Quote:
Originally Posted by gqgambler
Your logic about getting crushed and being out a substantial amount of cash is flawed. When you buy new car, it immediately depreciates the minute you drive off the lot. Often if you put nothing down you will be underwater on your loan because of depreciations AND rolling in all the extra cost. Putting money down is having equity in your car in addition to lowering your monthly payment and paying less in interest over the life of the loan. You also avoid financing cost related to the purchase of the car, you are paying interest on the taxes - that's like shooting yourself in the foot. If your car gets totaled then any equity in your car after insurance pays off the loan comes back to you. If you are totaled and have no money down, you may have to pay a substantial amount to pay to close the loan on a totaled car. Insurance pays the value of the car, they don't care about your loan balance or your interest. Putting money down can also secure you a better interest rate on your loan. There are many positives to putting money down when buying a car.
If you bought a 2020 G05 M50i in Dec 2020 for $95K, that car is worth about $85-92K by KBB - add in title/tax/registration at 7% of your purchase price and your loan amount balloons to $101,650 that you are financing, you probably would have made 1-2 payments by now on a hypothetical 5 year loan with 1.9% rate at a monthly payment of $1777. $101,650 minus $1777 x 2 = $98,096 remaining on your loan. If your car got total today and insurance gave your $88k as the value, you need to come up with $10k to pay off the loan (that's now having to come up with an unpredicted substantial cash amount). If it didn't get totaled and you kept it for 5 years, you would pay an additional $5k in interest.
If you put $10k (a sum know in advance of purchase) down on your car your monthly payment would be $1602 ($175 cheaper) and your loan balance after 2 payments would be ~$88K; if your car was totaled you would owe nothing to close out the loan and can walk away.
Its also flawed logic you get crushed if you trade in your car early, any excess equity comes back to you or can be applied to the purchase of a new car.
Leasing is a different story, but leasing is a money pit and poor financial strategy.
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WOW... Lesson learned.
I know what you mean by the "gap" between the current auto loan amount and the actual value of the car, should an accident total the car. I guess I should have said "make sure you get gap insurance if you put no money down". Luckily, my auto insurance comes with FREE gap insurance (well, nothing is free, but they're not showing a line item cost for it).