Financing question ...

[A4Driver]

When buying a new car, is it better to make a big downpayment (which keeps your payments small), or make a small downpayment and keep the rest of the money in an interest-bearing account from which you make your monthly payments? If an when I buy a B8 I will be in the position to pay off half of it right away. But should I? . . . .

[njskier (A4i)]

what you will accrue with the interest-bearing account over the life of the loan, then put down as little as possible.

[mscav]

It really depends on the situation - the purchase price, expected depreciation, interest rate - and what you're comfortable with.

If you put down a big down payment, you'll end up paying less in interest over the duration of the loan. If you make a small down payment and have really a good loan rate, leaving the money in an interest-bearing account can offset much of the extra interest you'd be paying, and leave you with some money on hand for an emergency. You can weigh these options based on the loan rate and expected interest rate of your account.

Besides running numbers for the interest rate, also condiser: What happens if you total the car? Say the car cost $30k, it gets totaled within the first year, and the insurance company determines it's worth $20k. With a big down payment, you're more likely to have equity in the car - so the $20k check from the insurance company will be enough to pay off the rest of the loan. With a small down payment, you could owe more than that on the loan, and end up having to pay the difference.

Throw gap coverage into the mix. Gap Coverage (either added to your loan or insurance policy) will cover the entire amount of the outstanding loan if you total the car. If, for whatever reason, you think the car might get totaled, you might want to get a quote for gap coverage. This would favor small down payments. Since the coverage will pay the remaining loan balance, it makes no sense to make a big down payment because you won't get that money back. But then if you don't total the car, you still end up with piece of mind but a smaller wallet in the long run.

Lots to think about. My opinion: Make a down payment just big enough to make sure you have equity in the car after the first year, and don't total it .

[Raistlin]

so I decided to only put a little bit down and keep the rest in my savings account which is at 5%.

I think it really depends on your rate, if your rate is high then more of a DP would probably be better.

It all comes down to what you are comfortable with.

[irenesbob]

Another thought: I have several associates that own their own businesses and write automotive (transportation) expenses off on their income tax - I wish I could . If that is possible for you (check with an accountant if uncertain) then a big monthly payment is a good thing.

[joeymagl]

If the rate on the interest bearing account is higher than the finance rate on the car then you should minimize the DP. If the other way around then maximize the DP.

This assumes there are no other factors involved - tax treatment on car payments, write offs as business expense

[SFV A4]

[A4Driver]