 401K account. Thirdly, as you pointed out, the loan will be due in full, if you leave the company. Finally, if, for some reason, you don't pay the 'loan' back, both taxes and penalty will be due.
We need to purchase an SUV for reasons I will not get into here, but would like opinions on the best option of financing a later model used vehicle between the following (amount financed ~15k):
Dealer Financing (0.9%)
Car loan from bank (~3%+)
Car loan from credit union (~1.49%)
Home Equity Line of Credit (Tax advantages?)
Borrowing from 401K (not sure what the re-payment requirements are, but essentially paying myself back with interest)
I only have experience in getting financing from the dealer with my first car (0% interest) and have no idea/experience with the other options so would like to know out of these options, what would be the smartest/least expensive way of financing my future care purchase.
Ideally I would pay off the loan in 3 years.
To throw another scenario in the situation, I may have move out of the country so with any of the options, would I be forced to pay off the loan in full at the time I leave the US, or can I continue paying in regular installments for the period of the loan (I guess it's the home equity LOC and 401K borrowing that will most likely force me to pay back the loan in full)?
Thanks in advance for any advice and input.
you are looking @ a difference of $14 a month between the first 3 options...
do not borrow against your house to buy a car. ever.
401k loan shouldn't even be thought of because your 401k can beat 4% or 5% or 6%....so you'd be losing money...plus the things JGHORTON mentioned.
You can get a decent SUV for about $6-9k...maybe you need expand your search. With a future of unknown, I would buy the best vehicle for year 1 (you are wanting to pay $400/month, so look for a $5k SUV), pay it off, then move up to a $10k SUV, rinse and repeat.....then after 3 years you will have you a pretty nice ride...as opposed to spending $15k on a ride that will depreciate as fast as you are paying on it.
DON'T RUSH INTO THIS...take your time and do your due diligence. Best deals go to people not in a "hurry".
you are looking @ a difference of $14 a month between the first 3 options...
do not borrow against your house to buy a car. ever.
401k loan shouldn't even be thought of because your 401k can beat 4% or 5% or 6%....so you'd be losing money...plus the things JGHORTON mentioned.
You can get a decent SUV for about $6-9k...maybe you need expand your search. With a future of unknown, I would buy the best vehicle for year 1 (you are wanting to pay $400/month, so look for a $5k SUV), pay it off, then move up to a $10k SUV, rinse and repeat.....then after 3 years you will have you a pretty nice ride...as opposed to spending $15k on a ride that will depreciate as fast as you are paying on it.
DON'T RUSH INTO THIS...take your time and do your due diligence. Best deals go to people not in a "hurry".
good luck.
Wow. Interesting thoughts, and definately something to look into.
My only thing about buying a $5k car this year then trading up the year later is that I need something that is reliable because we will be using the vehicle to transport kids and grandparents and go on long trips. I don't think I can risk doing this at this time.
I am hesitant purchasing older vehicles with high milage for reliability issues and questionable maintenance history. Also, my philosophy on purchasing vehicles is that they should not be looked as being an investment (because they really are not) and that I will keep the vehicle until it dies. No intention of trading in the future. So spending $15k-$20k today is reasonable for me personally even if the car depreciates faster than my payments.
That being said, your advice is a good one for someone that is aiming to get into a really nice vehicle and gives an affordable option on how to get there over a period of a few years.
Buy the best vehicle that your CASH allows for.
If it's the SUV type that you prefer? Great. If not... maybe next time.
Agree on the cash purchase.
I fully understand arbitrage, etc, but I paid cash for my SUV earlier this year, even though that took thousands of $ out of a skyrocketing stock market.
But, it does feel good not to have a car loan payment.
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