My Financing Strategy

While my strategy for paying for my car of course will not be appropriate for everyone, what harm is there to share it. I am fortunate to be in a position where if I chose, I could gather enough funds from bank accounts and mutual funds that I could have paid for my Elantra all in cash and not worry about pressing expenses. I could have just strut into the dealership wearing my velour track suit and designer shades and plop the benjamins on the finance guy's table.

Paying for a car all in cash, though it sounds cool to be able to say it, isn't a very wise decision. When you do that, you are taking out money that is making interest somewhere (hopefully you are not just putting your cash in a lame checking account) and putting it in something that loses value everyday. The plan I had was to pay for this car and not do two things:
1. Not lose too much money by paying interest on a car loan
2. Not lose too much money by taking money out of an account that's making a good return or interest.

"Minimize loss. Maximize gain." as some business-types would put it.

Usually the percentage of interest one pays on a car loan is much higher than what you can earn in a savings account. (In my case it was 8% versus 4.25%) So it doesn't make sense to leave money in a savings account, when the car finance guy is charging you higher than what your savings account is paying. So that was the basic concept I was trying to apply. >>>Please note I am not great with money.<<< style="color: rgb(153, 153, 153);"> This is how I am paying for it.

1. I paid the dealership $3000 using my credit card that gives me a rebate. (Gotta get those rewards) I pay my whole balance at the end of the month, because the killer interest on that card would wipe out my rewards and more if I let the balance ride.

2. I paid the dealership $4,500 on a convenience check from another credit card. Usually this might be risky, but a credit card was offering 0% for over a year. They ding you $140 ahead of time for this service. Figures to be 3% of the loan.

3. To get my Hyundai rebates I was forced to finance $10k. 8% interest is what I qualified for.
Now to pay $10k over 3 years I am looking at giving Hyundai Motor Finance $1500 interest, which leaves a bad taste in my mouth. I negotiated 17,500. I don't want to pay $19,000, right? I could gamble a little and say I can invest that $10K and hope to make over 8%, but so far I haven't been that consistent in my investments.
So I planned to pay it all off by November/December using funds that I know aren't make over 8%. The dealership said I needed to keep the loan for at least 3 months.

4. I make a huge first payment – $7k – to knock out most of the principal of the loan. To do this though, I wrote another convenience check – $5k this time – and deposited it into my checking account. They dinged me $150 this time.

5. Wrote a $2000 check for the second payment. Now my balance with interest added up to 12-01-07 is only $1100. Just $100 interest on a 10,000 loan. Add in the dings for the convenience check and I am only paying $390 in interest and fees over the price of the car.

6. I still have the convenience checks to pay off to the credit card co.(at about $300 a month to start).
I cannot be late with ANY of these payments or they will revoke my 0% interest. If I am late with a payment, the interest skyrockets to 34%!!! That's what they hope I will do. Unlike my other credit cards, this one won't let me schedule online payments.

The plan is to make minimum payments for the life of the 0% rate and pay the balance in lump sum right before the rate expires. I may need to dip into a mutual fund or CD to do this, but that's OK. Why? Because for the 12 months before I have to do that, I get to keep my real $9500 working for me in a high-yield CD or mutual fund.