Large Down Payment vs GAP insurance

MUNIK-FL · 10-27-2015, 08:25 PM

I am looking at refinancing my bogus BMWFS loan from 5.5% to a much better rate of 1.75%. (long story short: I had to buy with BMWFS to take advantage of the pull ahead program).

When I bought the 1 year old car last week, I got a pretty good deal and decided to put nothing down since I knew I would be refinancing anyway and I figured the largest depreciation had already happened so I would be close on the GAP anyway. Upon further inspection, once I added sales tax and interest to the loan, I am immediately $8000 upside down. No worries: I am refinancing anyway.

I should say that I have enough cash on hand to buy the car outright several times over, but I am choosing to stay liquid so I can use cash in other ventures and therefore getting a "cheap" loan.

I can get a 60 month loan for $1,100/month with $12,000 down and that will pretty much guarantee that I will never be upside down or I can get a 72 month loan for the same $1,100/month and $0 down and buy GAP insurance for $275, preventing the issue of being upside down in the event of a total loss.

Yes, the longer loan and higher principle will mean that I will pay (coincidentally) $1,100 more over the life of the loan, should I keep the car for 6 years (not likely). Also, this could mean that I may be upside down when I go to sell the car before the 6 years is up - but I don't see the difference in tying up cash now in a down payment when I could keep it and put less cash in at the time of sale. I realize the expense in paying interest, but its only a few hundred dollars and when you calculate the interest I earned on the money elsewhere, we are talking about $100 to stay liquid.

The question is: is it not a smarter play to buy the GAP insurance to protect the down payment money? Similar to a lease, the more money you put down, the lower the payment, but in the event of a total loss, you are essentially out the cash you spent.

Example: after one year, assume the car will be worth $65,000 and is totaled by the insurance company. I'll get a check for $65,000 regardless of how much I put down or paid in monthly installments.

Option 1 72 months with no down payment ($80,000 loan, including interest) and GAP: I'll have spent $13,000 in car payments and be upside down to the tune of $2,000 but the GAP covers it. Total loss $0 ($80,000 - $13,000 - $65,000 = $2,000; $2,000 paid by GAP) Very simplified, I know.

Option 2 60 months with $11,000 down payment ($69,000 loan, including interest): I'll have spent $13,000 in car payments and not be upside down. Total loss $4,000 ($69,000 - $13,000 - $11,000 - $65,000 = -$20,000; This is the check I would get back after the dust cleared.) But that $20,000 check cost me $24,000 ($11,000+$13,000)!

Maybe I am a colossal idiot and I am not seeing some stupid detail here but to me, it looks like the "smart" thing to do is copy the conventional wisdom of the lease and keep the cash and let the GAP insurance cover you being upside down. Please let me know if I missed something!

medman2k1 · 10-30-2015, 05:40 PM

Dude you make a simple scenario complicated.

Most would say just pay cash, it's cheaper, easier and will elimanate you having to purchase GAP

Don't finance this car over 60 or 72 months......that's crazy!

How about paying half in cash and finance the rest over 24 months.....best of both worlds?

MUNIK-FL · 11-10-2015, 02:19 PM

Quote:

Originally Posted by medman2k1

Dude you make a simple scenario complicated.

Most would say just pay cash, it's cheaper, easier and will elimanate you having to purchase GAP

Don't finance this car over 60 or 72 months......that's crazy!

How about paying half in cash and finance the rest over 24 months.....best of both worlds?

Thanks DUDE!

10-27-2015, 08:25 PM	#1
MUNIK-FL Lieutenant 28 Rep 451 Posts Drives: Nissan Titan XD Join Date: Jun 2007 Location: Florida iTrader: (1)	Large Down Payment vs GAP insurance I am looking at refinancing my bogus BMWFS loan from 5.5% to a much better rate of 1.75%. (long story short: I had to buy with BMWFS to take advantage of the pull ahead program). When I bought the 1 year old car last week, I got a pretty good deal and decided to put nothing down since I knew I would be refinancing anyway and I figured the largest depreciation had already happened so I would be close on the GAP anyway. Upon further inspection, once I added sales tax and interest to the loan, I am immediately $8000 upside down. No worries: I am refinancing anyway. I should say that I have enough cash on hand to buy the car outright several times over, but I am choosing to stay liquid so I can use cash in other ventures and therefore getting a "cheap" loan. I can get a 60 month loan for $1,100/month with $12,000 down and that will pretty much guarantee that I will never be upside down or I can get a 72 month loan for the same $1,100/month and $0 down and buy GAP insurance for $275, preventing the issue of being upside down in the event of a total loss. Yes, the longer loan and higher principle will mean that I will pay (coincidentally) $1,100 more over the life of the loan, should I keep the car for 6 years (not likely). Also, this could mean that I may be upside down when I go to sell the car before the 6 years is up - but I don't see the difference in tying up cash now in a down payment when I could keep it and put less cash in at the time of sale. I realize the expense in paying interest, but its only a few hundred dollars and when you calculate the interest I earned on the money elsewhere, we are talking about $100 to stay liquid. The question is: is it not a smarter play to buy the GAP insurance to protect the down payment money? Similar to a lease, the more money you put down, the lower the payment, but in the event of a total loss, you are essentially out the cash you spent. Example: after one year, assume the car will be worth $65,000 and is totaled by the insurance company. I'll get a check for $65,000 regardless of how much I put down or paid in monthly installments. Option 1 72 months with no down payment ($80,000 loan, including interest) and GAP: I'll have spent $13,000 in car payments and be upside down to the tune of $2,000 but the GAP covers it. Total loss $0 ($80,000 - $13,000 - $65,000 = $2,000; $2,000 paid by GAP) Very simplified, I know. Option 2 60 months with $11,000 down payment ($69,000 loan, including interest): I'll have spent $13,000 in car payments and not be upside down. Total loss $4,000 ($69,000 - $13,000 - $11,000 - $65,000 = -$20,000; This is the check I would get back after the dust cleared.) But that $20,000 check cost me $24,000 ($11,000+$13,000)! Maybe I am a colossal idiot and I am not seeing some stupid detail here but to me, it looks like the "smart" thing to do is copy the conventional wisdom of the lease and keep the cash and let the GAP insurance cover you being upside down. Please let me know if I missed something! __________________ 2007 E92 335i / Montego Blue/Black - European Delivery - Retired 2013 F10 550i / Alpine White/Cinnamon - Retired 2014 F10 M5 / Singapore Gray/Sakhir Orange - Retired 2016 F15 X5 XDrive50i / Black/Black - Current __________________________________________________
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10-30-2015, 05:40 PM	#2
medman2k1 Private 14 Rep 59 Posts Drives: 750Li Join Date: Nov 2009 Location: Florida iTrader: (0)	Dude you make a simple scenario complicated. Most would say just pay cash, it's cheaper, easier and will elimanate you having to purchase GAP Don't finance this car over 60 or 72 months......that's crazy! How about paying half in cash and finance the rest over 24 months.....best of both worlds?
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