Use cash or take a loan for this purchase?

athomas2424 · May 2013

I have to buy a new car in the next few weeks. We have managed to live off only having 1 vehicle for a long time while I was a SAHM, but I will be going back to work next month and will need my own transportation. I am trying to figure out the best way to go about paying for one. We have about $25,000 saved up in our savings (which equals about 6-7 months of expenses and income) We have a home equity line of credit for $50,000 that we could easily use (4% interest rate) I'm trying to figure out if we should use any of my savings to pay for the car, or if I should just use the line of credit so that I do not drain my savings/e-fund. I know I can build the savings back up over time. I hate having to use a loan/line of credit and pay interest when I have cash sitting there. Then again, I hate to use the cash and leave myself with only 2 months of expenses instead of 6. I'm always torn when it comes to purchases and keeping my savings so high.

CuriousKiddosMama · May 2013

If I was in your shoes, I would probably take out a loan and with your new income pay it off as soon as possible (as in every cent from your job goes towards the loan) I'm assuming this would work because your income will be new and not budgeted. (You haven't needed it to live off while you stayed at home) Obviously there may be more to this, that I don't know! But that's my 2 cents.

brij2006 · May 2013

I wouldn't use the E-fund nor the home equity loan to purchase a vehicle. Instead get a standard auto loan (rates are fairly low right now), and like PP said, pay it off ASAP with your new income. I wouldn't finance for more than 3 years, and would put as much toward it as possible.

athomas2424 · May 2013

Yes, I could just use my income to pay the car notes (as much as possible). I think I just needed to hear the confirmation that this was the best choice. I still have a hard time not paying for at least half of the car in cash from my savings to avoid any interest instead of getting a cheap loan. I need to learn to realize that all that money is sitting there for emergencies (even if one never happens).

brij2006 · May 2013

Another option would be to use some of the money to purchase the vehicle, then apply your income to the E-fund to build it back up. I'm only saying this because you have been living on 1 income and are used to it. Although, I would then use your income to help fund a short term savings account for purchases like this. That way you don't have to borrow from your E-fund in the future, and can still pay cash for items.

bparkhur · May 2013

How much is the car? I would probably use $10,000 of the savings (assuming you are getting a cheap-ish car).

vlagrl29 · May 2013

I would get a loan for it. DH and I were talking about this last week. He said if you pay cash for the car and you get in a wreck that totals it, you just wasted all that money.

bparkhur · May 2013

vlagrl29:
I would get a loan for it. DH and I were talking about this last week. He said if you pay cash for the car and you get in a wreck that totals it, you just wasted all that money.

Assuming your car is insured, how is that any different from getting an auto loan? An auto loan is not wiped away if you get in a car accident. I'm confused by this.

brij2006 · May 2013

bparkhur:
vlagrl29:
I would get a loan for it. DH and I were talking about this last week. He said if you pay cash for the car and you get in a wreck that totals it, you just wasted all that money.
Assuming your car is insured, how is that any different from getting an auto loan? An auto loan is not wiped away if you get in a car accident. I'm confused by this.

I'm confused too. Yes, the company loaning you the money for the car requires you to have full coverage on it, but you can have full coverage on a vehicle without having a loan on it. We have a 1997 that has never had a loan on it, but we insure it with full coverage.

Use cash or take a loan for this purchase?

Re: Use cash or take a loan for this purchase?

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