I was at a dealership today to get a quote and the dealer was explaining the incentives going on right now (which I already knew). As you know, the rule is that if you take advantage of the $1K cash you need to finance through Mazda standard financing which starts at 4.9%. But the dealer told me one thing you can do is to take advantage of the cash incentive and finance with Mazda. But then pay the first two installments and then just refinance through your own credit union. Is this information correct? Anyone has such experience?
I am looking at this exact option and threw the stuff into a spreadsheet.
My bank told me that they have never seen an early payment penalty on a car loan, and that lots of folks drive from the dealer to the bank to take out a replacement loan. My bank offers rates that are term-dependent; that is, the longer the length of the loan, the higher the rate. 4 year loan gets a 2.69% rate, 6 year loan gets a 4.04% rate.
Here are my figures
Out-the-door cost (includes sales taxes) for standard financing is $34,350.
Out-the-door cost (includes sales taxes) for 0% financing is $35,392.
The difference is not exactly $1,000 because of sales taxes.
Here is my comparison for Monthly Payment/Total Outlay for 0%/63 months and 2.69%/48 months, at different down payments (I chose a broad range of down payments to get a feel for how much difference it makes):
Down Pmt $0: @ 0%/63 mo. = $562/$35,392 || @2.69%/48mo. = $756/$36,270
Down Pmt $5k: @ 0%/63 mo. = $482/$35,392 || @2.69%/48mo. = $646/$35,990
Down Pmt $10k: @ 0%/63 mo. = $403/$35,392 || @2.69%/48mo. = $536/$35,711
Down Pmt $15k: @ 0%/63 mo. = $324/$35,392 || @2.69%/48mo. = $426/$35,431
In all cases, at the 2.69%/48 month loan my bank offers, giving up that $1,000 to get the 0% financing saves money over the life of the loan (if you can qualify for it). At $0 down payment, it saves $878 over the life of the loan. And because of the longer term, it makes the monthly payment lower by nearly $200 (at $0 down).
If I were doing this at work (before I retired), I would calculate the Net Present Value of each option (Diff Down Pmts/Diff. Int Rates/Diff Lengths), apply an assumed Cost of Money, and use that to make the decision. But for this case, the above is good enough to make a decision.
YMMV.
Verify these figures for yourself. I'm just some guy on the internet.
