Joined Dec 2015
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Forum Thread
Saved $$ for a new car but I am $5k short from OTD price. Is taking out a personal loan (60-72 month at 8% interest rate) to cover the difference a smart idea?
May 9, 2023 at
08:10 AM
Thread Details
i actually like this idea versus financing the car loan in entirely.
Sure I could put in the saved $$ as a down payment and get less interest rate PLUS make small monthly payment (as the total interest expense would be smaller too but I will not be eligible for GAP insurance given the loan being smaller than the actual cash value of the new car. (The minimum amount qualified for GAP is $7,000 according to my credit union)
Thought? Curious to get your input here
Sure I could put in the saved $$ as a down payment and get less interest rate PLUS make small monthly payment (as the total interest expense would be smaller too but I will not be eligible for GAP insurance given the loan being smaller than the actual cash value of the new car. (The minimum amount qualified for GAP is $7,000 according to my credit union)
Thought? Curious to get your input here
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My 2 cents.
The questions asks about taking out a loan for 5K and paying cash for the rest.
Why would you WANT to pay for GAP insurance ?
The questions asks about taking out a loan for 5K and paying cash for the rest.
Why would you WANT to pay for GAP insurance ?
Because in event of unexpected auto collision that deem totaled. When that happens I rather not owe $ to the bank. GAP insurance would make sense if I don't put a large down payment against the OTD price.
Example:
$30k OTD
-$25k down payment
==========
$5k remaining.
If this mean anything, I got an Auto loan approved at the credit union: 5% APR, at either 60 or 72 months term (minimum loan required is $4k)
Or I could just take out a $5k personal loan with 8% APR for 36 months. 60-72 months option is available but APR is greater than 10%…ouch. Ehhh nvm.
Edit: Sounds like the idea of putting larger down payment for smaller (NEW car) payment is just more financially wiser than taking out a personal loan to cover the difference…and pay the bank back with larger interest expense especially greater than 36 months 🤔
My 2 cents.
I guess but I don't think it practical for me in the long run. But thank you for your advice.
You take the car off the lot and say it is now worth 27K your loan is 5K so your loan will be paid off and the insurance company will cut you a check for 22K.
I think you are mistaken in what gap insurance covers?
You would never owe more than the car was worth with a 5K loan. I would get a zero balance credit card and use that for 12 months
From Bellco
Why GAP may be a good option
In the first two or three years of your loan, your new vehicle depreciates in value faster than your loan balance declines.
If your vehicle gets totaled in an accident, or is stolen and unrecovered, your insurance company may pay only the actual cash value of the vehicle, which often does NOT mean the entire balance of your loan.
GAP will cover the unpaid balance, and when purchased through Bellco, will provide $1,000 towards the purchase of another vehicle financed with Bellco. Credit union
https://www.bellco.org/resources/insurance/gap/
What does GAP cover?*
Non-commercial autos and trucks, one ton or less
Pays the difference between your eligible loan balance and ACV Auto Insurance settlement when an unrecovered theft or total loss occurs, including your deductible up to $1,000
$1,000 auto allowance toward the purchase of a replacement vehicle when financed with Bellco
GAP provides coverage up to a $100,000 loan amount on autos, non-commercial trucks, and SUVs
GAP claim coverage maximum is $50,000
Up to 150% of MSRP financing covered
Up to 150% of NADA retail, including add-ons
Loan terms up to 84 months
8% is a painfully high rate. Most manufacturers will subsidize loans. How is your credit?
I generally only get car loans when the manufacturer subsidizes the loan heavily or offers freebies with the loan. BMW loves to do that. I'm paying 2% for 72 months on a BMW right now. Hard to turn that down. I financed the car 90% or so, because the rate is so good.
8% is a painfully high rate. Most manufacturers will subsidize loans. How is your credit?
I generally only get car loans when the manufacturer subsidizes the loan heavily or offers freebies with the loan. BMW loves to do that. I'm paying 2% for 72 months on a BMW right now. Hard to turn that down. I financed the car 90% or so, because the rate is so good.
Wow. Smart. Respected.
Credit score is 800.
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Credit score is 800.
https://www.techcu.com/Personal/L...uto-Loans/ for instance. 5.89% at the low end. I'm sure there are better rates available.
This also gets to the importance of actually reporting income and paying your taxes. A high credit score plus documented income will are vital to a good financial life. I have a hell of a lot of debt, almost 4 million, but then that debt and other debt over the years has allowed me to gather far more in gross and therefore net worth. If anything, I've been conservative. I could extend myself more, buy more property, and extend my net worth even more. My largest property purchase has appreciated immensely in two years. But extending myself is stressful, so I haven't. I like the idea that I could retire whenever I want to.
Worked very well for me and saved thousands during the so-called chip shortage supply chain issue for a very popular vehicle.
Don't let them up-sell you for after the sale add-ons or options. Have them quote you the out-the-door price only. Keyword in your communication to them is "out-the-door" price.
8% is a painfully high rate. Most manufacturers will subsidize loans. How is your credit?
I generally only get car loans when the manufacturer subsidizes the loan heavily or offers freebies with the loan. BMW loves to do that. I'm paying 2% for 72 months on a BMW right now. Hard to turn that down. I financed the car 90% or so, because the rate is so good.