100% finance or Down payment?

If you have the cash, put some down payment. If you finance 100%, you'll have to pay more interest.

 

It depends on the interest rate. If you could get a better return from your down payment by investing it somewhere else than you would lose by not using it as a down payment, then invest it instead of using it for a down payment.

In other words, if $5,000 dollars invested in a mutual fund would result in a 10% annual gain, but your car loan interest rate is 6%, then you are better off investing it.

However, if investing it would result in less gain than you lose from the car loan interest rate, then use it for a down payment.

And if you wouldn't invest it anyway and would just spend it on stuff you don't really need, then definitely use it as a down payment.

 

One risk with most car loans at 100% is that you will be upside down on your loan for some time. However, so far Prius values have not seemed to take a dramatic dip in value like other cars. But keep in mind that many "extras" the dealer tries to add on to the price don't necessarily increase the value of the car.

 

In my car buying experiences thus far (including the Prius, which I just bought last Friday), the deal is generally complete before financing even comes into play. I do remember once asking a dealer if he could do better if I paid cash, and his response was that, while it didn't really matter, they actually prefer financing (if it's done through their financial arm, that is), since that's another way for them to make money. In your particular case, since you're trying to decide between financing 100% vs. 80% (assuming you can get approved on a 100% loan), I doubt that it would have any impact on your final deal.

 

This is just my opinion, Hyack, but I don't think the financial arrangements matter too much at the negotiation table. The logic being that the dealer is going to get his/her money regardless whether it comes out of your pocket, via the financial lender or a combination of both.

Given that you're going to be stuck paying MSRP (or very close to it) anyway, I would be apt to think that the more add-ons you choose might offer you some leeway in negotiations. Apart from that, given the high demand for this vehicle, it is inevitably the dealer who has the leverage.

The one method of gaining some sort of leverage on the dealer is wave at him/her the opportunity to make a multiple vehicle sale. Last month, both my wife and I put in orders for new vehicles (me a loaded Prius and her a loaded Tacoma PreRunner) and we found our dealer was willing to sell us the truck at dealer cost given the profit they were making with all the add-ons we selected for both of our vehicles.

I don't know if this helps, however, I probably wouldn't let financial arrangements influence price negotiations if I were a dealer.

Peace!

 

Negotiating a Prius is tough work. My husband works for the dealer we bought from so they didn't push dealer installed options or service plans or anything. But we didn't get much added on to the deal.

I agree that most of the negotiating is done before financing happens. The sales guy doesn't really care about how you're paying for the car, as long as you CAN pay for it. How you finance doesn't affect his personal income off the sale.

We financed 100%, mainly because we were going through some rough times at that particular moment and my car up and died on me when the Prius came in. Sure, there's the "more interest" question. But if you really want to, you can pay more than the payment and that'll help a lot. Especially if you just have the money sitting around.

Keep in mind the more you put down the lower your payments are. This being our first new car, we had no trade in or down payment. So we're paying a lot every month. But we figure it's worth it later on when we have a valuable trade.

Also, your credit score will have an effect on how much interest you pay. Which in some cases may make or break the deal.

 

As some have said, WHAT price you agree to pay for the car rarely has any relationship to HOW you pay for the car, as that's done before you ever see the finance guy and get run through the gauntlet of financial add-ons (most of which are just designed to provide additional profit to the dealer while providing minimal value to you).

How much you finance and whether you finance through the dealer isn't likely to help you in negotiations on any car, less so on the Prius.

The only place where it makes any difference is the finance rate. You didn't indicate if you already have financing lined up. Unless the dealer has some special incentives, you'll probably be able to get a better rate elsewhere and many lenders offer 100% financing with the same terms as 80%.

I would've finance through the dealer if he could match the terms from my credit union (couldn't even come close) and ended up financing 100% simply because the car loan rate was less than that of some other current debt, so I essentially transferred the same amount of debt to a lower rate.

If you are buying a Prius now and can get somewhere in the MSRP-$1K range, take it and run. It'll be a while before you can negotiate a Prius like other cars - invoice up instead of sticker down.

Good luck!

 

Any time you are figuring out the decision to bring in the down or not it is really more of a question about having a bird in hand or 2 in a bush. If you bring in down, that is the bird in the hand. If you use that down in some other investment, that is 2 in the bush.

Let's do some math. Now, I'll ammortize a couple of loan scenarios for you. Short term interest rates have gone up pretty significantly since I purchased my Prius, so I'll have to just guess at what the prevailing rate will be. I'm going to assume that you have a high credit score also. But the rate I quote will be the most important thing to think about. Yoru credit score will determine the rate they offer you in the finance office. Some dealers will have available to them both Toyota Financial along with other banks and they will write the loan with whoever can give you the best deal right there. Some dealers will only represent Toyota Financial. The finance manager of officer you work with after you have the final price on the vehicle will be the one you want to talk with if you don't like the rates you are getting through him. I negoiated for the price of the extended warrandy with the finance officer I dealt with and got a very competitive price on the extended, along with him lowering the interest rate on me because I had purchased the extended. As a side note I was not pressured into buying one.

So, let's say you are purchasing a package 6. So vehicle price is about 26,000. Add tax and license and you probably won't be able to leave the dealer for under 28,000. So, my total is going to be $28,000.

100% financing.
prin: 28,000
rate: 6.0%
term: 48 months
pmt: 657.10
interest over term: 3,569.19
total cost of vehicle: 31,569.19

80% financing.
prin: 22,400
rate: 6.0%
term: 48 months
pmt: 526.16
interest over term: 2,855.39
total cost ov vehicle: 30,885.39

The point is that having a lower required payment, and less interest exposure over the regular payment term is a guarantee. It is like an investment because you have prevented yourself from paying interest unnecessarily.

Marginal investing, which would be using a 100% loan here and then taking the down you might bring in and investing it someplace else is a guessing game and chancy. The liklyhood of finding a 10% return someplace on that money is pretty small right now, unless you like taking risks.

I don't like taking risks, so choosing a down payment path is a much more wise decision.

 

My experience has been that once you get to the showroom, its too late to have any real leverage to negotiate price. If you could get a loan from someone else, possibly offering to go through dealer financing would give you a better price, or a lower rate. Either that or wait until the last few days of the month. You may want to look at http://fightingchance.com/ or http://www.carbuyingtips.com/.

 

My advice is to have your financing in place BEFORE you go to the dealer. Go to your bank or credit union and arrange financing. If the dealer can beat their rate and terms...fine. But be careful of them saying they'll lower your monthly payments. Because what they may do is extend the time to pay...so in the end you end up paying more over five years than you would have over four years.

I got a fixed rate for four years from my credit union before I even showed up. I didn't even want to hear about financing from them. I also turned down the offer of the $2200 extended warranty (and bought one here), turned down undercoat, lojack and all of the other ¢rap.

I also did NOT trade in my old car but sold it was a private party. It's not hard to do. It's the difference between getting $2500 from the dealer and $4000 from selling it myself.