I'm looking to buy a '05 RX-8 in the next week or two, and had some questions about financing. I will be selling my current car for around 8K hopefully. I am curious if I get an auto loan through my bank, am I better off selling the car, and getting a loan for the remainer, or getting a loan for the full amount, and paying off a big chunk of it really quickly (8k)? Maybe one option is more hassle than the other? Maybe having a large sum of money up front is advantageous?

In this type of loan, does the bank pay the dealer all at once, or over time? I would think it would be nice to give the dealer 8k in cash as a bargiaining point. Thanks for any advice or insight to this process, it's not one I'm really familiar with at all.

 

I would always pay down early, and take a shorter loan. Take a look at Karl's mortgage calculator (google for it). Example (numbers rounded)...

1) $25k borrowed at 7% over 5 years will be $495/mo payment, with $4527 total interest. Total cost is $29.7k.

2) If you pay down 8k at the beginning, and borrow $17k at 7% over 3 years, then your monthly is $524, but your total interest is now only $1845. Total cost is $26.8k (including your 8k downpayment).

3) If you take the same 8k and just pay off the 5 year loan with a single payment early in the loan, then your loan only lasts 3 years & 3 months, but your interest is $2046 and your monthly is $495 for the duration. Total cost is $27.3k.

4) If you divide the 8k up and pay it monthly as an extra, say $150 a month, then your monthly is $495 plus $150. This brings your duration down to 3 years, 8 months, and your interest is $3379. Total cost is $28.4k.

As you can see, the best option (lowest total cost) is always to pay down the amount at the dealer and borrow less to begin with, and borrow for a shorter duration. The savings between options 2 and 3 are not too much (a few hundred $), but think what that can buy you in gas and accessories !